What do bookkeepers do?
Keeping complete and accurate financial records isn’t the most glamorous part of building a company, but you can’t have a solid business without them. It’s about more than just spreadsheets and software — sound bookkeeping is the foundation that equips you to make intelligent business decisions.
Many founders either don’t have the time or don’t have the expertise to do their bookkeeping. The right bookkeeping solution can save you valuable time and hassle without sacrificing your financial health.
In this article, we discuss what bookkeepers do and how to choose a good one for your business.
Whether you sell handmade alpaca socks, enterprise software, or legal advice, there are two things we can guarantee about your business: you earn money, and you spend it. Bookkeepers are the ones who help you keep track of all that.
If all your mental powers have been focused on getting your business off the ground, you might not fully understand what a bookkeeper does. In this guide, we break down the day-to-day role of a bookkeeper, and why a good one is worth holding onto.
If you’re a first-time entrepreneur, there are probably a few questions that keep you up at night: “Do investors expect me to wear a tie to meetings?”, “Are standing desks worth it?”, and “Will anyone minds if I take a client call in this Chipotle?”.
While knowing whether standing desks are all that great is certainly useful, the question of “What do bookkeepers do?” is perhaps the most important question of all. Bookkeepers are integral to your business, and without them, you could easily find yourself in financial trouble.
To help puzzled entrepreneurs everywhere get some answers, we break down what bookkeepers do and why you need one. Hint: it has nothing to do with organising an office book club (although that’s always a good idea).
A (very) brief history of bookkeepers
In colonial America, bookkeepers would record transactions in a “waste book”—so-called because the data would eventually find its way into an official ledger and the original book would go into the trash.
Today any bookkeeper worth their beans uses some software platform to track finances. But like those old waste book days, bookkeepers typically hand off their records to an accountant come tax time or when big decisions need to be made.
The Bookkeeping Basics
Put in the simplest terms, bookkeepers are professionals who manage and record all of your business’ financial transactions. By keeping track of this information, bookkeepers ensure that your financial record is not simply organised and complete, but also accurate. In other words, bookkeepers are like spell check for your finances—they see everything.
Bookkeepers vs. Accountants
There are some financial tasks that bookkeepers aren’t equipped for; that’s where accountants come in. While bookkeepers record daily transactions, accountants use the information compiled by a bookkeeper to produce financial models. Bookkeeping is straightforward and transactional, while accounting is more subjective and calls for skilled interpretation—like helping you understand when it’s time to incorporate, or filing your taxes to get the best return possible.
Bookkeepers offer a literal look at where you stand financially at the moment, and accountants help you see the bigger picture and the path your business is on.
You don’t need any special training to be a bookkeeper—you don’t even need a bachelor’s degree.
Accountants, on the other hand, go through rigorous training and standardised exams to become certified public accountants.
While it’s clear that bookkeepers play a pretty important role when it comes to business finances, you’re probably wondering how this is any different than what an accountant does. Let’s break it down:
- Bookkeeping involves the consistent recording, storing, and retrieving of daily financial transactions.
- For the most part, bookkeeping is straightforward and transactional.
- Accounting is a high-level process that takes financial information and produces financial models based on data to reveal the bigger financial picture.
- Unlike bookkeeping, accounting is far more subjective and often calls for skilled interpretation.
- In other words, bookkeepers are the ones collecting and managing the data, while accountants are the one interpreting it.
While these roles may seem rather different, they are equally important when it comes to handling business finances. Accountants need bookkeepers to keep a meticulous record in order to produce their analytical evaluations and interpretations. Conversely, bookkeepers rely on accountants to provide them with a clear idea of what information must be logged and the proper structure for keeping records. In short, both work in tandem to help you make smarter financial decisions.
But what does a bookkeeper do all day?
A bookkeeper’s duties will always include a fair bit of data entry and receipt wrangling. They’re responsible for recording every financial transaction in your general ledger using double-entry bookkeeping—usually called recording journal entries. That sounds like a mouthful, but often that looks like inputting all your transactions into accounting software.
That said, bookkeeping is more than just dropping numbers into a spreadsheet—it takes meticulous analysis and just enough legal know-how. After all, bookkeepers will help you survive an audit by making sure your records are in order, and your deductions are legal.
Let’s break it down further. Typically bookkeepers are responsible for preparing four key financial statements:
- Income statement (also called a Profit & Loss), which shows your revenue and your expenses over a specified time period
- Balance sheet, which is just a snapshot of your financial position at one point in time
- Cash flow statement, which is a record of the cash and cash-like equivalents entering and leaving your company
- Statement of changes in equity (also called a statement of retained earnings) which shows how your share of capital, reserves, and retained earnings have changed in a reporting period
Some other important things they can do to help your business run like a well-oiled machine:
- Manage accounts receivable and accounts payable (make sure you get paid on time, and pay your bills on time)
- Collect and remit sales tax to the government
- Monitor debt levels and apply the payment to any debt as it comes up for payment
- Record incoming cash and deposit at the bank
- Handle bank reconciliations every month
- Equip your CPA with accurate financial statements to come tax time
- Maintain your annual budget
- Report on issues and variances when they pop up
- Process payroll
They can also usually take care of some of the tax preparation so that your accountant has less to do (which is a good thing, because bookkeepers are less expensive than a CPA). But they won’t be able to help you with tax planning or handling your tax return.
Things Bookkeepers Do For Small Businesses
Day to Day Management of Accounts
A bookkeeper can stay on top of your business’ accounts daily for all transactions. By keeping track of every sale or purchase and using software to do it all, it’s much easier for them to keep an eye on your cash flow.
Plus, it saves plenty of data entry time.
Maintain Up-to-Date and Accurate Records
A bookkeeper will make sure that all of your business records are up-to-date. Plus, it’ll be their job to flag up any inconsistencies between the books and your business accounts, making sure you resolve problems quickly.
Keep Businesses Aligned With Laws
Tax can be a sensitive area. One mistake and a dreaded letter from HMRC can soon be on your way. That’s where bookkeepers come in, as they can help make sure your business stays aligned with the relevant laws.
Remember, they’re here to help and not cause more significant problems.
Keep You Prepared For Tax
As the laws and regulations, tax deadlines are quite strict as well. Doing the books is usually never the priority for many small businesses so that deadlines can slip under the radar. To keep the taxman happy and stop you from paying any additional fines, a bookkeeper will make sure your records are accurate, so you’re always prepared for tax.
Manage Bank Feeds
At a basic level, bookkeepers manage transactions brought in through software, like an app. Bank feeds, that link the software with your business bank account allow you to see each transaction in real-time.
Handle Accounts Payable
It’s usually bookkeepers who make payments on behalf of your small business. This can include anything from payment of supplier invoices, petty cash and expenses.
Send Out Invoices and Manage Accounts Receivable
Another big responsibility of bookkeepers is that they prepare invoices and send them to your clients so you can receive payment on time. Managing the accounts receivable ledger is also likely to be done by a bookkeeper – as well as chasing up late payments, so your records are always accurate.
Prepare Financial Statements
Bookkeepers will also be responsible for preparing some significant financial statements for small businesses. These can include a profit and loss statement, balance sheet and cash flow statements.
These financial reports show a businesses bottom line and operating expenses, the balance of assets and liabilities as well as the cash flowing in and out of business.
The services bookkeepers offer can vary. Some can fulfil payroll and other HR functions for small businesses. This can include assisting businesses with the processing of paychecks and tax payments to employees.
Deal With Foreign Currency Transactions
Bookkeepers also make sure to maintain accurate foreign currency accounts, utilising current exchange rates. This can be made much easier with compatible digital bookkeeping apps that can instantly analyse exchange rates without wasting much time.
For small businesses, bookkeepers also produce inventory reports by counting stock items. If there are any discrepancies, they report back to the business to make sure you can address problems quickly.
It’s most commonly carried out at the end of a business’ financial year-end with the figures featuring in reports such as profit and loss statements.
Keep an Eye on Cash Flow
One of the essential tasks a bookkeeper will do for a small business is making sure they don’t run out of day-to-day money. They can do this by keeping an eye on the balance of revenues to expenses, along with offering more advice if the business needs more available cash to operate.
Preparing the Books For an Accountant
It’s a bookkeeper’s job to make sure that the accounts are valid and up-to-date when the accountant needs them. This lets an accountant use their knowledge to make business recommendations and complete any tax returns.
Why do you need a bookkeeper? If you have a top-notch bookkeeper, you’ll reap some of the following benefits:
- Better budgeting decisions, knowing exactly where your money is going
- Peace of mind knowing your books are in order and tax season won’t be a scramble
- Audit-proof business with detailed documentation
- More hours in your day to focus on your business
- Understand the seasonal flow of your business
- Understand the key metrics in your business: revenue, costs, profitability, etc.
If you run a small business, you won’t need a full-time bookkeeper. You can either get some bookkeeping software and do it yourself, or you can outsource your bookkeeping to a part-time, virtual bookkeeping service like Bench.
What is the workplace of a Bookkeeper like?
Bookkeepers are found in almost every industry, as well as schools, government, and firms that provide accounting, tax preparation, bookkeeping, and payroll services.
A bookkeeper’s work schedule often depends on the size of the business they work for. Small businesses may only need a bookkeeper to pay expenditures, reconcile income and deposits, and manage bank statements. This only entails a few hours a month. Therefore these businesses may not need to staff a bookkeeper full time.
Larger businesses, on the other hand, may need debit and credit balancing completed on a daily or weekly basis, and would therefore need the support of a full-time bookkeeper.
Some bookkeepers prefer to have freelance businesses and to service clients through intermittent financial support, consulting services, or even training a company’s in-house accounting staff.
Why All of This Matters to You
So now that we’ve answered the question “what do bookkeepers do?”, it’s time to address the most important question of all: “why does all this matter to you?”
It’s probably clear by now, and bookkeepers play a pretty important role in keeping your business finances in check. But more specifically, the biggest benefits of hiring a bookkeeper are:
- They provide clean, accurate, and comprehensive financial records for banks, investors, tax accountants, and even the IRS.
- They take care of the data entry and administration that goes into keeping proper financial records, leaving you with more time to spend running your business.
- They provide a snapshot of the financial health of your business to help you make key decisions.
- They keep an eye on your financials to ensure your cash flow stays healthy.
If you’re a first-time entrepreneur and you’re ready to take your business to the next level, the benefits of having a bookkeeper on your team are invaluable.
Choosing a Bookkeeper
We’re firm believers that every business needs a bookkeeping solution, but how you fill that gap depends heavily on balance between your bookkeeping needs and your budget.
There are four options when it comes to bookkeeping solutions. Choosing the right bookkeeper for your business starts with deciding between those options. You can:
- Hire an in-house bookkeeper to work with your team full-time.
- Use bookkeeping software and fill in the gaps yourself.
- Hire a human-only bookkeeping firm.
- Use a hybrid service that combines human knowledge with the efficiency of automation.
The right option for you comes down to a number of considerations, including:
- Your budget.
- The tasks you need to be handled.
- The size of your business.
- Plans for growth: taking on funding, scaling, etc.
The ultimate goal is to find the most capable bookkeeping solution that can work for your business in the long run, not just today. That’s why it’s vital to weigh your options through the lens of those four considerations, so you can find the right bookkeeper for you — instead of jumping at the first Google search result.
What Makes a Good Bookkeeper?
Regardless of which bookkeeping solution you choose, there are a few things that every great bookkeeper should bring to the table. When weighing your options, indulge a heavy bias toward bookkeepers who are:
- Experienced and reliable.
- Passionate about helping your business grow.
- Able to translate your books, so they make sense to you.
A good bookkeeper enables you to focus on building your business and arms you with the right financial data to make those decisions. Insightful data that can help you grow, and grow better, is always worth investing in.
Somehow “bean counter” has become a derogatory term. But anyone who has tried to manage the income and expenses of their own business knows that bookkeepers deserve some serious respect.
It’s a role that takes the curiosity and drives to always get to the bottom of unresolved questions—and the willingness to do a little sleuthing when numbers don’t add up. It also involves a great deal of trust. Not only are you entrusting your bookkeeper with sensitive data, but you are also relying on their accuracy. A good bookkeeper never cuts corners, and they are indispensable to business owners who want to spend time growing their business, instead of maintaining it.