What do bookkeepers do?
DISCLAIMER: We’re commenting on USA and U.K finance legislation.
Even though it’s not the most exciting part of beginning a business, keeping detailed and accurate financial records is absolutely necessary for being successful. Good bookkeeping is the basis that enables you to make excellent decisions for your company; it is not enough to rely solely on spreadsheets and accounting software.
There are a lot of business owners who don’t have the time or the expertise to handle their bookkeeping. You can save time and money with the right bookkeeping system, all without risking your ability to remain financially independent.
In this post, we will discuss the tasks that bookkeepers are responsible for as well as the steps you should take to locate a qualified individual for your business.
We can guarantee you two things regarding your company: first, you earn money, and second, you spend that money. This is true regardless of whether you sell hand-knit alpaca socks, business software, or legal advice. Bookkeepers are there to aid you in maintaining accurate records of everything.
If you’ve dedicated all of your brain capacity to getting your business off the ground, you might not have the mental capacity to fully appreciate what a book-keeper does. In this tutorial, we break down the day-to-day responsibilities of a book-keeper and explain why it’s important to have a qualified accountant on staff.
If this is your first time running a business, you probably have a few concerns, including the following: “Is it customary for investors to ask that I attend meetings wearing a tie?” “Are standing desks worth it?” “Would there be anyone who would mind if I took a call from a client here at Chipotle?”
While knowing whether or not standing desks are beneficial is vital, the issue of “What do bookkeepers do?” is possibly the most important. Bookkeepers are critical to your business’s success, and without them, you may quickly lose money.
We break down what bookkeepers do and why you need one to aid confused entrepreneurs everywhere. It has nothing to do with starting a book club in the office (though that is always a nice idea).
A (very) quick overview of bookkeeping history
Bookkeepers in colonial America used something called a “waste book” to record transactions. This type of book got its name from the fact that the information it contained was eventually transferred to an official ledger, and the original book was thrown away.
Bookkeepers in today’s world use a variety of software platforms to maintain tabs on the company’s financial status. Bookkeepers typically hand over their clients’ data to an accountant during tax season or whenever significant decisions need to be made. This practise is reminiscent of the old practise of using waste books.
The Bookkeeping Basics
Bookkeepers, to put it simply, are experts that oversee and record all of your company’s financial transactions. Bookkeepers ensure that your financial records are not only organized and complete, but also correct, by keeping track of this information. In other words, bookkeepers act as a spell checker for your money, seeing everything.
Bookkeepers vs. Accountants
Bookkeepers are only able to handle a limited range of financial responsibilities; accountants are needed for the remaining tasks. Bookkeepers are responsible for keeping track of daily transactions, while accountants put that information to use by building financial models.
On the other hand, accounting is more open to interpretation and requires a higher level of expertise. For example, an accountant can help you decide if it is the right moment to incorporate your business or how to pay your taxes so that you obtain the maximum possible return.
Bookkeepers provide you a literal view at where you stand financially right now, whereas accountants assist you comprehend the bigger picture and the path your firm is on.
It is not necessary to have any additional training or even a bachelor’s degree in order to find work as a book-keeper.
On the other hand, in order to become certified public accountants, accountants need to first finish a substantial amount of training and then successfully pass standardised exams.
While it’s evident that bookkeepers play a crucial part in the financial management of businesses, you’re probably wondering how this differs from what an accountant performs. 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 ones 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.
However, what exactly does a bookkeeper do all day?
The entry of data and the monitoring of receipts will always fall under a bookkeeper’s purview of responsibilities.
They’re in charge of employing double-entry accounting to record every financial transaction in your general ledger, also known as recording journal entries.
This can sound hard, but all it really means is that you have to record all of your transactions into accounting software.
However, keeping accurate books requires more than just entering data into a spreadsheet; it also necessitates doing in-depth analyses and having just the right amount of legal expertise.
Bookkeepers will, after all, guarantee that your records are in order and that your deductions are legal, which can help you survive an audit in the event that you are subject to one.
Let’s look at it from a different angle. Bookkeepers are often accountable for the preparation of the following four important financial statements:
- The income statement (also known as a profit and loss statement) illustrates your revenue and costs for a given time period.
- A snapshot of your financial status at a certain point in time is what is represented on a balance sheet.
- The cash flow statement is a record of the cash and cash-like equivalents that enter and leave your business.
- A statement of changes in equity, which is often referred to as a retained earnings statement, is a document that illustrates how your proportion of capital, reserves, and retained earnings has changed over the course of a certain period of time.
There are a number of additional essential things that they may do to assist in the smooth operation of your company, including the following:
- Accounts payable and receivable management (make sure you get paid on time, and pay your bills on time)
- Collect sales tax and send it to the government
- Monitor your debt levels and make payments to any debts that are due.
- Incoming cash should be recorded and deposited at the bank.
- Every month, handle bank reconciliations.
- Make sure your CPA has proper financial statements for tax season.
- Keep track of your annual budget.
- When difficulties and differences arise, report them.
- Payroll processing
They are frequently able to handle a portion of the tax preparation, so reducing the amount of work that needs to be done by your accountant (which is a good thing because bookkeepers are less expensive than a CPA). On the other hand, they will not be able to help you with the planning of your taxes or the preparation of your tax return.
Things Bookkeepers Do For Small Businesses
Day to Day Management of Accounts
A bookkeeper can maintain track of all transactions in your business’s accounts on a daily basis. It’s far easier for them to keep track of your cash flow if you keep note of every sale or transaction and use software to do so.
It also cuts down on data entering time.
Maintain Up-to-Date and Accurate Records
A bookkeeper will maintain track of all of your company’s financial data. Furthermore, it will be their responsibility to identify any discrepancies between your books and your business finances, ensuring that problems are resolved swiftly.
Keep Businesses Aligned With Laws
Taxation may be a touchy subject. If you make a mistake, you may receive a letter from HMRC. That’s where bookkeepers come in, since they can ensure that your company follows all applicable laws.
Remember, they’re here to assist, not to generate more serious issues.
Keep You Prepared For Tax
Tax deadlines are just as tight as the laws and regulations.
Many small firms do not prioritize bookkeeping, allowing deadlines to slide through the cracks. A bookkeeper will ensure that your records are accurate, so you’re always prepared for tax, to keep the taxman happy and avoid paying any further fines.
Manage Bank Feeds
At its most basic level, bookkeepers oversee transactions entered using software, such as an app. You can observe each transaction in real-time thanks to bank feeds that connect the software to your corporate bank account.
Handle Accounts Payable
Payments on behalf of your small business are normally made by bookkeepers. Payment of supplier invoices, petty cash, and costs are all examples of this.
Send Out Invoices and Manage Accounts Receivable
Another important task for bookkeepers is to produce invoices and submit them to clients so that you can get paid on time. A bookkeeper is likely to manage the accounts receivable ledger as well as chase down late payments to ensure that your records are always accurate.
Prepare Financial Statements
Small business bookkeepers will also be in charge of compiling some important financial statements. A profit and loss statement, balance sheet, and cash flow statement are examples of these.
These financial reports indicate a company’s bottom line, operating expenses, asset and liability balances, and cash flow in and out of the company.
Bookkeepers provide a wide range of services. For small enterprises, some can handle payroll and other HR services. This could involve supporting employers with the processing of employee paychecks and tax payments.
Deal With Foreign Currency Transactions
Bookkeepers also ensure that foreign currency balances are kept up to date using current exchange rates. Compatible digital bookkeeping software that can rapidly analyze exchange rates without wasting time can make this much easier.
Bookkeepers also create inventory reports for small enterprises by counting stock items. If there are any disparities, they notify the company so that problems can be addressed swiftly.
It’s usually done at the end of a company’s fiscal year, with the results appearing in reports like profit and loss statements.
Keep an Eye on Cash Flow
One of the most critical things a bookkeeper can do is ensure that a small business does not run out of funds. They can do so by monitoring the revenue-to-expense ratio and provide further guidance if the company requires additional funds to operate.
Preparing the Books For an Accountant
It is the responsibility of the bookkeeper to ensure that the accounts are valid and up-to-date when the accountant need them. This enables an accountant to use their expertise to offer business advice and file tax returns.
- Why do you need a bookkeeper? You’ll get some of the following benefits if you hire a top-notch bookkeeper:
- Knowing exactly where your money is going will help you make better budgeting decisions.
- You’ll have peace of mind knowing that your books are in order and that tax season will be a breeze.
- Detailed documentation and audit-proof company
- More time in the day to devote to your business
- Recognize your company’s seasonal flow.
- Understand your company’s main indicators, such as revenue, costs, and profitability.
You won’t need a full-time bookkeeper if you manage a small firm. You may either use bookkeeping software to do it yourself or hire a part-time, virtual bookkeeping service like Bench to do it for you.
What is the workplace of a Bookkeeper like?
Bookkeepers work in practically every industry, as well as in schools, the government, and businesses that provide accounting, tax preparation, bookkeeping, and payroll services.
The work schedule of a bookkeeper is frequently determined by the size of the company for which they work. A bookkeeper may be all a small firm needs to pay bills, reconcile income and payments, and monitor bank statements. This takes only a few hours per month. As a result, these businesses may not require a full-time bookkeeper.
Larger enterprises, on the other hand, may require daily or weekly debit and credit balancing, necessitating the employment of a full-time bookkeeper.
Some bookkeepers prefer to run their own businesses and provide services to clients such as financial support, consulting, and even teaching in-house accounting employees.
Why You Should Care About All of This
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 is probably abundantly evident at this point that bookkeepers play a rather crucial role in keeping the financial aspects of your organisation under control. To be more explicit, the following are the primary advantages that come with hiring a bookkeeper:
- They supply banks, investors, tax accountants, and even the Internal Revenue Service with financial records that are spotless, accurate, and complete.
- They will handle the data entry and administrative tasks that are necessary for maintaining accurate financial records, freeing up your time so that you can focus on running your company effectively.
- They offer a glimpse of the current financial health of your company, which can assist you in making important decisions.
- They keep a close check on your finances to make certain that your cash flow remains in good shape.
When you’re ready to take your company to the next level as a first-time business owner, having a book-keeper on your team can provide you with a number of perks that are hard to overstate in their value.
Choosing a Bookkeeper
Every business, we feel, requires an accounting solution, but how you fill that gap is highly dependent on the balance between your bookkeeping needs and your budget.
When it comes to bookkeeping solutions, you have four possibilities. Choosing the best bookkeeper for your company begins with weighing those possibilities.You can:
- Hire a full-time in-house bookkeeper to work alongside your staff.
- Fill in the gaps yourself with bookkeeping software.
- Employ exclusively human bookkeepers.
- Use a hybrid service that blends human expertise with automation’s efficiency.
The right option for you comes down to a number of considerations, including:
- Your financial situation.
- The duties that must be completed.
- The size of your company.
- Plans for expansion include obtaining money, scaling up, and so forth.
The ultimate goal is to find the most capable bookkeeping system that will benefit your business in the long run, not just now. That’s why, rather than settling for the first Google search result, it’s vital to consider those four variables before making your decision.
The Qualities of a Good Bookkeeper
There are a few elements that every excellent book-keeper ought to bring to the table, and this is true regardless of which kind of bookkeeping you decide to implement. When considering your options, give strong preference to bookkeepers who are, among other things:
- Knowledgeable and dependable in their field.
- Enthusiastic in contributing to the expansion of your company.
- Capable of translating your books so that you can understand what they say.
You are able to focus on expanding your company when you hire a professional book-keeper since they will provide you with the financial data you require to make the decisions regarding your firm. Investing in data that might help you improve your growth and development is always a worthwhile endeavour.
It’s unclear how or why, but the term “bean counter” has acquired a pejorative connotation. Bookkeepers are deserving of a great deal of respect, and anyone who has attempted to manage the income and expenses of their own company will understand why this is the case.
To be successful in this line of work, you must have the passion and motivation to always discover answers to unanswered questions, as well as the willingness to conduct some sort of enquiry whenever the numbers don’t add up. In addition to this, a significant amount of trust is required. Not only are you giving your book-keeper access to sensitive information, but you are also relying on them to keep accurate records. A good book-keeper doesn’t take any short cuts, which is why hiring one is so important for entrepreneurs who would rather concentrate on growing their firm rather than running it.