What does a bookkeeper do for a small business?
Bookkeepers can wear many different hats depending on what a business needs. That said, most bookkeepers nowadays use business accounting software to do their work. Plus, there are a few things that almost every bookkeeper can take care of for your business. Though the role of a bookkeeper is multifaceted, there are some core tenets to what bookkeepers do.
If you’re wondering what a bookkeeper does, then chances are you’re probably also wondering if you need one. We’ll explain the tasks that a bookkeeper can take care of for you, the going rate for a bookkeeper, and where to find a good bookkeeper.
A bookkeeper’s role at a company varies by the size and nature of the business. At a very small company without an accountant, the bookkeeper’s duties are likely to be extensive. At a minimum, the bookkeeper is responsible for processing the paperwork for a company’s transactions and getting the information quickly and accurately recorded in the company’s general ledger accounts. Today, this is done best through the use of cost-effective software such as QuickBooks from Intuit.
A bookkeeper’s work is often reviewed by an accountant and/or the small business owner.
The qualifications of a bookkeeper include business sense, attention to detail, speed, accuracy, ability to adapt to changes in technology, understanding of debits and credits, and a general understanding of financial statements.
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.
A bookkeeper is someone who prepares your accounts, documenting daily financial transactions. Bookkeepers have been around as far back as 2600 BC—when records were tracked with a stylus on slabs of clay—doing bookkeeping, not the oldest profession, but pretty darn close.
A (very) brief history of bookkeepers
In colonial America, bookkeepers would record transactions in a “wastebook”—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 kind of software platform to track finances. But like those old wastebook days, bookkeepers typically hand off their records to an accountant come tax time or when big decisions need to be made.
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.
But what does a bookkeeper actually 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 just 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.
What Does a Bookkeeper Do?
There’s no simple way to answer this question. Just like any other field of work, bookkeeping can look different from business to business. However, these are the most common tasks that bookkeepers tend to tackle:
- Record financial transactions
- Reconcile bank accounts
- Manage bank feeds
- Handle accounts receivable
- Handle accounts payable
- Work with your tax preparer and assist with tax compliance
- Prepare financial statements
- Take on some payroll and human resource functions
- Make technology and process streamlining recommendations
Here’s a closer look at what a bookkeeper does:
Reconcile Your Bank Accounts
The most important task for any bookkeeper is to reconcile your financial accounts. Account reconciliation ensures that transaction details in your accounting software match transaction details on your bank account statements, credit card statements, and other financial account statements.
It’s important to regularly reconcile your accounts to avoid overdraft fees, fraudulent charges, or incorrectly recorded transactions. Accounting software makes reconciliation pretty easy, but a human touch is still required to make sure all transactions are accurately recorded.
Manage Bank Feeds
At a basic level, your bookkeeping service or bookkeeper should be managing the transactions brought in through your accounting system’s bank feed. Bank feeds link up your accounting software with your business bank account, allowing you to see each transaction in real-time.
The accounting software, depending on how effective it is, should be able to categorise certain transactions automatically. For example, a credit card transaction from an airline can be automatically categorised as a travel expense. Bookkeepers keep an eye on these transactions and make sure they are being categorised correctly.
Bookkeepers might also have to manually add any transactions that aren’t included in the bank feed. The transactions that need to be added will most likely be transactions generated outside of the accounting system, such as cash payments or handwritten checks. It could also involve matching deposits as customer payments to help manage accounts receivable or outgoing transactions as payments against vendor bills.
Handle Accounts Receivable
Accounts receivable management can take on a few forms. As mentioned above, the small business staff might be entering their own estimates or invoices, and they might be receiving payment against the invoices.
However, there’s another option. The client uses an industry-specific estimating program to calculate the job, then provides the bookkeeper with the total. They then enter the estimates into their QuickBooks Online account and create or progress invoices as the project moves along.
Creating invoices, sending them to customers, providing statements, and assisting in collections is all part of the A/R services we provide for our clients. The customer lets the bookkeeper know when they’ve been paid, we enter that payment in QuickBooks Online, and then we create a deposit to match what the client takes to the bank.
Handle Accounts Payable
Along with accounts receivable, many bookkeepers also handle their clients’ accounts payable. That means the bookkeeper will handle all of the vendor bills that the company receives. Bookkeepers will note payment deadlines from each vendor, early payment discounts if available, and submit payment to the vendor. As a company grows, bookkeepers can add on additional approvers to give the thumbs up for payments. Properly managing your accounts payable is important for maintaining relationships with suppliers and keeping positive trade credit terms.
Work with Your Tax Preparer
One of the services that many bookkeepers fail to mention is that, by default, they’re going to serve as a sort of translator between you and your certified public accountant or enrolled agent. Because bookkeepers have a much more intimate knowledge of your books, it’s sometimes easier to have your bookkeeper contact your tax preparer when you’re about to file your small business taxes.
Prepare Financial Statements
Most bookkeepers will prepare three major financial statements for your business—the profit and loss statement, balance sheet, and cash flow statement. It’s a good idea to have updated financial statements every month, and then again at year-end. The profit and loss statement shows your business’s bottom line and operating expenses. The balance sheet shows your business’s balance of assets and liabilities. The cash flow statement shows the cash flowing into and out of your company. Accounting software allows bookkeepers to prepare these financial statements and share them with your accountant and tax preparer.
Bookkeepers also, at times, fulfil payroll and human resource functions. Your bookkeeping service might have a payroll offering, or they might assist you in the processing of paychecks or tax payments and forms. They might simply input payroll data into your accounting system after your payroll service provider has submitted reports to you, or they might import the data from a file provided. Bookkeepers might also help you manage timesheets for hourly employees or overtime.
If you employ staff, payroll can become a large task. Paying your staff can involve checking timesheets, allocating any commission payable, calculating payroll tax and superannuation, and keeping accurate employee records including their bank account details. Of course, then the payroll needs to be processed through both the accounting system and the bank account.
Having a bookkeeper will save you an enormous amount of time if your payroll is done weekly or fortnightly.
Make Technology and Process Streamlining Recommendations
Bookkeepers are also pretty good at keeping up with the latest and greatest technologies. It’s not unusual for your bookkeeper to find a new app or solution specific to your industry, like self-employed accounting software, for example, especially if many of their clients work in the same space. Or maybe there’s a way to help you cut labour costs. Bookkeepers like to search for efficiencies and make your back office run as smoothly as possible. In this way, they can be a very valuable partner for your business.
Finally, your bookkeeper will provide regular financial reports: profit and loss, balance sheet, budgets and cash flow forecast that will give you all the information you need to improve the financial performance of your business. They will be able to guide you on what areas need improving, and those that are performing well that can be taken to the next level.
Why do you need one?
If you started your own business, you’re likely passionate about running it and concentrating on the tasks you love doing. But if you’re like most business owners, you’re not so interested in recording all the details of every financial transaction.
For example, imagine you’re a hair salon business owner. You might have:
- a simple business model
- a high transaction rate with lots of customers
- many sales a day – perhaps dozens or more
- supplier invoices for hair products
- sales recorded through cash registers or other POS (point of sale) systems
- staff wages to record and pay.
That’s a lot of information to track and record. And bookkeeping might not be something you enjoy or have time to understand.
Without proper bookkeeping, it would be easy for transactions to go unrecorded, left to pile up until the end of a financial period. Mistakes could be made, and important details could be lost or forgotten.
That’s where bookkeepers come in. They can lighten the load on the business. They can take away the day-to-day recording of receipts, invoices and other transactions.
How Much Does a Bookkeeper Cost?
Freelance bookkeepers typically charge between $30 to $50 per hour for basic bookkeeping tasks. Prices can be lower than average if you just need someone part-time to do simple tasks like data entry. However, if you’re looking for someone with accounting or tax preparation skills, be prepared to spend more.
All of the following factors can affect the cost of your bookkeeper:
- Types of tasks you’d like the bookkeeper to do
- Complexity and volume of your business’s financial transactions
- Bookkeeper’s experience
- Number of hours worked per month
- Whether you use any accounting software and what type (most bookkeepers prefer QuickBooks Online)
- Your business’s location
A detailed view of your business
Bookkeepers and accountants work with the same financial information from your business. They can share that information using cloud-based accounting software. That means they can access your financials securely online, from anywhere. It lets them share reports about the financial status of your business.
So both of them can both give you advice about where your business is right now – and where it’s heading.
It’s often the case that your bookkeeper will be the constant accounting contact for your business. They’ll be best placed to answer questions about where the money is coming from, and where it’s going.
When should I hire a bookkeeper?
The sooner, the better. If you haven’t already hired one, you should do it soon. Ideally, you’d hire one soon after starting your business.
Otherwise, you could end up with several months’ worth of receipts and invoices to be processed. That will take time and may be difficult to do because you’ll have forgotten which client to bill for a particular expense.
For example, you may ask yourself, “What was this train ticket for? Who did I visit on 13 July?” A bookkeeper would know which client you visited and why. They would then account for the travel expense in the correct way.
Finding the right person
Whoever you hire needs to be trusted with the everyday details of your business finances. So you should be very careful when you hire a bookkeeper.
There are many bookkeeping businesses, so you’ll have plenty of choices. You could contact one directly, or you could ask if your business partners or clients have any recommendations.
If you have an accountant, ask them too. It’s best if you can find someone who uses the same accounting software as your accountant. That way, they can share accounts information easily.
Ideally, the accounting software should be cloud-based, which means it’s accessed online. Then all of you will be able to share access to the financial data for your business. You can do it remotely and securely – from anywhere.
Once you’ve narrowed down a short-list of bookkeepers, you can:
- check their past work record
- contact their referees and talk to them
- ask your accountant to have a meeting with your proposed bookkeeper.
Trusting the financial details of your business with anyone is a big step. So do your research carefully before you hire a bookkeeper.
Get the best out of your business
Bookkeepers offer a vital business service. They save you time by handling all the daily financial work for you and allow you to concentrate on the running of your business. The real-time information they collect can help them offer you new insight into your business.
That’s important when you’re trying to differentiate your business from your competitors. Real-time information is also vital if you want to make sound business decisions.
As we’ve covered in this guide, a bookkeeper is highly valuable to small business and can provide more services than just financial recording and compliance. Often a bookkeeper will specialise in a particular industry, so it pays to ask them about this so that they can add even more value. Make sure that you get the best out of your business by hiring a bookkeeper to help you along your journey.
There you have it—all of the main skills that a bookkeeper can bring to your business. Your bookkeeper isn’t just consulting an accounting book and doing simple data entry—there’s so much more that goes into bookkeeping than many small business owners realise.
The next time you find yourself wondering, “What does a bookkeeper do?”, you now know that the answer can be anything from reconciling transactions to processing payroll—the answer can even be managing all of the above.
The answer to this question will ultimately depend on what you and your small business need from your bookkeeper. Either way, having a bookkeeper keeping track of your small business’s finances will free up the time and energy you need for growing your business.