Business owners often need financial expertise to manage their finances effectively. While both bookkeepers and Certified Public Accountants (CPAs) offer valuable services, their roles and responsibilities differ significantly. Understanding the distinction between the two is essential when deciding which professional will best support your business.
The Role of Bookkeepers and CPAs
While business founders can certainly manage accounting tasks themselves, outsourcing services like bookkeeping can free up valuable time and energy, allowing them to focus on business growth. In fact, a 2017 survey revealed that founders spend 40% of their time on tasks such as accounting, payroll, and other non-income-generating activities. This raises the question: Should founders take on bookkeeping duties themselves or delegate them to an expert?
If you’re considering hiring a bookkeeper or a CPA but aren’t sure about the key differences, this article will break it down for you.
Bookkeepers vs. CPAs: What’s the Difference?
When it comes to managing your business’s finances, you have a few options. Accounting firms, software solutions, and even independent contractors can provide various financial services. Here’s how they compare:
- Accounting Software: These tools help track finances but typically don’t offer guidance on how to apply them to your business.
- Accounting Firms: These offer both bookkeeping services and higher-end financial advisory. The drawback is that extra services, such as tax advisory and CFO support, often come at a premium.
The real decision comes down to whether you should hire a bookkeeper or a CPA. While a CPA brings expertise in more complex areas of accounting, a bookkeeper is often the better option for day-to-day financial management.
Why Hire a Bookkeeper?
A bookkeeper is an expert in financial organization and management, and they are typically responsible for daily transaction updates, cash flow monitoring, and generating monthly financial reports. Unlike CPAs, bookkeepers handle the nitty-gritty details of a business’s financial operations.
Daily Responsibilities of a Bookkeeper:
- Setting up and maintaining accounting software
- Managing purchase orders, generating invoices, and processing payments
- Recording transactions from accounts payable and receivable
- Updating cash balances and reconciling bank statements
- Administering payroll and benefits
- Maintaining general ledgers and supporting schedules
- Providing month-end reports, including profit and loss statements and balance sheets
- Generating ad-hoc reports (sales, inventory, headcount, etc.)
- Analyzing budget vs. actual spending and providing business insights
Bookkeepers help monitor your business’s financial health on a daily basis. They can spot discrepancies in transactions, identify unexpected expenses, and ensure that the company is staying on track with its financial goals.
Although hiring a full-time bookkeeper may not be feasible for every startup, it’s worth noting that bookkeepers typically earn an average salary starting at $45K per year. Consultants, on the other hand, charge between $75 and $150 per hour.
It’s also important to recognize that while many bookkeepers are accountants or controllers, they do not necessarily hold a CPA designation.
Why Hire a CPA?
Becoming a CPA requires passing a rigorous exam and gaining advanced knowledge in accounting. CPAs provide a broad range of services and can handle more complex financial matters that require specialized expertise.
Services Offered by CPAs:
- Representing clients in IRS matters
- Offering advanced tax advisory
- Providing accounting guidance on complex financial transactions
- Auditing financial statements
- Assisting with business transactions requiring assurance services
CPAs are often required when a business needs audits, regulatory filings, or tax consulting services. While they provide more in-depth services than bookkeepers, their consulting fees can be significantly higher, ranging from $400 to $500 per hour.
Which Service is Right for Your Business?
When choosing between a bookkeeper and a CPA, the decision depends on your specific business needs. Bookkeepers are more cost-effective and can handle daily financial management and month-end reporting, which are essential for maintaining smooth operations. CPAs, on the other hand, offer specialized advice and services, such as tax strategy, audits, and high-level financial guidance.
For many startups, a bookkeeper will be enough to handle day-to-day tasks, leaving more complex financial needs to be addressed later as the business grows. Startups should focus on their core business and leave the bookkeeping to an expert. As your business evolves and requires more advanced services, a CPA may become necessary.
Bookkeeping vs. CPA Services for Startups
A startup can benefit from both a bookkeeper and a CPA as it grows. Initially, a bookkeeper can handle daily financial operations, while a CPA can be brought in for more complex matters as the business scales. It’s crucial for founders to recognize the importance of financial reporting to investors. While a good bookkeeper can keep things running smoothly, eventually, a more experienced finance professional may be needed for high-level tasks such as audits and financial statements.
Startups can also find themselves needing more advanced financial support as they approach significant milestones like securing funding or preparing for an IPO.
Sher's Consultation LLC 
Leave a comment