Bookkeeper or CPA: Which One Do I Need and Why?

According to Preferred CFO, 82% of small businesses fail because of poor cash management* – not bad investments, poor employees, bad management decisions, or lack of customers, but poor cash management. After all cash flow is king.

To avoid becoming part of the 82%, partnering with a financial professional ensures you work smart, not just hard. The right financial professional can help detect issues before they become a big problem, provided they are involved in the day-to-day details of your business.

Having said that, we know from our clients that entrepreneurs and small business owners thrive on a DIY mentality: Do everything you can by yourself until you absolutely have to get help. We also know it’s tough to justify paying for financial help like a CPA or a bookkeeper with the market saturation of user-friendly software such as Xero and QuickBooks. All this software makes many business owners feel it’s feasible to be their own “CFO” since they understand every aspect of their business.

Before you burn out, there are a few things you need to realistically consider:

• Small business owners wrestle finding the time for everything already on their agenda, let alone managing the very detailed aspects of day-to-day business finance.
• Most entrepreneurs aren’t accountants and their business expertise is not bookkeeping so accuracy is usually a question.
• Your time is money that you could be using toward growing your business and bringing in revenue to move to the next level. Getting bogged down in day-to-day financial details will not help you do that.

Once owners arrive at the realization and need for specialized assistance, most of the businesses we advise ask us at one point or another, “Should I hire a CPA or a bookkeeper to handle my finances?” Which one to hire and when are two of the all-important decisions business owners make when considering outside experts to assist with operational functions like accounting and finance.

Do you need a bookkeeper or a CPA? It’s a trick answer. You may need both. Stay with us. It will become clear. 

A few things to consider:

What’s the Difference Between a Bookkeeper and a CPA?

#1 Big Picture vs. Day-to-Day Business Partner

We liken it to hiring both a builder and an architect when building a house.

A CPA can analyze the big picture of your financial situation and offer strategic advice. He or she produces key financial documents and files the company’s taxes, and any other corporate or tax-related documents.

In contrast, a bookkeeper comes alongside an owner in the day-to-day hands-on financial tasks, such as making sure new employees file all the right paperwork for payroll, submitting invoices and following up on them, and paying the bills. And those financial reports and documents, firms like HireEffect can handle those as well. A bookkeeper can also set up your accounting software and keep it up to date. Oh, and those receipts no one likes to keep up with – they do that for you, too.

#2 The Bottom-Line vs. The Line Items

Your bookkeeper tracks your company’s income and expenses at the individual transaction level and can assure you that every cost has been entered – and more importantly, recorded correctly – into software like Xero or QuickBooks. Did we mention those receipts everyone hates to track? Bookkeepers love them. Those receipts help paint the picture of your profit and loss. Bookkeepers organize and code your transactions, so business is ready for tax time, and it is stress-free.

Conversely, a CPA is interested in the 30,000-foot view of your business. Even if your CPA firm does bookkeeping, they don’t live in the details or the day-to-day weeds of your finances. At tax time, they want to know the sum of expenses to fill in the boxes on your returns. To maximize your deductions, someone has to provide them those details. If you don’t have a bookkeeper, and the CPA must generate those details to complete your tax return, that will prove quite time consuming and costly.

#3 Tax Strategy vs. Business Strategy and Tactics

A CPA will discuss the big picture tax strategy, and even a big picture financial strategy with you. They help you understand the benefits of hiring your children or the differences in your tax liabilities when you are a single-member LLC vs. an S Corp. They analyze and interpret data and make recommendations based on market realities and future needs. Again, big strategic 30,000-foot picture.

Outstanding payments from your client base, late payments that could hinder cash flow – these are items your bookkeeper would handle. A bookkeeper will make sure your cash flow remains optimal. If you’re a startup, a bookkeeper can assist when it’s time to seek another round of funding because you can show positive cash flow you might not have been able to show without that assistance.

On the strategy side, because they are involved in the details, bookkeepers can advise on strategy related to cost-cutting measures, advise on reducing financial obligations, and on maximizing spend; after all, they see the details of your business holistically and can analyze where excessive spending is taking place and how credit can better be utilized long term.

Do I need a Bookkeeper or a CPA?

So, back to the “trick answer”: You likely need both a bookkeeper and CPA, but you definitely need a bookkeeper.

Although you may think you save money by doing everything yourself, the fact is that a professional bookkeeper saves you more time and money, not just in the short-term, but as you look toward the future. Realistically, you also probably want a CPA to help you review your financial reports and help you make long-term decisions on finances and taxes.

As your business grows, your day-to-day financial tracking needs will grow and the details around that will escalate. The time to get the system and process set up correctly with someone who can help it grow with you is now. Your bookkeeper will meet you where you’re at and get you set up for success.

Our Advice

Knowledge is power, especially when it comes to the small details. If you don’t have a bookkeeper, you’re probably not being as strategic as you could be in maximizing profitability.

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At HireEffect? we have an accomplished history of partnering with entrepreneurs, business owners, CEOs, and family-run companies to make sure they meet their goals and objectives. We know it takes a village to manage your business. We’re entrepreneurs, too. We get it.

We’ve spent twelve years helping founders find freedom by combining financial, HR, and business services with cloud-based technology to get business owners out of the back office and back in front of their customers. For more information on our services, approach, and how we can help you focus on what matters most find us at www.hireeffect.com.

*“Cash Flow: The Reason 82% of Business Fail” by Michael Flint, Nov 8, 2019, Financial Strategy, Preferred CFO