Accountant vs Bookkeeper: what is the difference, and who do I need for my business?
For most small businesses there is no legal requirement to use an accountant for your statutory accounting requirements. By statutory requirements, I am referring to filing tax returns and annual accounts. A suitably qualified accounting technician or bookkeeper can do this. In fact, you could do it yourself!
So, if you can do it yourself…you may be asking yourself why would I use a bookkeeper or an accountant?
What does a bookkeeper do?
Generally speaking, a bookkeeper will take care of your day-to-day business accounts needs, this can include:
Data entry of sales and purchases invoices,
Reconciling all your bank & credit card transactions,
Preparing and submitting VAT returns,
Payroll,
preparing suitable reports for your business such as cashflows, payables/receivables reports, monthly or quarterly management reports,
A bookkeeper can also help with budget setting and forward-planning.
Some bookkeepers can also prepare and submit your self-assessment tax return or annual accounts and tax return (for a Ltd company) for small businesses – this will depend on the bookkeepers’ qualifications and the size of the business.
What does an accountant do?
The services an accountant will provide will vary depending on the accountant and their firm.
Smaller accountancy firms or sole-director/trader accountants will usually liaise with their clients once a year to handle the year-end statutory filing requirements – that is preparing and filing your self-assessment tax return and/or Limited company accounts and corporation tax returns.
Larger accounting firms may also offer bookkeeping services as listed above, as well as the annual statutory requirements.
Accountants can also offer more in-depth tax advice, which may be particularly useful to you if you have high net-worth, multiple personal income sources or complex financial affairs.
What do I need for my business?
This depends on a couple of factors: how much you are willing to spend, how proactive a service you need/want, and the size of your business.
Let’s look at cost first.
Using an accountancy firm to take care of the day-to-day bookkeeping is usually more expensive than a bookkeeper. Costs for bookkeeping services can vary considerably. Larger accounting practices (who will have more overheads) are likely to charge a premium, with smaller practices potentially charging less…if you’re considering using an accountancy firm for all your needs, research this. An independent bookkeeper’s hourly rate can range from £25 to £50 per hour – the difference is often down to experience and qualification level.
What level of service do you want or need for your business?
Experience has taught me that often the accountancy firms offering bookkeeping services are more transactional in nature. Yes, they update your books on a monthly or quarterly basis, but they do not usually have the time to be “in” your business on a week-to-week basis. They are relying on you taking care of the day-to-day activities like raising sales invoices, chasing customers for payment and managing your cashflow. These are things a bookkeeper can do for you, as well as help with reporting and budget setting.
An independent bookkeeper can be far more proactive and engaged with your business to help you on both an operational and strategic level.
Why size matters…
I mentioned that some bookkeepers could do everything for you…that’s the case if your business is under a certain size.
For Limited Companies, some bookkeepers are qualified to prepare the corporation tax returns and financial statements for businesses that fall under the Financial Reporting Standard 102 or 105. That is the business is considered a “small or micro entity”, and does not exceed two of the following criteria:
Turnover does not exceed £632,000 (micro entities) or £10.2 million (small entities)
Balance Sheet total does not exceed £316,000 (micro) or £5.1 million (small)
Number of Employees does not exceed 10 (micro) or 50 (small).
If you’re a sole trader or a partner in a Partnership and the bookkeeper has the qualifications, they could do your self-assessment tax return.
If you are a larger enterprise (your numbers are in excess of the criteria above) – you need an accountant and your business needs audited!
In conclusion – accountant vs bookkeeper?
Very often using both a bookkeeper and an accountant is the answer. Bookkeepers can be more proactive and have the scope to be working with you “in” your business, helping you manage your business’ finances. They will liaise with your accountant – acting as a conduit (and sometimes a translator!), helping you through that year end process every year.
Before you engage either a bookkeeper or an accountant – decide on what you are really looking for in your business.
Do you want some to just “do” the books, or do you want them to be proactive and involved in your business, working with you, helping you manage your finances and guiding you on understanding your figures? Seek recommendations from associates/friends/colleagues – and speak to more than one before you engage their services.
Ideally you want to work with someone who speaks to your accounts in a language you understand. Oftentimes, ‘accounting’ speak can be full of jargon, with lots of acronyms and words and phrases that don’t make it immediately obvious to a non-accounting person what they are referring to (creditors, debtors, HMRC, EBITDA, nominal codes, accruals…and so on)!
Work with a bookkeeper and/or an accountant who takes the time to explain your figures to you, and is happy for you to push back and ask questions. As a bookkeeper, my job is not just to ensure your accounts are accurate but also to ensure you understand them. This is your business and your figures, it’s vital that you understand them if you want your business to grow and succeed.
Wait, you said I could do it all myself!
As I said at the beginning, you could do it all yourself, including your own statutory filing requirements. That may sound appealing – you may think this would even save you money…if you are thinking of going down this route, take a few moments to consider the following:
Do I have the time?
There is a plethora of free information out there on bookkeeping and accounts. You could Google search, watch YouTube videos, read forums, ask associates, do a training course…there’s a multitude of ways you can teach yourself how to ‘do’ your accounts. If you are thinking about doing them yourself, ask yourself where your time is better spent, and how much is YOUR time worth?
Do I have the knowledge?
Of course, you can learn. The above point mentions the many ways you could do this. But do you have the bandwidth to do this, and keep up to date with changes? Taxation and VAT rules change, sometimes every year. Are you willing to keep on top of this to understand these changes each year?
Do I have the desire?
Let’s face it, if you wanted to be a bookkeeper or an accountant, you would have trained to do this! As a business owner, you should be interested in your numbers – they tell you the story of your business, how well it’s doing, and guide decisions about your business. However, you may not necessarily be interested in preparing the numbers. If you’ve decided you want to do your own accounts, but you actually don’t like doing it…it will become the last thing on your list, and could very likely get left until you are behind with your figures and therefore ‘trading in the dark’ with no sight of up to date and accurate numbers.
So what is your time and brainspace worth? I’d argue investing in a bookkeeper is worth it to let you have the peace of mind that your accounts are up to date and gives you the time and bandwidth to actually do the thing in your business that you love doing!
