Business owners who are considering whether to hire a bookkeeper or an accountant by considering the value that each roles bring.
You need to more help so you can focus on your growing business. Here's what you need to know about these two roles to determine which one your business needs.
Every business starts small. Consider that Tesla was started with the Roadster model. Certainly, its accounting needs were much smaller than they are today.
Here's what you need to know to decide which is best for you.
Often, people confuse the roles. In a nutshell, bookkeeping is concerned with administrative tasks and with recording accounting transactions like:
An accountant is able to do all that the bookkeeper can but has higher skills in the sense that an accountant can:
In short, bookkeeping is mostly a transactional role while accounting is higher level.
Debits and credits accounts were formally invented in the 15th century by Luca Pacioli, as an official system to specify what was already used by merchants in Venice. That was the start of the bookkeeping role. A bookkeeper's job is to maintain complete records of all money that has come into and gone out of the business. Bookkeepers record daily transactions in a consistent, easy-to-read way. Their records enable accountants to do their jobs.
Bookkeepers need to be able to understand debits and credits as well as be able to use an accounting system. Common accounting systems are QuickBooks Online.
The IRS and Canada Revenue Agency (CRA), (the latter if you’re dealing with Canadian taxes) has statutory periods of limitation requirements for record keeping.
For the IRS,
“You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Generally, this means you must keep re- cords that support an item of income or deduction on a re- turn until the period of limitations for that return runs out. “
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IF you… |
THEN the period is… |
|
1. Owe additional tax and situations (2), (3), and (4), below, do not apply to you |
3 years |
|
2. Do not report income that you should report and it is more than 25% of the gross income shown on the return |
6 years |
|
3. File a fraudulent return |
Not limited |
|
4. Do not file a return |
Not limited |
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5. File a claim for credit or refund after you filed your return |
Later of: 3 years or 2 years after tax was paid |
|
6. File a claim for a loss from worthless securities or a bad debt deduction |
7 years |
For the Canada Revenue Agency, it is more straight forward. According to the CRA, you only need to keep tax records and business documents for 6 years. However, if you file your tax return late, the six-year period also begins late. To be safe, it is often best practice to keep all supporting documents for 7 years to avoid potential problems (source).
There is no requirement for a bookkeeper to be accredited in order to be able handle an employer’s or customers’ books. There are organization provide licenses such as the American Institute of Professional Bookkeepers in the USA or the Canadian Bookkeepers’ Association (CBA).
Having an accreditation is useful. However, it is more important to assess a candidate’s own integrity, experience, personal and professional knowledge than an accreditation that may or may not be useful in the workplace.
The hourly or salary rate paid to a bookkeeper may depend on how much value the candidate bring. These are:
Integrity: The integrity of a bookkeeper is extremely important. This is because this person or persons will have access to money. A person who has high integrity will be less likely to steal money, fudge the books and will do their best to deliver their best work. Loyalty is also a part what comes with a person with high integrity.
Services: The amount of money that you want to compensate the bookkeeper will be dependent on how much you need the person or team. You’d pay a higher hourly rate if the person needs to come on a part-time, or on a per-project-basis. It will be less when they are salaried. This is because you’re providing the person a commitment of steady employment.
Market environment: In a highly inflationary environment, we have to pay talent what they are worth, which means that they do not have to be struggling to make ends meet. According to Salary Explorer, A person working as a Bookkeeper in Canada typically earns around $57,700 CAD per year. Salaries range from 30,600 CAD (lowest) to 87,700 CAD (highest). For a part-time bookkeeper, the pay should be between $22/hour to $55/hour (highest)
Experience and skills: If you have a relatively complex business such as inventory that comes with many assembling parts, this person would be more highly skilled than a person who works in a service-based business such as hourly consulting. A highly skilled and experienced bookkeeper will give you piece of mind. If you hire a cheaper bookkeeper, it will cost you later in terms of having to fire the bookkeeper, hire a part-time bookkeeper or controller to clean up the mess and then hire a new replacement. Everything costs so don’t value a bookkeeper just on the dollar cost– just because you think that – “bookkeepers are a dime and dozen”. Such thinking will be very costly in the long run!
The main advantages of a bookkeeper are:
Accountants bring with them even more training than bookkeepers. These are:
The best accountants come with these skills.
There is a difference between an accountant and a certified public accountant (CPA). Although both can prepare your tax returns, a CPA is more knowledgeable about tax codes and can represent you if you get audited by the IRS or the Canada Revenue Agency (CRA).
Traditional thinking is that accountants have a degree in accounting or finance. For example, someone who went and got a 4-year degree in accounting can be called an accountant. After working a few years, the candidate got more education, and obtained a designation such as, CPA.
We have seen a lot of businesses hire accountants rather than bookkeepers because it is more cost effective. However, bear in mind, that if you’re using the accountant as mostly a bookkeeper (i.e., there’s a lot of paper organizing and shuffling and not enough challenging work), you may be either be paying too much or the accountant will leave the role in short order.
You may be interested in learning the difference between a CFO and a Controller.
An accountant is generally someone who has obtained a degree in accounting at an accredited college or university.
There are several types of accounting certifications that accountants obtain to expand their skill sets and gain positions within larger organizations. In addition to CPA credentials, other common accounting designations are chartered financial analyst (CFA) and certified internal auditor (CIA).
Though a small business may make financial decisions based on the advice of their bookkeepers, corporations and growing businesses always turn to their accountants. Especially their CPAs, who can analyze financial data to a degree far beyond anything in a simple journal or ledger.
A CPA is an accountant who has met their state's requirements and passed the Uniform CPA Exam. They must also meet ongoing education requirements to maintain their accreditation.
In Canada, a CPA is regulated by each province. They must pass a uniform CPA exam and must continually update their knowledge by taking annual professional development courses.
When interviewing for a CPA, look for an accountant who understands tax law and accounting software and has good communication skills. They should understand your industry and the unique needs and requirements of small businesses.
Awarded by the CFA Institute, the CFA certification is one of the most respected designations in accounting. In this program, accountants learn about portfolio management, ethical financial practices, investment analysis and global markets. To complete the program, accountants must have four years of relevant work experience.
CFAs must also pass a challenging three-part exam that had a pass rate of only 39% in September 2021. The point here is that hiring a CFA means bringing highly advanced accounting knowledge to your business.
A CIA is an accountant who has been certified in conducting internal audits. To receive this certification, an accountant must pass the required exams and have two years of professional experience.
CPAs can perform some of the same services as CIAs. However, you might hire a CIA if your organization is larger. Larger organization require an Audit Committee. The Audit Committee is responsible to audit the representations and internal controls as set forth by management. The purpose is to tell shareholder and stakeholder that the assertions made by management are reasonable. External auditor are responsible for the accuracy of the assertions made by management in the financial statements.
Accountants will either quote a client a fixed price for a specific service or charge a general hourly rate.
According to the Economic Research Institute, the average salary of a CPA in Canada is about $90,236 or $43/hr in 2021. It is important to note that this due to high inflation in 2022, salaries should be adjusted upward by at least 8% from 2021 levels. Contract, part-time CPAs should charge at least $65/hr given the project-based nature of the assignments.
In a growing and small business scenario, hiring an accountant can bring many advantages. Here are some:
Every business is different. The decision on when to bring in an accountant varies depending on the needs and growth trajectory. Some businesses have decided that they would rely on accounting software packages like QuickBooks Online. This means that business owners would try to do the bookkeeping by themselves. Other businesses would employ the professional services of a firm like Forte Innovations. Yet, others would employ an in-house accounting team, complete with data entry clerks reporting to the bookkeeper.
When you’re ready to take the next step consider these:
Here are a few more ideas to consider that indicate it's time to hire a financial professional:
You’re spending far too much time on accounting: If you’re spending more time doing the books than talking to more customers, then it is time to see if your cost center (accounting) is eating up all your profits. If your sales aren’t growing, then your business won’t grow. You’re not doing what you set out to do when you quit your job to start your business.
Business is scaling and growing quickly: If your business is at the scaling stage, why waste your time and energy with bookkeeping. Get out there and hire someone to help you. You can start with contracting with an accounting firm who will do your books daily, monthly, quarterly or yearly.
Tax compliance is complex: If your business has many products and many income streams, loans and investors, it is time to bring in professionals. The professionals can ensure that your tax compliance, deductions, and payroll are up-to-date.
Visit Google.com
In the search bar search for one of these keywords:
This will yield a list of accountants specific to your business and or location
Next, simply select the result that best fits your needs.
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Forte Innovations specialty is in crypto tax accounting, including bookkeeping, controller and CFO services in Canada. We are not a public accounting firm and does not provide services that would require a license to practice public accountancy.
