Do I Need a Bookkeeper or a CPA?

According to an article by Michael Flint entitled “Cash Flow: The Reason 82% of Business Fail”, the vast majority of small businesses fail due to poor cash management.  While low employee morale, poor training, bad management decisions, and misguided marketing efforts are all detrimental, poor cash management turns out to be the Achilles heel of most small businesses.

To avoid becoming another business statistic, small business owners should consider working with a financial professional to ensure they work smart not just hard.  The right financial professional can help you to identify red flags early, mitigate exposure, and prevent them from becoming larger issues down the road.  Once the need for outside assistance is recognized, many business owners ask, “Do I need a bookkeeper or a CPA to handle my finances?”  The answer is oftentimes both.

What is the Difference Between a Bookkeeper and a CPA? 

 A CPA can analyze the big picture of your financial situation, provide certified key financial statements, and offer strategic tax advice.  He or she can audit important financial documents, file the company’s taxes, and manage other corporate and tax related documents.  Think of this role as akin to that of an architectural planner.

In contrast, the bookkeeper’s role is more analogous to that of a builder.  They work with the owner in the day-to-day management of financial inflows and outflows such as submitting invoices and paying the bills.  However, due in part to the development of sophisticated accounting software, the traditional line between bookkeeper and accountant is increasingly becoming blurred.

Today, bookkeepers typically take on duties that were previously within the exclusive domain of accountants.  For example, not only can bookkeepers act as financial designers in setting up your accounting software, but they can also generate financial statements and reports that allow them to take on more of a consulting role.  As a result, today’s bookkeepers are typically part time financial designers, bookkeepers, accountants, and financial consultants.

Aerial View vs. Micro View

Your bookkeeper can track revenues and expenses at the individual transaction level and ensure that they are entered accurately into the appropriate accounting software.  This includes those receipts that business owners are loathe to track but are important in painting a picture of your profits and losses.  Acting as an informal liaison between the owner and the CPA, your bookkeeper can also organize and code your transactions so that come tax time you are ready and stress-free.

Conversely, the CPA is more interested in the aerial view of your financial situation.  Even if your CPA offers bookkeeping services, they are not intimately involved in the day-to-day weeds of your financial transactions.  At tax time, they want to know the sum of your expenses to maximize your deductions.  If you don’t have a bookkeeper, the CPA will have to delve into those details to complete your return, which can turn out to be quite time consuming and costly.

Tax Strategy vs. Business Strategy

 A CPA can consult with you on your long-term tax and even financial strategy.  They can also help you to understand the differences in your tax liabilities based on the legal structure you choose for your business.  They analyze and interpret data compiled by the bookkeeper and make big picture recommendations based on market realities, trends, pending regulatory changes, and future needs.

On the other hand, bookkeepers are primarily focused on business strategy and tactics.  Because they are involved in the details, they can advise on strategy related to cash flow optimization, cost cutting techniques, trend projection, advice on reducing financial obligations, and maximizing ROI.

Do I Need a Bookkeeper or a CPA?

 We now return full circle to our original question: Do I need a bookkeeper or a CPA?  As mentioned earlier, the answer is likely both.  While it is tempting to go it alone when running your own business, it is important to know your limitations and delegate accordingly.  A lack of appropriate accounting expertise can result in unnecessary hardship, opportunity costs, and potentially costly mistakes.

Although business owners thrive on a DIY mentality, the fact is that a professional bookkeeper can save you time and money both in the short and long-run.  Ideally, you would also want to bring a CPA onboard who can help you to further review financial reports and assist in making long term decisions on finances and taxes.