Knowing when to hire a bookkeeper is crucial for business success. You should hire a bookkeeper or accountant for your growing business in the following situations:
- When the financial affairs of the business outgrow the ability to use just basic bookkeeping software or DIY methods
- When management needs formal financial statements or specialized reports to satisfy external users or make sound financial decisions with the help of a trained professional (typically a bookkeeper, Controller, or CPA)
- When tax matters require a professional who is knowledgeable about tax laws and can practice in front of the IRS
In the simplest sense, a bookkeeper or accountant helps owners or leaders of a company manage the firm’s financial affairs effectively.
What Does a Bookkeeper Do?
A bookkeeper, depending on the size of the business, can range from someone who works with the books on a day-to-day basis while occupying other roles to a full-fledged professional bookkeeper. A business’s bookkeeper may be someone with an accounting degree, or they may be a licensed professional, such as a Controller or Certified Public Accountant (CPA).
Bookkeeping and accounting, although similar, are distinct functions. A bookkeeper typically deals with day-to-day financial transactions, while an accountant takes financial information, prepares reports, and provides consultation to the users of that information.
Users can be within the business or outside the business, such as a bank or other lender, a potential investor, or the Internal Revenue Service (IRS). An internal user refers to the manager or owner of the business. The professional bookkeeper or accountant will extract information from the bookkeeping system and compile it into various reports, typically including a profit and loss statement, a balance sheet, a cash flow statement, or a budget, as required by management.
What Happens Next?
Once a bookkeeper or accountant generates reports, ideally no more than once a month, they work with management to help them use the information to make informed business decisions. Most commonly, a proper financial statement can indicate whether a company is profitable or not and provide direction on how to improve or correct the situation.
A Professional Bookkeeper Can Help Improve Your Cash Flow
A bookkeeper’s reports can also help manage cash flow effectively. There are two parts to managing cash flow.
The first is to make sure the business is getting paid. If the business has accounts receivable and gives the customer an invoice with a payment due date, management wants to ensure they receive payments on time.
The second is, as the business starts accumulating cash, to take advantage of opportunities to invest the money in equipment, people, or other assets that will help the business grow. Most well-run businesses will earn a better return on investment than a typical one, so it’s essential to identify these opportunities and apply the available cash.
Essential Tax Planning and Preparation
Another use for a professional bookkeeper’s reports, probably the most important one to most business owners, is tax planning and preparation. A good set of books allows the bookkeeper or accountant to identify all ordinary and necessary expenses that the IRS allows deductions for, as well as to project income and potential tax liabilities so owners can pay estimated taxes while avoiding penalties.
The information is also necessary to prepare tax returns. While a professional is not required to prepare and sign a tax return, it’s recommended to have a good bookkeeper or accountant, particularly a CPA.
When Professional Bookkeeping Services Are Needed Most
A final reason to consider hiring a bookkeeper is if the business (or an individual) needs help with the IRS. In the good old days, anybody could represent you in front of the IRS.
Today, you must have an attorney, an enrolled agent, or a CPA (not just an accountant but a CPA, a professional who has a degree in accounting, passed a rigorous exam, has demonstrated experience over the years, and abides by a code of ethics).
If you need someone to represent you before the IRS, it would be beneficial to have a good set of books maintained by a professional bookkeeper and someone already familiar with them.
Professional Bookkeepers: Supporting Businesses’ Growth
Professional bookkeepers and accountants can provide valuable assistance throughout the lifecycle of a business, from growth to management and beyond.
As a business grows, bookkeepers can tackle more complex financial situations, allowing owners and managers to focus on driving growth. They can help guide financial decisions based on the content of the books. And, critically, professional bookkeepers can help ease the burden of tax preparation and planning.