Business owners often fail to understand the difference between bookkeeping and accounting roles, which begs the question,
“Should an accountant do bookkeeping?”
D'Arcy Becker, the head of accounting at the Whitewater Department of Accounting (University of Wisconsin), explains, “Bookkeeping is designed to generate data about the activities of an organization. Accounting is designed to turn data into information." As such, accountants should not waste their time submitting payments, sending invoices, recording receipts, issuing reimbursement checks, or processing payroll. While they can perform these functions, their expertise is better utilized in other areas, such as:
When a business needs to obtain financing, an accountant can recommend the best lenders to get advantageous rates and terms. They can also create detailed borrowing strategies to diversify funding needs and put together professional-looking financial reports to impress lenders.
Cash flow is the life blood of any business, but especially startups and small businesses. Accountants make cash flow more predictable to keep vendors and employees paid on time, allowing the business to grow steadily. Typically, accountants will also set aside cash reserves to help even out cash flow when unexpected expenses arise.
Frequently small businesses will write off invoices that they have been unable collect on as bad debt because they do not have the means to pursue collections in-house. However, an accountant can arrange accounts receivable financing to assist with cash inflow on accounts that cannot be salvaged to recoup a portion of lost revenue.
On the other side of the equation, accountants will pay obligations strategically to retain cash for as long as possible, maximizing interest accruals and keeping flexibility in the business. They will then determine if this floating cash should be strategically reinvested into the business or used to pay down debt.
Experienced accountants can also identify areas where the business is losing money and take the steps needed to curtail this loss and reduce waste. When cash outflows are the result of theft or embezzlement, an accountant can utilize forensic accounting practices to uncover who is responsible and put the right barriers in place to prevent future loss.
For smaller companies, accountants can create master budgets to guide overall spending. For larger companies, accountants can fit together individual departmental budgets to create company-wide spending accountability. Working against the budget accountants can advise on how best to curb spending when it is on track to exceed allotted amounts.
While all businesses carry debt in some capacity, there is a huge difference between good and bad debt. Accountants can discern between good and bad debt as it relates to the financial health of the business and recommend how to balance the two for businesses that are saddled with bad debt. They can also advise on when it is best to refinance, and handle the financial requirements associated with doing so.
Accountancy is not just about “crunching the numbers.” An accountant’s job is as much strategic as it is numeric. They create dashboards to keep owners and key stakeholders informed as well as determine KPIs (Key Performance Indicators), set financial goals, and do financial forecasting. If performance is falling short of financial goals, they can course correct to get the business back on track. Accountants can break down existing financial challenges into manageable steps, reducing barriers to success.
Additionally, accountants identify areas for growth based on cash flow details, inventory fluctuations, and pricing trends. They are indispensable assets during planning stages because they are as familiar with the business as the owners themselves without being burdened with the same emotional attachment. As a result, an accountant can offer an objective opinion about the future of the company that is backed by hard data.
Accountants, especially CPAs and tax accountants, keep current with constantly changing tax laws to reduce a business’s tax burden and implement advanced tax planning strategies. Ongoing tax planning allows business owners to make strategic operational changes throughout the fiscal year, creating measurable year-end tax savings. Furthermore, accountants can help businesses owners correctly estimate tax payments throughout the year, send W2 and 1099 forms to the appropriate people, and file state and federal taxes on time.
Utilizing an accountant reduces the risk of an IRS audit by ensuring that deductions are taken properly, taxes are filed in a timely manner without the need for amendments, and independent contractors are correctly classified. If an audit does occur, accountants can also prepare the business beforehand and see the business through the process.
While some bookkeeping and accounting functions, like preparing financial reports and closing the books, may overlap, an accountant serves a far more strategic role than a bookkeeper. Accountants are tasked with ensuring that business goals are met through careful financial planning, which requires their full attention. Assigning bookkeeping roles to accountants dilutes their effectiveness, which is why the most successful companies employ both.
Using a bookkeeper and accountant streamlines the management of day-to-day financial needs while providing for effective long-term strategic financial planning.
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