Starting a business comes with lots of decisions. One of the biggest is whether to outsource your accounting or to keep it in house. Our post on When to Outsource Your Accounting helps to answer that question, but now that you’ve decided to do so, just who should you hire? Do you need a Bookkeeper, an Accountant, or a CPA, and why does it matter anyway? Let’s cover some of the basics:
Bookkeeper – A bookkeeper is someone who handles your daily transactions that can be used to generate basic financial statements. Typically, this covers accounts payable, cash receipts, and perhaps some payroll. These types of transactions usually do not require high levels of analysis. These transactions tend to be what we like to describe as “head down, data entry” type of transactions. As in most situations, there are some bookkeepers that are more experienced and even some that are certified in their field. Very small businesses with either very simple transactions or whose accounting can be done in less than a few hours a week will likely be fine with a bookkeeper.
Accountant – An accountant has been educated in all thing accounting and finance. They will have at least a bachelor’s degree and quite possibly a master’s degree in the field. An accountant will understand and be qualified to generate both cash and accrual based financial statements. As your business grows and you begin to use outside funding or have more complicated tax issues, you will have to switch from the more simple cash basis to accrual based statements. An accountant will also be knowledgeable enough to provide financial ratio analysis and help you understand how the results impact your business. Accountants are also able to prepare tax returns for individuals and businesses, but unless they are also an Enrolled Agent or a CPA, would not be able to represent you before the IRS.
Certified Public Accountant (CPA) – As the name implies, a CPA is an accountant who has been certified to practice public accounting. Most US States require 150 credit hours or about the same level of education as a master’s degree to qualify to become licensed. Some CPA’s who have held their licenses for a number of years, may be grandfathered in and won’t have the 150 hours required for new CPA candidates. A CPA can provide your business with “audited” financial statements and represent you and/or your business before the IRS.
Depending on the size and complexity of your business situation, any one of the three options might work for you. However, most startups and small businesses never have a need to for representation with the IRS or may not need a fully audited financial statement. Audited statements are required for publicly traded companies regardless of size. Another challenge to using a CPA or a CPA firm is that it’s likely cost prohibitive. CPA’s charge high hourly rates because they typically have high overhead costs and well “just because they can.” On the other hand, a bookkeeper may not be able to provide the level of analysis that the business needs.
We believe many small businesses and startups are in very good hands if they use a degreed accountant with sufficient experience in their industry. Using an accountant will save you money versus using a CPA and provides a higher level of analysis and ability than your typical bookkeeper. Of course, you can bring a CPA in to review your situation on an as needed basis.
Kemberli Stephenson is The Profit Sherpa & works with rapid growth women entrepreneurs, speakers, coaches, authors, small business owners, entertainers, etc. She helps those who are looking to impact their bottom line, increase profit margins and grow a successful business. Kemberli helps entrepreneurs rapidly increase profits by helping individuals and companies chart a course to the summit, discover their danger zones and blind spots, and develop and implement profit strategies that will grow as your organization grows. Follow @Profit_Sherpa on Instagram for daily tips and motivation for entrepreneurs.