When Should You Choose a Bookkeeper Instead of an Accountant?

The revolution in cloud accounting software has blurred the boundaries between the roles of an accountant and a bookkeeper. Some bookkeepers have capitalised on their regular contact with a business to recommend other business applications adjacent to general ledger software, or to highlight key metrics in the business.

Accountants, who in the past have sometimes dismissed bookkeeping as an unprofitable exercise, have seen the efficiencies in reconciling cloud accounting programs as an opportunity to expand their reach beyond annual reports.

Although there were certain tasks that could only be carried out by an accountant, accountants and bookkeepers interviewed by BoxFreeIT agreed that businesses benefited the most when an accountant and bookkeeper worked in coordination.

The best role for a job depended on several factors including the complexity of the business, the stage in the business’ growth, the type of service required and what a business owner could afford.

1. What stage is your business?

An accountant should be involved in the setting up of a new business as they can advise on a corporate structure that will minimise tax payable and offer some legal protection to the business owner.

But even after the business has been set up, a business owner should consider handing over responsibility for updating the accounts to a specialist.

“My observation is that few new business owners and operators have enough knowledge to manage the books and prepare for financial challenges that will arise in a new growing business,” said Jason Cordner, CPA and director at Cordner Taylor Accountants.

As a business grew and the owner required real-time reporting, it was critical for an accountant to suggest a bookkeeper for daily financial transactions.

“Business is changing especially with cloud solutions, so access to live data enables better advice for mutual clients,” said Pam Madytianos, bookkeeper at 2 Peas Pty Ltd.

The right bookkeeper could keep the business on track and provided information for the accountant to give advice. The wrong bookkeeper could do damage, usually in the form of the new business getting behind in their tax and payroll obligations, Cordner said.

Cordner has seen businesses fail for lack of proper accounting supervision. One client took on a bookkeeper during the start-up phase and then took the bookkeeping in house as the business grew. However, it soon spiralled out of control and by the time the original bookkeeper was called back, the damage was done and it was a matter of making an orderly exit from the business.

2. How big is your business?

The nature of the business and volume of transactions could influence the choice of accountant or bookkeeper.

A café owner with several staff and a lot of paperwork would be better suited to a bookkeeper who had industry experience. SMBs should receive a profit and loss statement, balance sheet, aged receivables and aged payables report from their bookkeeper on a monthly basis, said Lielette Calleja, a registered BAS agent at All That Counts.

Sometimes, if an accountant was doing the bookkeeping, those reports might not be available to the business owner until quarter end when the BAS was prepared, Calleja said. However, the latest cloud accounting software had made it much easier for business owners to generate their own reports.

A tradesman starting out with a few sales invoices and minor expenses with no payroll could do most of the work himself and use an accountant to prepare the quarterly business activity statement (BAS), Calleja said.

“A bookkeeper is a must if you don’t have the internal resources to handle all your financial transactions. A great bookkeeper is a gift from heaven,” Calleja said.

3. What type of service is required?

“The real question for a business is, what part of my business do I need assistance with?” said Matthew Addison, executive director at Institute of Certified Bookkeepers.

“A factor in the blurring lines (between professions) is the broad range of services that either could provide. While one bookkeeper or accountant may provide services A, B and C, another person who calls themselves exactly the same may provide services D, E and F,” Addison said.

From a legal standpoint there was an overlap in services provided by bookkeepers and accountants.

A registered BAS agent (a certified bookkeeper) could give advice and represented a business to the Tax Office on matters defined as a ‘BAS Provision’. This covered GST, PAYG Withholding and taxes for fringe benefits, wine and luxury cars.

A registered tax agent provided advice and represented a business to the Tax Office on any matters of tax law including BAS provisions, Addison said.

Accountants were generally registered tax agents, but were not always a registered BAS agent.

“A certified bookkeeper has met certain education and experience or competency requirements. Unfortunately, we have some accountants who state the bookkeeper is not needed because the accountant uses software to create accounting records from a bank feed of the bank statements. This is a backward step for many businesses who already have the whole business records in the software,” Addison said.

“What defines the separation of duties is that transaction processing, including payroll and basic reporting and BAS lodgements is a bookkeeping task and advisory engagements and more complex reporting, year-end accounts and income tax returns are for the accounting team,” Cordner said.

4. How much can you afford to pay?

Price differed greatly between an accountant and bookkeeper, with accountants two to four times more expensive than bookkeepers. Rates varied from $40 to $330 per hour depending on the service provided. Accountants justified higher rates on account of their higher qualifications and greater responsibility in advising clients.

Some accountants charged cheaper bookkeeping services but added more costs to the end of year timesheet so clients thought they charged less overall. “A client gets slugged with a big bill for their tax return and doesn’t think anything of it,” said Calleja.

“A lot of accountants are now adding bookkeeping services and charge a premium price for that service. We’ve come across accounting firms who aren’t trained in some software to process clients’ bookkeeping and then information is not correct,” Madytianos said.

Accounting firms were shifting from hourly rate models to fixed-price billing. A price was agreed with clients in advance of any engagement. “I have little doubt this is where the industry is headed. Clients will demand certainty in the fees they will be charged and accountants should be focussed on delivering value to clients, not chargeable hours,” Cordner said.

Most bookkeepers were sole traders with little or no overhead costs and excess capacity.

Hence there was pressure on rates, particularly as an hourly rate, said Cordner.

“I would caution against the hourly rate being the measure of selection. It can be far more costly to hire a cheap, not-so-good bookkeeper.”

Hiring and Evaluating a Bookkeeper

Do I need a bookkeeper? What should the job duties include? How do I review his or her performance? These may be some of the questions that arise when you are thinking about hiring a bookkeeper for your small- to medium-sized business. The following are tips which will help maximize the benefit you receive from having a bookkeeper on staff.

You may be asking why a bookkeeper is necessary when there is easy-to-use accounting software available that will practically do the job by itself. While software is very helpful in maintaining your accounting records, a good bookkeeper will be able to use the software properly and provide you the best reports and information the software has to offer. For example, the software does not tell you how to properly categorize your business transactions or how to record a special transaction, such as the trade-in of a piece of equipment on the purchase of a new one. Also, a business owner’s time is better spent growing the business and generating sales rather than wrestling with accounting software.

A bookkeeper is responsible for seeing that all of your business transactions are recorded in the various accounts, ledgers and journals. These transactions create the general ledger, which is used to produce the company’s financial statements. The proper maintenance of the general ledger is an essential task of the qualified bookkeeper. This maintenance includes periodically reconciling certain general ledger accounts, consistent posting of similar transactions, recording any adjustments provided by your CPA and having knowledge of what makes up each account in the general ledger.

To help your bookkeeper succeed in his or her job, it is essential that job duties and expectations are clearly defined. Coming up with these may be challenging and will vary between businesses. If you need assistance with this task, you can contact your CPA or other business advisor. In general, you will need to put in place some timelines of when certain tasks should be completed. Examples of this would be completing the bank reconciliations within three days of receiving the bank statements, completing the monthly closing of the general ledger by the 10th of the month and providing financial statements to management by the 15th of the month.

There are several ways to determine if your bookkeeper is doing his or her job and taking care of your accounting records. One is for the owner or someone unconnected to the accounting function to periodically review key reports. The details of sub-ledgers such as the accounts receivable aging and accounts payable aging reports should be reviewed and the totals compared to the balances in the same general ledger accounts. The bank reconciliations should be reviewed, paying special attention to any old, outstanding items which have not cleared the bank and matching the balances to the cash accounts in the general ledger. Another way to check the performance of your bookkeeper is to ask your CPA. Since your CPA sees the accounting records of many businesses, he or she will be able to give an opinion on the quality of the records they receive from your bookkeeper.

The following are some more specific criteria that could be used to evaluate a bookkeeper’s performance:

  • Balances of your accounts receivable or accounts payable aging reports agree with financial statements.
  • Procedures are well-documented in case the bookkeeper goes on an extended leave of absence.
  • Bank reconciliation is prepared in a timely manner each month.
  • Handwritten changes are frequently converted to computerized accounting reports.
  • Customer complaints regarding payments are infrequently applied late or inaccurately.
  • Bookkeeper is willing to work with your CPA in efforts to be proactive and keep fees down.

Having a qualified bookkeeper could save the company money. A qualified bookkeeper will be able to provide timely reports for management to make key business decisions that could affect the profit of the company. When requested by your banker, an auditor or your CPA, accurate reports which make these dealings run smoothly will be provided. This could expedite the granting of a business loan, alleviate further questions from an auditor and eliminate the need for your CPA to spend time cleaning up or reconstructing the accounting records.