Do you ever have those brain dead moments where you think everyone knows you and what you do and then someone asks, "So what does a/an [insert your profession here] do anyway?"
BAM! You come back to reality and realize you aren't the center of the universe and in fact most people are confused by what you do to make money...am I right coaches/marketers/social media managers/brand designers/basically every online business ever?
Well this happened to me recently. Except for me it's a little different. People know bookkeepers do the books, but they're often confused about where the line between books and taxes is drawn.
"So what does a bookkeeper do exactly? Or I mean, what's the difference between a bookkeeper and accountant?"
I'm going to break it down for you here so you never have to wonder again ;)
The simple answer is bookkeepers do your bookkeeping, accountants do your taxes.
And while that seems like an easy answer...there's a lot of blur in between those lines!
From my experience, bookkeepers hate taxes. They know the basics of the tax laws to the extent that they can categorize transactions to get you every deduction you deserve. But beyond that, into tax territory of estimated income tax, sales tax, annual taxes, which entity will save you at tax time, etc, they are fine with staying far far away!
So what do they do?
Well a lot actually! Your bookkeeper is the one you work with throughout the year to ensure your books are accurate. Without an accurate set of books and financial statements your taxes would not be able to be filed.
They are also there on a monthly basis to help you understand what's going on in the finances of your business. Just looking at numbers at the end of the year won't cut it if you want to be profitable and grow financially. So your bookkeeper ensures you have financial statements throughout the year to help you keep up to date on your numbers.
Your bookkeeper (should be) there for you to answer questions throughout the year as they arise. If you are confused about receipts, if a transaction can be deducted, how to increase your profits, etc. -- we got your back! Unfortunately, many bookkeepers fail in this department. They just do the books and keep communication to the absolute minimum possible.
A bookkeeper should also be a cheerleader if you want them to be. They are in your finances anyway so why not share your goals with them so they can cheer you on or help you make adjustments if you fall short?
A bookkeeper really becomes a staple of your team on a monthly basis that you stay in close communication with.
Again, from my experience, accountants tend to hate bookkeeping. Not all of them of course, but the majority of accounting offices will actually outsource your bookkeeping if you hire them for that as well. While that may not seem like a big deal, there is a possibility that you will end up with a bookkeeper who has a large client load and no time to answer your questions. Obviously that isn't always the case, but I've heard of this happening A LOT!
Accountants deal with taxes. Estimated income taxes, year end tax returns, tax strategy and planning, the best entity type for your situation, etc.
They review tax laws and new additions every year to ensure that they can get your tax bill as low as possible. Basically, they are the shit when it comes to taxes!
Things that make you and I tremble in fear, they take it head on.
They fight for your right to party with your tax refund!
How they work together for your good
Many people get an all-in-one bookkeeper/accountant because they think it will make life easier.
But I don't think that's in your best interest and here's why.
Accountants are hard wired to get your tax bill down at the end of the year. It's all many of them can see. They focus so much on taxes and tax time because that's what their clients react to.
Oh you got me a refund? You're the best!! I owe taxes? You freakin' suck!!
So sometimes all they can see is how to lower your taxes.
While this sounds like a good thing in theory, in practice it can actually be pretty bad for your business.
I can't tell you how many people I've had come to me who had a profitable business and their accountant was trying to get them to increase their expenses (aka lower their profitability) to lower their tax bill.
If your accountant is telling you to do this and they are also your bookkeeper you will probably listen because no one else is there to guide you to your best option. However, if you had a different bookkeeper than accountant and this happened, you would feel inclined to speak with your bookkeeper about it.
Here's what I'd tell you. Spending more to save on taxes is like spending $1 to save $0.25. If you just paid the $0.25, you'd still have $0.75 to pay yourself and put some in savings instead of owning some new thing that will probably never get used because you didn't need it in the first place.
Profitability is what makes your business grow...not tax savings.
And that is the biggest difference between accountants and bookkeepers.
Accountants see your taxes, bookkeepers see the bigger picture of your finances.
You need both to be super successful!
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