When should a business hire a CPA and when should a business hire a bookkeeper?
I know that I need accounting help for my business, but I'm not sure where to start. Should I hire a CPA or a bookkeeper? Does it depend on what my specific needs are or the size of my business? What's the difference between the two?
It depends on what kind of business you have and what your growth plans are. CPAs provide strategic advice and are responsible for higher level accounting like audits, reviews, and preparing & filing tax returns. Bookkeepers "keep score" for your business, reconciling all bank & credit card activity and recording revenue & expenses in accounting software (like QuickBooks) so you and your CPA have an accurate view of your company's financial performance. A good bookkeeper can also manage your vendor relationships and help set up new services like payroll, employee benefits, etc.
Most small businesses hire a bookkeeper first to pay bills and handle the day to day accounting, then select a CPA closer to tax time to help with that part. Businesses with more complex issues like multi-state commerce, international components, stock option grants, etc. might benefit from consulting a good CPA very early on.
Supporting Strategies provides comprehensive bookkeeping through Controller level services to cover all general accounting needs of most small businesses, and we have relationships with many excellent CPAs to handle our clients' tax and higher level strategic accounting needs. Check us out online or follow me to message me directly any time.
Personally I think you'll need both. Many CPA's don't want to do the actual bookkeeping (at least the ones I know), so they love to partner with bookkeepers who do the accounting work in the software and send them good reports for tax returns. CPAs can help with tax planning, projections, etc. There is some overlap, so it will most likely depend on who you talk to to see how much they'll want to handle. Keep in mind that CPA's generally charge more than bookkeepers too (even if they do the bookkeeping in their offices).
I love the relationships I have with CPAs. My office does the bookkeeping, payroll, sales tax returns, etc. I don't do income tax returns, so we can refer business to each other to meet the needs of our clients.
Let me start with your last question first, since that may help answer the other 2. A bookkeeper keeps track of your businesses transactions, which ultimately form the backbone of your financial statements. Their primary responsibility is to ensure the accuracy of individual transactions, and that those transactions are in full alignment with any external records (such as bank statements or other third-party vendors). If your business has a Payroll, you will likely want someone very experienced. Hiring the wrong person in this capacity can very rapidly get your business in hot water, so screen them well. (I have performed a lot of "swat" missions after people who didn't know what they were doing.)
A CPA is someone who has been certified by a state as possessing the training and experience that they can prepare/review financial statements to ensure that they are in conformance with Generally Accepted Accounting Principles. (The requirements for this vary from state to state, however the examination needed to become a CPA is standard across the nation. Most states also have continuing education requirements to ensure that changes in tax law and Accounting rules are maintained.) Publicly-held companies are required to have at least an Audit performed by a CPA firm, and normally have CPA's leading the Accounting departments. Depending on your company's sale volume, a periodic Audit may be a good idea, even if you don't have them maintaining your books.
I can give you a more specific answer for your companies needs, if you want to contact me directly. I am glad to see that you are asking this question early in the formation of your business.
A bookkeeper is essentially needed to organize the flow of money in your business. All transactions are categorized, recorded, updated and the bookkeeper has to make sure pertinent invoices, receipts, vouchers and other supporting documents are accurately filed for quick reference. Having an accurate and efficient record-keeping system is important to the CPA who is tasked to perform the audit and prepare the FS as required by the tax agency.The bookkeeper will also prepare the disbursement schedule which is based on cash flow projections.
From my experience, when I started my company, I handled bookkeeping to have a better feel of the ideal accounting flow and system in the event business would scale up. I had working knowledge of accounting and was able to prepare the cash flows, income projections and update the books. I hired a CPA on a per-project basis usually prior to the filing of taxes, updating records with the SEC and for the quarterly business performance review.
I hired the bookkeeper when business started to pick up and I had to shift my focus toward business development. It is also important for you to have knowledge of basic accounting so you can oversee the work of your bookkeeper.
So hire a CPA on a per-project basis but if your business can afford it, put one on retention. Get a bookkeeper if you don't have a working understanding of basic accounting and/or your business starts to scale up and you no longer have the time to oversee accounting.
It depends on your business and the industry you are in. Generally use a bookkeeper or an outsourced bookkeeping service to setup the bookkeeping system and handle the day-to-day data entry, payroll, quarterly tax returns.
Use a CPA to prepare the annual tax return and financial reports for bank and lender financing.
We are an outsourced bookkeeping service specializing in construction contractors all across the USA including Alaska and Hawaii and we have a CPA that prepares our annual tax returns and financial statements as need and it works great.
Hope this helps.
A bookkeepers role is to record the daily activity of the company into it's books and records. Examples of these types of transactions are invoices, bills, payments received, payments made, and payroll.
The accountant is responsible for setting up the books to mirror the physical business as closely as possible. It is this setup that allows the bookkeeper to do their job. In addition, the accountant will provide financial advice, review of financial statements, discussion with the owner of the financial results, and produce the company tax return. This list is by no means all inclusive or exhaustive.
The bookkeeper and the accountant should work closely together, with the accountant answering questions about day to day transactions, proper classification of income and expense items, proper accounting treatment of items, and other issues that may arise from time to time
The answer to this question really depends on a number of factors--business size, volume of transactions, types of transactions. In general, routine day to day transactions can be handled by a bookkeeper. To go a step beyond, you might want to consider a firm that provides outsourced accounting services, which may be staffed with CPA's, former CFO's, Controllers and bookkeepers. These types of firms are able to deal with both the most rudimentary transactions, as well as the more sophisticated nuances that may be unique to your business and all types of services are offered under the same roof. Once learning of your needs, they are able to staff the job appropriately in terms of time and talent. It is not necessary and most likely, not cost effective to hire a CPA firm to handle your day to day accounting work.
Best to get started with a CPA that understands your industry. That way you are the beneficiary of the wisdom and experience that a good CPA can bring to the table. A bookkeeper function can also be done by the CPA firm as well. It is much less expensive and better coordinated, especially for a start up.
One last thought from my experience. I once owned three different businesses and had three different CPA's, each specialized in the business they were handling. The other CPA's did not fully understand my reasoning until later when I was the sued frivolously in one of the entities. The CPA that was handling the matter for my construction company was extremely influential with the information that I needed for the law suit. He was the CPA for more than 100 construction firms.We won. We would have had much less of a chance had the other CPA's been involved, because they did not have any construction experience. They all later agreed. Same goes with law firms as they were also involved as well.
Zack, I'm going to answer from a slightly different perspective:
I see that you are starting a production company. I've done the bookkeeping for those types of entities. It looks like you are in lean start-up mode. I'd recommend using Xero. It's an online, cloud-based accounting software.
I'd also recommend myself (of course) or another CERTIFIED advisor to help you one-off with it's set-up and get you going yourself, then when you have the budget bring in an industry-specific CPA and bookkeeper.
Xero is easy enough that if you get a of training, you can probably keep it going the first few months to a year, and worst case have someone come back and fix errors quarterly or before you file.
Hope this helps & good luck! Cheers!
A bookkeeper is one that records your daily income and expenses, ensures all bank and credit card accounts are balanced and reconciled, manages your cash flow. They are the ones that will know on a more immediate basis if money is missing or something is out of line. There are varying degrees of bookkeepers. Some have worked themselves up to being nearly CPA status, providing a much bigger service to you which could include taxes and financial advice.
A CPA/CGA is someone who keeps on top of tax and labour laws in order to advise you on how to further your business, how to ensure your operation is running along smoothly and you won't encounter any unexpected legal issues. They are also the ones that generally do your corporate taxes. Most often they are also financial advisors so they can help with your business plans and guide you to build your business to its utmost success.
Accountants do not like to do basic day to day bookkeeping so basically, you would need both. The bookkeeper on a daily/weekly/monthly/quarterly basis, depending on how busy you are and the accountant is generally yearly, in time for your income taxes. Some make themselves available periodically during the year for business owners to confide in and gain advice.
Both areas can get more detailed, but in a nutshell, that is the idea. I hope that helps.
From day one you will need a bookkeeper. It doesn't matter on your size. I recommend to startups companies, outsourcing this to a CPA firm who will handle their taxes. This way, the owners can concentrate on running their business and not have to worry over the daunting task of data entry and bank reconciliation. The owner then knows the job is done correctly and in a timely matter. If you books are in order your tax return will cost less to prepare.
If you cannot afford to hire your own bookkeeper most CPA firms will also keep books for the small businesses they prepare returns for.
Many of these answers have thoroughly addressed what bookkeepers and CPA's do.
The only further comment I would make in that regard is this: the expertise of most CPA's is preparing taxes, and auditing financial statements. If you are looking for advice (either strategic or operational) a CPA is probably not the best source. Their perspective is shaped by how it will affect the tax situation of the business, which may or may not align with what makes most sense for the business. This is not a criticism as much as it is a recognition of the role CPA's serve.
As to the question of when to hire, you should get a CPA now. Let them know about our business and that you will need them to do your taxes. They may know a bookkeeper that can help you too.
As for when to hire a bookkeeper, I would suggest you do that as soon as you can reasonably afford to pay one. You are not a bookkeeper and will not do a good job of bookkeeping. Plus it is not the best use of your time, you should be building and running your business.
This may seem counterintuitive, but I would say industry specific knowledge is not all that important for a bookkeeper because paying the bills and invoicing customers is generally the same across industries. With a CPA though industry specific knowledge would probably be helpful, as there are often time tax situations that are industry specific and it would be helpful to have someone that is already familiar with those situations. No need to pay him extra to learn about your company.
Sorry this is old news to you but I thought I would add it. Most of the information you have received is generally accepted as good advice. Because my firm automates accounting for franchise systems, we deal with a lot of small business people. Many of them think they are good bookkeepers, or have a good bookkeeper. The real problems is they don't know what they don't know. Many times we have to go back a year or more to clear up false accounting, not done to gain an advantage, but done out of a lack of knowledge. Find a CPA in your industry to set up your Chart of Accounts and help you identify potential bookkeeping issues before they become problems. You can always do the transactional record keeping yourself or hire it out. If you passion isn't accounting, get help....
Of course, it depends upon the size and type of business you do. A CPA and bookkeeper perform distinct roles in their own way, in an organization. An accountant handles the functionality such as collecting, recording and analyzing of the organization's financial data. They may also be in-charge of rendering financial advices and act as an interpreter, when a need arises. Whereas a bookkeeper takes care of activities like bank reconciliations, credit control and timely updates.
If you are under a confusion of whether to choose a bookkeeper or an accountant, I would suggest you to go with a firm that matches all your requisites and offers both accounting and bookkeeping services like Tally Accountants UK.