In addition to being more effective for small businesses than single-entry, double-entry accounting follows the accounting rules laid out by GAAP (Generally Accepted Accounting Principles), which are in turn laid out by the Financial Accounting Standards Board (FASB).

In this article, we break down what exactly double-entry accounting is.

What is Double-Entry Accounting?

Put simply, double-entry accounting is a ubiquitous bookkeeping system that tracks where money comes from and where it goes. The main tenet of double-entry accounting is after a financial transaction, each entry made into an account has a corresponding opposite entry made into a separate account. This produces two entries — thus, the name. When shown side-by-side in a ledger, the entry listed on the left side is referred to as a debit entry while the entry shown on the right side is called a credit entry.

The differences between debit and credit are as follows:

The Accounting Equation

Each entry affects two separate accounts. For example, when you sell a physical good, your cash account goes up to reflect the sale while your inventory account goes down to reflect the good sold. Double-entry accounting makes use of the quintessential Accounting Equation:

The Accounting Equation is simple and concise, but it can be expounded and elaborated upon to produce more complicated financial documents such as the balance sheet. You may have noticed the similarities between this equation and the information presented in a balance sheet, where a company’s total assets are equal to the total liabilities plus shareholders’ equity.

Throughout the accounting process, both sides of the equation must remain balanced.

An example of this in action would be a multi-employee plumber business purchasing work vans on credit for $100,000. The vans have an estimated useful life of eight years. Because the plumbing business acquired assets (the vans), a debit of $100,000 is made to the asset account. And because the vans were purchased on credit, a credit of $100,000 is made to the accounts receivable. Both sides of the equation remain balanced.

These days, most commonly-used accounting software does the double-entry heavy lifting for you.

How Outsourced Accounting Helps Small Businesses

Most small business owners started their companies because they were experts in providing a good or a service — not at balancing a book. In addition, small business and startup accounting can be difficult and multi-faceted. Nevertheless, good accounting and bookkeeping are imperative to manage any company’s financial health, guide decisions for growth initiatives, and ultimately ensure your business is in good standing with its tax obligations throughout the year. However, it can also be tedious, complicated, and time-consuming — especially for those who own smaller businesses or sole proprietorships. Additionally, the IRS can be unforgiving when it comes to mistakes — for instance, filing your payroll taxes just one day past the deadline incurs a 2% penalty. To make matters worse, these penalties can add up to a hefty 15% of the initial amount owed.

There is good news, however; outsourcing accounting and bookkeeping to an outside firm is a simple and rewarding process that allows business owners to spend less time worrying over books and more time, well, running their businesses. Every day, more and more business owners trust FinancePal’s small business accounting services.

The post What is Double-Entry Accounting? appeared first on financepal.

It means that you’ll need to make sure your financial records are in order, so that when it comes time to report your income and file taxes, you have everything you need. Accurate, IRS-compliant financial reporting starts with proper bookkeeping and accounting. Plus, as you likely know, rental property income and expenses can be unpredictable, making the ability to use accurate financial records to forecast and plan imperative.

If you’re new to being a landlord or real estate investing, understanding these processes can seem overwhelming. However, we’re here to help with your property accounting. In this post, we’ll cover the basics of property accounting, bookkeeping, and taxes to provide you with working knowledge of these financial responsibilities. If you need help with one aspect in particular, use these links to navigate directly to that section:

• Rental Property Accounting
  • How Does Rental Property Accounting Differ from Other Industries?
  • Should I Use Cash or Accrual Accounting?
  • Should I Have a Separate Bank Accounting for My Rental Properties?
• Rental Property Bookkeeping
  • How Does Rental Bookkeeping Differ from Other Industries?
  • Should I Use Paper or Digital Bookkeeping?
  • How Should I Track Income for Rental Properties?
  • How Should I Track Expenses for Rental Properties?
• Accounting Software vs. Hiring a Professional
  • Benefits of FinancePal
• Rental Property Taxes
  • Which Property Tax Forms Do I Need to File?
  • What Expenses Can Be Claimed for Rental Properties?
  • Have a Tax Professional Help You File
• Get Your Rental Property Finances in Order

Rental Property Accounting

It might seem tedious to implement an accounting system for just a few rental properties, but it can help you make the most of your investment and remain in good standing with the IRS. By establishing rental accounting systems early on, you’ll be able to put yourself in the best financial position moving forward.

Accounting for landlords is important because it allows you to:

• Keep track of which of your properties are profitable, and which are costing you money
• Ensure all financial obligations are met for each rental property
• Prepare financial statements that you can use to forecast and plan upcoming investments or prepare for emergency costs
• Provide accurate financial information for your taxes

Let’s dive into the specifics of property accounting so you can get your financial records in order.

How Does Rental Property Accounting Differ from Other Industries?

While the basics of accounting are standardized, each industry has its own idiosyncrasies to consider. When it comes to rental property accounting, these are some of the unique considerations you should keep in mind:

• Offsetting your expenses with adequate rental income
• How you can profit from properly managing property finances
• The need for multiple accounts—one for each property
• Whether cash-basis or accrual-basis accounting is best

By understanding industry-specific aspects of rental accounting, you’ll be better equipped to set up an accounting system that makes managing your business’s finances easier and more efficient.

If you have questions that are more specific to real estate accounting, read our full post on the topic.

Should I Use Cash or Accrual Accounting?

The main difference between cash vs. accrual accounting is when you record transactions. In cash-basis accounting, transactions are recorded when money is received or paid. For example, recording rent when tenants submit their payments. In accrual-basis accounting, transactions are recorded when they are incurred, regardless of whether money has actually exchanged hands yet.

The property accounting method that you should use depends on the scale of your business. If you rent out a few of your properties, it may be easier to use cash-basis accounting to keep closer track of the actual cash you have on hand. However, if you’re operating on a larger scale with a variety of rental properties, you may be better off using accrual accounting because it gives you a clearer long-term view.

If you’re struggling to decide between cash and accrual accounting and other aspects of setting up your accounting system, you should consult an accountant for rental properties who will have the insight to guide you to the right set up.

Should I Have a Separate Bank Accounting for My Rental Properties?

Yes. Your business income from your rental properties should always be kept separate from your personal finances. Fortunately, it’s fairly easy to set up a separate account for your rental properties. In the beginning, it may be sufficient to have one account for a few rental properties, but you’ll be better off if you can get a separate account for each to keep everything organized.

Having separate accounts for each property allows you to keep track of the major expenses you incur by renting out that property, have a record of the rental income you’ve earned, and evaluate how the property fits into your portfolio. Plus, it will make bookkeeping and filing your taxes much easier.

Rental Property Bookkeeping

Accounting and bookkeeping are two separate functions. While they are interrelated, it’s important to acknowledge the differences between bookkeeping vs. accounting so that you can have a better understanding of how your business’s finances work.

Bookkeeping encompasses the day-to-day tracking and recording of the money going in and out of your business, while accounting focuses more on the big picture—analyzing your finances, identifying issues to be fixed or opportunities for improvement, and planning for the future. Typically, these roles are filled by two different individuals, a bookkeeper and an accountant.

How Does Rental Bookkeeping Differ from Other Industries?

As with accounting, the basic processes are the same as general bookkeeping for businesses. However, there are some special considerations when it comes to rental property bookkeeping that you should keep in mind:

• Whether you should do bookkeeping online or on paper
• How to track your rental income to ensure you’re receiving payments on-time and accounting for that money correctly
• How to track expenses like maintenance, repairs, and advertising

We’ll cover these topics in the following sections so you can get a better understanding of how these factors impact your bookkeeping.

Should I Use Paper or Digital Bookkeeping?

Bookkeeping processes have come a long way since the days where everything had to be done on paper. Fortunately, now there are plenty of digital tools that can help make bookkeeping much more efficient. For the sake of your own time and keeping records, it’s highly recommended that you go digital with your rental property bookkeeping.

Plus, if your tenants pay rent and other fees online, you may be able to automate the recording of these payments so you don’t have to input them manually.

How Should I Track Income for Rental Properties?

It’s important that you correctly classify income and expenses. Income for your rental properties is fairly straightforward—it includes any money that you receive from tenants. Your rental property income can include:

• Monthly rent payments: Rent payments from tenants should be tracked as rental income for the month it is paid in.
• Security deposits: The deposit is also considered income if it’s going to be used toward paying first or last month’s rent. When you track a deposit as income, you should record it in the month you received the money, not the month it’s going to technically be applied to. Same goes for a pet deposit if you charge one. Do not count the deposit if you will be giving it back to the tenant.
• Cancellation fees: If you charge a fee to terminate the lease early, the funds you receive should be considered rental income.

Depending on the specifics of how you manage your rental properties, rental income may be applied differently. However, you typically track rental income in the period that it is received.

Now, let’s review which items are typically classified as expenses for rental properties.

How Should I Track Expenses for Rental Properties?

Tracking expenses for your rental properties is important because it helps you ensure that your rental properties are a lucrative investment. Plus, certain expenses can be deducted from your taxable income (which we’ll cover shortly), so you want to have well-maintained records to provide to the IRS.

Rental property expenses you’ll want to track include:

• Maintenance and repairs
• Tax payments
• Vendor payments (landscaping, plumbing, etc.)
• Advertising (including online listings, flyers, signage, etc.)
• Commissions paid (if you use a real estate agent)
• Legal fees (it’s recommended you have a lawyer to assist you with drafting lease agreements and help you resolve tenant issues should they arise)
• Insurance payments
• Mortgage and loan interest
• Supplies (weather stripping, blinds, etc.)
• Utilities (if you pay on behalf of tenants)

Use our rental property expense sheet to track your monthly expenses and income.

Accounting Software vs. Hiring a Professional

There are a lot of accounting software options out there that promise to make accounting a breeze. While these products can be convenient, they also leave room for error. Not to mention that it still takes time for you to manage the data.

By hiring a rental accounting professional, you can shift the responsibility to an expert who can handle all the administrative work. While they’ll be handling the day-to-day management of your finances, you’ll have the reliable financial data you need to make decisions about your investment. Working with a professional means that you’ll have the best foundation to make those decisions and more time to focus on the aspects of your rental properties that require your attention as a landlord, such as filling vacancies and coordinating maintenance.

Benefits of FinancePal

At FinancePal, our goal is to help small businesses streamline their financial management—including rental properties. With FinancePal, you’ll benefit from:

• Automated transaction recording
• Access to financial experts
• Easy-to-read reports
• Accurate bookkeeping that’s kept up-to-date
• An online platform you can access whenever, wherever
• Weekly and monthly financial statements
• Ability to connect to other tools
• A la carte services (just bookkeeping and accounting) or comprehensive financial management
• Flexible pricing plans based on the services you need

We tailor our services to help each client determine how to meet their landlord accounting needs. Say goodbye to crunching numbers, trying to organize and track expenses from different rental properties on your own, and hours spent researching your financial and tax obligations—we have you covered.

Rental Property Taxes

Since you’re earning money from your rental properties, you will need to report this income when it comes time to file your taxes. Whether you identify as a sole proprietorship, LLC, or another type of business, you will also need to pay taxes on the income you make, which is why it’s important to understand the process (like when you need to file by) and your obligations like small business property taxes, income taxes, and more.

It’s understandable to be discouraged by another tax responsibility being added onto the list. It doesn’t have to be as intimidating as it sounds if you have a fundamental knowledge of rental property taxes. However, it is important to make sure that you take the right steps to file your taxes, starting with completing the correct tax forms.

Which Property Tax Forms Do I Need to File?

You’ll use Form 1040 for your individual income tax return, but you’ll also need to report income and expenses for your rental properties. The form you’ll use to do this will depend on whether your rental properties are considered personal or real estate property rentals.

• For real estate rentals, you’ll use Schedule E to report your profits and losses
• For personal property rentals, you’ll use Schedule C to report profits and losses

When you’re completing these forms, make sure to take your time, double-check your calculations, and provide accurate financial information. Underreporting income or claiming excessive expenses could land you in trouble with the IRS.

What Expenses Can Be Claimed for Rental Properties?

Some of the expenses you claim for your rental properties include:

• Operating costs: These include expenses that are necessary to operate your rentals, such as landscaping services, employee costs, etc.
• Depreciation: When you begin using your property as a rental, you can deduct the cost for the depreciation, including wear and tear.
• Repairs: This includes any maintenance or repairs necessary to keep the rental property in a livable and fully functional condition.

You should keep receipts or other records of expenses you’re deducting in order to ensure that you are able to substantiate the claim should you face an IRS audit.

For more information on deducting rental property expenses, refer to the IRS guidelines, or speak with one of our tax professionals who can provide more clarity.

Have a Tax Professional Help You File

If you’re just learning about the ins and outs of rental property taxes, it can be a lot of information to take in, but you’re not on your own. If you still have questions about filing your rental property taxes or need assistance, one of our tax experts will be happy to help you. Our tax professionals have a thorough understanding of the tax-filing requirements for rental properties and can help you ensure that you file correctly.

Get Your Rental Property Finances in Order

Managing rental properties can be complex, but using the resources available to you can make that job a lot easier. If you have invested in rentals and are finding the financial aspects of being a landlord burdensome, let us help. Our financial management services are tailored to your needs to streamline your workflow and make sure your bookkeeping, accounting, and taxes are all in order so you can focus on making the most of your investment.

The post Rental Property Accounting & Bookkeeping appeared first on financepal.

A bookkeeper is a key player in any business’s financial well-being. Bookkeepers are responsible for keeping track of and recording all of the transactions that impact your business. Sounds pretty handy, right?

They are. And, they’ll become more important to your business as it grows. While you might be able to handle minimal incoming and outgoing transactions during the start-up phase, it will become increasingly complex and time-consuming—making a bookkeeper essential.

Read our complete guide to get the answer to “what do bookkeepers do”, or if you have specific questions, you can jump through the article with these links:

What Is a Bookkeeper?

What Does a Bookkeeper Do?

What is the Difference Between a Bookkeeper and Accountant?

Does your Business Need a Bookkeeper?

How to Find a Good Bookkeeper

What Is a Bookkeeper?

According to the Bureau of Labor Statistics, bookkeepers are responsible for keeping track of accounts and recording all of a business’ transactions. Bookkeepers have been around for thousands of years and have become increasingly important as business operations, and the related transactions, have become more complex.

Today, bookkeepers often work off-site or as freelancers which can benefit your business when it comes to cost. If you think about it, it’s usually much more expensive to hire an individual employee to have on-site. And, with bookkeeping, in particular, it usually isn’t necessary.

Interested in more bookkeeping facts? Keep reading to learn more about what bookkeepers do and how they can help you make your business better.

What Does a Bookkeeper Do?

The duties and job functions of a bookkeeper include:

• Developing a business’ bookkeeping policies, procedures, and systems
• Managing cash flow
• Maintaining and balancing subsidiary accounts (accounts payable, accounts receivable, payroll expenses, etc.)
• Categorizing transactions correctly
• Preparing bank deposits
• Verifying receipts
• Delivering payments to the bank
• Creating financial statements including the balance sheet and income statement
• Preparing invoices
• Keeping track of overdue accounts
• Maintaining historical bookkeeping documentation
• Keeping business’s bookkeeping practices in compliance with federal, state, and local requirements

On a day-to-day basis, your bookkeeper will typically be responsible for recording the financial transactions of your business. When doing so, it’s important that they use double-entry bookkeeping, the recommended method of bookkeeping practices. This will help ensure that your financial records are as accurate as possible.

When trying to answer “what does a bookkeeper do”, you should know that not every bookkeeping service is exactly the same. Some providers will offer more services than others. Bookkeepers are also sometimes responsible for certain aspects of inventory, payroll, and taxes, which we’ll dive into further in the following sections

Can a Bookkeeper Manage Inventory?

Since bookkeepers keep track of sales and cost of goods sold, they are uniquely aware of certain aspects of your business’ inventory. As such, some bookkeepers offer inventory management as part of their services. In these cases, they can help you determine how much inventory is on hand, how much inventory is being sold, and whether there are any discrepancies. They can also make ordering recommendations.

Can a Bookkeeper Do Payroll?

While payroll is usually overseen by the human resources role, sometimes bookkeepers will handle payroll. In general, it depends on your bookkeeper. In some cases, they can help with everything from payroll-related forms and payments to processing payroll.

Can a Bookkeeper Do Tax Returns?

While a bookkeeper does not necessarily do your business tax returns for you, they can be instrumental in the process. Your bookkeeper or accountant will work with your tax preparer to ensure that all the information about your business’ finances is accurate. When it comes to filing your small business taxes, accurate reporting is essential to remain in compliance with the IRS and avoid hefty fines that can be harmful to your business’ financial stability.

Since they’re particularly familiar with your books, they’ll also be able to help you take advantage of any and all deductions you might qualify for, including:

• 20% of qualified business income (only available to businesses structured as a sole proprietorship, partnership, or an S corporation)
• Business operation costs (small businesses of all structures can claim)
• A portion of meals, entertainment, and gifts (small businesses of all structures can claim)

It’s important to keep in mind that the IRS has strict requirements for writing off certain business expenses as well as reporting sales and use taxes. Fortunately, your tax preparer and bookkeeper or accountant should be aware of these. What’s better is that their assistance can also often save you money on small business tax preparation.

Instead of putting trust in an individual bookkeeper or hiring a costly large firm, your small business can take advantage of the broad spectrum of services offered by FinancePal. In addition to bookkeeping, FinancePal provides small business payroll and tax services that are tailored to your needs and easily accessible online. We’ve worked with businesses large and small to streamline their bookkeeping and help them thrive.

What Skills Should a Bookkeeper Have?

To perform their unique job duties, bookkeepers must have the following skillset:

• Proficiency with numbers
• Good organization
• Attention to detail
• Data entry abilities
• Knowledge of computer programs
• Good communication skills

If you’re thinking about hiring a bookkeeper for your business, you should consider these qualities when evaluating prospective providers. With FinancePal’s bookkeeping services, you’ll have top financial experts equipped with leading technology handling your books.

What is the Difference Between a Bookkeeper and Accountant?

When you search for “what do bookkeepers do”, you’ve likely come across many articles that mention both bookkeepers and accountants—that can get kind of confusing. While the two are related because they both play an important part in the accounting cycle and your business’ overall financial well-being, these two positions have very different functions. Let’s break down the key differences between what a bookkeeper does and what an accountant does.

• A bookkeeper is involved in the record-keeping of your financial transactions. An accountant evaluates the financial documentation and makes recommendations based on the position of your business.
• While bookkeepers are focused on the day-to-day financial details of your business, accountants are focused on the big picture.
• The bookkeeper’s role is more of an administrative position, whereas the accountant acts as a resource and advisor.
• Your bookkeeper will typically need to be in touch with you on a regular basis in order to get ahold of receipts or to discuss budgetary issues. On the other hand, your accountant will usually only need to speak with you on a periodic basis to discuss your business’ financial position.
• As far as their education goes, bookkeepers are not required to have any formal training, but it’s common for them to hold a business degree. However, accountants usually have a degree in accounting or finance and additional certifications.
• While accountants can sometimes fulfill bookkeeping duties, bookkeepers cannot take on the role of accountants.

As you can see, accounting and bookkeeping are different, so these terms shouldn’t be used interchangeably. However, these two roles are intertwined and typically work together to keep your business’ finances in order.

Does your Business Need a Bookkeeper?

When it comes down to it, you might be on the fence as to whether your business really needs its own bookkeeper. However, there are several key benefits to having one, including:

• Access to the best bookkeeping tools
• Assistance from a knowledgeable professional who is well-versed in the nuances of business finances
• Reduction in financial errors
• Highly accurate books
• Timely bill pay and collections
• Real-time budgeting to maintain healthy cash flow

While it might seem like an extra expense you can’t really afford, hiring a bookkeeper doesn’t have to strain your budget. In fact, it can save you a lot in costly errors, the time you could be performing other pressing tasks, and headaches. As the owner of your business, your time is invaluable.

Think about it, learning how to record financial transactions, balance your books, and generate financial documents is a lot of work. Especially if you don’t have a financial background. On top of that, you’ll also be burning through your already limited time if you have to go back and correct a bunch of errors because you were less experienced when you started doing your own books.

So, instead of trying to figure out, “how does bookkeeping work”, you can hire a bookkeeper to handle the entire process. Doing so can make it easier to focus on the aspects of your business better-suited to your skillset, and in the end, significantly reduce your stress. Because let’s be honest, no matter how much help you have, being a small business owner is a demanding gig.

In addition to hiring a bookkeeper, it’s recommended that you also hire an accountant to ensure that your finances are handled correctly. Or, you can find a provider that offers comprehensive financial services for small businesses, like FinancePal.

How to Find a Good Bookkeeper

Now that we’ve answered your primary questions, “what does a bookkeeper do” and “does your business need a bookkeeper”, let’s discuss how to find a good bookkeeper that you can rely on.

1. Use the resources available to you whether that be popular job boards or a referral from another business owner.
2. Verify references or look for reviews. You want to know that they are professional and trustworthy.
3. Look into the specifics of their services. Ensure that they comply with bookkeeping best practices. You may also want to find out what kind of technology they use; it should be accessible to you and user-friendly.
4. Ensure that they have relevant education and experience. You want someone who understands the intricacies of small business finances and bookkeeping.

Besides simply reviewing their LinkedIn or website, you could also find out more about how they operate their bookkeeping services during the interview process.

Potential Interview Questions

Whether you’re holding formal interviews, or simply speaking with prospective providers over the phone to clarify a few points about their services, there are certain questions that can help you get the information you need to make a sound decision. Consider asking them the following:

• How many years have you been performing bookkeeping services?
• What is your educational background?
• Have you received any certificates or pursued continuing education opportunities?
• Are you a member of any professional organizations, like the National Association of Certified Public Bookkeepers (NACPB) or the American Institute of Professional Bookkeepers (AIPB)?
• How do you remain informed about the latest bookkeeping best practices?
• Approximately how many clients do you (or your team) handle at the moment?
• How much time do you think you will be able to allocate to the needs of my business?
• What types of businesses have you worked with previously?
• Are you familiar with the industry my business operates in?
• What type of bookkeeping tools or software do you use to assist with your tasks?
• Are you comfortable reaching out to our clients and employees to retrieve invoices or necessary documentation?
• Why do you think you (or your firm) are a good fit for my business’ needs?

Keep your business’ unique needs in mind when looking for a bookkeeper to find the right fit.

Factors to Consider When Hiring a Bookkeeper

But first, there are few factors you should consider when selecting a bookkeeper:

• What is your budget for a bookkeeper?
• Do you want a bookkeeper who’s an actual employee or an independent provider?
• Would you prefer a single consultant or a team to handle your bookkeeping?
• Is having your bookkeeper local a priority?
• Do you want to hire both a bookkeeper and an accountant, or would you prefer a single full-service solution?
• Will you need a bookkeeper who can help with payroll?
• Do you need a bookkeeper experienced in your particular industry?

At the end of the day, you should also consider whether the consultant or team is easy to collaborate with. Since you’ll need to communicate with them on a fairly regular basis, you don’t want it to be a strained relationship. Additionally, it’s important that you feel that you can trust them with your business’ sensitive financial information.

If you’re looking for a bookkeeper, don’t settle for subpar services, it could end up hurting your business. Instead, try FinancePal’s small business bookkeeping services. With us, you’ll enjoy the peace of mind that your books are balanced, your financial reporting is accurate, and you’re provided with the utmost transparency—you’ll always have real-time access to your financial information online.

How much does a bookkeeper charge per hour?

Typically, there are several factors that will determine how much bookkeeping services will cost, including:

• The extent of work you require from them (usually based on hours)
• Which specific services they perform (standard bookkeeping or additional services as well—like payroll)
• Whether they are full-time or part-time
• Their experience and skillset
• Where you’re located (sometimes in big cities, professionals charge higher rates for their services due to the expense of renting offices and other factors)

As such, the cost of bookkeeping services can vary widely. For instance, bookkeeping rates are about $20 an hour in the U.S. If you require accounting services as well, you could be looking at rates of $150 per hour or more. That can add up if you require a lot of help. Remember that while you don’t want to allocate an unnecessary portion of your budget to hiring a bookkeeper, you should be willing to pay for quality because your finances are so important to your business.

FinancePal offers flexible plans starting at $99 per month, that are designed to fit the needs of small businesses and are easily scalable as you grow. We can also create a fully customized plan that is tailored to your preferences. Plus, we offer a free one-month free trial of our services, so there’s virtually no risk!

Why Choose FinancePal for Your Small Business Bookkeeping?

There are endless options for hiring bookkeepers, but you won’t get the same value that you would with our services. Even our most basic plan includes:

• A dedicated team
• Cloud storage and our easy-to-use mobile app
• Monthly reconciliations and financial statements
• Tax planning and consulting
• Multiple bank and credit card accounts

While our Basic Plan is perfect for start-ups, our more comprehensive plans are well suited for businesses that are expanding. When you upgrade to our Plus or Custom Plan, you also get access to payroll processing, tax return filing, and audit defense—all at a reasonable cost that can actually save your business time and money.

So, what are you waiting for? Now that you have the answer to “what does a bookkeeper do”, “how much do bookkeepers cost”, and “why are bookkeepers important to your business”, you’re ready to make an educated decision about your finances. Empower your small business with the best bookkeeping services so you can focus on your success. Find out more about our services by speaking with one of our experts today!

The post What Do Bookkeepers Do? appeared first on financepal.

Maintaining a positive cash flow is critical to your company’s long term success, as is securing investors, accurately forecasting and setting benchmarks, and being able to sustain growth. However, many small business owners cite cash flow management as one of their biggest challenges. This is due to a variety of factors, ranging from not being familiar with accounting and bookkeeping to simply not having the time to dedicate to the task.

To learn more about the importance of steady cash flow and how to effectively manage it, read our complete guide to small business cash flow. You can also use these shortcuts to get help with specific aspects:

• • What Is Cash Flow?
  • Why Positive Cash Flow Matters
  • Factors That Affect Your Business’s Cash Flow
  • How to Analyze Your Small Business’s Cash Flow
  • Addressing Small Business Cash Flow Problems
  • How to Maintain a Healthy Cash Flow
  • Is It Time to Hire Professional Bookkeeping Services?

What Is Cash Flow?

Cash flow is how money moves through your business via incoming or outgoing cash. Before we get any further into the intricacies of small business cash flow, let’s quickly define what we mean by “cash”, so that you have a clear understanding of which assets are included:

Cash is all of the available cash your business has as well as any cash equivalents, or assets that can be quickly converted into cash. Cash is referred to as either ingoing or outgoing.

1. Cash inflow, or your incoming cash, is the money coming into your business. This includes payments received from your customers for goods or services, financing including loans or credit, or payoffs from investments.
2. Cash outflow, or outgoing cash, encompasses all the money moving out of your business, including payments, purchases, and investments.

Your small business’s cash flow can either be positive or negative. What exactly does that mean?

1. Positive cash flow means that you have more than enough cash to cover your business’s expenses. You want your business to have a positive cash flow.
2. Negative cash flow means that you do not have enough cash on hand to cover your bills. This is a very dangerous position for your business to be in.

The status of cash flow can be determined as follows:

Cash Flow = Cash Available at Beg. of Period – Cash Available at End of Period

As such, accurate bookkeeping, and in turn, precise financial reporting, play a critical role in having an understanding of cash flow.

Why Positive Cash Flow Matters

Small business cash flow management can be complicated, especially for those just starting out. However, one of your main business objectives should be generating a positive cash flow because it is more or less the fuel that allows your business to continue operating.

Having a positive cash flow means that your business will be better prepared for times of economic distress, such as another recession. Small business cash flow management is critical to any entity’s success because it allows you to:

• • Make informed financial decisions
  • Improve your business model
  • Pay off debts
  • Reinvest in your business
  • Set profitable price points
  • Scale growth that you can sustain
  • Return money to shareholders
  • Plan for the sale or succession of your business

Additionally, healthy cash flow is important to investors. It is one of the factors they will consider when determining whether your company is a solid investment. Being able to secure investors will be critical to growing your business so you want to make sure your finances are in order.

If you’re not confident in your ability to keep track of your outgoing and incoming cash, that’s okay. FinancePal specializes in small business bookkeeping so you don’t have to. We’ll even provide you with financial statements for review so you always know where your business stands.

Factors That Affect Your Business’s Cash Flow

Experiencing cash flow problems at any point in your business’s operation can be more detrimental to its overall financial health than seeing losses month after month. In fact, according to a study by U.S. Bank, poor management of cash flow causes 82% of small businesses to fail.

So what factors affect your business’s cash flow? There are many, but several of the most important include:

• • Inventory – While inventory is necessary for product-centric businesses, it can become an issue if you have invested in too much inventory that is not selling quickly enough.
  • Sales – Sales are an important factor in growing your business but when it comes to cash flow, it’s not a direct indicator of your success. Additionally, sales are easily affected by the economy which can make them unreliable, presenting a risk to businesses with high expenses.
  • Accounts Receivable – This is the incoming cash you have from purchases. If you have too many open invoices, meaning you’re waiting for money to actually hit your account, it could lead to trouble.
  • Accounts Payable – This is the outgoing cash your business is responsible for. Accounts payable can include labor costs, loans, and other operational expenses.

A lot of small businesses run into cash flow issues when these factors stack up because they are trying to grow too quickly. Without proper financial planning, these aspects of your business can get out of hand.

Common Cash Flow Issues in Business

Here are some of the most common small business cash flow problems:

1. Overspending: It’s understandable that any new business owner would be excited to get their company up and running as soon as possible and make it the absolute best it can be. However, many small business owners go overboard by purchasing goods and services they don’t need or can’t afford yet.
2. Overly optimistic forecasting: In order to mitigate the risk of falling short, you want to take a conservative approach to forecasting. Optimistic forecasting can lead to overspending or poor preparation which can leave your business vulnerable to serious problems.
3. Poor bookkeeping: Whether due to lack of time and resources, or just simply not understanding core bookkeeping and accounting concepts, many business owners struggle with managing their books. However, it is critical to keeping your business’s finances up-to-date and accurate.

While cash flows are unique to each business, it is important to understand the basics and how to analyze your small business’s cash flow to improve your business’s cash flow management.

Profit vs. Cash Flow

Just because you’re profitable doesn’t mean your business is not in danger of cash flow problems. Even if you are seeing profits month-over-month on your sales, you have to wait until you actually have that income in cash for it to reflect as actual cash flow.

This brings us back to the concept of accounts receivable. If the majority of your profits are attributed to still unpaid invoices, you can’t count it toward your cash flow.

Seasonality

Depending on the type of business you run, and even your location, your cash flow may be subject to seasonality. You should factor in seasonality when trying to optimize your cash flow if:

• • Your main product or service revolves around a particular holiday or season
  • Your location has a tourist season
  • Your business is outdoors or is otherwise heavily dependent on the weather

You will need to keep these factors in mind when managing how you handle hiring, spending, operating hours, and more. Some seasonal businesses find it beneficial to only operate certain times of the year or find opportunities to expand their offerings so they are less affected by seasonality.

How to Analyze Your Small Business’s Cash Flow

To gain insight into the cash flow of your business, you need to analyze the factors that impact it. By reviewing each of these factors, you’ll be able to determine areas that are negatively impacting your business and focus your energy on improving your cash flow management by tackling those issues.

A quick way to identify a cash flow problem is to compare the upcoming expenditures you have against the total sales that will be closed out and paid for by customers. A cash flow problem will be obvious if you will owe more than you’ll have coming in. For a more in-depth analysis, you will need a statement of cash flows that will show all of your business’s transactions.

With a detailed layout of your expenses and income, you will be able to improve your small business’s cash flow management by identifying which periods may be a stretch and prepare ahead of time. You should set aside cash for slow periods or seasons where you will not be bringing in sufficient income to meet the demands of expenses.

Understanding the Statement of Cash Flows

The statement of cash flows divides cash activities into three categories:

• • Operating Activities: The cash spent to support the core activities of your business. Operating activities include the functions directly related to the selling of goods or performing your business’s services for clients, payroll, and paying your small business taxes.
  • Investing Activities: The cash spent to purchase assets and the cash generated by selling assets. Assets may include equipment and other resources needed to grow your business.
  • Financing Activities: The cash spent or earned on funding initiatives. This may include issuing stocks or taking out loans to help support your business operations.

By evaluating these three categories, you will have a better understanding of your business’s cash flow. It’s important to note that a positive sum means that there was an overall increase in cash, while a sum in parentheses denotes a decrease in cash.

Near the bottom of the statement of cash flows, you will find the overall increase or decrease of all three of these activities combined, labeled as the net increase/decrease in cash and cash equivalents. This line item will show the overall change in your small business’s cash flow during the period.

It’s important to keep two things in mind when using your statement of cash flows to make predictions and decisions about your business:

1. Historical data is useful, but it’s not a perfect indicator of what to expect in the future.
2. It only presents one part of your business’s finances. To get a full scope of how your business is doing, you should refer to your other financial documents as well.
3. The data in the statement of cash flows is only as good as the bookkeeping you used to generate your financial documents.

That being said, it is a useful tool you can use to help you determine whether you have the cash on hand to pay your expenses.

Addressing Small Business Cash Flow Problems

Cash flow issues in business aren’t necessarily tied to businesses of certain sizes, but smaller businesses can lack the resources for adequate financial management, especially in the first few years. As such, many small businesses are affected more drastically.

However, you can prevent your business from becoming a statistic by taking action to address cash flow problems—or even avoid them completely—with these top five small business cash flow management tips:

1. Stay on top of bookkeeping. If you’re handling all aspects of your business on your own, it can be difficult to stay on top of continuous bookkeeping. However, maintaining accurate records of bills and invoicing can cause you to fall behind on payments and collections from customers, ultimately putting your business in a bad position.
2. Reduce overhead expenses. The overhead expenses, or cost of running your business (rent, utilities, etc.), could be too high for you to maintain positive cash flow. If this is the case, you may be able to reduce costs by downsizing your office or finding a storefront in a less expensive neighborhood. Regularly auditing your expenses is a safe way to monitor your overhead and identify where budget cuts can be made.
3. Set credit terms. Instead of allowing customers to pay for merchandise whenever they please, you can protect your business by setting terms around payment deadlines. This can help you establish a more reliable stream of incoming cash. However, this isn’t a one-and-done solution. There may be instances where clients do not pay you on time, or in a worst-case scenario, at all. Another alternative is offering some kind of discount for clients who pay all or a portion of the invoice up-front such as a cash discount. This way, you can improve your incoming cash flow quickly.
4. Closely manage inventory quantities. Whether you’re the one manufacturing the goods or you are distributing those provided by another business, you want to try to avoid stocking up on excess inventory. However, you also don’t want to constantly be out-of-stock, especially on your most popular products. Achieving the right inventory balance will require some analysis on your end to figure out how much of each product you should keep in stock.
5. Improve profit margins. If you aren’t making a decent profit on your products or services, this could be hurting your business and preventing growth. You should make sure that all costs are accounted for in your pricing. If certain products or services are not yielding good profit margins, it might benefit you to cut them from your business.

Implementing all five of these initiatives can help you turn your cash flow around.

Short-Term Financing Solutions

If you’ve found that your cash flow situation does not look like it is going to turn around quickly, you may want to consider financing options. Securing financing can help you turn your cash flow positive almost immediately.

There are many different types of small business loans; if you are considering a loan to help with cash flow issues, shop around for the best loan terms you can find. You’d be surprised what a big difference lower interest rates can make.

However, it is important to keep in mind that you will have to pay off the loan or credit, plus interest. While financing isn’t the ideal way to resolve cash flow issues in your business, it may be your only option to keep your business afloat.

How to Maintain a Healthy Cash Flow

Even once you’ve corrected course and achieved positive cash flow, you shouldn’t let it fall off your radar. In order to maintain a healthy cash flow, you should:

• • Monitor your cash flow on a regular basis. As with your other financial statements, you should review your statement of cash flows every period.
  • Open a line of credit for emergencies. Securing a line of credit to have in your back pocket in case of cash flow issues can help you improve your cash flow quickly. If you get a credit card with good terms and rewards, you could also use it to cover certain expenses in your slow seasons to offset lower-than-usual incoming cash.
  • Require partial payment up front. While setting terms for your clients is one way to improve payment turn-around, you can also require deposits or partial payments for larger orders up front to reduce accounts receivable.

The key to good business cash flow management is taking a proactive approach. That way, you can protect your company’s livelihood instead of scrambling to find a way to restore it.

Managing the day-to-day aspects of your business on top of finances and taxes can be draining and lead to mistakes you simply cannot afford. If managing your small business cash flow seems like too much to handle, let the experts at FinancePal take over these responsibilities.

General Rules for Healthy Cash Flow

In general, there are few rules that every business owner should keep in mind to help maintain healthy cash flow:

• • Focus on cash flow first, not profits
  • Expenses should never exceed existing cash
  • Maintain your cash reserves to help offset shortfalls
  • The more quickly you want to grow, the more cash you need
  • Carefully consider any investments
  • Don’t go overboard in stocking inventory
  • Do not take on large amounts of debt that you cannot afford in the long-term

Growing your business takes sufficient available cash. As such, maintaining a healthy cash flow should be one of your top objectives.

Is It Time to Hire Professional Bookkeeping Services?

Knowing when to seek professional help for your business finances can be the difference between success and failure. If the growing demands of your business have made it difficult to keep up with your bookkeeping, or you do not want to be responsible for this aspect of your business, you’d likely benefit from professional small business bookkeeping services.

Using FinancePal, you can streamline your accounting and bookkeeping and enjoy the peace of mind that we will be monitoring your business’s financial position in extensive detail. Our experts can keep an eye on your cash flow and help you take a more proactive approach to small business cash flow management.

In addition to helping you maintain healthy cash flow, we can assist you with other important aspects of your business’s finances, including how to set up payroll and handling your freelance taxes. Whatever your needs, your dedicated financial team will be one of your biggest resources to ensure that your business thrives.

The post Small Business Cash Flow appeared first on financepal.

Making sure your books are in order can help you save on taxes, stress, and give you the insight to improve efficiency and increase your revenue. Whether you outsource your bookkeeping or decide to hire someone in-house, it’s no question that this is an important position to consider when managing your business. Let’s jump into the details and explore your options for bookkeeping as a small to medium sized business.

• Why is Bookkeeping Important?
• Types of Bookkeeping
  • Basic Bookkeeping
  • Full Service Bookkeeping
• How Much Do Bookkeepers Charge?
  • Cost of an In-House Bookkeeper
  • Cost of an Outsourced Bookkeeper
• Finding the Right Bookkeeping for Your Business
  • Integrated Financial Tools and Software
  • Industry-Specific Account Management
  • Tax Savings and Revenue Growth
• Main Takeaways for Hiring a Bookkeeper

Why is Bookkeeping Important?

There’s a lot of coordination and logistics involved in running a small or medium sized business. Entering your busy season or dealing with employee turnover can distract business owners— resulting in inefficient infrastructure and plateauing growth strategy.

One of the first departments to slip through the cracks is often bookkeeping and accounting. What’s the big problem with that? Even if you’re “not a numbers person,” or even running a not for profit operation, there’s no denying that it’s cash flow that keeps your business afloat.

You’ve got both income and expenses to worry about as an owner, and keeping it all together can sometimes seem impossible. Mismanagement of your business’ money could mean less room for growth, and lack of productivity. Hiring a bookkeeping expert to help manage the ever so important nitty-gritty details of your accounts can save you time, and allow you to refocus your energy on profit growth and business strategy.

Besides taking some time off of your hands as a business owner, bookkeepers can provide expertise in financial regulations and account management that help ensure your business is operating in compliance with state and federal regulations for your industry. Failing to file your taxes correctly, or not processing employee payroll properly could end up costing your business a lot of money, and translate into big headaches for you as a business owner.

There are many options and fees associated with professional bookkeeping, let’s discuss the different types, and what you can expect to pay for financial management and bookkeeping.

Types of Bookkeeping

Not every business owner needs the same level of financial management services. Depending on your industry, the size of your company, how many employees you have, and how long you’ve been operating, you may need more or less support.

Before you hire a bookkeeper, ask yourself: “Do I need basic compliance, or do I need accounting help to increase my business’ profits?” Once you’ve answered this, you can start to compare your options for basic bookkeeping or full service bookkeeping.

Both have different rates and services, so doing your research to find the right solution for your business is essential! Let’s jump into the differences between basic bookkeeping and full service bookkeeping— and how to choose the best option for you based on your needs and budget.

Basic Bookkeeping

If you’re just getting your business started, you may want to start with basic bookkeeping services to ensure your business is in compliance with relevant regulations, and on top of accounts payable and receivable operations. Once you’ve established a baseline for your revenue and overhead, you may need to advance to a full service bookkeeping department to help you optimize your business’ finances. So what can you expect from basic bookkeeping services?

• Financial compliance with state and government
• Accounts payable and receivable
• Recording transactions, maintaining proper filing
• Basic payroll management or processing

Full Service Bookkeeping

Businesses that have been in operation longer, manage more employees, or are growth-driven may require more robust bookkeeping services. For example, industries like commercial real estate process a high volume of real estate transactions and employees, and would most likely need a full service accounting system to manage their operations accurately.

A full service bookkeeper can help manage your finances with basic bookkeeping, and on top of that, help optimize your financial strategy to improve efficiency and identifying ways to increase your profit. Some of the services you can expect from a full service bookkeeper include:

• Dedicated accounting team or individual.
• Monthly reporting to analyze financial status and growth opportunities.
• Tax planning and consulting— optimized for filing.
• Maintaining proper financial statements and records.
• Financial audit defense.
• Management of bank and credit card accounts.

Once you’ve established the level of bookkeeping support you need, it’s time to look at how much bookkeepers cost so you can make the most financially-sound decision for your company. Monthly bookkeeping fees can vary, so make sure to get an accurate estimate from the team or individual before signing on.

How Much Do Bookkeepers Charge?

Bookkeeper rates vary depending on the business size, industry, and financial services needed. In-house bookkeepers can charge anywhere from $18-23 per hour, with variations depending on experience. Outsourced bookkeepers can be another solution with monthly bookkeeping fees starting from $99 per month.

Cost of an In-House Bookkeeper

The average hourly wage for a bookkeeper in the United States is $20, but bookkeeper rates can vary from $18 to $23 per hour, dependent on education, experience, and additional skill set. Whether you need a full time or part time employee will greatly impact how you calculate labor cost. Employee costs like benefits, training, and time-off are important to think about when comparing an in-house bookkeeper and a financial management company.

Having an in-house employee may be a good solution for some business owners, but for many high-volume businesses, the cost of training, payroll, and the potential for inaccuracies outweighs the benefits of hiring an in-house employee.

Cost of an Outsourced Bookkeeper

Hiring an outsourced bookkeeping agency can seem overwhelming at first glance— but it can be an extremely cost-effective, simple solution with many benefits that can help your business grow. The cost of outsourcing your bookkeeping can differ depending on your needs. FinancePal offers package-based bookkeeping pricing options that all include a dedicated accounting team, online access and mobile application, and monthly reconciliations.

Benefits of hiring an outsourced bookkeeper

• Collective experience is generally higher than for an individual— giving business owners more peace of mind.
• No need to train or onboard bookkeeping staff.
• Cost and time-efficient solution.
• Integrated tech solutions for internal and external use.
• Mobility and remote access to your account data and bookkeeping support.
• Advanced security solutions to protect your business’ financial data.
• Centralized account management and tracking to help you analyze business insights and areas for improvement

Finding the Right Bookkeeping for Your Business

Now that you know how much bookkeepers charge, and what kind of bookkeeping services you need, you’ll likely have to do some analysis of your options before starting the hiring process. To help guide your decision, we’ve come up with three important things to consider so you get the most return on investment!

Integrated Financial Tools and Software

Your business probably already uses tools and software to help keep your records and operations organized— adding in more applications to your tech stack can often cause more stress than it needs to. Whether you’re hiring in-house or outsourcing your bookkeeping, finding someone that has the right software tools to make finance management easy is important. Outfitting your accounting department with the integrated payroll software, project management tools, and point of sale systems enable business owners to focus on other aspects to better manage and grow their business.

Industry-Specific Account Management

Hiring a bookkeeper that totally understands your industry and its regulations is an important distinction to make when you’re looking for the right person or team to fill the job. Businesses in the hospitality or property management industries may need different financial services than business owners of a restaurant franchise.

When you hire someone that understands your business’ needs and industry requirements, you can save time on training and transitioning— and trust that your business is in good hands. FinancePal’s industry-specific financial experts are well-versed in industry standards and know that each business and business owner is unique. We work with you to provide services that meet your business’ individual needs and fit seamlessly into your business operations. Industries served include: restaurant, property management, online software services, and hospitality.

Tax Savings and Revenue Growth

Taxes can be a frightening undertaking for anyone— but filing correctly for yourself and your business presents a whole new challenge. Different forms, requirements, and ways to file can be a lot to keep up with.  Hiring a bookkeeper or financial management company for your small business can help ensure your business is: in compliance with the IRS, getting the most out of your year-end tax return, and is maintaining proper financial statements and tax records.

Main Takeaways for Hiring a Bookkeeper

Ultimately, hiring a bookkeeper or financial management company will be different for every business and bookkeeper costs will vary. Deciding what kind of small business bookkeeping services you need, and what your business can afford is a great place to start. FinancePal offers a variety of financial services tailored to your industry and business operations. Work with a designated financial expert to help you streamline your accounting, and allow you to prioritize your time where you’re passionate, and most needed.

The post Bookkeeping Rates & Fees for Small to Medium Business appeared first on financepal.

We’re clearing up the important differences in the bookkeeping vs accounting dilemma to help small businesses, and their owners identify what kind of financial services they need. We’ll also discuss what business owners can expect when they hire for bookkeeping and accounting services.

Looking for specific information on this topic? Use the links below to navigate to each section.

• Understanding Bookkeeping and Accounting
  • Functions of a Bookkeeper
  • Functions of an Accountant
• A Brief History of Bookkeeping and Accounting
• Bookkeeper and Accountant Roles
  • Bookkeeper Role
    • Types of Bookkeeping Accounts
  • Accountant Role
    • Types of Accountants
  • Major Differences Between Bookkeeping and Accounting
    • Education and Certifications
    • Salaries
  • Bookkeeping and Accounting Similarities
  • What’s Best for My Small Business?
    • Hiring for Bookkeeping and Accounting Services

Understanding Bookkeeping and Accounting

The general overview of the two goes as follows: Bookkeepers tend to work in a more administrative sense— recording and filing financial transactions. Accountants then work subjectively—  using the recorded information and financial reports to help the business owner make strategic decisions to better manage finances, or identify areas of concern or growth. Maintaining proper financial records and monitoring the business’ standing helps business owners stay in compliance, and also promotes business growth. It’s important to monitor the ebbs and flows of any business’ expenses and income— but the importance of this role takes on a whole new meaning when we’re talking about small businesses. When you’re working with an already limited budget and narrow profit margins, staying on top of your expenses is one of the most important responsibilities of owning a business. Missing even a minor red flag could in fact, put your business in the red if you’re not careful. That’s where bookkeepers and accountants come in to make small business operations run smoother, and help owners gain peace of mind regarding their business finances.

Now that you have a basic understanding of bookkeeping and accounting, let’s dive into the functions these roles serve; as well as examine the day-to-day responsibilities of each to give you an even more in-depth understanding.

Functions of a Bookkeeper

Bookkeepers help small business owners keep their financial paperwork and account history in tact. In general, a bookkeeper’s primary goal is to maintain consistent records to make business management and accounting easier. Like any position, the responsibilities of a bookkeeper can vary depending on the business. Some bookkeepers will also handle accounting tasks, and others will also deal with employee services, like managing payroll for example. We’ll go into the job specifics a little later— but first let’s take a look at the functions of a business accountant.

Functions of an Accountant

Using the documentation and records collected from the bookkeeper, a small business accountant is able to aggregate the information to make financial evaluations and advise the business owner. Accountants may be responsible for creating yearly budgets, analyzing business operation costs, and completing tax paperwork. Typically accountants do not handle the actual bookkeeping tasks themselves, but rather serve as an analytical resource for business owners.

A Brief History of Bookkeeping and Accounting

The history of bookkeeping and accounting is often associated with Italian mathematician Luca Pacioli, who discussed his method of double-entry bookkeeping in his “Summa de Arithmetica, Geometria, Proportionalita.” His method tracked both income from a sale of an item, as well as the cost of resources lost to account for the deduction in assets. This strategy helped merchants keep a more thorough record of their income and expenses— not to mention gain a better understanding of the business’ financial status. This system also allowed merchants to evaluate which of their products were selling well and which ones weren’t— helping them optimize their inventory to make better sales, and minimize the cost of resources and operation.

Thanks to Pacioli’s double-entry method, today’s small business owners can get a comprehensive look at where their business stands, with the help of a bookkeeping and accounting team. As most things these days, bookkeeping has transitioned from the paper scrolls and feather pens from Pacioli’s days to managing business finances online. This allows business owners and their finance teams to update and access information remotely, and centralize their financial data in one repository, rather than tracking countless accounting journals.

With the introduction of financial management software for businesses, the lines have blurred between bookkeepers and accountants. Many software services combine the two to create a streamlined operation that can make financial recommendations based on recordings. This can be helpful for minor operations, but if you’re serious about maintaining your business’ financial health, you may consider hiring for bookkeeping and accounting services. This can help to ensure your team of financial experts factor in all aspects of your operation before making any major recommendations.

Bookkeeper and Accountant Roles

Now that you know the functions of bookkeeping and accounting as well as a little bit about their history, let’s discuss what the day-to-day responsibilities of a bookkeeper and accountant look like.

Bookkeeper Role

Bookkeeping roles often require entry-level experience in office administration, and/or an associate’s degree. Since they are performing more administrative tasks than suggesting financial advice, bookkeepers tend to have less experience and typically charge less than an accountant would. While they have different job descriptions, bookkeepers and accountants tend to work together closely— typically with the accountant overseeing the bookkeeping role. Let’s take a look at some examples of a bookkeeper’s daily tasks.

• Recording and organizing financial transactions
• Maintaining proper documentation for accounts receivable and payable
• Payroll management

Types of Bookkeeping Accounts

Depending on the size of the business, your bookkeeper may have a lot of accounts to handle, each dealing with varying types of transactions. Here are a few of the most common account types that bookkeepers help manage:

• Accounts Payable: your business’ bills including business space, utilities, software services, and other supplies
• Accounts Receivable: your business’ income from customers using your product or services
• Loans Payable: your loan accounts if your business has borrowed any money
• Payroll Expenses: the costs associated with your employees
• Retained Earnings: the amount of your business’ profits that have been reinvested into the business, rather than paid out to owners

These are just a few examples of accounts that bookkeepers may be responsible for maintaining for your small business. This responsibility alone can become a huge burden for business owners to balance between managing employees, ensuring customer satisfaction, and promoting business growth. Many business owners choose to outsource both bookkeeping and accounting roles to focus their efforts on growing their business.

Accountant Role

In general, accountants must have a bachelor’s degree in accounting or finance to qualify for an accounting role. Accountants may also get professional certifications like a Certified Public Accountant (CPA) for additional credibility and experience. An accountant works closely with the business owner or decision-maker to adjust budgets, file taxes, and strategize for financial success. Below are some of the most common job responsibilities for accountants.

• Preparing financial statements like budgets and pro forma statements
• Analyzing and strategizing finances
• Small business tax preparation and strategy
• Financial forecasting
• Advising or making financial decisions based on recorded financial data

Types of Accountants

There are many professions within the accounting field including: certified public accountants (CPAs), forensics accountants, cost accountants, and auditors. Each has a different function and specializes in a different field. For your small business you will likely need a business accountant or a CPA. While business accountants generally handle the aforementioned responsibilities, CPAs hold an additional level of credibility (and responsibility) as they are licensed by the state to prepare tax statements and represent taxpayers before the IRS for audits and under other circumstances.

So how can an accountant help my business with tax prep? Taxes can be complicated territory for anyone— and when you get multiple accounts and business expenses involved, it can easily become a disaster. Having a qualified accountant on hand not only makes tax accounting easier, but it could also mean you get more out of your tax return than if you filed on your own.

Major Differences Between Bookkeeping and Accounting

Besides their differing job descriptions and daily responsibilities, bookkeepers and accountants have a few additional distinctions that are important to note. Let’s discuss the differences between the two regarding qualifications and salaries.

Education and Certifications

Bookkeepers generally hold an associate’s degree, or even a bachelor’s in business. While this position may require some prior experience in office management and some knowledge of financial processes, there are not as many certifications available (or necessary) for bookkeeping.

Qualified accountants typically hold a bachelor’s degree in accounting or finance, as well as some prior work experience in finance as they will be delivering financial advice. As mention, there are some additional certifications accountants can obtain if they wish to advance their expertise. Below are some of the most common certifications for accountants.

• Certified Public Accountant (CPA)
• Certified Financial Analyst (CFA)
• Certified Management Accountant (CMA)
• Certified Internal Auditor (CIA)

Salaries

Depending on your state, your business’ needs, and the candidate’s qualifications, salaries may vary. According to PayScale, the average salary for a bookkeeper is $41, 244 while for accountants the average is $50, 420. Because of their additional education and certifications, accountants typically make a higher salary than bookkeepers.

Many small businesses don’t have the employment capacity to hire internally, so many opt for external bookkeeping and accounting services.

Bookkeeping and Accounting Similarities

Bookkeepers and accountants are both working toward the same goal: help business owners be more financially responsible and remain in compliance with financial regulations. While their responsibilities may be different, they rely on each other to work effectively. Note: Accountants can also fill the role of bookkeepers— though they typically don’t. Conversely, bookkeepers cannot be considered accountants, unless they have completed their degree in Accounting or Finance, and met other applicable certifications.

What’s Best for My Small Business?

Running a small business is a complex operation. Between managing employees, maintaining customer satisfaction, and balancing your personal life, it’s easy to let things slip through the cracks. When it comes to managing finances for your small business, it’s best to have a dual-layer system— and bookkeeping and accounting go hand-in-hand. In order to manage your finances comprehensively, you’ll need to consider the value of both positions.

Without proper documentation and financial management procedures, accountants can’t do their job effectively. Staffing for both positions, taking on some of the responsibilities on your own, or finding a professional finance management service is best if you want to keep your small business prosperous.

Hiring for Bookkeeping and Accounting Services

If you have a knack for organization and finance management, you may be able to handle your bookkeeping and accounting on your own. However, if you’re like most small business owners, you’ve likely got enough on your plate. It’s important to keep these areas of your business in pristine order. If you’re not prepared to take on these challenges with expert-level financial strategy and accuracy, you may want to consider hiring a professional.

Business owners can hire professional bookkeepers and accountants as part of their payroll, or hire an external team to fill these roles. Hiring an in-house professional can be convenient for business owners who want to have someone in office. However, this route can end up being pretty costly by the time you add in the cost of including this person on your company’s payroll— not to mention additional hiring and onboarding costs.

FinancePal offers accounting for small businesses so that business owners can get back to handling the other important facets of their business—  like growing profits and keeping customers happy. With integrated management technology, small business owners can check-in on their accounts receivable and payables, as well as access project management and Point of Sale features. Plus, you’ll have access to a dedicated team of bookkeeping and accounting professionals to help you optimize your financial strategy and keep track of your business transactions. There’s not much room for error when it comes to managing your small business’ money. Let our FinancePal professionals handle it, and refocus your efforts on accelerating your company’s success.

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