Why do so many businesses choose QuickBooks Online as their accounting software? Check out these six benefits of QuickBooks Online for startups.
August 12, 2020
With a never-ending list of priorities, many startups let their business’s financial processes fall to the bottom of the list. In our experience, we’ve seen too many startup founders take a lax approach to business finance management only to have it cost them more time, money and energy down the line.
If you’re struggling to keep up with your company’s day-to-day finance functions, or your business finances become more complex, you might be wondering which type of finance professional—specifically a bookkeeper vs. accountant—you need to keep your finances in order. What’s the difference between a bookkeeper and an accountant? And which does your startup need?
This article will guide you through what each role can offer, which role most startups should be working with, and how your choice can impact your business.
At a high level, bookkeepers and accountants are both involved with keeping accurate records of your company’s transactions.
|Recordkeeping via accounting software||✅||✅|
|Reconciliation of bank accounts||✅||✅|
|Establish & maintain accounting processes (departments & categorizations, chart of accounts, etc.)||❌||✅|
|Financial insights & planning||❌||✅|
|Monthly close & reporting (P&L, Balance Sheet, Cash Flow Statement)||❌||✅|
|GAAP compliance training||❌||✅|
|Assist with board and/or investor reporting||❌||✅|
Bookkeepers are responsible for maintaining the records of a company’s financial activities. They use accounting software to keep track of daily transactions, income, and expenses, and make sure the company’s accounts are accurate and up to date. A bookkeeper’s job may also include managing a company’s day-to-day financial functions like accounts payable and receivable, and monthly reconciliations. Bookkeeping does not require any formal educational qualifications or certifications.
Accountant’s duties might include all of that of a bookkeeper, plus more sophisticated finance functions such as completing the month-end close and reporting process, helping establish and monitor budgets, and delivering key financial insights such as burn rate and runway. When working with a bookkeeper, the accountant reviews the bookkeepers’ work to ensure accuracy and GAAP compliance. One of the important distinctions between an accountant and a bookkeeper is the accountant’s ability to use financial data to help inform business decisions. Because most accountants have a bachelor’s degree in accounting, and many obtain a Certified Public Accountant (CPA) license, they are qualified to interpret your financial records and offer guidance based on this data. Accountants who have experience working with startups will have specific skills to support your company as it evolves, including designing a chart of accounts that scales with your business and suggesting the right finance and accounting tools for your business model.
So, what are the key differences between bookkeepers and accountants? While bookkeepers focus on data entry and completing everyday tasks, accountants are more focused on making sure the data is accurate, financial analysis, and reporting on the financial health of the business.
A helpful way to understand the difference is to use the analogy of producing a film, as suggested by Gareth M. Turner. A bookkeeper is like a cameraman in the film crew while an accountant is like the film’s director. Both these roles need to understand the techniques and processes involved in filming, but the director also has responsibility for higher-level tasks such as planning and interpretation. In a similar way, the bookkeeper and accountant can both contribute to the company’s financial records, but the accountant is also concerned with the bigger picture of your financial situation.
Because bookkeepers and accountants have different levels of training and experience, they offer different types of support for your business. When it comes to paying bills or categorizing financial transactions, a bookkeeper will have you covered. For more complex financial tasks or advice on interpreting data, an accountant will be better equipped to help.
Every company needs someone who can handle the basic data entry functions of bookkeeping, and keep track of income and expenses. But most startups also have additional accounting needs that only an accountant can help with. Having the expert guidance of an accountant from the earliest days of your startup will prepare your business for growth.
An accountant will have the experience and knowledge to handle more complex processes, like booking accruals or revenue recognition. They’ll also be able to give you the support you need for financial planning, taxes, and audits. With an accountant’s supervision, you can ensure basic tasks are completed correctly, and give your startup the solid financial foundation it needs for growth.
In addition, an accountant can advise you on the interpretation and execution of pronouncements from the Financial Accounting Standards Board (FASB). When the (FASB) releases updates to how financial statements should be prepared and presented, your business must keep up to date with these guidelines. This kind of accounting compliance is usually outside the scope of a bookkeeper’s responsibilities.
Some businesses hold off on working with an accountant because they worry it can be expensive. Like any professional service, an accountant will cost money. (Although with Zeni, it can be less than you might think!) But working with an accountant is a valuable investment for startups. If you avoid engaging an accountant and try to get by with only a bookkeeper, you’ll likely find this costs your business more in missed opportunities and misinformed budgeting than it does in hourly fees.
As a startup, you’re likely working with investors, building toward an IPO, or maybe even targeting an acquisition. These situations often involve sharing your business’s financial information. At Zeni, we’ve seen firsthand what can happen when startups that haven’t worked with a trained accountant have encountered issues when asked to share their financial data.
As part of due diligence for fundraising or a potential acquisition, you may receive a request for specific financial information. That usually includes a profit and loss (P&L) or income statement, balance sheet, and cash flow statement. If your financial statements aren’t prepared according to generally accepted accounting principles (GAAP), the company that requested them might challenge these statements. This slows down the due diligence process and brings up additional concerns about your startup’s financial health. (In some cases, it can bring down the sale price during acquisition negotiations by hundreds of thousands of dollars.)
Incomplete or inaccurate financial statements pose a problem that can be embarrassing at best, and a dealbreaker at worst. You run the risk of not being “audit-ready”—a risk that can be avoided by working with a trained accountant who has work experience with the industry and would maintain your financial records in anticipation of scenarios most common for your business.
If your startup is ready to work with an accountant, it’s important to understand that not all accountants or accounting firms are alike.
The best piece of advice we can give startups is to select an accounting partner that has relevant experience to their vertical or industry. You may have worked with a great accountant at your last job in the construction industry, but if they’ve never managed revenue recognition from app store sales, they’re probably not going to be the best accounting partner for your mobile shopping app business. As a startup, you should aim to partner with an accountant who has experience with processes and challenges specific to your industry.
Another mistake many startups tend to make is to only work with an accountant when it comes time to file their annual tax returns. While every company should absolutely work with a certified tax accountant to complete their annual returns, these specialists may suggest accounting systems for tax optimization, which could contradict best practices for your industry or vertical.
For instance, a tax accountant may advise an early-stage startup to use the cash basis accounting method rather than accrual. This makes it easier for tax purposes in the short-term. However, it may cause inefficiencies from a business perspective when the accrual method is required for more common startup activities such as reporting to your board, sharing updates with investors, or completing the due diligence process for fundraising efforts. Not to mention that once your startup grows to earn $5+ million in annual revenue, accrual basis accounting is required to meet GAAP standards. An accountant who specializes in startup accounting, rather than tax, will be able to give you the best possible advice and set you up for future success.
Keeping your business running smoothly requires both bookkeeping and accounting skills, but finding the right people to take on these tasks can be a challenge.
Startups that use Zeni don’t have to struggle with the question of bookkeeper vs. accountant—they get accounting and bookkeeping services in one platform, plus access to CPAs, CFOs and tax advisors. We created Zeni to streamline all the finance-related tasks startup founders have to consider into a single solution. Zeni is a full-service finance firm that combines the benefits of AI and finance experts to deliver automated bookkeeping, accounting expertise, and a dashboard that gives you up-to-date finance reporting at your fingertips.
Zeni provides you with timely, accurate financial information about your business so you can avoid common startup pitfalls. Designed especially for startups and small businesses, Zeni provides: