Starting a business comes with a lengthy to-do list, not to mention the massively distracting and time-consuming bookkeeping, tax, and accounting. While your energy is concentrated on your big idea, bookkeeping and accounting are lying in wait to pop out and surprise you when you're on that new business high. So, prepare yourself. It's going to be long and tedious, but it has to be done.
At some point, hopefully, you're going to be making a good amount of money and when that happens, you'll want control over your accounts to ensure that it's set up in a tax-efficient way. The last thing you want is dodgy tax practices to bring down your business.
So, which one is best? Accountant or bookkeeper?
Both are essential and necessary functions within any business, but there is one clear distinction between the two.
Bookkeeping is essentially the apprentice to accounting. It's responsible for the recording of financial transactions whereas accounting is the boss and has a more significant role to play by interpreting, classifying, analysing and summarising all of your financial data. In essence, bookkeepers record, accountants then take that data and interpret and analyse.
Let's delve a little deeper. A bookkeeper is tasked with handling your day to day finances so recording financial transactions such as purchases, sales, payments, and receipts. Many small businesses tend to use bookkeeping software and do it all themselves, but when your business starts to grow, you'll find that you don't have the time to do it, meaning many businesses outsource the work to a local bookkeeper. It's less hassle for you and means you have more time to focus on your business.
If you're a sole trader, more often than not, bookkeeping will more than likely meet the needs of your business. You'll still be responsible for recording all financial data so you can complete annual accounts and tick off your self-assessment income tax each year. So it's essential that your financial recordings are not only current but accurate also. This helps you maintain healthy cash flow and gain a reliable forecast for the year coming.
If you're a limited company, things aren't so necessary as just filing a self-assessment like a sole trader. If your annual turnover is over £85,000, you must register for VAT. So a little more paperwork but you're heading in the right direction if your turnover is increasing. When you hit this benchmark, you'll probably find that hiring an accountant will be a huge help. Completing your bookkeeping or outsourcing it and the accountant will do the rest. However, it's always your responsibility to be on top of your accounts, you want a clear view of what's going on in your business at all times but accepting a little help to get through the nitty gritty will benefit you greatly in the long run.
Essentially, you need to make a decision. Are your accounts reasonably simple? Could you save money by doing the bookkeeping yourself or getting a bookkeeper to do it? Or are they a little more difficult and need a keen eye to look over them, interpret and analyse so you can get an accurate view of them and legally be squeaky clean with the tax man. When you start making some good money, and your business is going from strength to strength it is a no brainer, you'll want an accountant to help you keep track and build upon your success. However, if you're starting and need to keep it simple, opt for bookkeeping.