If you’re a first-time entrepreneur, there are probably a few questions that keep you up at night: “Do investors expect me to wear a tie to meetings?”, “Are standing desks really worth it?”, and “Will anyone mind if I take a client call in this Chipotle?”.
While knowing whether standing desks are really all that great is certainly useful, the question of “What do bookkeepers do?” is perhaps the most important question of all. Bookkeepers are integral to your business and without them, you could easily find yourself in financial trouble.
To help puzzled entrepreneurs everywhere get some answers, we break down what bookkeepers actually do and why you need one. Hint: it has nothing to do with organizing an office book club (although that’s always a good idea).
The Bookkeeping Basics
Put in the simplest terms, bookkeepers are professionals who manage and record all of your business’ financial transactions. By keeping track of this information, bookkeepers ensure that your financial record are not simply organized and complete, but also accurate. In other words, bookkeepers are like spell check for your finances—they see everything.
Bookkeepers vs. Accountants
While it’s clear that bookkeepers play a pretty important role when it comes to business finances, you’re probably wondering how this is any different than what an accountant does. Let’s break it down:
- Bookkeeping involves the consistent recording, storing, and retrieving of daily financial transactions.
- For the most part, bookkeeping is straightforward and transactional.
- Accounting is a high-level process that takes financial information and produces financial models based on data to reveal the bigger financial picture.
- Unlike bookkeeping, accounting is far more subjective and often calls for skilled interpretation.
In other words, bookkeepers are the ones collecting and managing the data while accountants are the one interpreting it.
While these roles may seem rather different, they are equally important when it comes to handling business finances. Accountants need bookkeepers to keep meticulous record in order to produce their analytical evaluations and interpretations. Conversely, bookkeepers rely on accountants to provide them with a clear idea of what information must be logged and the proper structure for keeping records. In short, both work in tandem to help you make smarter financial decisions.
A Day in the Life of a Bookkeeper
By this point, you’ve probably gathered that bookkeepers are the ones that give you a snapshot of your business finances. But in order to do this, bookkeepers need to carry out a few key duties:
Reconcile Your Bank Accounts
Perhaps the most important task of a bookkeeper is reconciliation. With so much money coming in and going out, it’s easy for things to slip through the cracks. To prevent this from happening, bookkeepers will compare transactions recorded against monthly statements from external sources, such as a bank, a credit card company, or another financial institution, to ensure the figures are correct and in agreement. In other words, the bookkeeper is checking to make sure that the money leaving an account matches the actual money spent.
Reconciliation is vital when it comes to keeping your financial records consistent and accurate. Moreover, the reconciliation process also helps to highlight any discrepancies that could indicate signs or theft, bank error, or incorrectly recorded transactions—something you’ll definitely want to catch sooner rather than later.
Another important bookkeeping task is managing all the transactions brought in through your accounting system’s bank feed—which is a list of the transactions (spent and received) in your bank account. Bookkeepers must then categorize each of these transactions in order to keep things organized. For instance, a plane ticket would be categorized as a travel expense, while a box of pens would be categorized as an office expense.
While categorization may seem like a big (and tedious) job, apps such as Receipt Bank are able to automatically categorize most transactions, so bookkeepers simply need to keep an eye out to ensure accuracy. Additionally, certain transactions such as written cheques or cash payments may also need to be added manually.
Prepare Key Financial Statements
Whether you’re preparing to meet with investors or you’re simply creating a budget, you’ll need key financial statements on a regular basis. Part of a bookkeeper’s job is to prepare these financial statements for you. The most important of these financial statements include the:
- Cash Flow Statement: Shows how much cash has been generated and used during a given time period.
- Balance Sheet: Shows your company’s financial position at the end of a specified period.
- Income Statement (also known as the Profit and Loss Statement): Shows your company’s revenues and expenses during a particular period.
Take Care of Bills and Invoices
Bookkeepers also take care of billing and invoicing. This includes managing accounts receivable (money owed that has not yet been paid for goods or services that have already been provided) and accounts payable (money that a company owes to its suppliers or vendors for goods or services that it received on credit). Both of these tasks ensure that customers are actually paying you (preferably on time) and that your bills are taken care of—also known as cash flow management.
In some cases, bookkeepers are also the ones who handle payroll, which is the process of paying a company’s employees. While the amount of work that goes into “doing payroll” may vary, generally this involves calculating each employee’s pay, withholding taxes and other deductions, and then distributing the payments to employees either electronically or via cheque. Bookkeepers must also keep payroll records for each employee, however much of this is now automated with payroll software.
Work With Your Accountant
As mentioned above, bookkeepers work closely with accountants to provide accurate and complete financial data. This relationship is particularly important when it comes to tax time. Often the bookkeeper will be in touch with your tax preparer to aid in the process of filing your business taxes because they know your financials inside and out. Just think of them as a sort of translator between you and your certified public accountant (CPA) or enrolled agent (EA).
Why All of This Matters to You
So now that we’ve answered the question “what do bookkeepers do?”, it’s time to address the most important question of all: “why does all this matter to you?”
It’s probably clear by now, bookkeepers play a pretty important role in keeping your business finances in check. But more specifically, the biggest benefits of hiring a bookkeeper are:
- They provide clean, accurate, and comprehensive financial records for banks, investors, tax accountants, and even the IRS.
- They take care of the data entry and administration that goes into keeping proper financial records, leaving you with more time to spend actually running your business.
- They provide a snapshot of the financial health of your business to help you make key decisions.
- They keep an eye on your financials to ensure your cash flow stays healthy.
If you’re a first-time entrepreneur and you’re ready to take your business to the next level, the benefits of having a bookkeeper on your team are invaluable.