Bookkeeping and accounting can trace their roots back to ancient civilizations. They are a few of the oldest professions in history lasting thousands of years.
Despite their long history, most people and business owners do not realize they are two different things. Yes, they both work with businesses and deal with numbers, but they are not the same.
Confused? Many people are because the line between the two can be blurry. This can work against businesses because accountants cost more than bookkeepers. If a business actually needs a bookkeeper but reach out to an accountant, they can be spending more money than they should.
Not to lump all accountants together, but every individual is unique, but even though they can do the bookkeeping, they rather outsource it to someone else. There are some who are fine with doing the bookkeeping, but this is not the rule based on my experience.
So what you get is a business who is spending more money on someone that doesn't want to do all that work.
So you might be asking yourself, what is the difference between the two???
There are several sources out there. I personally like infographics.
This one is very clear by outlining the different tasks and even color codes them!
But...
It is not entirely accurate.
Once upon a time, it was and it may still be for some bookkeepers out there, but the field has changed because of one word....Technology!
Yep, technology. The thing that has changed just about every aspect of our lives. People can't imagine a life without electricity, microwaves, phones, or Facebook. But technology's influence is not limited to home, but has impacted work.
Technology has created new jobs and made others obsolete. There is software that can help individuals manage their finances personally or professionally at work.
Has technology made bookkeeping obsolete then? Not so fast!
Bookkeeping has evolved. Years ago, bookkeeping was consumed with data entry. The infographic above outlines it. It involves different tasks but it is all about entering numbers and making sure they are correct. This was extremely time consuming, so there was no time for them to do anything else despite there being a need from the businesses they served.
Well, that is until now of course. Technology has made data entry a thing of the past. Bookkeepers can now complete this crucial but time consuming task much more efficiently. This allows much more free time to provide value to business owners.
You might be asking yourself, what can a bookkeeper do?
They still handle reconciling your accounts, and what was listed above. However, they can do so much more. Here are 3 major task they can do for you:
1. Produce Financial Statements
Before your accountant corrects me, a bookkeeper can only do for internal use. They are not able to do your taxes but can get everything together for tax time. Your accountant or tax professional will love you because you made their lives so much easier and they will show their thanks by not charging you for the extra time they would spend on catching up on your bookkeeping that they don't want to do.
2. Manage Accounts Payable and Accounts Receivable
Accounts Payable is fancy term for business bills. Whenever you (as in the business) buys something and you don't pay for it immediately, you have an Accounts Payable (A/P). For example, you had an electrician come to fix some lights and wiring and he tells you that he will send you a bill. That bill, whatever the amount, is an A/P because it is money that you owe.
Accounts Receivable is the exact opposite, it is a fancy term for your IOUs. Instead of you owing money to someone, they owe it to you. Whenever you sell a product or a service and send out a bill for payment, it is your Accounts Receivable (A/R). For example, if you are a manufacturer of goods and you sell a truckload of these goods to a customer but tell them they have 30 days to pay you. You earned that money but you don't have it yet.
If Accounts Payable and Accounts Receivable are not managed well, it can be BAD news for your business. You can't run a business on IOUs. Your vendors want money not someone else's promise of payment. And just like at home, you have to pay your bills on time and only once for the correct amount.
Bookkeepers can help you manage these two accounts and help you pay your bills on time, saving you money as well as helping those IOUs turn into money much faster.
3. Communication
Due to the time it took to reconcile accounts by hand, bookkeepers would turn in their work and that was it. No explanation. No insights. No advice. Nothing.
Business owners would have to try to decipher the bookkeeper's records and notes. Hoping their interpretation was right and basing important business decisions on it.
Your bookkeeper should talk to you on a regular basis about your financial transactions and statements. Other than making sure they have all the needed information to complete the tasks accurately, they should sit down with you either face-to-face or virtually to discuss your business's performance.
Bookkeepers are uniquely able to be an advisor to your business. They work with you handling the day-to-day transactions, so they know your business and they have the knowledge about business's performance.
Instead of handing you the month's financial statements and wishing you good luck, they can meet with you and discuss how everything is going. They can compare it to previous months and alert you to any patterns they see.
4. Serve as Financial Advisors and Help you Save Money
This relates to communication. You can understand how your business is doing before the end of the year and make crucial business decisions on accurate information.
Bookkeepers can help you discover where you are most profitable and where you may need to to focus based on your business's performance. They also can help you produce a financial road map to success based on your goals as well as benchmarking.
Benchmarking is a fancy term for comparing your expense percentages to other businesses like yours. For example, if your competitors are paying 12% of their revenue on rent, and you are paying 15% on rent. You now know where to look to save some money. If you are earning 1 million dollars per year, that is saving you $30,000! You may discover that you are paying too much in other areas as well and your bookkeeper can let you know about it.
In Conclusion
I guess when you are referring to bookkeeping as it used to be done, then yeah, technology made it obsolete. But bookkeeping is not dead. It has overcome and has changed with the times. I used the word, evolve, earlier. I used it because I truly believe that bookkeeping is better than before. We, as bookkeepers, are free to do so much more than reconciling accounts. We are a vital piece, missing often times, in businesses. We have seen the economy suffer and small business owner crippled under it. Bookkeepers can provide the information business owners need when they need it and advise them in how to make their business better.
Are you taking full advantage of what your bookkeeper can do for you? I only listed a few things that bookkeepers are able to do that was not necessarily done before. What are some of the ways your bookkeepers are providing value to you? Or what do you wish they would do for you? Please comment below. I would love to hear your thoughts.