Bookkeeper vs. CPA: Making the Right Choice for Your Small Business
A common challenge for new entrepreneurs is balancing business needs with wants. It’s not unusual for small business owners, particularly those just starting out, to focus so much on achieving success that they make predictable mistakes.
"Stretching too far, too fast is a frequent error among enthusiastic business owners eager for growth," writes Laura Petrecca in USA Today. "And the consequences of expanding too quickly can be significant."
This often looks like an entrepreneur who enthusiastically purchases everything they believe is essential for running a business. This might include renting office space (when a home office would suffice), hiring a full team initially (when part-time or contracted professionals would be adequate), or investing in costly IT systems (when common off-the-shelf options would be sufficient).
Another example is small businesses hiring a Certified Professional Accountant (CPA) for their financial needs when a bookkeeper would be more than enough. This is akin to buying a new driver a luxury car when a basic model would do.
So how can a small business owner determine who they need and when? What are some indicators that hiring a bookkeeper is a wise investment in terms of time and money for new businesses?
Temper Expectations
New businesses wouldn’t start without their founders' ingenuity, innovation, and vision. However, sometimes, this excitement leads to the pursuit of instant gratification before the business is ready.
This often results in premature decisions that could lead to financial strain.
Know the Difference
Many small business leaders excel in one or two areas, usually the product or service they sell, but they often lack strong financial management skills. While they might understand how to read a bank statement and balance a checkbook, they may not be proficient in the more complex aspects of business financial management. Entrepreneurs might initially handle finances themselves but often find this unsustainable, leading to the need for financial help.
Bookkeepers, accountants, and tax preparers differ in their roles. Although they all deal with finances, their roles are distinct. Bookkeepers are adept at managing routine financial tasks, such as producing reports, reconciling accounts, processing accounts payable and receivable, recording expenditures and receipts, and monitoring profit and loss. Some bookkeepers also handle billing, payroll, purchasing, and auditing.
CPAs, however, tend to specialize in more strategic and complex financial areas, which are often more relevant to larger businesses. Their expertise includes long-term planning for investments, taxes, mergers and acquisitions, internal controls and quality assurance, fraud auditing, international accounting, and personalized financial consulting.
Assess the Cost Burden
Cash flow is crucial for all businesses, but for new and smaller businesses, taking on too much financial risk and ongoing expenses can be problematic.
According to CNBC, running out of money is the primary reason small businesses fail. When financing becomes difficult, and profitability is an issue, excessive expenses can exacerbate the problem.
Understanding the cost difference between CPAs and bookkeepers is also important. Hard figures on the cost difference can be elusive due to competitive reasons, but data from the federal Bureau of Labor Statistics (BLS) provides some insight. According to the BLS, CPAs (categorized as accountants and auditors) had a median salary of over $68,000 in 2016, while bookkeepers (classified as accounting and auditing clerks) earned slightly over $38,000 annually or $18.46 per hour. Research from KompareIT indicates that bookkeepers charge between $15 and $60 per hour, while accountants charge much more—$60 to $250 per hour, depending on their experience and role.
These rates, reflecting the difference, are typically passed on to the client.
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