SMEs play a pivotal role in the world economy, and to survive the endurance race is one of every SME’s goals.
Knowing and understanding numbers are not just requirements for banks to grant business credit or open accounts, but also about getting great insights into the business’s financial health as it progresses.
Owners must be aware of how their businesses are doing to determine where they are heading; this will only be ascertained through a regular financial health check.
A financial health check is as necessary as a personal health-check up.
Hence, evaluating the business’ finances helps owners become cognizant of their current assets and debts, helping them devise strategies and make appropriate investment decisions.
Furthermore, this is one of the main avenues to business success, the (sba.gov) Small Business Administration identified several benefits of having quality financial management to the business owners, such as:
1) Being more knowledgeable about the profit of the business.
2) Helps businesses decide what they can afford in terms of inventory purchases, location, employees, and equipment.
3) Aids in setting prices and selecting their vendors.
4) Give the tools to plan for overall business growth and diversification of products or reaching new markets.
5) Helps the business decide which products, services, and markets are profitable.
6) Lastly, it provides tools to chart the business’ direction into the future.
Small Business owners might consider doing it for themselves (DIY) instead of hiring finance professionals. If the owners have a strong background in business finances, it may be an excellent place to cut costs, but if there is a lack of experience in managing the financial books, mishandling it can cause long-term damage.
Small businesses’ growth will involve additional employees, customers, and vendors, and It can get more complicated to keep track of its financial aspect. Once it is too much to handle, hiring professional help is a good option.
Bookkeeper vs. Accountant
Most of the time, the terms Bookkeeper and Accountant are used interchangeably since some of their tasks may overlap; it is essential to recognise that both play an essential part in the business.
While they both work to assist business finances, there are some significant distinctions between a bookkeeper and an accountant’s tasks. Certain aspects of the business should specifically be entrusted to an accountant and other distinct tasks to a bookkeeper.
To understand more comprehensively the benefits that both financial professionals offer, it is essential to be knowledgeable of the tasks they undertake.
A Bookkeeper keeps track of how a business earns money and spends it. It is someone who prepares accounts and documents daily financial transactions. One of the fundamental elements of bookkeeping is maintaining a general ledger–a primary document that contains records of amounts from expenses and sales.
Their task’s intricacy depends on the business’s size and the number of its transactions.
The role of a bookkeeper focuses on ongoing financial tasks, such as verifying source documents–invoice, receipts, computer printouts; preparing and processing payroll; allocating and posting financial transaction details to subsidiary books; reconciling and balancing all accounts; drawing up financial statements–trial balance, income statement, balance sheet; managing accounts payables and receivables; preparing checks, payments, and bank deposits; tracking and maintaining inventory records; maintaining a complete filing system to support financial records.
Credentials: Bookkeeping is not a licensed profession; thus, businesses that need to hire bookkeepers might look for certification that manifest competency. One organisation that grants certification to bookkeepers (CPB) is the National Association of Certified Public Bookkeepers (NCAPB). Also, they offer certification for Payroll Specialists and QuickBooks Advisors.
An Accountant renders a company’s financial health by combining their knowledge of numbers and accounting principles. They ensure the accuracy of the business’ financial documents and their compliance with relevant laws and regulations.
An accountant’s role focuses more on evaluating financial operations to recommend best practices, identify issues, and strategise solutions to help SMEs run efficiently.
Accountants have additional responsibilities such as preparing tax returns and ensuring that payment of taxes is on time, offering guidance on cost reduction, revenue enhancement, and profit maximisation; and conducting forecasting and risk analysis assessments. While bookkeepers maintain ledgers, accountants translate them into statements, revealing the business’s bigger picture and its path.
Credentials: An accountant usually has a bachelor’s degree in accounting or finance degrees with related accounting certifications. For most professionals, obtaining a “CPA”(Certified Public Accountant) is essential to securing a job and developing their careers.
|Daily tasks. Handling day-to-day management of accounts. Managing cash flow; Maintaining and balancing subsidiaries, general ledgers, and historical accounts.||Preparing adjusting entries. Recording expenses that have occurred but aren’t yet recorded in the bookkeeping process. |
|Invoicing. Sending out invoices and managing accounts receivables.||Summarise and Interpret. Provides a summary of statements and business records, and economic performance, and Interpret financial data.|
|Categorize expenses. Handling accounts payables.||Financial analysis and strategy. Evaluate project budgets, and other finance-related transactions to determine the performance and sustainability of the business. |
|Completing Payroll. Keeping accurate records as the basis for payroll, figuring out who to pay and how much to pay them, calculating taxes to withhold.||Completing income tax returns. Reviewing financial statements to ensure accuracy and help businesses to ensure accuracy, meet necessary regulations and laws for taxes. |
|Profit and loss statements. Preparing financial statements, preparing the books for the accountant.||Tax strategy and tax planning. Develop a strategy around the business’ financial situation to minimize income tax. |
|Reconcile bank accounts. Managing bank feeds.||Financial Forecasting. provides information for forecasts, business trends and opportunities for growth; Advice on cash flow management. Aiding the business owner in understanding the impact of financial decisions.|
|Partner with an accountant. Preparing books for tax preparation. |
There may be a basic need for financial monitoring in the early stages of a business; hence it is still advisable to hire both an accountant and a bookkeeper to build a reliable foundation that will support potential growth in the future.
Also, note that financial systems may shift as the business develops, increasing offerings and services, expanding location, and bringing new employees results in a greater need for financial support to track related expenses during the growth stages.
Small businesses’ common mistake is their failure to keep their books up to date; missing a crucial piece of information could mess up the financial flow.
Thus, having a financial professional to handle books and finances regularly means that it could be taken care of much sooner if something went wrong along the way.
An accountant and a bookkeeper both offer effective problem-solving solutions to the business. Delegating financial management tasks to professionals gives owners more time to focus on other activities to help their businesses grow.
Knowing the differences between these professionals may give a good overview of their specific functions in businesses, but it is also vital to acknowledge that each role relies on the other in providing a full set of financial support.
Collaborating with an organisation that provides skilled accountants and bookkeepers benefits the business a lot, and having the right set of finance-team will help move the company forward.