Bookkeepers help you keep track of the money you earn and spend whether you run an e-commerce business, a brick-and mortar store, or offer professional services. When you spend too much, or spend money in the wrong places, your company will struggle. Luckily, investing in the right business areas leads to business growth.
So, what information do you need to get a good snapshot of your business’s finances to make solid decisions? Basically, you need to accurately track every transaction your business makes. What do bookkeepers do? Precisely that, and more.
Bookkeepers keep accurate, comprehensive records of the money that flows in and out of your business. This can show you where you’re spending money and what services or products are generating the most revenue. This information is vital to financial health, fuels sound business decisions, and leads to winning strategies.
However, this is only an overview of the duties of a bookkeeper. A complete answer to the question, “What do bookkeepers do”, and whether you should hire one, can only be answered if you explore their value further. Let’s delve deeper.
Short History of Bookkeeping
Bookkeeping is not a new profession. Sumerians, Babylonians, Egyptians, Greeks, and Romans all tracked their trade. Modern bookkeeping appeared in the 15th century when the Italian mathematician published a book on the double-entry bookkeeping system.
This system is still used today to accurately record transactions and improve business efficiency and profitability. However, your bookkeeper has the advantage of powerful accounting software instead of the clay tablets and bones used in the past.
What is a Bookkeeper?
A bookkeeper is a professional who helps a business keep their finances in order. Their primary functions are to organize, record, and report the financial transactions of your business throughout its operational life.
Duties include managing the company’s accounting ledgers, inputting transactions accurately, and producing financial reports. They also ensure data remains organized, easily accessible, legally-compliant, and complete.
Business owners and accountants rely on the data collated by the bookkeeper. It can provide them with in-depth information on a company’s financial health and help with forecasting and ongoing financial decisions.
Difference Between a Bookkeeper and an Accountant?
Bookkeeping is a subset of accounting. The bookkeeper creates and maintains accurate business records and produces financial reports. However, a thorough understanding of this information goes beyond the scope of bookkeeping.
Accountants make sense of the numbers and translate complex ideas into understandable, useful, actionable information. They’re formally educated, industry regulated, and follow exacting professional and accounting standards.
As a result, they are better-suited to help you understand risks, plot strategies, build budgets, and provide you with usable data for sound business decisions.
What Do Bookkeepers Do?
If you ask ten people “What does a bookkeeper do?” you’ll probably get ten different answers. This is because bookkeepers can perform many duties, depending on their capabilities and their employer’s needs.
Nonetheless, most bookkeepers do have certain common responsibilities. We’ve explained ten below, but a bookkeeper may handle many more.
1. Categorize and Record All Transactions
Tracking how money flows in and out of your company is accomplished through categorized transactions. Each transaction is assigned to a specific expense or revenue account.
For instance, a bookkeeper may receive a receipt for a package of printer paper and an invoice for a plane ticket. In this case, these expenses would be input into the accounting software under office supplies and travel expenses.
Revenues are assigned to their own categories too. Some transactions such as bank charges, interest, and reversals are also brought in from the accounting system’s bank feed.
2. Reconcile Your Bank Accounts
This is almost always one of the first answers when you ask “What do bookkeepers do?”. This is because it is important. Reconciliation compares your monthly bank balances against what is in your accounting software to ensure they match. If they don’t, the bookkeeper must discover why.
Sometimes the two balances differ, because the bank posted transactions that aren’t in the system. An example might be a cheque that was written, but not recorded on your books. Other times, the difference is due an input error or duplication. Regrettably, differences can also be caused by theft or fraud. Nevertheless, it is better to discover problems sooner than later and reconciliation plays an important role.
3. Prepare Key Financial Statements for Your Business
Generating regular financial statements is another important duty of a bookkeeper. These statements can be used by owners, creditors, investors, and other parties to assess your company’s financial position.
Due to the use of automated bookkeeping software, bookkeepers can generate statements whenever needed. The most common include an income statement, balance sheet, cash flow statement, and a statement of retained earnings.
4. Take Care of Bills and Invoices
A bookkeeper may also handle the timely collection of your invoices issued to your customers and the payment of the bills you owe too.
This usually involves using accounts payable and accounts receivable modules in your accounting system. Accounts payable are bills owed to vendors and suppliers. Receivables includes invoices you’ve issued for work completed, which have not been paid.
5. Work with Your Accountant and Prepare the Books for an Accountant
Many businesses choose to use a bookkeeper for their day-to-day transactions, but turn to an accountant when they need detailed advice. As a result, bookkeepers and accountants usually work together closely.
Your bookkeeper may end the fiscal year when it is time for taxes or generate financial reports if you’re seeking investors, credit, or a business sale. The bookkeeper knows your business well, and can act as a conduit. This speeds processes and eliminates confusion. However, your accountant is the one qualified to prepare official reports.
6. Maintain Financial Records
Another primary responsibility is maintenance of your company’s financial records.
Normally, your accountant sets up the chart of accounts for your business. They may also set budgets for particular products, services, and business expenses. Once determined, your bookkeeper monitors and maintains these records to ensure transactions are entered correctly, data remains accurate, and reports provide comprehensive information.
7. Manage Cash Flow
Cash flow is an important indicator of company health and vital information to investors. Your bookkeeper can measure how cash flows in and out of your business to ensure you don’t run out of day-to-day money.
A positive cash flow offers many benefits including helping your business survive tough times. It can also allow your company to pay off debts, reinvest in new products or services, or scale up what’s already working. If you have shareholders, you can also use your positive cash flow to pay dividends.
Your bookkeeper will also alert you if your company has a negative cash flow so you can make needed changes quickly.
8. Keep Business’s Bookkeeping Practices in Compliance with Federal, Regional, & Local Requirements
A good bookkeeper ensures accounting software remains up-to-date and entries and reports comply with the most recent legal requirements. Luckily, leading accounting software companies usually monitor legal changes and notify users.
However, your bookkeeper must interpret theses compliance changes correctly. If they don’t know how to handle a particular situation, they should seek clarification to ensure to ensure your business remains complaint. This is especially important for taxes as mistakes can lead to an audit, fines, and further scrutiny. Fortunately, bookkeepers make compliance a priority.
9. Manage Bank Feeds
Bank feeds are built into your accounting software. They automatically download transactions from your bank and can slash your bookkeeper’s need for manual entries. They also speed up account reconciliations.
Examples include incoming deposits and automatically assigning some credit card expenses to a certain category. Your bookkeeper must monitor these automatic transactions for proper categorization.
10. Keep You Prepared for Tax Time
Nothing is worse than scrambling around for the information you need to file your taxes. Fortunately, hiring a bookkeeper can reduce your frustration.
They keep you organized throughout the year so when tax time strikes, you’re ready. Most business owners don’t have the time to track tax deadlines or the expertise to meet compliance requirements.
Your bookkeeper ensures all invoices and receipts are properly recorded and stored. At tax time, it’s just a matter of generating accurate financial statements for your accountant.
Even though your bookkeeper won’t prepare your business tax returns, they are still instrumental in a smooth process. They lighten your load and reduce risk.
This list covers ten bookkeeper responsibilities, but a bookkeeper could easily have many more. Our information provides a general overview of what bookkeepers most commonly do for business.
Regardless, we find three questions pop up repeatedly when we discuss bookkeepers and their duties. Let’s answer those questions now.
Can a Bookkeeper Manage Inventory?
Yes, some bookkeepers offer inventory management as part of their service. They can track sales against the amount of inventory on-hand and measure the cost of goods sold. They can also point out discrepancies and provide ordering recommendations.
Do Bookkeepers Do Taxes?
Bookkeepers generally take care of tax preparation, but they’re not certified for tax filings. They can’t advise you on tax planning either. However, it makes sense to use a bookkeeper for every day recordkeeping as their fees are usually less.
An accountant has the credentials and knowledge to properly manage tax needs. Some bookkeepers work in conjunction with accountants for a positive, symbiotic relationship.
Can a Bookkeeper Do Payroll?
Yes, bookkeepers sometimes offer payroll as part of their service. They can calculate wages, withhold deductions, and issue payments through payroll software.
What Skills Should a Bookkeeper Have?
Canada’s National Employment Classification for a bookkeeper specifically mentions two years of training through a recognized professional accounting program or courses combined with several years of experience.
A good bookkeeper should also have solid references and testimonials from companies similar to your own. Do their clients rave about the bookkeeper’s enthusiasm and commitment to their business? Is the bookkeeper professional, trustworthy, reliable, and discreet? Are they strong communicators willing to explain complex issues?
A good bookkeeper has their finger on the pulse of your business. They can provide you with a snapshot of your financials at any time for better business decisions.
Additionally, bookkeepers free up your valuable time so you can focus on generating more revenue. Why waste your time, when an adept, professional bookkeeper can do a better job, quicker?
What do bookkeepers do? They help companies prosper. Whether you operate a small, medium or large business, LedgersOnline offers you a dedicated bookkeeper, tailored, scalable services, up-to-date books, and real-time access to your financial information. Contact us for a free 30-minute consultation.