Most businesses will be advised to engage an accountant to prepare tax returns and Companies House filings. But we are frequently asked by new businesses do they need an accountant, or do they need a bookkeeper. To answer that question, let’s first look at the difference between bookkeepers and accountants.
In simple terms, your bookkeeper processes and your accountant analyses and prepares reports. An accountant is typically more expensive than a bookkeeper.
Your bookkeeper is the foundation for all your accounting work. They will record and process all your routine financial transactions, such as sales invoices, purchase invoices, transactions in and out of the company bank, mileage records, expense claims and the company credit card. This is usually done using accounting software, such as Sage, Xero or QuickBooks. Having completed this processing, the bookkeeper will be able to run Aged Debtor and Aged Creditor reports from the software to show how much is owed from customers and how much is owed to suppliers, and to prepare and submit VAT returns and payroll.
So, you might ask, what do we need an accountant for, if our bookkeeper will do all the above?
An accountant will analyse the output from your bookkeeper and use this to prepare financial statements & forecasts such as the Profit and Loss account, Balance Sheet and Cashflow Forecast. They will prepare income tax and corporation tax returns and file accounts and returns at Companies House. They will help analyse your business’s performance and discuss with you possible ways to enhance profitability and cash flow.
You might have spotted a key sequence here. The bookkeeping needs to happen first before the accounting. At JRMA, we always recommend that you organise your bookkeeping processes and resources as soon as your business starts trading, as it is much easier and cheaper to keep it up to date from the start than to try to play catch up later on.
There is definitely an overlap between accountancy and bookkeeping, and you should expect your accountant to be able and willing to do your bookkeeping if necessary, but accountancy rates are typically higher than bookkeeping rates, usually at least double. If you don’t keep your bookkeeping up to date, and just hand over big boxes of receipts to your accountant at the end of the year to prepare your tax return, the accountant will first need to complete the processing before they can start any analysing. And you will be paying accountancy rates for bookkeeping work. The significance of this price differential to your business will depend on transaction volumes. In a small business, with low volumes and complexity, it might be cost-effective to use one accountant for everything, but with larger volumes, it is often a good idea to separate the two functions.
We hope that this article has given you some information to help you make up your mind as to whether you need a bookkeeper, an accountant, or both.
