It’s something of a milestone in the development of many companies when they find that they have a need for accountancy services as opposed to just bookkeeping. And with good reason, as the scope and impact of these two related but distinct professions are very, very different.
In the early days of a small to medium company, it’s quite likely that much of the owner or management energy is taken up with creating and delivering their product or service, and finding ways to market it successfully.
Bookkeeping at this stage can be seen as something of a ‘necessary evil’, representing a cost to the business that doesn’t seem to have the ability to contribute to the bottom line. The fact of the matter, however, is that being on top of your company’s finances is one of the most important things you can do to influence success.
What’s involved in bookkeeping?
The role of the bookkeeper is to formally record the daily financial transactions of the business. This includes anything from payments to purchases and from cash receipts to sales. It’s normally considered an administrative rather than a management function.
Bookkeepers add value to the business by recording and logging all daily transactions in a consistent, easy-to-read way that can be absorbed by anybody in the organisation. Some of this is a mandatory requirement by the Revenue authorities, but it’s also a vitally important exercise in letting the business know where the money is coming from – and where it’s going.
Without this practical approach to monitoring inward and outward flow of funds, accountants could not do their job when they become involved at a later stage in the process – or in the life cycle of the business.
Some of the more common tasks entrusted to the bookkeeper are:
- Recording financial transactions
- Producing invoices
- Posting credits and debits
- Managing payroll
- Maintaining and balancing ledgers and accounts.
Maintaining a General Ledger is one of the main duties of a bookkeeper. The General Ledger is pretty much the foundation stone for any bookkeeper. It doesn’t need to have any particular format – it can be old-fashioned record books, or an excel spreadsheet, or accounting software, such as Sage 50. But whatever format your General Ledger takes, it’s got to record every sale and purchase.
And needless to say, accuracy is absolutely paramount, which makes a very strong case for automated methods such as software. Even with automated methods, however, accuracy of input is crucial. You can’t blame the software if it’s been fed with incorrect data!
What does the Accountant’s job Entail?
If you accept that bookkeeping is all about recording data, then accountancy is about taking that raw data and turning it into information and insights that help the business owners make greater sense of what’s happening. Effectively, the accountant is a business analyst who transforms figures on a page into action points, warnings or future predictions about where the business is heading.
In most larger organisations, the most senior accountant in the business would either be a member of the Board – or at least report regularly to the Board.
Some of the most common day-to-day activities of an accountant include:
- Data analysis and verification
- Preparing tax returns, income statements and balance sheets
- Providing data and material for business trends, forecasts and opportunities for growth
- Clearly communicating the impact of financial decisions to the business owner
In essence, the accountant provides the big picture – but it’s based on the granular data that he/she’s received from the bookkeeper.
When is it time to bring-in an Accountant?
It’s impossible to give a stock answer that will be relevant to all companies. But as a general rule of thumb, companies tend to take an accountant onboard when:
- The sheer volume of bookkeeping data becomes large enough to warrant analysis.
- The company grows sufficiently in terms of sales and revenues to be able to afford an accountant, who is invariably a huge new addition to the management team.
- There is a growing complexity to your business – perhaps you grow your international markets and need assistance with the tax and other implications of this.
But whatever your reasons for bringing-in an Accountant, take heart that this is a very important milestone in the development of your business – and one which will pay dividends for years to come.
The overview that your accountant can provide at any given time will be hugely important in making a wide range of important decisions – like whether it makes sense to take on more staff, or invest in new plant or machinery, or move to a bigger premises, or go down the merger or acquisition route.
Make no mistake about it, a really good accountant is worth his/her weight in gold, so when the time comes to make that big jump and bring-in an Accountant, take your time in finding the right candidate – it’s one of the most important hires you’ll ever make!