Do I Need a CPA for That?
Updated: Jul 7, 2022
There are certain things only a CPA can help you with and there are other, related things you can use a bookkeeper for. How do you know which is which and is there a benefit to using one over the other? What’s the difference?
Many small business owners don’t know the difference between a CPA and bookkeeper. If you’re one of them, you’re not alone. This article will help you understand the difference between a bookkeeper and a CPA, which one is best to use under which circumstances and why.
What is a CPA?
A CPA, which is short for Certified Public Accountant, is a highly trained tax professional who is licensed at the state and federal levels to be able to work with you and the IRS or your state’s revenue department to file your taxes, plea your case, negotiate your debt, and other various engagements with government agencies.
CPAs are also a fantastic source of advice, as they are trained to understand tax law and the implications of certain allocations and how what you do now will affect your year end tax bill. For questions pertaining to corporation structure, asset depreciation, owner payroll amounts, determining whether cash basis or accrual is better for your business, your CPA is the right person to talk to.
A CPA’s goal is to help you file your taxes and get you the best tax deal possible. This is a great goal and every small business needs someone in their corner on this subject.
How is a Bookkeeper Different from a CPA?
A bookkeeper is different from a CPA in many ways. The biggest difference being that your bookkeeper is very hands on in your company and focused solely on your business. The day-to-day transactional accounting of a business shows the intimate details and health of the company. This close relationship affords your bookkeeper the ability to give you certain insight into your business that your CPA may not catch, as the CPA is mainly concerned with your year-end bottom line.
A bookkeeper can help you:
· Organize your finances in such a way as to give you the full scope view of your business
· See where you’re losing money
· See where you’re making money
· Get control of overspending
· Determine your make/break point and profit margin
Another major difference between a CPA and a bookkeeper is in the end goals. The bookkeeper’s goals are:
· Properly allocate your transactions
· Ensure your accounting software balances to the bank account, payroll, etc.
· Help you design your finance administration to fit your needs
· Provide clean and usable financial reports to help you run your business more effectively
· Have your books clean, neatly packaged and ready for the CPA at tax time
· Train you or your staff on the use of the accounting software and/or reports
Who Should I Use for What?
Of course, you want to keep a CPA on standby, as this is the person that will help you file your taxes, give you advice on those tricky questions that come up, or help you plan out your expenditures over the year to maximize your tax benefits.
However, when it comes to entering your bank transactions; allocating your expenses; deciding how you want to administrate your company’s spending; tracking income and/or expenses by job, property, sales person, etc.; reconciling your accounts, running payroll; generating usable financial reports; or even help you or your staff understand the accounting software or reports, a bookkeeper can help you at a fraction of the cost a CPA will charge.
When in doubt as to who you need for a specific problem, just run it up the food chain. In other words, call your bookkeeper to get his or her advice first. If it turns out to be more complex, he/she should refer you to your CPA for advice.
What is the Cost Difference?
It is true that many CPAs offer bookkeeping services, but at what cost? CPAs charge somewhere in the range of $200 to $500 per hour. At this price you can be reasonably sure to spend a small fortune each year. If your CPA charges right in the middle at $350 and your bookkeeping takes five hours per month this adds up to $21,000 per year.
If you decided to hire a full-time, in-house bookkeeper at $15 per hour, this adds up to $31,200 per year before payroll taxes are figured in.
A bookkeeper usually charges between $50 and $100 per hour. If your bookkeeper charges right in the middle at $75 per hour at five hours per month, this comes to $4,500 per year. The savings speak for themselves.
What Should I Look for in a Bookkeeper?
When hiring a bookkeeper, you want to ask yourself a few questions.
1. Can I get along with this person and do they seem like they want to help me?
2. Did they ask a lot of questions about my business or as to see samples of my finances?
3. Do they have referrals I can contact?
I would definitely advise any business owner to hire a bookkeeper with whom they get a long well. There will be questions back and forth between you and your bookkeeper, more often in some types of companies than others, so it’s a good idea to hire someone you can easily talk to and understand.
During the interview or consultation process a bookkeeper, in due diligence, should have several questions about your business. The more questions they ask the harder they are working to really understand your business. And of course, a picture is worth a thousand words, so if a prospective bookkeeper asks to see your records before fully committing, take this a good sign.
References are a terrific way to learn more about a prospective bookkeeper. Ask him or her for a list of references you can contact and speak with. You can also look for social media reviews online to see what people are saying about him or her.
I hope this article has been helpful to you in making the right bookkeeping decisions for your business.
If you have any questions about bookkeeping or are considering hiring a bookkeeper for your business, please feel free to contact us at email@example.com
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.