What Does a Bookkeeper Do? An Introduction to Business Owners Looking to Hire

This excerpt was originally published in full on ScaleFactor’s blog.
Graphics by Lin Zagorski Latimer.

Working with small business owners, we hear all the time that one of the biggest reasons people put off starting a business is because accounting scares them. They’re worried about keeping up with all the rules of accounting or that they’ll mess up their taxes. When they do decide to move forward, they know they’ll need a plan to tackle the financial side of their business, and many will weigh the options between hiring a bookkeeper, an accountant, or going it alone. 

But what exactly does a bookkeeper do? How are they different from an accountant? And should you hire one?

If you find yourself at this crossroads, know this: businesses are unique. Your mentor may need an in-house bookkeeper for her business, and your best friend may get by just fine using Excel for his books. We’ll provide an overview of the roles and responsibilities of a traditional bookkeeper so that you can decide for yourself what kind of help you need.

The Role of the Bookkeeper: What Do They Do? 

Any time that your business spends or earns money, those financial transactions need to be classified and organized. The act of doing this is called bookkeeping. 

A bookkeeper’s primary responsibility is to keep track of all income and expenses and make sure those transactions are reflected accurately in your business’ books. To do so, they might help with: 

• Tracking down receipts from employees.

• Data entry and categorizing transactions. 

• Reconciling bank statements.

• Sending and following up on invoices. 

• Managing accounts payable. 

Depending on how your business operates, the list above could result in a few hours of work each week or a whole lot more. If you run a service-based company, like a consulting firm, you might send out 2-3 invoices each month and make a handful of purchases on top of recurring spending, like payroll and rent. A part-time or remote bookkeeper could probably handle that work without breaking a sweat.

If you owned a construction company, however, you might have dozens of transactions each day as you pay contractors and buy supplies. On top of that, you might need complex reports so that you can track spending for each individual project you’re working on. Compared to the consulting firm, that’s a lot more complexity on top of a higher volume of transactions to classify. You might want someone in-house who knows your business backward and forward. 

Whatever the complexity of your business is, the role of a bookkeeper doesn’t change dramatically. At the end of the day, a bookkeeper’s primary responsibility is to make sure that all of your company’s financial data is accounted for and organized properly in your books. 

What do you mean by “books”? 

These days, almost every business will use some sort of digital accounting file to store all of their financial data. In some cases, this could mean using Microsoft Excel (though we don’t recommend that). More often, it means using a solution like QuickBooks Online or Xero. 

An accounting file is like a database for your business finances. It houses all your past transaction data, which allows you to run reports on past numbers and keep records in case the IRS ever comes calling. Your accounting file will be referred to as your “books” because accounting jargon is outdated and often still harkens back to the days of physical ledgers that bookkeepers would manage with pencils and calculators. We’re sorry. We’re trying to change that. 

The management of your accounting file is the job of a bookkeeper or, as we’ll talk about later on, an online bookkeeping software. ScaleFactor, for example, is a software that does the work of classifying your transactions in your accounting file, like a bookkeeper, but does not replace your accounting file. That way you can hang on to that data no matter who’s managing your books. 

Bookkeeper vs. Accountant

The accounting cycle is a series of 5-8 steps that are taken to wrap up an accounting period and prepare a company’s books for the next. (The number of steps varies depending on who you ask. We say it has five.) 

The first few steps in the accounting cycle are handled by the bookkeeper. These steps include: 

• Identifying and recording transactions in the accounting file. 

• Checking those transactions for accuracy at the end of the period (Do total debits equal total credits?). 

• Making any journal entries that are needed to fix inaccuracies or account for intangible things like depreciation. 

That’s as far as the bookkeeper’s responsibilities typically go. An accountant might then step in to help with the final step: creating financial statements. The three primary financial reports are the income statement (or profit & loss statement), balance sheet, and cash flow statement. 

If your books are up-to-date and your business is simple enough, you might be able to pull these reports right from your accounting file with little effort. But if you’re about to seek a loan, talk to investors, or show your books to anyone important, you’ll want a real-life accountant double checking these statements. 

Another primary responsibility of an accountant is tax preparation. Many small businesses will need to make quarterly estimated tax payments in addition to filing annual federal tax returns and state tax returns. So while your employees pay taxes once on April 15, you’re potentially paying taxes six times a year. That’s a lot. You’ll want an accountant, perhaps a CPA, on your side for this. 

CPA (abbr): Certified Public Accountant. A CPA is part of a select sub-set of accountants. While most accountants will have a bachelor’s degree in finance or accounting, CPAs must also pass a rigorous exam in order to claim the title. You don’t have to hire a CPA, but you might consider it for more complex books or tax time.

Average Bookkeeper Salary

Just as there are levels of accountants that you can hire depending on your needs, there are also variations in the world of bookkeepers. Some bookkeepers stick to data entry and following the rules of GAAP, or Generally Accepted Accounting Principles. Others are also trained in accounting. Their skill level will impact the rate they charge, so be sure to think carefully about your needs before speaking to anyone so that you find the right solution for you—at a rate your business can afford.