Bookkeeper vs CPA: How Both Work Together to Save Business Owners Time & Money
Today we are gonna be talking about a bookkeeper vs a CPA. How do they work together to save you, the business owner, time and money? This can be a confusing topic because the terms get used interchangeably. We’re gonna go over the different roles of a bookkeeper vs a CPA. How they are different? How they can work together to be the best team and combo for your business? Let’s jump in.
What is the difference between a bookkeeper and a CPA?
These terms get used interchangeably. When I’m talking about a bookkeeper vs a CPA in this, I am going to be using CPA as a general term for your tax person. This is the first place that it can get really confusing because a bookkeeper could technically be a CPA.
I know several people who have started out in corporate accounting then went out on their own and started their own businesses as a bookkeeper. They’re really a CPA. They’re very knowledgeable. This is why it gets so confusing. A bookkeeper could be a CPA or a tax person could be a CPA. A tax person doesn’t necessarily have to be A CPA though. They could also be an EA or an enrolled agent with the IRS to file taxes on another person’s behalf. But this is why it can feel so confusing.
In our discussion today, I’m going to define a bookkeeper as the person who’s doing the day-to-day financial tracking. Things like the categorizing of transactions and the reconciling. They are making sure there’s no errors to the accuracy of the data and then preparing the financial reports.
Then the CPA or the tax person’s roll in this scenario is to be the one who prepares the taxes. They are the ones who do the tax forms, fill those out, and prepares them. They make sure that you’re in compliance for tax purposes. Sometimes you can also add on more strategy around how to save money for taxes or pay less taxes by doing certain legal things with your CPA. They can also sometimes help you with financial analysis.
Now, that can also get into another role, which is the CFO type of role. They can be someone that really dives into financial strategy and analysis and review. But for this purpose, we’re talking about a CPA as the person who files and is responsible for your taxes.
If you think of this kind of like a puzzle, the bookkeeper is the person putting all of the puzzle pieces to together. You’ve got the income and the expenses and all of the different ins and outs of money in your business. The bookkeeper’s making sure that it all fits nicely together to make the picture. But oftentimes, the bookkeeper doesn’t have the full picture. In this analogy, we’re gonna say that the CPA is the one who’s going to take the photo of what the puzzle’s supposed to look like, the IRS’s rules and tax laws, and compare that to your final puzzle to make sure that it’s fitting together and flowing properly. I hope that helps to clarify how they’re different and how they work together.
The challenge with CPA’s
The challenge here is that the CPA cannot properly do their job if the bookkeeping is not right or incorrect. I have had clients in the past be very surprised and frustrated by the bill that they received from their CPA. Here’s why: the CPA actually had to go back and clean up the bookkeeping or do the bookkeeping and charged a lot more for it than a bookkeeper would have because those records were not accurate. Because of that they could not file the taxes appropriately since the bookkeeping was not kept up.
I hope that this alone inspires you to keep up with your bookkeeping, especially if you are the person that you’re sitting here thinking, “well I’m actually the bookkeeper and the tax prepare in my business right now.” That’s okay. There’s no shame or judgment. I just want to give you permission that it’s okay to be that person and not outsource that at this point in your business. You may want to hold onto it for a while. Many of my clients stick with it because their process is so simple, it’s not worth outsourcing. If you are the person doing both of these roles, you just want to be aware that they impact each other.
If you are working with a bookkeeper or a CPA, the ideal workflow would be that the bookkeeper would have everything neat and tidy and in order so that the tax preparer can use those numbers and reports from your bookkeeping to file the taxes. They will take all of the numbers from your profit and loss report and they will input that into the tax forms, and that’s why it’s really important to have the records accurate and clean.
In an ideal world, the bookkeeper and the CPA would be communicating back and forth. They would be collaborating on how to best help you, the business owner, save time and money. Now, that doesn’t always happen, but often you can ask your tax person either in a strategy call or just after filing your returns if there is anything you should categorize differently. Anything that would be helpful for you to see. That is often when I work with full service bookkeeping clients. What I do as a bookkeeper is make sure that everything is as simple and easy as possible for the CPA to do their job. So it’s on me to ask those questions and make sure that it truly is simple and easy and smooth.
What if you do your own bookkeeping?
Most often the clients that I am working with do their own bookkeeping. But they outsource the tax piece to a CPA or tax accountant. Sometimes I see that this is where it can feel really intimidating or confusing. The CPA will ask you to make changes or provide certain details of things. You as the business owner may not know what they’re saying or what the answer is because there is so much jargon.
I had a member recently just forward me the email from her CPA. She asked, “Hey Erika, can you just translate what they are saying because I don’t even know”. It was actually a very small thing that needed to be tweaked. It was that we needed to recategorize some things into a different category per the CPA’s request. But the way that it was worded was so confusing. It sounded like it was this horrible mistake that the business owner made when really it was something very simple.
This is where it can get tough because often tax people are busy, especially this time of year, and they don’t often take the time to educate a small business owner on going forward or making small changes. If you need some support like that, a bookkeeper in your back pocket, someone to help translate the financial jargon from your CPA or tax person, or if you’re trying to learn your reports and really start to review them monthly yourself, then check out my membership. This might be the perfect solution for you as the DIY bookkeeper. Also having the support you need. That way you don’t have to be on the phone with QuickBooks support for hours and never get your question answered.
In conclusion, a bookkeeper and a CPA ideally should be working together to help save you time and money. They do this by providing you really clean and accurate reports so that you can make decisions. Also so that you can comply with your taxes and make it simple and easy for your tax person to file your tax forms and stay happy with your state and the IRS. There you have it. All the things you need to know about a bookkeeper vs a CPA.
Listen to this episode!
Be the first to comment