Knowing the Difference Between a Bookkeeper and a CPA

Most small business owners start out with a great idea and a passion for what they plan to offer the public. They may spend countless hours organizing themselves in order to finally open their doors to the public. For the majority of people the first few months can be nerve racking, a baptism by fire if you will. With each passing day the owners learn more and more about what works and what doesn’t work in terms of attracting potential clients and closing sales.

Hopefully, the company did their homework before opening their doors and discovered that their business will have tax obligations that they never had before as individuals. If the company is a corporation then they will have to pay themselves as W-2 employees. This means that the company will withhold payroll tax from the employee (essentially themselves) and have to pay the company’s half as well. Then of course, there are deductions that the company can make in order to lower their tax liability. Sometimes deductions can be made but are overlooked by busy business owners. Things can get complicated very quickly, and before you know it, that nifty Quickbooks program the owner bought can turn into quicksand, sucking the most precious commodity any business owner has, time, right out.

Sooner or later, most companies turn to an accountant in order to take care of their financial record keeping. A quick web search for an accountant using Google will return thousands of CPAs, Independent Accountants, and Bookkeepers. At this point, you might be confused and ask yourself, what’s the difference? Well, why do you think I wrote this article? The recording of all daily financial transactions and their proper categorization is generally done by a bookkeeper. Some bookkeepers will also provide other services like the compilation of financial statements, payroll processing, quarterly tax filings, and income tax preparation along with other services. In essence, a bookkeeper that provides all of those services is acting as an independent accountant, that is, an accountant that is not chartered by the State like a CPA is. Unlike a bookkeeper or an independent accountant, the CPA (Certified Public Accountant) can perform an audit as well as any of the other tasks that the others can perform. Unfortunately, for the public, in many states, the only one of those three professionals who can advertise themselves as an “Accountant,” is a CPA. Makes you wonder just how strong their lobby is doesn’t it?

In order to become a CPA, a person needs to take a certain number of master’s level courses in accounting along with their undergraduate courses which did not necessarily have to be business related. Then, that person can either sit for the state CPA exam immediately and then work under the supervision of an already licensed CPA for 2 years, or vice-versa. It is undoubtedly a long and tedious process, and they will charge you accordingly (student loans don’t come cheap). That’s all fine and dandy, and surely anyone who puts themselves through that kind of academic study is worthy of respect. Nobody is arguing against that. However, as a consumer, I’m personally looking for the best price and the person who is going to get the job done right. Yes, CPAs are highly educated, but do I really want to pay exorbitant prices to someone who went to school for a decade just for my bookkeeping? My answer is a resounding no. (Especially when some bookkeepers are highly qualified. Some even hold Master in Business Administration (MBA) degrees).

There are of course, companies out there that require the stamp of approval that comes with a licensed CPA’s audit of their financial statements. A company that is looking to get investors onboard to invest millions of dollars for example will definitely want a CPA to sign off on their financial statements in order to ease any investor apprehension. Someone who is looking to get an extremely large loan from a bank (99% of small businesses don’t ask banks for loans worth millions of dollars) is also going to need a CPA to conduct an audit. But let’s face it, the majority of small to medium sized business owners will never have a need for an audit conducted by a CPA. Even if they did need an audit from a CPA that doesn’t mean they can’t get one using the financial data compiled by a bookkeeper or an independent accountant.

A CPA is only going to verify and sign off on the work already done by the bookkeeper (and charge thousand of dollars for his signature). Most CPA’s don’t do the actual day to day work that bookkeepers do. They either have bookkeepers they keep on staff to do that work or they outsource the bookkeeping work to a bookkeeping company. So why would anyone want to pay ridiculously high prices to a CPA in order to get their bookkeeping done for their small or medium sized business? Beats me.

In all fairness I can see how someone with no knowledge of the accounting industry would feel safer going with the CPA. He’s got the degree, the big office, and the prestige to impress any small business owner’s socks off. The truth is though, any self-respecting, hard working, serious bookkeeper can do just as good of a job if not better than that exorbitantly priced CPA at a much fairer price. In fact, if you’ve ever had your bookkeeping done by a CPA then chances are the work you saw was done by a trustworthy bookkeeper. My advice to anyone looking for an accountant is to save yourself a lot of money and give your financial record keeping duties to a professional bookkeeper who provides the other services I mentioned previously as well. Chances are that you will not only get a better price, but you will receive better customer service because companies like yours are a bookkeeper’s bread and butter, not just a supplemental source of income as most CPAs perceive their bookkeeping clients to be. Not only that, but you will likely develop a long lasting relationship with your bookkeeper and have a great asset on your team. I hope you have enjoyed my post for the day and stay tuned for more to come.

Alex Cruzet CEO, Precision Bookkeeping Solutions Inc.