Accounting vs Bookkeeping: What Start-ups Need To Know!

Start-ups can’t take the processes of bookkeeping and accounting lightly. Not doing them right can be hugely expensive and result in lost opportunities.

Pondering the financial nuts and bolts of one’s company is not something that excites most businesses owners. For start-ups, making the product or service they provide a roaring success is what dominates their thinking.

But getting to grips with the bookkeeping and accounting side of the business shouldn’t be overlooked. This is especially important at the start of the journey. At this stage firms can burn through cash at an alarming rate, while the amount of money coming in can be extremely modest.

This guide spells out the differences between what bookkeepers and accountants do. And it explains the advantages that establishing robust financial procedures can have to your business.

What Is Bookkeeping?

Bookkeeping refers to the process of tracking and recording everyday transactions that happen at a company. It can cover a broad range of tasks that differ from business to business. But bookkeepers will usually carry out the following exercises:

• Record sales and mark invoices as paid.
• Make a record of everyday expenses, loans and investments.
• Chase up unpaid invoices.
• Check for errors in invoices and company budgets.
• Ensure that staff wages and benefits are paid.
• Produce monthly financial statements.
• Prepare year-end tax returns.

An individual doesn’t need formal certification to keep a company’s books. This means that more or less anyone can do it, providing they have a pen to hand and have the time and motivation to log each and every transaction that occurs at a firm.

Yet this administrative process shouldn’t be taken lightly. A failure of proper bookkeeping can scupper the smooth running of a company’s operations. This can in turn result in a huge financial cost or, in the worst-case scenario, put the very survival of a business in jeopardy.

What Is Accounting?

Accounting takes the process of bookkeeping one step further. Whilst the latter involves the more basic task of inputting transactions, an accountant will analyse a company’s books and provide a holistic view of its financial health. They will then present their findings in a way that the business owner can easily digest and, if they choose to, effectively act upon them.

Tasks that an accountant is likely to carry out can include:

• Preparing adjusting entries prior to ensure financial statements are correct.
• Reviewing and analysing financial statements.
• Creating financial forecasts.
• Carrying out regular audits.
• Providing advice on financial decisions.
• Preparing and submitting tax returns.
• Conducting tax planning and provide tax advice.

Accountants won’t get involved in particular day-to-day transactions that a bookkeeper will get involved in, however. But their focus on the bigger picture means that accountants can play a vital role in the future direction of a company. Their interpretations of a firm’s financial position can be crucial when it comes to making decisions on recruitment, cost-cutting and acquisitions, to cite just a few examples.

This added responsibility means that, unlike bookkeepers, accountants in the UK require particular qualifications and formal certification. These can be attained through courses run by bodies including the Chartered Institute of Management Accountants (CIMA) and Association of Chartered Certified Accountants (ACCA).

Business owners don’t need to hire the services of an accountant. However, the overwhelming majority of limited companies hire a specialist in this area to prepare and provide accounts to HM Revenues and Customs.

This isn’t just because accountancy is a complicated endeavour. It’s also because the UK’s tax system can be difficult to navigate and is subject to regular changes. An accountant will be up to date on what a business needs to do and when, and can also deal with the taxman on the company’s behalf.

Business owners can use specialist software to help them with their accountancy needs. This is a sector that has experienced rapid growth in recent years, and the most popular platforms include the likes of QuickBooks, Xero and Sage Business Cloud.

Using software like this can be quick, efficient, and cheaper than an accountant sitting at a desk. But there are a variety of drawbacks, too, and not just because a more hands-on approach to dealing with HM Revenues and Customs can provide a big advantage to businesses owners.

Accountancy software can be complicated to use for some users, and hidden fees and charges can reduce their cost-effectiveness. Poor customer support is a frequent complaint amongst users while service downtime can have serious implications for a company’s operations. The potential for online fraud is another threat business owners need to consider.

This is why getting in touch with an accountant can help. Owners of start-up companies usually lack the experience to deal with bookkeeping and accounting in an effective way. We at Finerva can help start-ups and scale-ups get to grips with the financial side from Day One.