Accounting consists of three elements: Bookkeeping, Operational Accounting and Tax Accounting.
Bookkeeping is the platform for accurate financial reports and there is more to it than meets the eye. Sadly, the perception is that to be a bookkeeper you just need to know a little something about an accounting software or excel spreadsheet. It is because of this perception that I have encountered many bookkeeping nightmares and had to charge crazy amounts to clients to clean-up the nightmares – which requires perseverance and an advanced and expensive accounting skill set.
Bookkeeping generally consists of entering information into an accounting software, following certain procedures to make sure the information is entered accurately and none is missed, and then printing financial reports. The bookkeeper files receipts and other papers, in such a way that they can be easily found when needed, such as in the event of a government audit.
Bookkeeping is an easily accessible and important service to a business owner.
This piece is critical, yet virtually not accessible by the general public. Operational Accountants are mostly employed by companies of medium size or bigger. They are responsible for accurate financial reporting to decision makers.
Operational Accountants ensure the work completed by the bookkeepers is accurate, and fixes it when it’s not. They train bookkeepers to follow proper procedures, and are available to answer their questions as they arise. Their role is to also help non-accountant minds understand the Financial Reports, so these reports can be used to make sound business decisions. In order to do this effectively, they are involved on a month-to- month basis.
These professionals are the ones people generally think of, when they think of an Accountant. Tax accountants work in Accounting Firms preparing year-end Financial Statements and tax returns. They know the tax rules and pick up where the Operational Accountants leave off. They tend to be involved once a year and focus on tax planning.
All three elements of Accounting are important for small business owners, for the following reasons:
- Each month, you know the financial results of what is going on in your business. This knowing will help in making informed decisions about how to proceed in your business.
- Your reporting to business partners and tax authorities is accurate.
- You don’t waste money on paying too much tax, late filing penalties and interest to the government.
- The peace of mind that comes with all of the above, which frees energy to grow your business.