For some businesses, especially startups, any opportunity to cut costs is a welcome one. Many business owners in this situation find themselves making a call between having an accountant or using bookkeeping software, rather than both. It’s a common situation.
The cost-saving benefits of an either/or approach needs no clarification – only having to pay for one resource reduces your outgoings. It’s that simple, and it’s easy to see why this might seem like an attractive solution. But to make a good decision for your business, it’s useful to understand how bookkeeping and accounting are different, and what purpose each serves.
What is the difference between accountancy and bookkeeping?
Although bookkeeping and accounting both deal with a business’s finances, they do so in different ways. A simple way to look at it is like this: bookkeeping is about just that – keeping the books. Accountancy is about analysing, understanding, and reporting on this data.
What a bookkeeper does
Bookkeeping is the process of recording financial transactions and maintaining accurate business accounts – the cold, hard, numerical facts about what comes in and what goes out of your business. It’s essentially the preliminary admin necessary for an accountant to do their job.
What an accountant does
An accountant will use the information which the bookkeeper records to improve the tax-efficiency of a business and support its financial health. They can help business owners to make more money-savvy decisions, whilst ensuring that HMRC have all the information they need to keep the business tax-compliant.
Can bookkeeping software replace an accountant?
The answer to this question largely depends on what you rely on your accountant to do for you. If you only enlist them to carry out financial admin and prepare your annual tax return then yes, in theory, you could do it all yourself using bookkeeping software.
However, if you were to really wring all possible potential out of your accountant’s expertise, you might find the answer to this question is a hard no.
Make no mistake, using bookkeeping software has an enormous number of benefits, including:
- Keeping all of your financial information in one place, improving access and organisation.
- Remote access for multiple users when you choose a cloud-based bookkeeping software.
- Using software that includes active error detection to reduce the risk of mistakes in your records.
- Save time on data-entry by connecting payment feeds directly to the software.
- Automated reminders so that you never miss a deadline.
- Minimising the risk of omission and human error.
But bookkeeping software doesn’t have an accountant’s ability to spot areas where you can become more efficient in the way you run your business, or in the way that you pay tax. If you were truly working effectively with your accountant, you wouldn’t even consider sidestepping them for software alone.
If you can afford it, tapping into both resources simultaneously can help you more effectively as a business owner.
The benefits of having an accountant and bookkeeping software
We’ve touched on a few of the most common benefits of investing in great bookkeeping software above. But why do we recommend that you still consider using an accountant as well? Ideally, the bookkeeping software that you use will complement the work an accountant does for you.
Professional data analysis and insights
With access to accurate financial records (courtesy of excellent bookkeeping), an accountant will be able to dig into the data of your business accounts and offer insights accordingly.
Good bookkeeping software will have a range of comprehensive reports included, but if you’re not very experienced then you might find an accountant can help make sense of it all. These types of insights could be the difference between making your first million or operating at a loss for the next five years.
Better business decisions
An accountant will be able to provide you with valuable decision-making guidance by applying their expert risk analysis, financial forecasting and budget advice. Remember too, they see behind the scenes of a lot of other businesses!
Improved cash flow health
When you have professional data analysis, audits, risk analysis, and forecasting on your side, it stands your cash flow in great stead. Not only will this positively impact your current cash flow situation, you can also work with your accountant to plan ahead, mitigate pitfalls, and grow stronger as a business.
A buffer between you and HMRC
As well as insight into your financial profile, a good accountant will also offer representation in front of HM Revenue & Customs, if and when you might require it. It helps reduce some of the stress!
Our verdict?
When used in conjunction, bookkeeping software and the services of a terrific accountant are a force to reckoned with.
Without robust bookkeeping down to the decimal point, an accountant can’t possibly do their best work. Without an accountant on the receiving end of the information, there’s a ceiling on how useful even the most meticulous bookkeeping can be if you really want to maximise efficiency in your business.
Looking for some more support with your business finances? Compare accountants, learn more about bookkeeping software, or ask an accountant a question for free.
