One of the big questions that we get asked all of the time is, “What is the difference between what you do and what a tax preparer does? Why shouldn’t I just hire a tax preparer? Isn’t what you do the same thing?”
Let’s talk about what bookkeeping is not first. A lot of bookkeepers don’t want to dabble in tax prep. The main goal is to keep your books pretty and clean to help you make whatever financial decisions are necessary, but they are not interested in the tax prep side of it at all.
Some people, whether brand-new or long-term business owners, think their CPA already does this for them. But they don’t typically. The CPA style of bookkeeping is much different from what most bookkeepers do.
Let’s talk about the financial world in two big categories.
The pillar of taxes
The tax pillar is about all of your income and expenses. It’s your big box of receipts that you hand over to the tax preparer and ask them to make it all make sense, and then you’re ready to go. But it only happens once a year. They’ll get everything together, force your expenses into nice and neat categories, and then it’s all done until next year.
The pillar of executive-level awareness
This pillar is about understanding the day-to-day operations of the business and putting on the executive hat to make recommendations and decisions. In many companies, it’s the CEO or CFO who will look at the numbers and use them to make decisions about growing their business. For real estate investors, that could mean breaking down the industry average on rent or moving to a more cost-efficient office. It’s about keeping the business competitive in the marketplace.
With both of these pillars, the foundation is bookkeeping. You can search high and low for a great tax planner or executive leader, but if you don’t have your journal entries and your debits and credits in line, it’s harder to find help. I talk with business owners a lot who say they can’t help some of their clients because they don’t have the right bookkeeping in place.
Bookkeeping can mean success or failure for your business. Those numbers are important! And they’re important throughout the year, not just at tax time.
If you’ve ever known a tax preparer personally, you know that they’re basically drowning during tax season. When you give them everything from the prior year, they don’t really have time to analyze it, they only have time to get it done. They’re going to take your money and make sure that you pay as little in taxes as possible.
Your expenses will get crammed in whatever category works to reduce your taxes, but that doesn’t give you any indicator of performance or any idea what you need to improve on in your business. They’re only worried about that first pillar: taxes.
This all changes when you have a good bookkeeper. Having a good bookkeeper look at your financial statements will start a conversation on how to grow your business. Bookkeeping isn’t the same as a CFO or tax prep, but you can absolutely use it for both and more.
If you don’t have bookkeeping in place, your business will be running blind. You won’t have the numbers you need to make strategic decisions throughout the year.
Most of what we do is hold people accountable for the growth of their business by giving them the numbers they need and helping them analyze them. Pretty soon, what we call a bookkeeping service becomes a business coaching concept with some embedded accountability. At the end of the day, people need that accountability.