If you have recently established your own business, or are thinking of doing so, there are a lot of obstacles that need to be dealt with in terms of finance. Registering with the Revenue Commission & Companies Registration Office, establishing a business bank account, finding investors, and ensuring that you understand what can or cannot be done with your business’s finances.
The last thing any new entrepreneur wants is to be caught out on financial discrepancies, especially if they are truly unintentional, as these can lead to fines, settlements, the seizure of assets, liquidation, or even jail time.
As the legal system is so complex, most people will choose to avail of professional services, such as a corporate lawyer or business accountant, in order to guarantee that everything is done correctly. Once the business is up and running, most of these services are only required sporadically, but one service you might hear about more often than others is bookkeeping.
When done well, bookkeeping should be an ongoing, even daily, process. While some people may choose to do their own bookkeeping, especially in the beginning as a money saving measure, most businesses stand to benefit from the use of a dedicated bookkeeper. But what exactly does a bookkeeper do?
A bookkeeper keeps tabs on all transactions
The primary responsibility of a bookkeeper is to keep track of every single financial transaction within a business. Bookkeepers are required to compile a complete record of all money that moves through a business in a general ledger, which is ultimately the book that they are keeping. This means that they are responsible for recording all revenue taken in by the business, as well as all costs incurred by the business.
“A good bookkeeper should be able to detail where every cent that has the business has ever had came from and went to.”
But there is more to the role of a bookkeeper than just collecting all of the data and keeping it in one place. They are also responsible for making sure that each one of these transactions is placed in the appropriate category. An amateur bookkeeper may oversimplify this, classifying transactions as either an expense or revenue. While every financial transaction will ultimately fall into one of these two categories, that is simply not detailed or organised enough for record keeping.
Alternatively, an amateur bookkeeper may misgroup certain transactions based on their own train of thought, and not in a way that best fits the realities of financial reporting. For example, a small business owner doing their own bookkeeping may want a sum total of how much they spend on insurance, and may lump car insurance in with general liability insurance and employee health insurance.
Although these are all forms of insurance, in the world of professional bookkeeping, they are completely unrelated, and would be categorised as travel, operational, and employee benefit expenses respectively. Proper categorisation is crucial in avoiding a situation where the wrong rate of tax is applied to an expense, or possible deductions are missed.
In terms of their actual workload, bookkeepers are expected to calculate total revenue by adding up all receipts and tracking accounts receivable, ensuring that any money owed to the business is received on time. At the same time, they are tasked with tracking accounts payable, ensuring that any debts a business owes are paid in a timely fashion. They may also place and pay for purchase orders, draw up and issue invoices, and monitor the hours worked by employees to handle payroll.
Understanding what it isnt
In order to fully understand what the role of a bookkeeper is, it is important to understand what it is not. Although their work may appear similar from an outsider’s perspective, bookkeepers should not be confused with accountants or auditors.
For most people, the word “auditor” has some pretty negative connotations associated with it. While many larger companies will choose to use internal auditors to improve the efficiency of their operations and minimise risks, most auditors you will encounter in business will be conducting a review on behalf of either the government or investors.
In the hierarchy of these easily-confused jobs, an auditor is essentially the top of the pyramid. The “book” stops with them, as it is their job to search for any mistakes (or misrepresentations) made by bookkeepers or accountants, identify the true financial health of a business, and sign off on it.
Bookkeepers Gather The Required Data
While many people who do their own bookkeeping will also analyse and interpret the data themselves, especially now that bookkeeping software makes it so easy, that is typically the role of an accountant. A professional bookkeeper’s job is to collect and organise all the data available, before handing it over to an accountant to interpret and translate into simple, practical terms that can be used to make business decisions.
Accountants Review Info Provided By Bookkeepers
Accountants assess the financial health of a business and convey this to the owners and management by summarising the information and drawing up financial statements. At the same time, they are tasked with reviewing the information provided to them by the bookkeeper, to ensure that all the correct procedures have been followed, and identify any mistakes.
The role of a bookkeeper is a very important one to any business. They are the ones who collect and organise the data upon which other members of the business will base their decisions. In the same way that a laboratory receiving the wrong samples will make their findings null and void, a bookkeeper providing incorrect or incomplete information will have a trickle-up effect that could have massive ramifications and seriously hinder a business’s prospects of success. In the business world’s neverending fight for customers, bookkeepers are your boots on the ground, and their impact should not be underestimated.