Running a company can easily feel overwhelming – even if it just comes to finances. One of the best ways to free up your time is to hire a bookkeeper. What does a bookkeeper do? What are the tasks they can complete without using an expensive accountant? Let us at What a Figure! Accounting explain it.
What does a bookkeeper do?
One of the best part of working with a bookkeeper is that they have done it for so long, they have all the processes worked out. You don’t have to hold their hand (at least the good ones). They can normally take on a job from either yourself or a previous bookkeeper fairly easily. For the purpose of this blog post, we will assume you are using a cloud accounting software, rather than doing it manually in Excel.
The tasks a bookkeeper does, will be on recurring intervals: weekly, monthly, quarterly and yearly. Some of tasks can be completed by a beginner, whereas others can easily overlap with the works of a finance director or accountant.
Uploading bills and expenses:
One of the first things a bookkeeper starts with is uploading purchase bills and expense claims into the accounting software. This is a fairly simple task, but a beginner could get this wrong already. They need to pay attention to selecting the correct chart of accounts and the VAT (or also called Sales Tax) rate.
Getting either of these wrong, will mess up your account and maybe even your finances! Using the wrong chart of accounts will mean that potentially your Profit & Loss accounts and Balance Sheet will be wrong also. Accidentally, they could account for something on the Balance Sheet instead of the Profit & Loss. Just this one mistake could mean that you either under or overpay your taxes.
Accounting for the wrong VAT rate will have the same consequence: you will likely under or overpay your VAT and potentially even trigger a tax audit. So using a good bookkeeper is important. Saving now to use a cheaper one, can catch up with you later in penalties.
Bank Reconciliation
Before the bookkeeper starts the bank reconciliation, they might need to import the bank statements. This depends on the accounting software you use. Most of the cloud accounting softwares (eg. Xero) have an automatic bank feed, with most banks. Therefore manual importing (in most cases) is not required.
Once the bookkeeper has all the transactions in the accounting software, they need to start the bank reconciliation. This is the process of categorizing income and expenses. Doing this step puts the amounts in the correct boxes on the Profit & Loss and the Balance Sheet.
Payroll
If you have employees, the more competent bookkeepers will also be able to run the payroll for you. In the UK, most companies do the payroll monthly, but in the US, it is bi-weekly. If you are using a bookkeeping or accounting firm, they usually have a payroll specialist.
Reconciliation Report
At the end of every month, it is advisable to pull a bank reconciliation report. This will show mistakes such as a transaction being marked as paid from the wrong bank account. It will also help to check whether the bank balances agree or not. This is an excellent check to ensure everything is correctly done – as sometimes just seeing your bank account reconciled, it doesn’t mean it is spotless.
Month End Reports
At the end of every month, your bookkeeper should prepare and send you the month end reports. These normally contain:
Profit & Loss statement: this shows the money received and paid during a certain period of time frame. This is usually monthly, but can be quarterly or even yearly. Your bookkeeper should send you the Profit & Loss statement showing the current period as well as the previous period – so you have a comparison basis. This will tell you whether you are doing better or worse.
Balance Sheet: this report shows your total finances up until a point in time. This is usually year-end. So it will show you how much money the company has made (or lost) since the company was started.
Cash Flow forecast: this will help you see your cash flow position in the future. Will you have cash flow difficulties? Do you need investment? It’s important to keep an eye on it.
VAT Return
Depending on how often you have to report yours to HMRC (monthly, quarterly or yearly), your bookkeeper should prepare and submit your VAT return.
If you have to submit yours quarterly, your VAT return will be due and the amount payable 1 month and 7 days after the VAT period.
Year End
The bookkeeper usually works together with an accountant to prepare all the information the accountant needs – to be able to close the year end. If you have a good bookkeeper, their work will save you a lot of money in accountant fees. A good accountant will thoroughly check the bookkeeper’s work and will request changes where needed. If your bookkeeper is not competent, this can drag on for a very long time.
What else can a bookkeeper help with?
Other than all the tasks above, they should be able to recommend you the best accounting software to use for your industry. You might think it’s the same for all, but some software have more add-ons for certain niches than others. If you have other softwares you are using already (eg. payment providers) they will also check which one is the most compatible for you.
As your company grows, you might need additional systems in place. They might be able to recommend them also.
How to find a good bookkeeper?
As easy as it sounds, finding a good bookkeeper can be challenging and sometimes even frustrating. There are a few qualities you want to look out for. The advantage of using a bookkeeping and accounting firm is that the good ones do their best to recruit the best of the best.
What are the personal qualities you should look out for?
1.) Detail oriented
Your bookkeeper should be very detail oriented. They need to get their decimals right. We came across some who were actually dyslexic. There is nothing wrong with that and there are many careers suitable for them. Unfortunately, bookkeeping is just not one of them.
How you can test it: give them an exercise to copy or even calculate many numbers under time pressure. Our bookkeepers go through a very similar test.
2.) Organized and an excellent communicator
This is a bit harder to measure up front, but there are signs you can get an idea of. For example: how do they communicate / follow up prior to the interview. Are they on time? How structured are their emails? These are all small signs you can get an idea of them.
3.) Knows accounting inside out
We left this for last as this is the most obvious. You want to make sure they know their field and can even advise you when you need their help.
How to test this: situational exercise works great and are very fast and simple. Give them a short exercise and ask them how much you would need to pay in VAT? Or what would be their advise if you have cash flow difficulties and need an immediate solution.
References
This goes without saying, but don’t forget to ask references.
We hope this article help you to understand the tasks of a bookkeeper and how to hire a good one. If you have any questions, please leave it in the comments section below.
Summary – What does a bookkeeper do?
- Uploading bills and expenses
- Bank Reconciliation
- Payroll
- Reconciliation Report
- Month End Reports
- VAT Return
- Year End
- How to find a good bookkeeper?
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