Bookkeeping and accounting for small businesses: Roles, costs and responsibilities

According to surveys, small businesses typically spend around 20% of their work time dealing with financial paperwork and records. This can be a significant amount of time that could be better spent on other important business tasks, such as interacting with customers, developing products or services, or marketing.

The key question for small businesses is whether they can afford to hire a bookkeeper to handle their financial paperwork. Additionally, business owners may wonder whether they also need an accountant, and if so, whether the roles of a bookkeeper and accountant are separate and distinct.

Bookkeeping responsibilities for small businesses

If you're a Company Director, it's important to know that failing to keep financial records can lead to a fine of up to £3000 and even disqualification. The Companies Act requires all companies to maintain accurate financial and accounting records for a minimum of 6 years, and in some cases longer, such as when a transaction covers multiple accounting periods or when equipment or machinery expected to last longer than 6 years is purchased.

Your financial records should include receipts and invoices for all money coming in and going out of the company, details of any assets owned and any debts owed by or to the company. You'll also need to keep track of your stock at the end of each financial year and provide documentation showing how you calculated it, along with details of all goods bought and sold during the year. If your business isn't a retail business, you'll also need to keep a log of who you bought and sold to and from.

Choosing between a bookkeeper, an accountant or both for your business needs

There's a lot of confusion and misunderstanding around the roles and costs of bookkeepers and accountants. Some common misconceptions include:

- Believing that having an internal bookkeeper means you don't need an accountant
- Thinking that accountants don't handle bookkeeping
- Assuming that accountants are much more expensive for bookkeeping than a bookkeeper
- Believing that bookkeeping is different from preparing accounts

However, technology has removed many of the traditional differences between bookkeepers and accountants, and has significantly reduced bookkeeping costs. Many accountants are now happy to handle the basic recording of day-to-day transactions.

At our accounting firm, for example, we offer fixed fee packages using excellent software that can save money by combining bookkeeping and accounting tasks rather than using separate suppliers.

Uncertainty regarding the role of bookkeepers
Understanding bookkeeping is not necessarily difficult. It involves keeping detailed records of financial information on a day-to-day basis. Bookkeepers usually have a number of responsibilities, including billing customers or clients, recording money received, recording invoices from suppliers, paying suppliers, processing employee payroll, keeping track of VAT records, and possibly submitting VAT reports. Bookkeepers use the principles of double entry accounting to accurately record financial information.