A reader recently e-mailed me this question: "I'm
starting a small business and will need some help with the
financial side of things. What's the difference between a
bookkeeper, an accountant and a certified public accountant (CPA),
and which professional is right for my business?"
To get the right answer, I went to someone with a little
experience in the financial field. Linda Hunt, president of
SumSolutions, a financial and management consulting
firm in Trumbull, Connecticut, says that there are actually four
types of accounting professionals.
First, there are bookkeepers who record your daily business
transactions but don't prepare or file your tax returns.
According to Hunt, bookkeepers come in two varieties. A
"basic" bookkeeper is basically a clerk who can handle
your accounts receivable and payable records, and perhaps take care
of your payroll each week. A "full charge" bookkeeper, on
the other hand, can handle a wider variety of more complex
transactions. "Since most small businesses look for someone
who can handle all their financial transactions, they should always
look for a full charge bookkeeper," advises Hunt.
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Then there are accountants and CPAs. Contrary to popular belief
(and to what a lot of CPAs will tell you), Hunt says there's
really no difference between the services that accountants and CPAs
provide. "A CPA has met the requirements of state law and has
a license or certificate from the state, says Hunt. "When
you're an accountant, you study the same things but you
don't take the state exam." Both accountants and CPAs can
help you prepare your tax returns and organize your books and
records, Hunt explains, but only CPAs can file your tax return as a
"paid preparer" or audit your financial statements.
Lastly, Hunt points out that there's a fourth accounting
professional: the "enrolled agent" who falls somewhere
between an accountant and a CPA. Often a former IRS employee, an
enrolled agent is "not an accountant or lawyer, but someone
who understands the federal and state tax laws, has sat for an
exam, and can file your tax return as a paid preparer,"
according to Hunt. In Hunt's view, enrolled agents are usually
more knowledgeable than accountants because they're held to a
higher standard of education and performance, but are not as
knowledgeable as CPAs or tax lawyers.
So which one do you choose? Hunt believes it's best to have
both a bookkeeper and either an accountant, enrolled agent or CPA.
"An accountant or CPA knows what the tax deductions are,
what's legal and illegal, and your bookkeeper isn't trained
to do that," explains Hunt, "but accountants and CPAs
usually charge a lot of money to record your business transactions.
A bookkeeper is usually a lot less expensive."
Cliff Ennico is host of the PBS TV series MoneyHuntand
a leading expert on managing growing companies. His advice for
small businesses regularly appears on the "Protecting Your
Business" channel on Small Business Television Network. E-mail him at
cennico@legalcareer.com. This
column is no substitute for legal, tax or financial advice, which
can be furnished only by a qualified professional licensed in your
state. Copyright 2003 Clifford R. Ennico. Distributed by Creators
Syndicate Inc.