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Fractional Bookkeeper: How do they benefit your company?
During most of the 20th century bookkeeping was done on paper in a journal. When computer programs started to increase efficiencies in the business world, they also increased the efficiency in accounting data input. These efficiencies have transcended to all manner of business. From a large multi-billion-dollar company to a small retail shop.
The accounting data is more accessible. However, even with all the technology the actual data needs to be in the proper accounts. Proper classification allows a business owner to analyze the information. To save costs, many small businesses have started to hire fractional bookkeepers. This allow the business owner to maintain accurate data at a fraction of the cost of a fulltime bookkeeper.
In this post we will define fractional bookkeeping, discuss the differences between full-charge bookkeeping and accounting bookkeeping, and discuss the benefits of working with a professional virtually.
What is a fractional bookkeeper?
A fractional bookkeeper is someone who has accounting knowledge to properly record transactions, but only works on a part-time basis. This professional will help maintain your accounting records and ensure they are complete and accurate. They work virtually and provide accounting data input so the business owner can focus on the overall financial picture.
Accounting professionals understand the overall concept of debits and credits. These concepts are implemented on every company. The most common tasks are:
- Entry and classification of all sales transactions.
- Entry and classification of all expense transactions.
- Bank reconciliations.
- Account reconciliation.
- Financial report production.
- General journal entries for non-cash transactions.
- Adjustment of accounting records for accrual basis of accounting.
The bookkeeper ensures that all of the data is located in the proper location. Missing data or improperly booked transactions can lead management to an incorrect financial path.
Full Service vs. Accounting
There are two main terms that have been used in the accounting community: full service or accounting bookkeeper. The differences can have an impact on the direction a company goes in hiring a professional.
- Running payroll and processing paychecks
- Filing payroll returns and sales tax returns
- Calculating and filing personal property taxes
- Submitting withholdings for retirement and federal and state taxes
- Reimbursing for expense reports
- Processing and paying all expenses
- Billing and processing customer receipts
The full-service professional is involved an all aspects of the finances of a business. Many times, smaller businesses prefer to have one person in-charge of all these aspects of their business due to the convenience.
An accounting bookkeeper focuses strictly on inputting financial data and producing accurate financial statements. For a business owner to make the proper business decision, they need to have correct financial data to start with. The accounting bookkeeper does not run payroll or submit tax information as these tasks are delegated to a separate payroll accountant. Or more commonly, a third party payroll processing company.
The disadvantage of having a full-service professional is:
- All processes are dependent on one person
- Internal controls can become circumvented, especially the cash account.
When a business utilizes a full-service professional, they have all of their financial processes concentrated into one person. If that individual were to leave, or stop servicing the business owners account, then the owner would have to pick up multiple areas of their business all at once. This can cause significant hardship from learning what needs done to still trying to get new customers.
The other disadvantage to using a full-service professional is the internal controls can be easily circumvented. This is done due to minimal segregation of duties.
The disadvantage of having an accounting bookkeeper is:
- Payroll needs to be done by a separate accountant or third party provider.
The accounting bookkeeper will focus strictly on the financial data and results of operations. A separate service will need to be engaged for payroll items.
Over the past several years, the use of a fractional CFO has become more common. This was made more accessible due to improvements in technology, such as QuickBooks Online and Xero. The growth of the fractional CFO industry has naturally given rise to the need for a fractional bookkeeper.
A fractional (or outsourced) bookkeeper is primarily an accounting professional. This type of accountant will access your company’s books via online and produce financial information that is beneficial in navigating the business landscape. The benefits of using a fractional bookkeeper are:
- The business owner is no longer limited to the accountants in their local area.
- These professionals have a wide range of experience in multiple industries.
- They can provide financial statements and data in quick and understandable formats.
- They usually will work with the business owners CPA to assist with tax return preparations.
Outsourced bookkeeping rates are usually comparable to those of your local professional. Rates can range from $40 – $60 an hour or, in the case of some firms, a set monthly fee. The fee will usually be dependent on the number of transactions and the complexity of the industry. Regardless, the expertise the owner can tap into is a bargain compared to the cost of having a full-time accountant on staff.
Tips and Reminders:
- All financial aspects of the company will be completed by one professional
- Internal controls can be easily compromised
- Accounting Services Only:
- A separate third-party payroll processor will be needed
- The owner will have access to knowledge and expertise that might not be available in their local areas
- Cost will be comparable to other professionals
When considering hiring a bookkeeper, first determine the business’s needs. While payroll is a necessity of business, ultimately the owner needs to have information available to guide the business to profitability.