Deciphering Invoice Payment Terms: Everything You Need to Know

Whether you’re the owner of a local shop or you’re doing your business online, accounting and bookkeeping are equally important for your business. Both have the same goal: to manage your financial help and make your business stronger. Still, while the boundaries may be blurred, there’s a significant difference between bookkeeping and accounting. Bookkeeping is the process of gathering data associated with your business activities, while accounting analyzes that data, helping you make better decisions for your business. If you’re not a financial expert, there are good chances that you didn’t understand a word from that definition, which means you need to be better informed about bookkeeping and accounting responsibilities. Luckily, our guide will help you figure out the similarities and discrepancies between these two positions, as well as when and why you should hire someone to fill either role. What Is the Difference Between Bookkeeping and Accounting? Bookkeeping is where it all starts: It’s the first step in taking care of your business’s financial health. It involves recording and collecting your business’s daily financial transactions, including bank transactions and receipts for sales or purchases. Bookkeeping refers to the technical process of organizing and preparing your profits and expenses for further analysis. Once that’s done, the financial data you get is subjected to the accounting process. Accounting formulates the big picture of your business by dissecting and interpreting financial information. Accurate accounting is crucial for business owners, as it provides insight into their business’s financial condition. Basically, you shouldn’t pit bookkeeping vs. accounting. Bookkeeping is more about record keeping and classification, while accounting requires more knowledge to “read” the financial information. Both are essential for a successful venture. Many people do some sort of bookkeeping, i.e., they record receipts and categorize their expenses every month to make budgeting decisions. However, business bookkeeping is more stressful, as reconstructing your business’s financial history is no small feat. The accounting process goes a step further, helping business owners run their business better and, more importantly, in accordance with the law. Accountants are responsible for payrolls and taxes, too, so they need to stay up to date with the state laws. The Bookkeeper vs. the Accountant What Does a Bookkeeper Do? A bookkeeper is responsible for taking care of your daily finances. They track your bank transactions, record your sales and purchases, and maintain your general ledger and payroll. The bookkeeper must record your financial transactions regularly and organize them in a way that’s understandable to you. Depending on your needs, bookkeepers can create monthly or weekly financial statements displaying your company’s income and all its expenses. A bookkeeper’s job doesn’t require any formal education, but they need to know how to use bookkeeping software, like QuickBooks or FreshBooks. A bookkeeper has to be a responsible person, since one of the most important bookkeeper duties is to take care of a general ledger - a book that contains records of all your sales and purchases. Although there’s no bookkeeping school, they can get licenses from the American Institute of Professional Bookkeepers (AIPB) and the National Association of Certified Public Bookkeepers (NACPB) to prove that they passed the necessary tests and have the required experience. It’s always good to know that your bookkeeper is certifiably ready to handle your daily finances. Moreover, both agencies require yearly educational courses for license holders to learn new skills. Now when you know what the role of a bookkeeper is, you can think about how much money you’re ready to pay for this service. A bookkeeper’s salary depends on several factors: Your business needs, the state your business operates in, and the level of expertise you’re looking for. Before looking for a professional bookkeeping service, figure out what bookkeeping skills you need and how often you’ll need them. Some business owners learn to use bookkeeping software and only pay for accounting services. However, if your business documentation is too complicated to manage, an experienced bookkeeper is what you need. Once you know the tasks you need one for, you’ll know whether to hire a part-time or a full-time bookkeeper and whether they need to be certified. What Is the Role of an Accountant? An accountant interprets financial data recorded by a bookkeeper and gives business owners detailed insights into their business to help them make financial decisions. Accounting is a practice that has strict requirements and standards each accountant must follow. During financial accounting, an accountant first verifies and analyzes the data provided by a bookkeeper. Then, the accountant creates financial statements and reports that showcase your business performance. These documents include balance sheets, and income and cash flow statements. One of the most important accountant responsibilities is tax preparation and filing tax returns. Unlike bookkeepers, accountants must be familiar with tax laws, know how to calculate deductions, and prepare your returns for the IRS. An accountant also reviews your general ledger to see whether all transactions are correctly recorded. The other part of accounting is advisory: Providing financial advice to business owners based on their financial reports. An accountant with knowledge about your business’s financial health and market opportunities can greatly help your business growth. Although there is a significant difference between bookkeeping and accounting, a bookkeeper and accountant work in tandem. We can think about an accountant as someone who gives directions to a bookkeeper when needed. For example, an accountant keeps track of law changes related to tax returns and helps bookkeepers manage payrolls. Unlike a bookkeeper managing daily transactions, an accountant uses this data to offer an all-encompassing overview of financial health, and helps you plan for the future. Even if you can do bookkeeping on your own, you must hire a professional to do your accounting. After all, the primary difference between an accountant and a bookkeeper is schooling. To be an accountant, you have to get at least a bachelor’s degree from an accredited university, and further your expertise with additional certificates and licenses. The distinction between a regular accountant and a certificated public accountant is also essential. A CPA has at least 150 hours of specialized education and a four-part exam under their belt, and meets the American Institute of CPA’s experience requirements. CPAs win every time in a CPA vs. an accountant comparison, especially if your business has complex tax returns. CPAs specialize in doing taxes, and they can communicate with the IRS on your behalf. However, CPAs are also more expensive to hire. Bookkeeping Versus Accounting – An Overview  If bookkeeping and accounting looked like the same job to you, now you know that these are two different roles with different responsibilities and education. They are both parts of the same process - taking care of a business’s financial health - but a bookkeeper and an accountant have different responsibilities. By now, you probably have a clear vision of what services you need for your business, but just in case, we’ll outline the critical tasks professionals from both branches perform. That way, you’ll always know what the difference between accounting and bookkeeping is: Bookkeepers Perform day-to-day financial tasks Record bank transactions, purchases, sales, receipts Take care of all your income Manage your general ledger Organize and categorize business expenses Manage the payroll Use bookkeeping and accounting software to produce weekly or monthly statements for business owners Work closely with accountants and send them statements quarterly for the purpose of tax payments Accountants Analyze and interpret financial data Advise bookkeepers on how to manage transactions and prepare the payroll Prepare financial statements for business owners (balance sheets, income statements, and cash flow statement) Review the general ledger and other documents Prepare taxes, calculate deductions, and work with the IRS Advise managers and business owners Further Reading Understanding the Types of Accounts in Accounting What Does an Accounts Payable Clerk Do? What is Petty Cash in Accounting? Conclusion Our guide answers the question: is bookkeeping and accounting the same? Financial bookkeeping is more of a technical position, while accounting requires detailed knowledge about finances and taxes. Bookkeepers and accountants work closely to create a clear financial picture for business owners, but they provide completely different services. While it’s possible to do your own bookkeeping with the right software, an accountant’s job can only be done by a professional with a degree. All businesses need both accounting and bookkeeping services to manage their financial records and successfully grow their business; it’s just a matter of who you can afford to hire.

Combining the benefits of partnerships, corporations, and even sole proprietorships, LLCs have become a prevalent choice among entrepreneurs. However, focusing only on the upsides of any business type is a sure-fire way to get yourself in trouble. That’s why our guide will tell you all about the disadvantages of an LLC, along with many other pieces of information that will help you make a decision that’s best for you. Background  It may come as a surprise to some, but LLCs haven’t been around for that long. In fact, it wasn’t until 1977 that Wyoming enacted a law authorizing the creation of limited liability companies.  At first, LLCs weren’t as favored as they are today. As the IRS went back and forth on how to tax them, other states were hesitant to adopt this new kind of business entity. After 11 years, the IRS finally ruled that LLCs would be taxed as partnerships, and by 1996 all 50 states had LLC statutes. What is an LLC? To understand the advantages and disadvantages of an LLC, you must first know what exactly an LLC is. A limited liability company, or LLC, is a US business structure whereby the owners aren’t legally accountable for the company’s debts or liabilities. As mentioned, it’s a hybrid legal entity that integrates characteristics of a corporation and a partnership (or sole proprietorship). An LLC shares the limited liability traits with corporations and the pass-through taxation with partnerships. However, in certain situations, an LLC may choose to use corporate tax rules and act as a nonprofit. Disadvantages of an LLC Although forming an LLC brings many perks, the disadvantages are not to be overlooked, as they aren’t as minor as some might think. LLC Costs Depending on the state, fees for starting an LLC can range from $50 to $500. That means that, in some cases, a corporation is the cheaper option. Also, compared to a partnership or sole proprietorship, operating an LLC is slightly more expensive because you have to take care of both filing and annual state fees. LLC Taxation We should mention two quite significant LLC disadvantages pertaining to taxation that are often passed over. First, if you’re an LLC member, you have to pay income taxes on your share of the company’s profits even if you are not included in their distribution. On top of that, most LLC owners must pay self-employment taxes, which currently amount to 15.3% – 12.4% for Social Security and 2.9% for Medicare. LLC Banking Checks made out to an LLC have to be deposited into a business account, meaning it can be difficult or even impossible to cash them. This may not seem like a significant issue to some, but it's an LLC disadvantage nevertheless. LLC Member Turnover You must make sure to include a withdrawal provision in your LLC’s operating agreement. If you neglect to do so, your company might end up being dissolved in the event that a member leaves, goes bankrupt, or dies.  LLC Paperwork As an LLC owner, you’ll have to deal with quite a bit of additional paperwork since your personal finances must be kept separate from the company’s activities. The business will require a separate accounting ledger and bank accounts. LLC Funding One of the main disadvantages of an LLC is funding. Although you may find this business entity’s flexibility to be a huge plus, your potential investors will probably not share your opinion. They will often see LLCs as far too complicated and not worth the likely additional taxes. This a hurdle that many new business owners face and have difficulties overcoming without at least some professional legal assistance. Disadvantages of an LLC  Although forming an LLC brings many perks, the disadvantages are not to be overlooked, as they aren’t as minor as some might think. Costs Depending on the state, fees for starting an LLC can range from $50 to $500. That means that, in some cases, a corporation is the cheaper option. Also, compared to a partnership or sole proprietorship, operating an LLC is slightly more expensive because you have to take care of both filing and annual state fees. Taxation We should mention two quite significant LLC disadvantages pertaining to taxation that are often passed over. First, if you’re an LLC member, you have to pay income taxes on your share of the company’s profits even if you are not included in their distribution. On top of that, most LLC owners must pay self-employment taxes, which currently amount to 15.3% – 12.4% for Social Security and 2.9% for Medicare. Banking Checks made out to an LLC have to be deposited into a business account, meaning it can be difficult or even impossible to cash them. This may not seem like a significant issue to some, but it's an LLC disadvantage nevertheless. Member Turnover You must make sure to include a withdrawal provision in your LLC’s operating agreement. If you neglect to do so, your company might end up being dissolved in the event that a member leaves, goes bankrupt, or dies.  Paperwork As an LLC owner, you’ll have to deal with quite a bit of additional paperwork since your personal finances must be kept separate from the company’s activities. The business will require a separate accounting ledger and bank accounts. Funding One of the main disadvantages of an LLC is funding. Although you may find this business entity’s flexibility to be a huge plus, your potential investors will probably not share your opinion. They will often see LLCs as far too complicated and not worth the likely additional taxes. This a hurdle that many new business owners face and have difficulties overcoming without at least some professional legal assistance. Should You Create an LLC? It isn’t our intention to deter you from forming an LLC. Despite our list of LLC pitfalls, they can be a perfect fit for some entrepreneurs. To give you a better idea of what might be your best course of action, we’ll quickly compare your other options with LLCs. Sole Proprietorship vs. LLC A sole proprietorship is the simplest business structure of all. It costs nothing to form one, and you’re entitled to all the profits. However, you’re responsible for all the losses as well, and that’s not the only issue. The biggest drawback of being a sole proprietor is that you have no liability protection whatsoever. Unsatisfied customers can sue you directly, and if they win, they’ll have access to your personal assets. The most substantial LLC benefit is that, as an LLC member, you would be sheltered from such lawsuits. Any potential plaintiff would only be able to go after the LLC and its assets. On the other hand, creating an LLC does entail a bit more filling, so you might want to consider hiring an LLC formation service. Corporations vs. LLC Large investors prefer corporations because they are predictable, often have a long lifespan, and, most significantly, because it’s very simple to transfer shares. Almost the exact opposite can be said for LLCs – they are unpredictable, often short-breathed, and there is no such thing as LLC shares. Interestingly, these aspects are by many considered to be the main LLC advantages. LLCs allow you to choose who your business partners are. Also, they don’t have a rigid management structure, which gives you the freedom to organize your company however you like. Lastly, many people find LLCs to be the ideal choice for side businesses or short-term ventures.

A limited liability company (LLC) is a corporate structure that can give you liability protection and shelter you from financial risk in case your business incurs debt or a lawsuit is filed against it. There are numerous types of LLCs, as many businesses can be structured in this way. The one we’ll be discussing in more detail in this article is a real estate LLC - what it is, how you can set up one, and what the key benefits and disadvantages of this business structure are. What Does LLC Mean in Real Estate?  Forming a Real Estate LLC An LLC can be established for a particular real estate asset or own multiple real estate properties. What’s important is that your LLC, being a separate legal entity, can purchase, own, or manage real estate. That’s thanks to the fact it has its own bank account, it files taxes on its own, and it acts as an independent real estate company. Several factors should be taken into consideration if you are thinking of setting up an LLC for your real estate business. We’ll now go over each so you can decide if this is the right option for you. Advantages of an LLC for Rental Property Here are some of the main reasons in favor of forming an LLC if you run a real estate business. Asset and Liability Protection First and foremost, you should make sure that your personal and business assets are separated. This is why most investors choose to form separate LLCs for each of their properties. By separating your properties, you are protecting them in case of bankruptcy or a lawsuit. Should one of your LLCs fall into debt, the creditors can only come after its assets, while your other real estate LLCs or your personal assets will remain out of reach. Tax Benefits One of the major advantages of an LLC structure certainly is the tax benefits. The Internal Revenue Service doesn’t tax LLCs directly, and there is a certain amount of flexibility in the process. And since single-member LLCs are eligible for pass-through income taxation, LLC members can tax any business income under their own personal tax rate. However, when it comes to employment tax, single-member LLCs are still counted as separate entities. If you are starting an LLC for real estate, you should know that the IRS can treat your LLC in three different ways, depending on the option you choose when filing Form 8832: Corporation - The IRS considers your business as an individual taxpayer. If classified this way, your LLC would need to report all of its income and deductions and pay the appropriate taxes. Partnership - All LLCs with at least two members are automatically classified as partnerships unless you specifically choose to be treated as a corporation. This setup of your real estate LLC would make you responsible for putting together the annual partnership tax returns. Disregarded entity - All single-member LLCs are eligible to be classified as disregarded entities, unless you specifically choose to be treated as a corporation. In this case, all the taxes owed by your LLC would be paid as part of your income tax return. Prior to deciding on the option you want to go with, note that you won’t be able to alter that decision for five years. Reliability and Ease of Transferring Interests Creating an LLC for real estate will give more professional appeal to your business, especially if you are trying to lease a particular property. A business or an individual will probably be far more confident renting real estate from an LLC than from an individual. And if you are considering selling your LLC, you’ll be happy to know that transferring membership interests is a relatively straightforward process. The LLC will remain the owner of its real estate assets; the only thing that will change is the ownership, which makes it easier to complete the transfer and preserve the business’s continuity. How To Set Up a Real Estate LLC A few steps need to be completed to set up an LLC for your real estate property. You can do it on your own by following our list of steps provided below or get help from an LLC service agency. Step 1: Research your state’s regulations Most investors decide to form their LLC in the same state they are doing business or where the property is physically located. This is generally the best course of action since you’ll have to pay a tax return in that state; however, some states do have more flexible tax policies. Either way, we advise you to get thoroughly acquainted with the laws of the state where you plan to form your LLC for real estate. If you are not sure where to begin, you can get help from a professional legal service.  Step 2: Choose a business name  When picking out a name for your LLC, you primarily need to make sure it doesn’t already exist. Of course, you should also focus on coming up with a name that has the potential to  attract new clients. So, make a list of a few catchy names and check their availability. Along with this, you’ll need to find a registered agent to sign a consent to accept any legal paperwork on behalf of your LLC. Step 3: File the Articles of Organization If you wish to create an LLC for rental property, you are obliged to file the Articles of Organization. It’s a document that states the company name, start date, address, business owners, and it contains a description of the business itself. This is the single most important step, so make sure to double-check you’ve included all the required info before you submit the document. There is also a filing fee you’ll need to pay. Its cost varies from state to state and can be as low as $50 or as high as $500. Step 4: Compose an operating agreement This agreement should be a part of your business plan, even if it’s not obligatory in your state. Real estate LLC operating agreement is a handy tool which will help you specify how decisions will be made inside the company and how you’ll distribute tasks among members. The agreement’s main purpose is to protect the business owners and predict scenarios that can potentially damage the business and its structure. Step 5: Step Publish your intent to file This step is only required in three states: Arizona, Nebraska, and New York, and it practically means that, if you are starting an LLC in one of them, you need to publish an ad in the local newspapers saying that you wish to create an LLC.  Step 5: Get the necessary licenses and permits When registering a real estate LLC, you usually need to gather various permits and licenses. The list varies by state, but it usually consists of a general business license, professional license, and a sales tax permit. Along with that, you should apply for a tax identification number with the IRS. You can find all of this information on your area’s Secretary of State website. Downsides of Starting an LLC in Real Estate While there are many benefits to structuring your real estate business as an LLC, there are some disadvantages of an LLC for rental property. So, before deciding whether to take a step in that direction, we advise you to consider the following cons: Franchise Tax Certain states charge a franchise tax on LLCs treated as corporations by the IRS. These taxes vary depending on the state; therefore, it’s advisable to check this with your local authorities. No Board of Directors The fact that an LLC doesn’t have a board of directors as a standard corporation does might impact your business. If your rental company wants to form a joint partnership with another corporation, they might see it as an issue. FICA Tax Also called a self-employment tax, this is something you should take into consideration if you wish to set up a real estate LLC. All members of an LLC are obliged to pay the self-employment tax. The rate is usually about 15% of the taxpayer’s overall income. Final Thoughts Nowadays, most real estate investors structure their businesses as LLCs. The most significant advantage of this business structure is that it offers protection from liability claims in cases such as construction accidents or issues with tenants. Tax benefits and the fact that LLCs can be filed with the IRS as disregarded entities are also reasons in favor of starting a real estate investment LLC, but before you go ahead, check your local LLC regulations.