Should I Hire An Accountant For My Small Business?
Maybe you’ve just started your business, and you’re wondering if you need to hire an accountant. Or perhaps you’re still in the planning stages of a new venture, and you’re deciding whether or not you need someone dedicated specifically to your business’ accounting, before going all in.
If you ask an accountant whether or not you should work with someone to help you with your books professionally, you know the answer will be yes.
But you can trust that they’re not saying “yes” for their benefit. Most successful business owners who work closely with an accountant will tell you an accountant is an absolute must. Results from a study conducted by Intuit, the maker of QuickBooks, TurboTax, and other financial software packages, show that 89% of small businesses say they see more success with an accountant or an advisor.
Still, it’s reasonable to wonder if every single small business needs an accountant. Isn’t hiring an accountant overkill if your business is very small? Can you just “wing it” until you get to a certain revenue level?
It can be daunting dealing with government paperwork when you run your own business. This is why so many small business owners hire an accountant when the first tax filing is due.
But they can also help you cope with more than just tax returns. They can help your company interact with the government in other ways.
A good accountant will be able to:
- Complete and file the required legal and compliance documents for your business
- Keep your company up to date with the latest tax laws
- Prepare annual statements of accounts
- Keep your company’s status updated in the government’s company register
- Maintain records of directors and other administrative personnel
- Organise and record share/stock allocation, such as when the business is formed when a business partner leaves or a new partner joins
- Handle your payroll and ensuring that all employees’ tax codes and payments are recorded correctly.
Preparing your tax documents correctly could save you money – perhaps more money than your accountant charges you. And a good accountant will use their knowledge of tax laws and legislation to suggest ways you can free up cash flow, save money and raise capital for expansion.
Sometimes it’s tough deciding on what type of help you need for your small business, because that help is going to cost you money. But the financials of your business are something that can’t keep.
What Can an Accountant Do for Your Company?
Do you understand exactly what an accountant can bring to the table? This can help you decide on whether it’s worth hiring one.
An accountant can help you with data management, financial analysis, the generation of financial reports and can also ensure that your company meets regulatory compliance with its accounting practices.
When to Hire an Accountant
Most accountants will tell you they could have saved their small business clients a lot of time, money, and headaches. That is if those clients hadn’t waited so long to ask for help. The bottom line is that there are several key times in the course of your business when you don’t want to wing it without an accountant.
Forming Your Business
The formation of your business is one of those key times. An accountant can:
- Help you write your business plan. If you’re not looking for funding, though, do you even need a business plan? If you’re planning to lease office, retail, or manufacturing space, your landlord may require one. Plus, it’s a good idea to have a direction and goals for your business rather than playing it all by ear.
- Advise you on your business’s entity structure. Although most businesses start out as sole proprietorships, your particular business type or personal financial situation might mean another entity structure makes more sense. At the very least, you should probably consider creating an LLC as a freelancer for legal and financial protection. An accountant can help you with this!
- Help you get all the appropriate licenses. Sales tax permits, business licenses, employment accounts… oh my! Every state—and in some cases, every city—has different requirements for the business. And different industries have different requirements, too. An accountant can help you untangle all of the red tapes and make sure you start your business on the right (read: legal) foot.
- Help you set up your bookkeeping software. At the risk of losing my bookkeeper’s membership card, I’ll let you in on a little secret: Most small businesses don’t need to engage a bookkeeper on an ongoing basis right away. There comes the point where you’ll want to outsource or delegate your small business bookkeeping. Still, up until that time, you can probably handle your bookkeeping and hire a bookkeeper to do periodic reviews of your work.
That said, you don’t want to try to set up your business accounting software, no matter how easy that software seems to be. An accountant can help you set up your chart of accounts correctly and might even train you on how to use your software, especially if they’re a QuickBooks ProAdvisor. And if your accountant doesn’t offer this service, they probably know a bookkeeper who does.
Compliance and Tax Issues
Even if your business plan is written, you have all the required permits and licenses, and your bookkeeping software is new and shiny and ready to go… you’re not quite ready to go forward without an accountant.
There are still dozens of compliance stumbling blocks to overcome. Don’t try to wing it without an accountant if you have:
- Complex sales tax issues. Sales tax compliance in the US is quickly becoming a nightmare. If you’ll be shipping your products out of state—or in some cases, even within the same state—you’ll want to make sure you comply with all the applicable tax laws. There are apps to help with this on an ongoing basis, but you’ll want an accountant to help you get everything set up.
- Complex payroll issues. Wage and labour compliance issues can sink even the most profitable businesses. As with sales taxes, there are apps and programs that can help you with compliance on an ongoing basis, but you’ll want an accountant to look over your shoulder at least quarterly.
- Other reporting requirements. These can be requirements for creditors or licensing agencies. Even those complex tax issues mentioned above can lead to other tax liabilities in various states. If you are required to report on your financial position for credit or credentialing, or if you do business in more than one state, you’ll want to continue working with an accountant.
Should I Hire an Accountant for My Small Business?
It’s easy to think of accounting or recordkeeping as a “necessary evil,” created and maintained to satisfy government reporting — primarily taxes.
But the fact is that beyond being something you’re required to be doing under the law, accounting and recordkeeping systems are created for you to make informed customer, marketing, pricing, and vendor-related decisions.
In this post, you will learn the tasks associated with a company’s accounting and recordkeeping system, considerations regarding who should do the work, and the differences between an accountant and a bookkeeper.
We’ll also help answer an important question — should you hire an accountant?
Successfully managing a small business involves managing your cash. Your accounting system is critical for knowing how much cash you have in the bank each evening and if you can meet your expected expenses.
Three general activities are required for setting up and maintaining an effective accounting and recordkeeping system.
- Setting up the system: Creating a process to track transactions and make projections can be accomplished using a notebook, spreadsheets, or accounting software.
- Entering transactions: Transactions entered may include sales made, cost of materials purchased, employee compensation and benefits, hours worked, rent, IT, insurance, office supplies, and other expenses paid.
- Reporting actual results or the projections of future results: Reports may cover the status of potential customers, sales made, sales made where customers have not yet paid, expense comparisons with the budget and same period last year, all sorts of tax reports, financial statements, and information needed to satisfy bank loan covenants.
To Outsource or Not?
When you set up your business, one of your first decisions is to determine who should handle these accounting activities. The three choices are to do it yourself, assign someone on your team to do it or to outsource to a bookkeeper or accountant. Often with a start-up, you are the only employee, and there are limited funds available, so initially, the founder frequently does all the bookkeeping.
As soon as you have sufficient discretionary funds, you can consider outsourcing the task. The key is to decide if bookkeeping is the best use of your time.
You started your business because you are good at selling, developing apps, manufacturing a product, consulting, or whatever other activities produce sales. Is it more valuable to spend your time producing sales or doing bookkeeping? Unless you are in the financial services sector, it is unlikely accounting is your strength.
If you decide to outsource, there are two types of financial professionals to consider: a certified public accountant (CPA) and a bookkeeper. Each has vastly different skills and rates, and you will want to retain both, but for different tasks.
Certified Public Accountant
A CPA has been certified by a state examining board as having met the state’s legal requirements. These professionals are granted certain responsibilities by statute, such as the ability to certify financial statements, and may be held liable for professional misconduct.
Accountants, like doctors and other professionals, are both generalists and specialists.
Accounting specialties include tax accounting, mergers and acquisitions, and nonprofits. You need to find the right match for your needs; at first, this will mostly be general accounting work,
Depending on the market and work complexity, CPAs may charge $100 to $300 an hour. So, it makes the most sense to hire an accountant only for complex or high-value projects, such the quarterly financial reports (especially if you are required to give these to a bank or under a government contract), tax filings, ongoing or case-specific advisory services, or the financial section of your business plan. Until your company reaches several million dollars in sales, it is more economical to outsource these tasks, rather having a full-time accountant.
Performing basic, day-to-day activities is best left to a bookkeeper. These tasks include gathering employee timesheets, submitting purchase-order invoices for you to pay, collecting customer payments, preparing bank deposit statements, and entering all the transaction information into your accounting and recordkeeping system.
Depending on the market and tasks assigned, a bookkeeper charges $25 to $35 an hour. Many small businesses retain a part-time bookkeeper to help set up their accounting system and enter all the transactions until business growth justifies a full-time position. Even if you decide to do the bookkeeping yourself, you still may want a bookkeeper to help you set up the accounting system.
Bookkeepers with knowledge of other similar businesses will know which categories of revenue and expense are typical in your industry to track and report, thus saving research time and ensuring your system is set up most effectively.
To find a bookkeeper, ask an accountant for recommendations of bookkeepers they have worked with and vetted. You can also place ads in your local paper, on Craigslist or other such forums, or go to the American Institute of Professional Bookkeepers.
Don’t Outsource It and Forget It.
Consider outsourcing to an accountant and/or bookkeeper if you do not have the time, skills, or inclination to do this work. However, bear in mind, this is not a situation where you hire these folks and then forget about the subject. It is your company, and the financial statements are yours. When you present the financial statements to a bank, file your tax return, submit invoices to a government procurement official, or any other such use, you will be the one signing the document.
Therefore, you will need some understanding of what is included. Review important materials and ask for explanations if anything seems unclear.
How Accountants Can Help Every Small Business
If your business is growing—and we certainly hope it is!—meeting with an accountant quarterly can help in a number of ways. Quarterly meetings with an accountant can help you make sure:
- You’re growing smart. Believe it or not, growth can sometimes tank your business. Regular meetings with an accountant can help you avoid growing too fast or in the wrong way.
- Your quarterly tax payments are sufficient. As your income increases, so does your tax liability. The estimated tax payments you started with may not be sufficient if you experience a significant surge in business. Regular meetings with an accountant can help you avoid a nasty underpayment surprise at tax time.
- You can see past your own blind spots. Although small business owners know their businesses better than anyone, sometimes it’s hard to see the forest for the trees. An accountant can help you take a big picture view of your business, which is vital for continued growth.
When You Can Go at Things Alone
Now you can DIY your accounting, right?
Well, sure. But do you really want to? Remember that statistic that 89% of small businesses credit higher success in working with an accountant? 89% is a big number. So, although you can run your small business without hiring an accountant, you should really consider all of the other benefits you’d gain by joining the vast majority of business owners who partner with a finance professional—and reap the rewards.
Maybe I Hire an Accountant Part-Time?
Consider that maybe you don’t need an accountant full time, maybe it’s just part-time, perhaps a couple of days a week. You can map out this person’s time, in advance. Maybe half the accountant’s time is spent working on the ‘paperwork’ the company is continuously generating concerning its income and expenses, and maybe the other half of his time is spent in consultation with you on accounting strategy. This will include his advice, based on the financials, on how to best spend your company’s money on resources required to keep the business profitable.
Hiring an accountant part-time can save you some money, and it might be all you really need.
When Your Company Is Growing, Hire An Accountant.
Companies don’t always grow at a steady rate. A new client or a big project can mean you need to grow your business more quickly than expected.
An accountant can help you handle growth transitions, such as hiring employees or taking on more office space. They’ll look after the detail (payroll, employee tax management, property tax, utility payments and so on), leaving you free to look at the bigger picture of the way your business is growing.
An accountant can also use accounting software to analyse your cash flow, inventory management and pricing. They can also provide insight into how to grow your business through financial analysis properly. They could even help determine when is the best time to introduce a new product or service offering to your range.
Now, Go Find a Small Business Accountant
Every small business benefits from working with an accountant, but it’s not always absolutely necessary. Even if you decide to wing it without an accountant, seeking occasional advice is still a good idea. It might cost you a few hundred dollars, but that’s a small investment in light of the impact an accountant can have on your small business.
And if you want to be among the 89% of business owners who see a bump from working with a financial pro, then start your search for an accountant now.