When to hire an accountant?
We often get enquiries from small business owners who have a problem. Usually, they have a little mess that needs cleaning up. (And sometimes they have a huge mess that’s accumulated for years, including decades of tax returns they have avoided until an ATO lawyer rang.)
Do Small Businesses Need an Accountant?
Often you will hear small business owners talking about the need for an accountant at tax time. But business owners can benefit in a lot of ways from the professional expertise of an accountant, who is trained not just to ‘number crunch’ but to analyse the financial data, to report on it and to make recommendations that can result in businesses becoming more profitable.
Challenges for growing small businesses
There are good reasons for hiring an accountant at different stages of your company’s growth. From a business plan to company formation, loan application to government audit, an accountant can make life easier for you at each step.
That doesn’t mean you always need to employ an accountant full-time or hire one on a retainer basis. Sometimes just a couple of hours of their time will be enough.
Like all small business owners who are looking to save money, you may think you can’t afford an accountant. But look at how long it would take you to do certain tasks (such as taxes), and ask yourself, is that a good use of your time?
For example, let’s say it takes you 10 hours to do your taxes, and your time is worth $100 an hour. That’s a cost of $1000 to do your taxes yourself. And there’s always the risk you’ve made errors – especially if you’re multi-tasking like most business owners.
However, if you get an accountant to take care of time-consuming tasks like taxes, it’s quite likely they will cost less per hour than you would pay yourself. You’ll not only have extra time to free you up to generate revenue, but you’ll have peace of mind that an expert is taking care of the details.
So what other moments during the life of a typical small business, might you want to hire an accountant to help you?
What Are the Duties of an Accountant?
The duties of an accountant can vary from company to company, but typically they are responsible for:
Your accountant would be responsible for ensuring that your financial data is properly stored, updated and managed. This is so the information can be reported on accurately to the business owners, investors (if you have them) and the government. The accountant would also ensure that proper procedures are in place for data entry and that the accounting software system being used is modern, secure and backed up regularly.
FINANCIAL ANALYSIS AND CONSULTATION
Ever been in a meeting and someone said: “how about we get the bean counters in here for their advice before we make a decision?”. There’s a reason for that. When it comes to decisions involving the future of your small business, your accountant may sometimes be your best resource.
Perhaps you need some simple tips on how to proceed with spending in the next quarter, or perhaps there’s a situation regarding a big expenditure, and you want to discuss options for credit or tax deductions, or maybe you just need help interpreting some of the financial jargon in a document. An accountant can help you with all of that, as well as troubleshoot the day to day activities of managing the finances of your company.
Ever heard of a “Cash Flow Statement” or a “Profit and Loss Report”? These are the types of reports that allow you to keep updated on the company’s money. You or your investors are going to be making decisions based on the reports your accountant provides, so he/she needs to make sure they are up to date and accurate.
Are there lots of rules and regulations affecting your small business? Perhaps your business is going through an audit? Or it’s tax time? Well, an accountant can handle these headaches and ensure that your income and expense reporting follows applicable state and federal laws.
When should you make use of an accountant?
Accountants deliver an incredibly valuable service for individuals and business owners operating in all sectors. Whether you’re running an art business from your home studio or a busy cafe with several employees, an accountant can do a lot more than just crunch numbers. If you don’t know the perks a professional accountant can bring, you’re missing out.
You want to start a new business
Starting a new business is exhilarating, but it comes with some hefty financial risk. You’ll need to know whether your big idea is actually profitable before you dive in. An accountant will not only help you navigate some of the administrative components associated with starting a business, such as deciding on a business structure or whether you should register for GST, but they’ll be able to walk you through start-up and operating costs and create reliable revenue forecasts. They can also discuss your finance options and advise you on the right lenders.
To set up a corporate structure
Depending on the complexity of your business and your ambitions for it, you should consult an accountant to define its legal structure before you start trading.
Operating as a limited company can give you more flexibility around paying yourself and potential tax implications. Additionally, this will ensure that the company is recognised as a separate legal entity from yourself so that your personal assets are not at risk should the business get into adverse trading conditions.
For statutory accounts and tax returns
Putting together an annual set of accounts for a limited company and an associated tax return is a complex process that requires the work of professionals. It is important not to fall foul of compliance requirements; otherwise, you could face fines and an administrative burden.
Employing an accountant to complete these filings can also save you money by helping you accurately classify tax-deductible expenses.
For cash flow forecasting
Cash flow is the lifeblood of businesses and is cited as one of the most common reasons for business failure. Putting together a forward-looking 12-month forecast will help you better plan for any shortfalls, as well as identifying whether you will need to take out a loan or raise equity finance.
This can also be a useful exercise to set financial goals and targets for where you want your business to be in the future.
You’re losing control of your finances
Are your expenses astronomical and you’re not sure why? Perhaps sales are up, but profitability hasn’t changed. Is your business’s debt getting out of control? An accountant can look at your financial reports, measure key metrics, and highlight areas where you can create efficiencies or cut costs. They can also look at how your debt is structured and make recommendations on when to pay back what’s owed and when to reinvest.
To get access to finance
There is now a plethora of different financing options for start-ups, including conventional loans, equity finance and a range of more niche services depending on the type of business or sector in which you operate.
An accountant can help you find the types of finance that are most suitable for your business. They can also work with you to put together an application and any supporting paperwork to maximise your chances of accessing growth finance.
Whilst accountants can support you during every stage of your company’s lifecycle, and you may choose to complete basic bookkeeping tasks yourself if you have the time.
As a general rule of thumb, it’s always good practice to spend a couple of hours with an accountant intermittently in order to make sure that your finances are in safe hands.
Cloud software is helping change the roles of accountants to become more advisory, so make sure that your accountant is able to offer growth services such as access to finance and support around business planning.
Your business is growing
Almost all owners want to grow their business, but is now the right time? Growth is an exciting prospect, but it can be dangerous to move too soon. Hiring an accountant to manage the transition while scaling is wise. Not only will they be able to provide sound financial advice on the best growth strategy for your business, but they’ll take care of the new financial and administrative pressures that come with opening more stores, hiring more staff, and serving more customers.
You’ll need advice about your company’s legal structure
Not all businesses have the same legal structure – many factors determine different types. Some might be called limited companies, limited liability partnerships or corporations; others could be sole traders or proprietors. These vary from one country to another.
You should carefully consider each type before deciding which one best suits you. For example, you may do business as a sole trader or sole proprietor, working on a self-employed basis and invoicing under your own name. If this is the case, you might be able to offset some of your living expenses against tax.
However, this also means you could be held personally liable for any business-related obligations. If your business fails to pay a supplier, defaults on a debt or loses a lawsuit, the creditor could legally come after your house or other possessions.
With a limited liability company structure, it’s different. As the name suggests, the liability of the business is limited to the assets owned by the business, not you personally (though there may be exceptions in some circumstances).
An accountant can explain the legal business structures available and help you choose the one that best suits you.
How Can I Find a Small Business Accountant?
Here’s where you want to be very careful and tread slowly. You do not want to rush through the process of hiring an accountant, as this person is going to have access to all your company’s financial details. You want someone capable and trustworthy, and worth the money you’re going to spend. Here’s a checklist on how to find a small business accountant that’s right for you:
SMALL BUSINESS ACCOUNTANT JOB DESCRIPTION
Before you start your search, planning out exactly what you need this person to do is a must. Depending on the size of your business, maybe you just need help with taxes, or maybe it’s just occasional help with categorising and processing of expenses. Or maybe it’s a bigger job: you need someone to recommend, setup and monitor a proper online accounting system in your office.
Talk to your team, see what their needs are too and draft up a list of responsibilities. If you don’t know exactly where to start, maybe consider hiring an accountant temporarily to come in and assess your needs and make recommendations (some might do this for free just to get the business).
ASK COLLEAGUES ABOUT THEIR ACCOUNTANT
Chances are you know a few people running their own small businesses who occasionally mention their accountant. Contact them. See who they use and if they’re satisfied with the services being offered. Were tasks completed on time? Were the reports detailed and accurate? Were there any problems?
CONSIDER A CERTIFIED PUBLIC ACCOUNTANT
Not everybody is a CPA, but hiring one means you have someone who has passed the tough CPA exam, has the necessary work experience and who will continue to take courses to maintain this designation. Hiring someone who is a CPA is definitely an important consideration.
CHECK THE ACCOUNTANT’S REFERENCES
Did a colleague recommend someone that looks promising? Ask for additional references. Book some time in your schedule and give them a call, don’t email them (you’ll get a better sense of a reference’s feelings when you hear their voice). Prepare a list of questions in advance, so you don’t get distracted.
Getting confident you found the right person for the job? Meet a few times, at least once in an informal setting, perhaps for lunch or coffee. You want someone who not only is qualified but will fit into your organisation and get along with you. Explain the ways you manage and see if that works for him/her. Talk about what an average day might look like for this new hire at the company.
Don’t rush into it. You’ll know when you’ve found the right person.
Do I Really Need an Accountant?
In order to answer this question, assess your situation first: the type of business you’re in, its size and what stage of development it’s at. Ask yourself the following questions:
DO I HAVE A LOT OF EXPENSES AND INCOME TO MANAGE?
If so, and the invoices and receipts are adding up, maybe, for now, you just need a bookkeeper. This could be a more cost-effective solution than hiring an accountant. A bookkeeper can recommend and implement a software accounting system for you, as well as:
- Create expense categories, recommend expense policies and coordinate approvals.
- Enter expenses and income transactions into the system.
- Handle banking activities, including bank visits to deposit checks.
- Maintain records with backups as required.
- Assist with audits.
DO I NEED A SINGLE OR DOUBLE ENTRY SYSTEM OF ACCOUNTING?
Single Entry System
A single entry system records every transaction as a single line in a physical or digital ledger. It does not require any formal training and is not costly. It is so simple it could run on an excel program if need be. You only need to record the following for each transaction:
- Whether the activity is an expense or is income (and Amount)
- Payment Method
- Balance (this balance would be updated with every transaction)
If your business does not have a lot of transactions in a day, then perhaps a single entry system is ideal, and you can update it yourself. Being able to immediately access your cash balance information, along with seeing how much income and expenses you have, are the benefits of using a single entry system of accounting.
Double Entry System
If your company is big enough that it requires financial statements, then that’s a sign you need a double-entry system. For that, you should hire an accountant as a double-entry system is complex and time-consuming. The method will also need accounting software to be properly implemented.
A double-entry requires every entry into the system to have additional corresponding entry to a different account. Consider the word “double” in “double entry” standing for “debit” and “credit”. The two totals for each must balance; otherwise, there is an error in the recording of the transaction.
A double-entry system has its advantages. It is much more accurate than a single entry, and it allows for the creation of the financial statements you will need.
Can I Do My Own Accounting?
Yes, you can do your own accounting for your small business, many owners do just that. But as your company grows, and there is more demand for your time during your working day, you may find you need the support of an accountant. After all, an accountant will have a strong background in math and economics, as well as experience with the best accounting practices, procedures, and tools you can make use of. An accountant can also address legal issues, determine financial strategies and generate those much-needed reports.
As a small business owner, no doubt one of the things you like best is that you have control. You can set your working hours, craft your business strategy, regulate your workload (at least to some extent) and determine your finances. And being the master of all of these things is a wonderful and liberating feeling.
But sometimes it can stop you from delegating. Business owners can feel overworked, partly due to a reluctance to allow other people to help out. You might feel that no one can know your business as well as you do. Therefore nobody can handle any part of your business as well as you can.
Inability to delegate can mean you’re left feeling overworked and stressed. At some point, you will have to let go, and learn to trust other people to handle some parts of your business so that you can look after the rest.
Delegating your company’s financial affairs is a good start. You need to choose the right accountant and make sure you trust them with your company’s financial information. Once you’ve handed over your company’s finances to someone more experienced in accountancy than you are, you will have more time to concentrate on other aspects of your business.
Some of the most successful business owners in the world are experts at delegating work to the right people – so try to learn from them.