Should You Hire an Accountant for Your Small Business?

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Many entrepreneurs learn new skills as they start and grow their small business. From working on product development to working on marketing, human resources and payroll, there is a lot that small-business owners end up taking on by themselves. For many entrepreneurs, it’s difficult to decide whether they should hire an accountant. While accountants can be a considerable expense for some businesses, they do provide a number of cost-saving benefits as well.

TL;DR (Too Long; Didn't Read)

Whether hiring an accountant is right for your business will depend on your legal structure, financial status, business needs and overall business plan.

Understanding the Role of an Accountant

Many businesses assume that an accountant is only required when it comes to tax time. While accountants do play a critical role when it comes to helping you effectively file your taxes and take advantage of small-business credits, they also provide other services that are useful year round, not just at tax time. Accountants can help your small business with a number of services, including:

  • Filing taxes: Tax preparation is one of the primary reasons that small businesses hire accountants. CPAs, or certified professional accountants, are well-versed in the government tax credits that are available to small-business owners. They are also informed about how you can write off certain expenses to help your business save money via tax deductions.

  • Financial reporting: A cash-flow statement and profit-and-loss reports are important financial documents that the investors or lenders for a business will need to see on a regular basis. If you are working with angel investors or taking out a loan from a credit union, for example, they will want to take a look at recent financial reports. Accountants ensure that these documents provide an accurate depiction of your company’s finances and that they are up to date.

  • Data management: It’s important that all of your financial records are secure and properly documented. An accountant helps your business to keep your financial data up to date so that it can be used to report to the government or other regulatory bodies. A good accountant will also ensure that your accounting software system is backed up so you don’t lose any data in the event of software issues.

  • Financial analysis: If you’re making an important decision about the future of your business, such as whether to purchase a new expensive piece of equipment or whether to take out another loan from the bank, an accountant can help. CPAs can analyze your financial statements to determine the financial position of your company and the best financial advice for your business decisions.

  • Regulatory compliance: If your industry is heavily regulated by the state or federal government, you may need to provide additional financial documents on a frequent basis. Accountants ensure that the correct information is provided to the right regulatory bodies so your business is in compliance. If your business is going through an audit, an accountant will prepare the right documentation for the authorities.

Differentiating Between an Accountant and a Bookkeeper

Many businesses choose to hire a bookkeeper instead of an accountant, often because they feel it is a more cost-effective decision. While hiring a bookkeeper may cost less than hiring an accountant in some cases, keep in mind that they do not offer the same services.

Both bookkeepers and accountants handle financial data and require fundamental knowledge of accounting principles. Both professions also create reports dealing with financial transactions for the business. That’s where the similarities end. Bookkeepers identify, measure and record financial transactions, whereas accountants record, analyze and report financial data that is not limited to financial transactions.

The goals of bookkeepers and accountants also differ. Primarily, bookkeepers are concerned with ensuring that the recordkeeping and financial information are kept properly. On the other hand, accountants analyze the financial situation of the business and communicate it to stakeholders, such as the business owner, investors and the government.

Evaluating the Costs of an Accountant

If you’re considering hiring an accountant for your business, it’s best to evaluate whether your business can afford the costs. The rate for hiring the right accountant will differ depending on the education and experience of the CPA and the services you require for your business. If you’re hiring someone who has just completed his certification and only require him to prepare your taxes, it will likely cost less than hiring the best accountant in the area.

The hourly rate for accountants can range from $30 to $500 an hour. Where your accountant falls within that large range will depend on a number of factors. When hiring an accountant, consider the long-term benefits you will experience with his help in relation to the short-term costs you will need to pay.

Doing Your Own Business Accounting

Many entrepreneurs choose to do their own accounting. If you have knowledge of the principles of accounting, then you may be able to manage your own financial records. One of the biggest benefits of doing your own accounting is that you don’t need to pay the upfront costs of hiring an accountant. However, there are many issues that can come up if you manage your own accounts.

Accounting is a complex process that requires in-depth experience in financial reporting, taxation, legal issues and much more. Not having that knowledge may get your business into trouble. As such, it’s best to stick to doing your own accounts if your financial and tax situation is extremely simple. Be sure to use a self-employed accounting software such as QuickBooks to help you with the formulas and documents.

Knowing When to Use an Accountant

Even if you primarily manage your own accounts, you may want to hire accounting professionals to help you with specific accounting services, including:

  • Advising on your legal business structure

  • Acquiring the appropriate state and federal licenses and permits

  • Setting up your internal bookkeeping and accounting software

  • Navigating sales tax and reporting

  • Meeting payroll compliance

  • Filing your taxes and calculating quarterly tax payments

  • Year-end reporting

  • Managing cash flow

  • Working with auditors

  • Advising on business growth

Accountants can help small businesses owners to avoid costly mistakes that can be devastating to their business. It’s best to hire an accountant whenever possible so you can ensure that your business’s financial future is on the right track.

Finding an Accountant for Your Business

When you’re looking for an accountant for your business, it’s best to do your research. First, consider whether you’re hiring an accountant full time for your business or whether you’re going to use the services of an accounting firm. This will depend on the size and financial status of your business as well as the services you need from the professional.

Many accounting firms specialize in working with small businesses and are familiar with the regulations, tax credits and industry credits that apply to specific kinds of businesses. When interviewing potential accountants, be sure to ask about their familiarity with working with small businesses and how they can help you achieve your goals. For example, if you’re a sole proprietor and are looking to incorporate within the next year, ask the accountants how much experience they have with this process.

Regardless of whether you’re hiring an employee or working with an accounting firm, check references. Be sure to ask previous employers about the accountant's performance and familiarity with the small-business landscape. Ask other entrepreneurs in your industry who they use to manage their accounts and how they like working with those people.