Does a Start-up Really Need a Professional Accountant or Bookkeeper?
Last Updated April 14, 2023
Congrats! You just launched your new start-up business! This is a huge step for you and your career and is almost certainly one that you have been wanting to take for a while. This is a massive undertaking and is sure to be something that you do not approach lightly.
Because of this, you will want to ensure that everyone and everything that is attached to your startup is top-notch! This includes everything from the new hires you take on, to the smallest day-to-day operations, to the accounting team. No matter how big or small, you want to guarantee that every bit of your startup is being run as organized, professionally, and efficiently as possible.
One major concern that new small business owners have is how to deal with their accounting. Accounting is an area of business that most small business owners don’t feel they have a good handle on. In fact, in a recent survey conducted by Forbes, it was found that 60% of small business owners do not feel comfortable operating their accounting department.
This leaves small business owners in a tricky position. If they ask an accountant what the best course of action is, it is highly likely that the accountant will recommend that the business owner uses their services. But who is to say that the accountant isn’t just drumming up business for their benefit? Because of this, it can be quite complicated for small business owners to determine the best way to approach their accounting needs.
What’s more, while some startups may decide to use the services of a professional accountant, does that mean that all startups should be following in their footsteps? Is there a hard and fast rule that requires all startups to use the services of an accountant, even if it is just for a small amount of time?
Unfortunately, there is no such rule in this regard. Due to the wide variety of outside variables and factors that are unique to each startup, it is impossible to make a “one size fits all” or a blanket statement regarding every small business’s accounting department. However, knowing what qualities a small business may have that lend it to be a better match for using a professional accountant can be extremely helpful in determining the next steps.
Below is an outline of when it may be useful to outsource as well as some benefits that come with using a professional accountant. It also outlines when it is safe to handle your accounting on your own. While this brief can’t cover every possible factor that is involved in launching a startup, the overview should provide a good starting point for many small business owners. Looking for some guidance on where to go next with your accounting department? Read on!
When to Hire a Professional
The truth of the matter is that it is almost always simpler to hire an accountant. After all, hiring someone to do a task for you will never be a difficult choice. With that said, hiring a professional to handle your accounting is not always the correct choice for every small business.
However, if a business has gone ahead and chosen to employ the services of a professional accountant, there are some factors to consider. A professional accountant, while always helpful, can be exponentially more advantageous to a company at certain crucial points in a startup’s life. Here are those key times.
During the Startup Period
As every small business owner knows, the beginning days of launching a startup can be crucial- and quite terrifying! In these pivotal times, it is nice to have a little extra guidance from a trusted professional. Below is a small list of areas where a professional accountant can provide some direction during a startup launch.
Contribute to writing the business plan
One of the best ways that a professional accountant can assist a new business is by helping write the business plan. This business plan includes what type of services or products your business offers, what your marketing and sales strategies are as well as your financial background. Essentially this outline is the very core of your business.
Assist in recommending the best business structure
Creating a business structure is a crucial part of launching a new startup and choosing the best business structure that will be to your business’s benefit is even more important. One of the main things to consider is if it is wise to create an LLC or if your business will be more successful if filed as a sole proprietorship. If you have no idea what either of these terms means or you are completely lost in determining what the benefits of each structure include, heavily consider consulting a professional accountant.
Help make sense of your state’s business requirements
Deciphering state requirements can be quite tricky as they vary state from to state and even sometimes between each county or city in a state! A professional accountant can assist you in getting on the right track regarding which licenses, accreditations, and certificates you will need. They also can assist in opening a business bank account which is important when launching a startup.
Help choose the proper accounting software
Choosing the right accounting software is perhaps one of the more important aspects of a business launch and thankfully a professional accountant can assist you with this as well! An accountant can help direct you toward the right accounting software that is best suited for your business’s needs and will help your business run as smoothly as possible for years to come. By choosing the correct software you are setting up yourself and your business for future success.
During Tax Compilations
To no one’s surprise, accountants are heavily popular during the tax season. In addition to this time, it is prudent to work with a professional accountant when any additional tax issues may arise. Wondering what some examples of this might be? Below are a few instances in which using the services of an accountant can help you better tackle those tax complications!
You conduct business in multiple states
If your business branches through multiple states, you will have a slightly more complicated tax filing process. A certified accountant can help keep all your ducks in a row and ensure that you are abiding by all the different state’s business regulations as well as tax regulations.
Approaching the increasingly complex sales tax
Sales tax compliance is preparing and filing any sales tax returns This can get complicated when a small business owner is shipping their product to other states or countries as both these areas will have different sales tax regulations. An accountant can help mitigate this stress and confusion by ensuring that your business is in alignment with all of the tax laws that you and your startup have conducted business in.
Assist in difficult payrolls
Every small business owner knows that payroll needs to be submitted as timely and as accurately as possible every single time! Similar to filing sales tax returns, when submitting a payroll several wage and labor compliance laws need to be adhered to. While it is possible to navigate these regulations on your own, it is wise to consult an accountant even if it is just once a quarter to ensure that you are operating under these wage and labor compliance laws.
During Key Growth Periods
If a new business has experienced enough success that there is a need to expand, it is time to celebrate! However, most business owners are unsure how to effectively expand their business. In these key growth periods, an accountant can be of assistance!
Help create a new budget
When a company grows, often there is a need for more employees, a larger space, more product,s or a combination of all three! For these reasons, there is often a larger cost required to run the business. When first thinking of expanding, working with an accountant can be extremely helpful as they will recommend and create a new budget for the business to operate under while keeping your business goals in mind.
Help plan for the future
Accountants can help a small business owner plan for the future as the accountant is familiar with a company’s cash flow patterns. With this knowledge, the accountant can not only assist with the budgeting as mentioned above but can also help create financial forecasts.
Financial forecasts are the projected future financial outcomes for a company. This is important as it will give the small business owner more foresight into planning for the coming months and what they will bring as opposed to just focusing on the matters that are currently at hand.
Ways a Professional Can Help
A professional accountant can help a startup company in a variety of ways. In addition to assisting during key times in a business’s life, an accountant can also assist in the day-to-day operations. Below are a few ways that an accountant can help daily.
Help maintain the accounting system put in place
Perhaps the most obvious way that an accountant can assist a small business is by running the accounting department. There is some room for the small business owner to choose how to facilitate an accountant in this regard. Some businesses choose to permanently employ an accountant and work with them year-round.
However, if a company does not have the room or the budget for a year-round accountant, they often choose to work with their accountant a handful of times a year. This is a good compromise as the small business still benefits from the accountant’s professional advice while still operating under their space or budget restraints.
Supervise Payroll
If a small business chooses to employ a professional accountant year-round, one of the most helpful ways they can assist a small business is to supervise the payroll. While this is not necessarily a task that only a professional accountant can do, it is closely related to the accounting department which allows the accountant to ensure that there is no oversight when payroll is being processed.
Tax Season Assistance
An accountant is nothing short of a godsend during the tax season. This time can be extremely difficult and confusing for business owners, especially for those who have just launched a startup. By using an accountant year-round, the accountant can advise a small business on how much they should anticipate their tax payments to amount to. By operating under this foresight, the small business can steadily put away money and save for this expense while avoiding the stress of paying a huge last-minute tax payment.
Submitting Taxes
In addition to advising the estimated tax payment, a professional accountant can process and file a business’s taxes for them regardless if they are being utilized year-round or seasonally. In addition to this, an accountant can also advise on when to send your business W2s and who to send them to as well as any other tax paperwork that is needed. An accountant is also able to advise which employees should be considered independent contractors and then communicate that to the IRS.
Continued Education
Aside from the assistance they provide during tax season, an accountant can serve as a fountain of knowledge for any business owner who is interested in learning more about accounting. An accountant can explain how to interpret any financial statements or earnings reports to a business owner. This further allows the owner to expand on their knowledge and become more familiar with the inner workings of their business. This can be done by working with an accountant in any capacity, be it year-round or just as is needed by the business.
End of the Year
The end of the year is another extremely important time for a small business. An accountant can assist a small business owner by closing the accounting books for that business year. In doing so the accountant can also create that year’s financial statement for the business which then can be used as data and provide insight on how the next business year will go as well as suggest any changes that need to be made.
Things Accountants Can Do That You Can Not
Now you are more familiar with the benefits that come with using an accountant, which truly is endless. It seems that if a small business or startup has the means to use a professional accountant, no matter how infrequently, they should do so.
However, there may still be some small business owners out there who are still not sold on the idea of employing the services of yet another person, especially when the budget for new small businesses can be so tight. After all, why can’t these business owners do their accounting on their own?
Truth be told, anyone can operate their accounting department. But that does always mean that it will be done well or properly. An accountant does know the “tricks of the trade” making them a valuable asset to any team, even if it is just long enough for the business owner to learn how to handle this department on their own in the future.
If you are still unconvinced, here are a few things that an accountant can do that the average small business owner can not. This is not necessarily a make-or-break rule that all small business owners must use accountants, but it is important to know what you are getting into and how the accountants can provide a service that you can not replicate as easily or efficiently on your own. There may be some similarities between the above sections but it must be clear what an accountant can do that an average business owner can not. Let’s get started!
Tax Planning
According to a poll conducted by Small Business Report, 71 percent of small businesses use a professional accountant for the tax season. However, only a measly 30 percent choose to use a professional accountant for their tax planning services. This seems counterintuitive because these two are so closely related to each other.
Essentially by using a professional accountant only for the tax season, a business is unorganized during the rest of the year, needing assistance to get their accounts in order when it matters during tax season and then relaxing and going back to the chaos as it was before. If this seems like a backward way of approaching the process it’s because it is!
By tax planning with a professional accountant, a small business owner is responsible for the remainder of the year and finding a way to best set themselves up for continued success, while remaining calm and avoiding the tax season scramble that so many businesses fall victim to. Tax planning is the analysis of a financial situation from a tax perspective. It becomes helpful as it provides tax efficiency which then potentially provides a way for small businesses ’ taxable income to be reduced, tax rates to be lowered, and even for some taxes to be eliminated.
That sounds like a great deal, right? Then why don’t all small business owners participate in tax planning?
The main reason for this is that tax planning is just that- a planning process, which often takes a good deal of time and is ongoing. There are many factors within a business that changes frequently such as income and expenses. Because of this, this requires a small business owners to meet with a professional accountant quite often so they can factor these changes into their plan. While it may be a pain, ultimately this time sacrifice is worth it as it will help a small business owner be the best candidate for credits, tax deductions, or any other sort of tax break.
Business Structure
As was mentioned above, the business structure, which is also referred to as the legal structure, is extremely important to choose and to do so wisely. This is crucial as there is a wide variety of business structures but some are better suited for your company given the product or service that you offer. When first starting a business it is wise to consult the advice of an accountant to determine which legal structure is best suited for your small business.
It is also important to revisit this matter as your business grows. Oftentimes as growth occurs for a small business, it is no longer wise to stay operating under the same business structure that you once were. Some business structures, such as the sole proprietorship which is the most common among small businesses, do not offer the business any protection from losses or any other type of liability. The main reason for this is that this business structure is designed to involve only one person who is operating the business.
In those instances, it is clear to see why a business would need to change its legal structure as its business grew and took on more employees. It also is important to note that there are changes in regard to taxes once a business alters its legal structure. Because of this, it is no wonder why businesses consult the advice of a professional accountant as they provide sound advice as to what legal structure a company is best suited for as well as advising what tax changes to expect when the change occurs.
Payroll
At first glance, payroll may seem like a simple task that any business owner can do. And while it does seem simple, it can also be deceptively tricky if not done properly. It is because of this reason that the Small Business Report found that 50 percent of small business owners turn to an accountant to assist them with their payroll. But why? What is so tricky about payroll?
Payroll can be so daunting because it is the largest area where businesses face non-compliance or act outside of the guidelines that have been set for them. Of course, this noncompliance is unintentional and due to an error in calculations or something similar but unfortunately as well-intended, as the error may be, it still results in a fine that can be quite costly.
That’s why working with an accountant in regard to payroll is so popular with small business owners. An accountant not only ensures that your business payroll complies with all the payroll taxes, government paperwork, and requirements for the state and insurance companies but using an accountant also helps you avoid any fines that would come from completing payroll incorrectly.
An accountant can be used to help you monitor your business’s payroll. This is important as it will allow you to get a better idea of the salaries to total revenue ratios. It is extremely important to take note of these costs as a small business owner.
Cash Flow
Cash flow, which is the total amount of money coming in and out of a business, is another crucial part of a business that can be enhanced by using the services of a professional accountant. That’s not to say that using an accountant will necessarily increase the amount of money coming in but an accountant will help you better manage your current cash flow.
When an accountant takes a look at a small business’s cash flow, they will be able to identify trends that are occurring as they are conducting business. Bad habits such as poorly managing your cash or continuously experiencing unexpected expenses will all negatively impact your cash flow. Using an accountant will help you identify if these things are happening in your small business and how often they are occurring.
Another extremely useful benefit that comes when an accountant looks at your cash flow is that they can predict when there will be a “cash flow crisis” or when your cash flow is lower than usual. It is important to know when these times may come as you will want to take steps to prevent this from happening or start saving to help soften the blow.
Debt
The word debt has a negative connotation however this is not always the case. For small businesses, there is such a thing as good debt and bad debt. To determine the difference is fairly simple. Debt.com described the difference as if it increases your net worth or has future value, it’s good. If it doesn’t do that and you don’t have cash to pay for it, it’s bad. In the small business owner setting, a good debt could be taking out a mortgage for a large office space because your business is growing. That is an example of a debt that has future value to you, the business owner.
It can be important to work with an accountant during these times as they will assist the business owner in determining if an option would result in a good debt or a bad debt. They will also assist in showing the small business owner how to provide the finances to follow through on a good debt decision. Additionally, if there is a large amount of bad or toxic debt, the accountant can help set up a plan to pay off the debt as quickly and efficiently as possible to prevent any interest from incurring.
Budgeting
Budgeting may seem like something that small business owners can do on their own. And this is true- anyone can create a budget for themselves! However, the key to creating a budget is to create a budget that works. And it can be difficult to create a budget that works without the proper tools or the proper help.
The reason that a professional accountant can create a budget that works is that they don’t work off of assumptions like most people who just randomly create a budget do. An accountant works off of your past business history as well as accounts for all the projected costs that it will take for you to accomplish all of your small business goals.
Another bonus to using an accountant to set up a proper budget is that they help you cut any unnecessary business costs. In this sense, using an accountant will save the business owner money that they would otherwise be spending.
A budget is essential to running any business. It informs the small business owner what they can afford on salaries, or what is available for them to invest in the business. A good budget also shows the owner the real cost of running the business. A well-made budget is a tool that is invaluable to every small business owner.
Growth Periods
it is important to be very mindful when growing a business. During such a crucial time, it is beneficial to employ the services of an accountant to ensure that a business owner is taking all necessary precautions. But why is that exactly?
During times of business growth, there is also a need for financial growth. Is this business able to afford this growth? Can new staff be hired? Can a newer and larger space be leased? All these factors and much more need to be taken into consideration before jumping into a business growth endeavor.
An accountant is exceedingly helpful in these situations as they provide an objective and often frank perspective on the situation. They can look at the costs that are required to grow a business and determine if you are in a position financially to grow and if so, what type of growth you and your business can afford.
Business growth needs to be supported by an increased amount of money being put into the business. With the help of an accountant, you can best determine where to pull these funds from. If you do need to look for an outside source to provide funds, your accountant can help you get your materials ready for a loan application as well as a champion you and your reputation as a reliable individual that should be trusted with a bank loan.
Accounts Receivables
Another statistic that was found by a survey conducted by the Small Business Report stated that 51 percent of small business owners said that accounts receivables are the source of frustration that they face when running their business. And it is no wonder why! It is difficult to enforce timely payment from clients and even more difficult to enforce any late payment fees-especially when it is from a larger corporation that is not afraid of a small business owner.
All invoices for a small business must be paid on time. If they are not managed effectively and timely, a small business could face serious issues regarding cash flow that could ultimately affect the company. Thankfully there is a way that accountants can assist in this area.
Accountants can address any unpaid invoices by helping a small business owner set up an invoice system. Oftentimes these invoice systems are online and automatic which makes them easy to use as well as easy for clients to access. These systems also often offer an automatic payment alert that is sent to a client as soon as an invoice is not paid on time. These systems also include a portal exclusively for a small business owners to access so they can quickly determine which client is overdue as well as send individual alerts to said, client.
When To Do It Alone
After reading the above sections that advocated for using a professional accountant, you may be wondering how there could ever be a case for using your methods. However, sometimes sticking to your means can be the smartest choice. After all, there are always a few exceptions to the rule! If any of these factors apply to you and your business, you may want to consider employing your methods. Here they are.
Your Business is More of a Hobby Than a Career
If your business is more of a hobby or a “side hustle” that brings you in a little extra spending cash as opposed to a full-fledged career, you should be safe in not enlisting an accountant for your business. The main reason for this is that there likely is not enough money coming from this side business that it will require any fancy financial footing.
But do note that it is very important for a small business owner, no matter how small the business is to take note of how much income is coming in and what the expenses for operating your business is. This will make your tax season and your tax filing process significantly easier than if you did not keep track of this information at all. It does not need to be tracked by a professional accountant. A simple Excel page or any other type of spreadsheet can assist in keeping track of small business owners’ information.
Freelancer
You could also consider using your own accounting devices if you classify yourself as a freelancer. What’s more, if you are not only a freelancer but only have a few clients you are probably safe to wing your accounting. But why exactly is this the case?
The main reason behind this logic is very similar to the logic that is used for individuals that are approaching their business as more of a hobby. There is not enough financial information attached to the business that requires the attention and professional talents of an accountant. However, any freelancer or small business owner must keep track of the expenses that are needed to run the business as well as any income that they receive from the services their business offers.
It is important to avoid the temptation of relying on the information that is on your 1099 forms as they are not always the most reliable and accurate way to report your income. It also is crucial to not guess about any of your expenses as they can drastically affect your taxes and you will need them to be as accurate as possible when filing your taxes.
Extremely Simple Taxes
You should also not use the services of a professional accountant if you have an extremely simple tax situation. But how do you know if you have a simple tax situation? Here is how!
Most times if a business has a legal structure of a sole proprietorship, chances are the tax situation will be quite simple. While there are exceptions to the rule, most times this is the case as there is little room for accounting complications when the business is so small. That being said, it is still important that the business owner is familiar with the basic accounting principles. It is also wise that a small business uses a self-employed accounting software program to help track its accounting department a little more efficiently.
No Budget
The last and most obvious reason to not use the services of a professional accountant is simply when your small business does not have any wiggle room in the budget. It is counterintuitive to go over budget to hire an accountant whose job is to get your business’s budget in order. Especially when there are a large variety of other liable options readily available for those who are self-employed or are small business owners.
If you do choose to do the accounting on your own, be sure that you are familiar with the basic principles of accounting. It is also a good idea to use an accounting software program that is geared toward self-employed individuals. While there is a cost that is associated with using these programs, it is significantly cheaper than using an accountant.
Conclusion
And there you have it! A comprehensive guide to determine if you need a professional accountant or bookkeeper. While it may seem like an overwhelming decision, there are a wide variety of factors that are specific to your business that can assist in determining what the best option for you is.
