Should I Hire an Accountant?
Now that your business has started, you have your entity chosen, as well as your EIN number and have a business bank account; it’s time to really get into gear. Assuming you are earning revenues and have monthly expenses coming in, you have a lot going on! What about the business’ books? Are you going to handle them, or hire an accountant who can help to manage your financials? So, should you hire an account, and if so, when is an ideal time to hand the financials off to an expert?
Unless you have a fundamental understanding of how accounting works and have a basic understanding of debits and credits, as well as how transactions flow onto financial statements, it’s recommended you seek the services of an accountant to manage the financials of the business, as well as to seek advice as you and your business encounter different situations.
The sooner the better!
Obviously, we are biased here (because, you know…we’re accountants). However, if you are going to start right, we always suggest at least getting the advice of an accountant about your business: what you do, your goals, and suggestions for how you can start on the right foot. It is said that about 20 percent of small businesses will fail within the first 12 months of opening their doors. Of those that do make it, 50 percent will not last five years. The main reasons for these failures are financial: poor cash flow and cash management, debt, and low revenue. Those businesses that seek out accountants increase their odds of success by 89 percent! To avoid these pitfalls, accounting is crucial. If you aren’t either doing your financials or having someone else do them, you may be missing opportunities to use accounting data to grow your business, identify trends, and look for ways to cut your expenses, to name a few. It’s also important to start off with good financial habits, and a good accountant can help with keeping a business on schedule with keeping financials up to date.
More than Forms
Many current accounting software applications are touted as being user-friendly that anyone can use. While this in itself may be true, accounting is more than entering numbers and assigning accounts. It may seem fairly simple initially, but it can become complex rather quickly. Will you have loans? Equity transactions? Are you tracking fixed assets and depreciation? Do you have payroll? How will you log these transactions into the accounting system? We don’t mean to say that you can’t do these things. The point here is to trust those who do it best to do what they do. We’re accountants. If you see us trying to wire our electricity or fix our transmission, please snatch the tools from us and call for help!
In addition to just managing the financials, you may also be interested in taking this data and measuring key metrics, such as cost per customer, expenses relative to revenue, cash flow, and accounts receivable turnover, to name a few. Accountants can take this information to help identify trends and help you to operate your business smarter and more efficiently.
How valuable is your time?
Once you get going, you’re going to be wearing a lot of hats: productions/operations, marketing, payroll, accounting, etc. There is going to come a time, and it may be sooner than later which you need to pass these duties off and focus on operating and managing the business. We didn’t get into business to clean our office, just as you most likely didn’t start your business so you can work on your books (unless you’re an accountant!). We always ask our potential and current clients, “How valuable is your time?” Do you want to run the business or do the books?
Sometimes it’s daunting to leave something so sensitive with a person or a company that you feel doesn’t know what it’s like to do what you do or your business as well as you. As a business owner myself, I understand the resistance there. Keep in mind that we have made it our business to help new and existing businesses manage their financials and offer guidance and support to help that business succeed. Once you are a client, we have an interest in seeing your business prosper and do well!
Is your company growing?
It’s hard to predict and determine how and when a company is going to grow and how quickly. One big customer might mean you need to hire more help and expand more quickly than you thought. Growing quickly might also mean certain things get put off. Before you know it you are a couple months behind on doing the financials and having issues managing cash flow.
As mentioned before, accountants can help manage the monthly finances and keep the business on track, as well as providing advice for growth. Should you lease or buy equipment? Should you hire more? Should you move into a larger space? Are your margins correct? Is your pricing putting you in a position to be the most profitable? We utilize tools and analysis to give clarity and answers to these issues. We pour over the details (payroll, taxes, expenses, cash flow), so you can focus on your goals and the big picture.
Are you writing a business plan?
Even if you haven’t officially started yet, it still may be beneficial to involve an accountant. If you’re still writing your business plan, an accountant can use software to incorporate financial projections as well as other reports, sometimes based on specific industries. This will make your business plan more professional, realistic, and in position to be better executed successfully. You can benefit from accountants knowledge and the resources they can provide in the process. This can provide you an advantage in avoiding mistakes new businesses sometimes make and can save money rather than having to hire one later.
Are you buying or selling a business?
Instead of starting and building a business, are you looking at the possibility of purchasing and taking over an existing one? You should definitely seek out an accountant before the purchase. They can dig into the financials of the business to determine if they look correct and whether the value of the business is appropriate. They can look at the revenues to determine if that is a realistic number for the type and size of business. They can also look at the assets and liabilities on the balance sheet to ensure the company’s debt is not too high or if there are issues with overvaluation of assets. They can work with your attorney to give you piece of mind.
It’s important to discuss any idea of selling your business to an accountant when you have an idea of when you want to consider selling. This helps to establish goals to maximize the profit from the sale. They can provide an idea of what the financials should look like to look attractive to potential buyers and get the most value and work with you to accomplish that goal. Accountants can also be instrumental during the sale, helping to structure the purchase that is the most favorable from a tax perspective, such as stretching payments over a number of years vs. a lump sum payment.
Are you applying for a business loan?
If you are applying for a loan for the business, banks are seeking assurances that borrowers are credit-worthy and that they will get the money back that they lend. An accountant can greatly improve your chances of getting the funding. Accountants know what banks are looking for in terms of financials and can work with you to establish goals in order to put you in the best position to get approved. Your accountant can provide more accurate projections and lend more credibility to the potential borrower. They can help you decide what type of loan to apply for, as well as recommend banks and lenders that have a increased chance of being approved for as well as more favorable terms once approved.
If you aren’t approved for a loan, oftentimes banks will suggest for the business owner to seek out an accountant or even recommend specific ones that can help them with their financials and clean up their financials and put them in a better position to be approved in the future. Though this helps, it’s always ideal to seek out help before applying and avoiding rejection.
With all these reasons to hire an accountant, Why NOT hire one is the better question!