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22-Sep-2020 By - ewmaccountantsadmin

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.

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.

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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 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 a 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 own bookkeeping and hire a bookkeeper to do periodic reviews of your work.

That said, you don’t want to try to set up your own 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. If your accountant doesn’t offer this service, they probably know a bookkeeper who does.

You’ll need advice when you write a business plan

If you involve an accountant while you’re writing your business plan, they will be able to use accounting software to add financial projections and other reports to it. This will help you create a business plan that’s realistic, professional and more likely to succeed.

Hiring a professional at this early stage will mean you get the benefit of their financial knowledge and advice right from the start. That could save you time and money compared with hiring one later.

You’ll need advice about your company’s legal structure

Not all businesses have the same legal structure – several factors determine different types. Some might be called limited companies, limited liability partnerships or corporations, and 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.

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 are in compliance 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, some apps and programs 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.

You’ll need an accountant to help with the finances

Small business accounting can quickly become complex if you do it on your own. If you feel you’re losing control of who owes you money and how much, an accountant can help you get back on track.

You may also want to measure key business metrics, such as the ratio of salaries and other employee payments to total revenue. An accountant can help here by managing your payroll and producing graphs so you can see how the ratio changes over time.

If your accountant uses cloud-based accounting software, they’ll be able to share your business accounts with you quickly and easily. And they can produce tables and charts that will help you understand your company’s current financial situation at a glance. This will help you monitor the pulse of your business and keep track of important things like cash flow.

Hire an accountant when you have to deal with the government

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.

Hire an accountant in case you’re audited

It’s statistically unlikely that your company will be audited because there are so many small businesses and relatively few government auditors. But if it does happen to you, it can be expensive, stressful and time-consuming.

If you don’t already have an accountant at this point, it’s a good time to hire one. They can give you advice on how to work within the auditing process. They can also help ensure you don’t violate any tax laws afterwards – because the government will almost certainly be watching.

But it’s better to hire an accountant before an audit ever happens, especially if you can find one who will offer audit insurance. Audit insurance covers the fees you would have had to pay if your business needed to respond to an official enquiry, review, investigation or audit by a tax department. An accountant who offers audit insurance means they won’t charge any extra for the considerable amount of work they’ll have to carry out during the audit process.

Good accounting software incorporates an audit trail. This makes it easier for you and the government to see exactly what transactions have taken place over time – and who authorised them.

When You Need Advanced Business Analysis & Reporting

Accountants are experts in business analysis. Not sure exactly where your money is going? Want to know where you can cut back and save money? Accountants know all of this and more. They can help create reports and give financial insight and analytics, so you can take that information and use it to improve your business.

You’ll need an accountant when you apply for a business loan or overdraft

Banks like to know they’ll get back the money they lend out. Since the credit crunch, lending to small businesses has dropped in most countries. This makes it all the more important that you have a sound business case when you apply for a loan or overdraft.

An accountant can help improve your chances. Even the fact that you have an accountant might sway the bank in your favour, as it implies you’re serious about your business. With good accounting software, your accountant can present facts and figures that back up your funding application. They’ll also be able to answer any questions your bank might have about revenue projections and expenses.

Your accountant can also help you choose which loan to go for, and tell you whether your bank’s terms and conditions and interest rate are favourable to you.

Get an accountant’s advice before you take on a franchise

Taking on a franchise is a popular method of starting up in business, especially in areas such as car grooming, cosmetics supply, lawn-mowing, courier delivery operations and fast-food restaurants. With a franchise, you can still be your own boss. Yet, in return for a share of the revenue or business equity, the franchise company will support you with brand marketing, sales, product supply and other important matters.

This can take some of the risks out of starting a new business. But on the downside, you will have less commercial freedom and increased overheads, because some of your income will go to the franchise parent company. Franchise contracts vary, so the amount you pay and keep will also vary.

It can be hard for someone new to running a business to tell whether it’s worth taking on a particular franchise. That’s where an accountant can help. They can look through the franchise contract to find out the fees and percentages charged, then help you estimate your likely income after those costs have been deducted.

Only you can decide whether you then want to take on the franchise or not. But armed with detailed knowledge of the finances, you can make that decision with greater confidence.

When Buying Or Selling A Business

If you are considering buying a business/franchise, or expanding your current business, talk to an accountant first. They’ll be able to assess if the purchase is a wise financial move. Additionally, if you need to sell your business, an accountant will walk you through the process.

When Buying Or Selling Property (And Other Assets)

Along the same vein, talk to your accountant before buying or selling business assets like property, equipment, office furniture, etc. Because accountants know your business finances, they’ll be able to tell you if the purchase is a wise investment.

For example, they’ll tell you if you have the cash flow to buy all new computers for the office or if you should wait until next month when the cash flow trends predict more sales. Accountants will also help you manage your assets, track depreciation, and properly write off the tax deductions you’re eligible for. When selling property or other assets, accountants will know how to records this on your taxes properly.

As you can see, accountants can help you out during every stage of your company’s development. That doesn’t mean you have to hire one, but the right accountant should make life easier for you, so you can concentrate on what you love doing.

Your speciality is running your business. Leave the financial detail to an accountant. If you and your accountant use cloud-based accounting software, you’ll be able to keep track of what your accountant does, and always be able to see your company’s financial situation at a glance.

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