Does My Small Business Need an Accountant?
When you start a business, you probably want to keep overhead costs low — and might be reluctant to hire external professionals. Sometimes, though, outsourcing tasks can be beneficial. Delegating frees up your time so you can focus on your core business competencies. This can help prevent entrepreneurial burnout (unfortunately, a common issue for those who try to do it all).
An accountant is one external expert you may consider hiring to support your successful business. These professionals help with bookkeeping and tax filing, taking a significant administrative burden off your shoulders. Are you wondering, "Does my small business need an accountant?"
Below, we provide greater detail on what an accountant does and provide some tips to help you figure out whether you can benefit from hiring one.
Bookkeepers, Accountants, and CPAs: Know the Difference
Accountants are often confused with bookkeepers and certified public accountants (CPAs). All three roles support businesses by working with their financial data — but in different ways.
Bookkeepers generally track and organize a company's receivables (money due) and expenses (money owed). Accountants offer a more in-depth analysis of a business's financial details. Finally, CPAs are certified practitioners and hold a license to practice as an accountant within a specific state. Read on for more details about each role.
A bookkeeper basically tracks all money coming in and going out of a business. Back in the day, this data would have been recorded in a paper ledger. Today, bookkeepers use modern software to track money movement, like purchases and sales.
Bookkeepers also reconcile financial documents like bank statements, ensuring that invoicing and expense notes match incoming or outgoing bank activity. Additionally, bookkeepers may handle bills, process payroll, and monitor accounts payable and receivable to ensure the company doesn't owe anyone money and no one owes the company any money.
Accountants perform many of the duties of bookkeepers, keeping a general ledger of a company's incoming and outgoing cash. However, accountants also perform more in-depth analytics.
They basically take the same data that a bookkeeper records and turn it into usable business information. For example, they might provide a business with financial projections for the future and offer recommendations to streamline company spending. They can also provide tax advice and planning.
Last but not least, there are CPAs. These are accountants who have passed a state exam to become specially certified to offer accounting services in that state. Most states require CPAs to have at least a bachelor's degree plus a minimum amount of practical experience.
This certification allows CPAs to write audited financial statements, such as cash flow statements and balance sheets. Such documentation is mandatory for businesses that sell shares on the stock market. They allow investors to objectively judge what the stock is really worth.
Does My Small Business Need an Accountant?
Most small startup owners use a CPA when tax time rolls around since these experts are licensed to write audited financial statements. While you likely won't need a CPA on a full-time basis, hiring one part time for financial analysis throughout the year (for example, on a quarterly basis) can be helpful.
Still wondering, "Does my small business need an accountant?" Here are some reasons a small business owner might enlist the services of an accountant or certified public accountant:
If Your Business Needs Help With Tax Returns or Auditing
Filing a business tax return is different from filing a personal income tax return. Your tax reporting and filing requirements depend on the type of business entity you've formed. A CPA or accountant can advise on what tax paperwork you need to complete for yourself and your business, depending on the entity type.
A CPA can also help you determine tax deductions. There might be expenses that you can write off that will help lower your overall taxable income, thereby decreasing your final tax bill.
Further, a professional accountant can advise on big-picture tax strategies. For example, a CPA can inform you if an alternative business entity would offer more favorable tax advantages. This may become an issue as your business grows beyond its early stages.
Finally, if your business is facing an audit from the Internal Revenue Service (IRS), it's best to get the help of a CPA. You'll have to provide an official response to the audit and diverse documentation. When it comes to dealing with Uncle Sam, it's best to rely on an experienced CPA.
If Your Business Needs Help With Financial Record Analysis
A CPA or accountant can also support your business's success through financial analysis. They can review your income and expenses to provide financial projections and make recommendations for spending.
For example, you may need help determining spending capacity in the next quarter or figuring out if you can afford a significant expense, like leasing a business space. An accountant or CPA can also help you troubleshoot your business finances in general, finding ways to help you save and cut down on day-to-day operating costs.
If Your Business Needs Help With Data Management
Finally, an accountant or CPA can support your business with data management. They'll ensure that your financial information is up to date, organized, and safely stored.
Well-organized and accurate financial data is essential to small business success. It allows you to make well-informed business decisions, provide investors with accurate information, and (if you're audited) ensures you have the correct data on hand to give to the government.
A professional can set up a cohesive accounting system and uniform procedures for data entry and management. They can also oversee the security and integrity of your system. For example, valuable financial data should be backed up regularly to avoid potential losses.
Is It Possible to Do Small Business Accounting Yourself?
You now have a better idea of what an accountant does, but you may still be wondering, "Does my small business need an accountant?" It depends.
If you're a freelancer with only a few clients, you can probably manage most of your accounting tasks yourself without the help of a professional. However, be sure to track your earnings independently — don't just rely on your 1099s. Also, record all of your business expenses.
You can also probably forgo an accountant if your "business" isn't a formal company and acts more like a hobby. If it's just a small side hustle you do to earn a bit of extra cash beyond your 9-to-5, you can simply track your expenses and earnings for tax reporting purposes using a basic spreadsheet.
Finally, if you have a simple tax situation (e.g., you're a sole proprietorship with no partners), you may also be able to manage without an accountant. In this case, consider using accounting software like Skynova's to simplify the process.
Are you still not sure if you need an accountant or not? Ask yourself these questions:
- Do I have the time to do my own accounting?
- Do I know how to do accounting correctly?
- Could I create clear financial statements for the IRS if needed?
- Do I understand how business taxes apply to my company?
- Do I have the needed accounting software?
Even if you decide to do your own accounting, it can be helpful to check in with a small business accountant and run any complicated financial statements by them. Also, seek professional help in special situations, like if you're facing an IRS audit or struggling with particular tax laws.
Let Skynova Help You Manage Your Small Business Financial Reports
Skynova's accounting software and business templates can help you manage your own accounting. By organizing all your financial paperwork using our software products, you can implement a clearly defined and streamlined accounting process. This saves time and hassle, allowing you to spend less time fiddling with numbers and more time working to grow your own business.
Notice to the Reader
The content within this article is meant to be used as general guidance. The above information about accountants may not apply to your specific situation. If you aren't sure whether you need an accountant, consult a professional to be sure.