As a small business owner, it is natural to try to cut operating costs wherever you can. One of the ways you may be doing that is by managing your own finances. You may figure you can always get help at tax time and handle things yourself the rest of the time. Whether you are a sole proprietor or operate an employee-based LLC or corporation, however, a good accountant can actually save you money.
Let’s look at the pros and cons of hiring an accountant for your small business:
- Structure. An accountant will work with your attorney to help you decide the best structure for your company, such as sole proprietorship, corporation, LLC or partnership.
- Taxes. An accountant will help you set up and/or streamline an accounting system so that your year-end financial reporting will be smooth and efficient. He or she will help you determine the types of taxes you owe and what amounts and what expenses are tax-deductible.
It is valuable to have someone looking out for your interests by staying on top of the many changing tax rules and regulations which can vary from state to state. An accountant also will help you compile your financial records and guide you through an IRS audit if you have one. He or she will help you keep your personal and business expenses separate, something which can be tricky when you run a small business.
- Employees. Your accountant can oversee or manage your company payroll and payment processes. An accountant will ensure that you send out W2 and 1099 forms to the right people at the right times. Many small business owners make errors in determining who is an independent contractor and who is an employee, for example.
- Budget. As your business grows, an accountant can help you manage your expenses and plan for future expenses by providing detailed information on patterns of cash flow, inventory management and pricing.
- Property. An accountant can provide you with professional advice and resources should you to decide to sell your business or purchase another business. He or she can also give you advice on property or equipment leasing and/or purchasing.
- Cost. Accountants’ hourly rates vary widely depending on their location, their experience and the level of expertise needed for your industry. According to a rate survey by Intuit, the average hourly rate for basic accounting services In the U.S. was $65 in 2013.
- Losing touch. Many small business owners are wary of hiring an accountant because they fear losing control of that critical part of their business. If you hire an accountant, it is important that you view this professional as a partner. You will need to play an active role in the relationship, making sure things go as you direct and asking questions when necessary.
- Mistakes. No one knows your business as well as you do, and mistakes can happen when you use an accountant. If, for example, an important expenditure is not transferred correctly, it can cost you big at tax time.
There is a middle ground to consider. You may be able to work with an accountant on a part-time basis for your start-up needs and at tax time and hire a bookkeeper to manage your accounts the rest of the time, for instance.
According to a 2013 survey by Sage Small Business Accountants, 71 percent of small business owners use the services of an outside accountant, usually to handle corporate taxes and personal taxes. More than half of those business owners hired the accountant at startup and 13 percent more hired the accountant within six months of launching the business. Not surprisingly, the most common reason given for not hiring an accountant was cost.
If you are trying to trim costs by doing your own number crunching, it may be time to consider whether your time would be better spent doing something else for your business. You could probably spend more time growing your business if you were not tied to ledgers and spreadsheets each month. As a result, an accountant can be a valuable member of your team.