As a business owner, we understand the importance of every dollar. It goes without saying that if you’re not clear as to where your finances are at the end of the month, it will be difficult for your business to survive until the end of the year. When it comes to managing your finances, you have two choices:
- Do it yourself, either via a spreadsheet, or using a small business accounting software package;
- Hire an accounting professional.
Both choices have their pros and cons, and in this comprehensive guide, we will explore the benefits of hiring an accountant for your small business and provide insights into making an informed decision.
Doing It Yourself
Pros
Managing your finances independently can save you money on immediate accounting fees. You can start with basic approaches like using spreadsheets for tracking incomes and expenses. However, as your business grows, this method may become insufficient.
Investing in quality small business accounting software, such as Xero or QuickBooks, can help streamline your financial processes and reduce the risk of errors. Nonetheless, doing it yourself has significant disadvantages:
Cons
Lost time. As a business owner, your time is extremely valuable. Every minute you spend on tax compliance, rather than on business development and customer service, has a cost. A very high cost. We don’t know what the real value of your time is per hour. But you have to account for it when you do taxes.
Mistakes. Accounting is a specialized profession. Accountants have years of education and experience behind them that may help you avoid errors that Canadian business owners commonly make:
Forgetting to register for or collect HST/GST;
- Missing deductions, such as business use of home or use of car, or failing to account for depreciation of computers and other equipment. That hurts cash flow, and costs money.
- Forgetting to claim province-specific benefits like the Ontario small business deduction or the New Brunswick Small Business Tax Investor Credit.
- Attempting to claim too much in deductions. The Canada Revenue Agency will compare your deductions to industry norms. If you claim too many kilometres on your car compared to other businesses in your industry, you could raise a red flag. Meals and entertainment deduction record-keeping can be especially tricky.
Poor organization. If you’ve been using the “shoebox method” of storing business receipts and other records, you are at a very high risk of having misplaced or unreadable documents. At best, poor organization is a timewaster. You may be forced to spend many hours just trying to sort out your documents rather than filing and getting on with business.
Hiring an accountant
An accountant is someone who examines your company’s finances and then prepares financial reports based on those. Among the many other responsibilities, their job involves making sure that your financial data is correct and that your taxes are paid on time. Some might even offer bookkeeping services. When you hire an accountant to help you with tax filing and compliance, you can expect to pay a fee. But these professionals routinely justify their fees many times over.
Pros
1. Assist with Your Business Plan
An accountant will be able to help you draft your business plan and cast a critical eye over the business assumptions that you have made. They will be able to help prepare the financial forecasts and make sure that you have included all the relevant sections that are needed in the plan. Appointing an accountant at this early stage of the business will also help you in the future. If you have an accountant working with you from day one, you will have a long-term business advisor who understands your business.
2. Advice on Your Legal Business Structure
Your accountant will advise on which of the various business structures will be best for your business. The multiple legal formats, such as sole proprietorship, partnership, and corporation, all have different tax and personal liability implications. Your accountant will be able to explain the advantages and disadvantages of each format. Your accountant will also be on hand to help should you wish to change the legal structure of your business in the future. You may, for example, want to invite a business partner to join you in your venture.
3. Oversee Your Accounts
If you are not familiar with accounting, hiring a qualified accountant will ensure that your books are kept properly. They will be able to recommend accounting software for your business. An accountant will make sure that your accounts are set up to provide you with the management information that you will need. They will also either keep your books for you or oversee a bookkeeper employed to complete the task.
4. Ensure Tax Efficiency and Compliance
Having an accountant on board will ensure that you comply with tax regulations and pay your taxes on time. Your accountant will also help you structure your business and personal finances in the most tax-efficient way. Lots of new and small firms pay unnecessary tax penalties because they do not file taxes correctly, or they pay taxes late. Hiring an accountant will help ensure that you do not fall into these common tax traps.
5. Assist with Business Loan Applications
If you ever need to raise funds through a business loan, your accountant will help you with your applications. An accountant will prepare the relevant financial forecasts that a lender will want to see, and they will be able to advise on the type of loan to apply for and review the terms of loans for you.
6. Help You Through Any Rough Patches
If your business hits a rough patch, your accountant will help you manage your way through challenging trading conditions. An accountant can review costs and find ways that you can save money. They can help manage your accounts receivable and collections. If it becomes necessary, an accountant can also negotiate with creditors on your behalf and provide you with insolvency advice.
7. Source of General Business Advice
An experienced accountant will have worked with lots of other businesses like yours. They will be able to draw on their experience of working in different sectors, too. So, your accountant may be able to bring ideas to the table that you would not have otherwise considered. Accountants also have lots of business contacts. So, when you need a business lawyer, a bookkeeper, or you want to rent local business premises, your accountant may provide you with the contacts you need.
8. Help You Maximize Profits
Your accountant will be able to analyze your accounts for you and help you maximize your profits. They can look at your gross margins, your costs, and track the crucial financial key performance indicators. Often business owners are too close to their business to see the forest for the trees. An accountant can take a high-level view of your accounts and possibly see things that you have missed.
9. Act as Your Sounding Board
When you are running a business alone, all the decisions are down to you. Being the sole decision-maker is one of the attractions of being an entrepreneur. Still, it is always good to have someone you can use as a sounding board. Your accountant will have broad business knowledge, so they will be the ideal person with whom to bounce around business ideas.
10. Save You Time and Money
Overall, hiring an accountant at the development stage of your business will save you time and money. Your accountant will be your expert adviser as and when you need them, and getting your accounts and finances in order before you begin trading will ensure that you have a solid base from which you can grow. As your business expands, you will also be able to use more of your accountant’s time when it is needed. So, you will be able to focus more time on managing your growing business.
Cons
There is one obvious con to hiring a bookkeeper and accountant and that would be cost. Hiring a bookkeeping or accounting professional to manage your books will often cost you more than it would to manage this portion of your business. Additionally you will need to trust someone with your confidential business information. Oftentimes, you will see greater savings over time when you work with a bookkeeper due to their ability to get you greater tax deductions, preventing any errors that will lead to penalties.
Cost of Hiring an Accountant:
Bookkeeping and accounting services are usually billed hourly, where the bookkeeper or accountant tracks their time in small increments and charges accordingly. Normally these hourly rates for bookkeepers can range from $30 to $150, while CPAs rates are between $150 and $450 per hour. The total cost for services can vary based on the time taken to complete the work. Many bookkeeping firms may also offer fixed fees based on a list of agreed upon services for those who would like a consistent amount to pay for each month.
Finding the Right Accountant:
To find the ideal accountant for your small business, consider the following factors:
Accountant vs. Charter Professional Accountant (CPA) – Who do you need?
Essentially, accounting services involve recording and assembling transactions and generating financial statements and returns. Generating financial statements involves a higher skill level. Therefore, first, determine the work that your accountant will be handling.
Then, before you go ahead and decide to look for someone, you need to decide whether you need a CPA or an accountant. Both of them are different professionals that have different tasks and have slightly different job responsibilities.
An accountant handles the majority of the daily financial tasks of a firm. The duties include different bookkeeping tasks, including making journal entries, as well as posting account payable, payroll taxes, and receivables. Meanwhile, a CPA is responsible for auditing financial records, providing consultation, and determining the way of reporting. They have the authority to take on more responsibilities than accountants.
So, before looking at resumes, make sure you know who you want to hire.
In-house vs. outside accountant
Before we move on to how to find the ideal accountant, you need to determine if you need an in-house or an outside accountant.
While small businesses don’t have such a large volume of financial transactions that demand hiring a full-time accountant, their financial situation could benefit more from regular reviewing and planning as well as updated accounting. This is where an in-house accountant will prove to be the better choice.
Meanwhile, for any growing business, an outside accounting or a firm for consultation is best. These usually cost less than the benefits and salary of a full-time employee. Plus, you can even get a higher level of expertise by hiring an outside accountant.
Outside accountant
An outside accountant usually takes on the following tasks:
- Analyzing or advising on how to solve accounts-related issues
- Preparing tax returns
- Making financial statements, which include the statement of cash, income statement, and balance sheet
- Generally, an outside accountant will have an hourly rate, depending on the level of complexity.
In-house accountant
As business revenue grows and as transactions start to become increasingly complicated, you can then consider hiring an in-house accountant. The fee of an outside accountant will increase with the growth in the firm’s size, making it cost-effective to hire an inside accountant.
An in-house accountant is responsible for:
- Maintaining a general ledger
- Taking care of daily transactions
- Preparing and analyzing financial statements
- Variance analysis
- Cost accounting
- Payroll management
- Managing cash and treasury including bank reconciliations
- Fixed asset accounting
- What to look for when hiring an accountant?
- Apart from having good knowledge of accounting principles and the best practices, an accountant should have some other qualities too. These include:
Ability to communicate and explain the numbers
While communication skills are essential for all jobs, they are particularly essential for someone managing the finances of a company. For someone who isn’t aware of accounting terminologies and principles, understanding the nuances of accounting becomes difficult. Most accountants produce graphs and reports, but you need someone who can break down information and explain it in layman’s terms.
So, you need an accountant that can outline all the opportunities and problems to your team such that every person can understand. This way, your team can find the best course of action to make the best decision.
Understanding your niche and business type
Not every individual well-versed in accounting is a suitable candidate. You need to look for someone who has the correct background and experience for your business.
Essentially, the ideal accountant for your business must know how your particular company works. In addition to that, they should have at least some experience working with other companies within your industry or niche so that they know the operating procedures and the common costs incurred in such a business. This will mainly be helpful when it is time for tax preparation.
Apart from the niche and industry, the stage that your company is at is also important. You should look for someone that has worked with businesses at a similar stage as yours. They should be well aware of the possible challenges and opportunities your company will have down the road so that they can be ready when the time comes and take measures that can help the company grow.
Expertise in the latest technology
Like nearly all other professions, technology is also revolutionizing the way accounting is done. Modern software programs help accounting professionals to efficiently complete tasks. At the same time, such programs offer them a deeper insight into a client’s financials.
So, the accountant you hire should now only stay updated with the latest technology in the accounting world, but he or she should also be willing to not only learn but also embrace new technology.
While many accountants have been quick to embrace recent technologies, others still favor outdated solutions. So, when you meet an accountant that you could potentially hire, ask them about the software they use and how technology is impacting their profession. You’ll know by their answer if they’re the right fit.
Industry expertise
Apart from education and certifications, as mentioned earlier, expertise in the industry you’re working in, or experience in a similar industry is important. Some accountants work with auto dealers, some with construction contractors, meanwhile others might work with retail and non-profits. So, for instance, if you’re a construction firm, you can’t just hire an accountant that works with retail stores. So, you need to be careful when choosing someone.
The hiring process
Like with hiring any individual, you will ask your circle for referrals. Once you narrow down a list of potential candidates, you will go through the resumes to further refine the list of possible accountants you can hire. After that, the next step will be interviewing individuals. This is one of the most important steps, and during interviews, you need to find out about three main things: personality, services, and what they will charge.
The following are some questions you should definitely look into.
Personality
Before you hire someone, ask yourself, is the accountant’s style similar to or compatible with yours? Secondly, evaluate the company’s compatibility and competency. Ask them how they will handle situations that might possibly come up down the road. For instance, ask them how they would handle an IRS office audit looking for the verification of automobile expenses. Once you listen to what they have to say, you will realize if you would want them to handle your business affairs.
When interviewing, you must keep in mind that an accountant can have an approach different from yours, and that can be a good thing. You only need to ensure that the accountant isn’t assertive so much so that he might pressure you into taking actions that you’re not comfortable with.
Services
While most accountants can handle auditing and tax services, you need to question them about things like estate planning, bookkeeping, and management consulting. Will he help you to design and also implement financial information systems. Along with that, as mentioned earlier, ensure they have experience working in your industry and with a firm that is similar in size to yours. For this, you can ask questions like what they did for the firm or how they solved problems for them.
Cost
When hiring an accountant, ask them upfront what they expect to get in return for their services. If you go for an outside accountant, you will have to pay them by the hour. Before finalizing a price, get quotes from different accountants so you can determine the average. You can also ask them an estimate of the total yearly charges based on the services you will need.
However, you shouldn’t just choose someone based on the cost. Remember that an accountant charging higher will probably have more experience and will be able to work much quicker than someone charging less.
What to do next
Now that you know what you need to look for in a potential candidate, here are the next steps you should take:
- Search for accountants near you on Google or ask people around you to refer you to a good accountant they know of.
- Get in touch with at least three accountants, and schedule a complimentary consultation call with them. It’s better if you can get all the calls scheduled within a week so that you can speed up the hiring process and make efficient use of your time.
- Be sure to have your notes ready too. These notes should help you tell the accountant about your business operations, and the challenges your business faces.
- During the interviews, make sure to take notes. After all the interviews are done, compare the notes you made and the proposal of all the accountants to see which one you find the best suited for your business.
Finding the right accountant for your small business is essential for financial success. Consider whether you need an accountant or a CPA and decide between an in-house or outside accountant based on your business size and needs. During interviews, evaluate their expertise, communication skills, industry experience, and willingness to embrace technology. Don’t solely focus on cost; prioritize experience and efficiency. Reach out to referrals, conduct interviews with at least three candidates, and select the best-suited accountant to serve as your financial partner and help your business thrive.
