Owners of small businesses have many hats to wear. You may be salesman, operations manager, credit and collections manager and financial officer all in one business day or even hour. Some small business owners are happy with this as they have control over all aspects of their business and want privacy in their business affairs.
However, if your small business has a good product or service, inevitably word gets around and the volume of your business increases. When this happens you may become overwhelmed with certain aspects of the work involved and may wish to delegate some of the duties to a third party. One of those duties is the accounting role, which is often paperwork and compliance-heavy and tends to be very detail oriented. However, hiring a full-time employee to do this accounting work may be prohibitively expensive for a small business. The alternative is to delegate some of the duties to an independent accountant.
So when might be good times to work with an accountant? There are a number of situations where it would be appropriate to work with an accountant, but here are several:
Starting a business
When starting a business, there are a number of variables with regard to the legal structure of your organization. An accountant will be able to explain the difference in the taxation and requirements of the different types of legal structures such as sole proprietorship, partnership, limited liability company, corporation, and subchapter S corporation and will be able to assist you in determining which structure is most suitable for your business.
The accountant will also be able to tell you if your business is subject to state and local sales tax and what steps need to be taken in order to comply with the rules of your locality. They can guide you to the appropriate federal, state and local offices or website to ensure that you have the required tax and seller’s identification numbers for your business.
Small business owners generally do not wish to prepare tax returns, as it takes time and effort and many of the forms are confusing. Hiring an accountant to prepare the tax return will allow you to concentrate on growing your business instead of complying with often confusing tax rules and regulations. The accountant will review the tax return with you and offer advice on upcoming tax law changes and how they will benefit your business. You will have to provide the underlying basis for the tax returns, usually in a summary format, such as a profit and loss statement and balance sheet, that the accountant can use to prepare the return.
When you decide to hire employees, there are a myriad of rules and regulations to follow and often frequent reporting and payment requirements. There are filings and payments to the IRS, most state departments of revenue and state unemployment agencies. Reports can be filed as often as per pay period, monthly, quarterly or annually, and payments frequencies are the same. Once you and the accountant set up the required federal, state and local accounts, and the basic information regarding payment of the employees, you will only have to provide the hours or dollars to be paid per pay period and the accountant will handle the writing of the paychecks and preparation and filing the forms. The business owner just signs the payroll checks and pays the tax payments, although the accountant may pay the payroll taxes if you both agree to it.
When the Bookkeeping Function Consumes Too Much Time
When you spend time processing paperwork and would rather spend time growing the business or focusing on other areas of the business, an accountant can be contracted to process the invoicing, vendor bill entry and vendor bill payment function of the business. You may even have them write the checks for you. Most of these processes will be recorded in computer software which will generate a profit and loss statement and balance sheet that can be used for tax return preparation.
There are certainly other times when you might consider working with an accountant, such as when a taxing authority wishes to audit the books or when you are contemplating selling your business. Like working with any other close advisor, when you make the decision to work with an accountant, you should interview two or three professionals to see if you are able to communicate with them. You should also check with your state’s accounting society and/or rating agency to verify the credentials of the accountants. It’s a big step to take working with an accountant, but one that may be worthwhile when it allows you to focus more on what you love doing in your business.