Hiring an accountant may be necessary at certain stages of your business growth. Find out when and why you should have an accountant work for your business.
There is more to what an accountant does than just balancing the books for a business. After all, that just describes a bookkeeper. CPAs—Certified Public Accountants—not only handle your bookkeeping tasks but can also help you grow your business.
So why do people need accountants? In addition to balancing your books, they can provide you with insights based on your numbers at any stage of growth, often using business intelligence software to display those numbers visually. They can also recommend the best structure for your business, get you more tax deductions, and increase the chances that your bank will approve your loan applications.
Often, small businesses don't hire accountants because of the cost involved. According to a recent survey of small businesses, only 30% hired an external accountant[1]. Hiring an accountant may cost you, but when you add the time your team spends on bookkeeping tasks and the cost of your accounting software, is there really much savings when you do it yourself? Plus, when you hire an accountant, you also get their expertise and knowledge.
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When should you hire an accountant?
While just about every business can benefit from hiring a CPA, many start without one to save money. While a company remains small, this may be an option, but eventually, most business owners ask themselves, "Should I hire an accountant?" And for a lot of them, the answer is yes.
So, why hire an accountant? Here are some big reasons.
1. Starting a business
As we said, many small businesses start without an accountant, yet this is perhaps the best time to get one involved. Instead of worrying about what hiring one will cost you, consider that an investment will save you time, money, and stress as your business starts to grow. You can start with an accountant when you are writing your business plan.
There are immense benefits to hiring an accountant:
They can add financial projections and reports to your plan.
They can help make the plan more professional and realistic.
They can help the plan succeed.
Your accountant can also help you define the legal structure of your business. Not every business structure is the same. What should yours be? There are many to choose from, including sole proprietorship, partnership, corporation, S corporation, and limited liability company—LLC.
It is important to choose the right type of business structure before you begin. A sole proprietorship may be an option. It's simple, requires little paperwork, and you can get your business started quicker, but you could also be held liable for the business's debts. If a supplier doesn't get paid, they could come after your personal possessions.
A corporation, S corporation, or LLC will protect your personal possessions, but what is the advantage of each? That is how an accountant can help you. They will help you navigate these legal structures and help you choose one that fits your business.
When you hire a professional from the beginning, you get the benefits of their financial knowledge earlier in the life of your business. This can save your business time and money in its later stages.
2. Growing your business
Business growth can happen quickly, especially if you have an online business. How is your business growing? Did it happen overnight, or is it slow, steady advancement? Whichever it is, an accountant can help you as you grow. As your business expands, it means more profits and more spending, but if you try to grow too quickly, you could hurt your business's future.
An accountant can look at your books and accounts and help you optimize the growth of your business. Where should you invest your money? Will opening another branch be profitable? Should you expand your product line? These types of questions can be answered by the data in your books, and accountants are specialists at tracking down those answers.
And if your business is not currently growing, but you want it to, an accountant can help with that as well. Using business intelligence and analytics software, your accountant can show you where you're misspending money and where you could spend it to increase your revenue.
When your business grows, you should also update your business plan. This document should be a living document that evolves with your business. Having an accountant on staff will make the process easier.
3. Applying for a loan, grant, or other funding
Banks won't just give you money. First, they want to be sure they can get the money back with interest. And since the recent credit crunch, the loan process is even more stringent for small businesses, which makes it even more important that you state the case for your business well when applying for a loan.
Just having an accountant on board can improve the chance you get a loan because it shows the bank that you are serious enough about your business to hire one to keep your books in order. Your accountant can also use your accounting software to build a good case for your loan with facts and figures that will prove to the bank that you are making sound business decisions.
Your accountant will also be able to help you choose between funding options and to select one that will save you the most money in the long run. Business credit cards and SBA loans are also options that may work better in some cases, and your accountant will know when they are appropriate to your needs.
4. Preparing taxes
Your personal taxes can be confusing, but their complexity doesn't even compare to the work it will take to file your small business return. If you make a wrong turn, you could face IRS penalties and even an audit. You can also make a mistake and miss out on the possibility of lowering your tax bill with deductions or credits.
If you aren't even sure where to begin with your tax return, an accountant can:
Help you make sense of your accounting records
Find tax deductions and credits
Track filing deadlines and making sure you file on time
Help you find and complete the right tax forms
While you could wait until tax time to hire an accountant, hiring one before your taxes are due will make the tax return process go more smoothly because your books will already be in order. While corporate tax software may help you out, you can't beat the service you get from an accountant.
5. For an audit
Chances are that the IRS will never audit your business. But do you really want to take those chances? Because, if it does happen, it can cost your business a lot of time and money and add a lot of stress.
If you are being audited and don't have an accountant yet, this is definitely a time to hire one. They can help you get your books in order to prepare and advise you on how to work with IRS auditors. They can also help lower your chances for another audit by ensuring you follow all the tax laws.
But if you hire an accountant before you need one, your audit may turn out a lot better, especially if the accountant you hire offers audit insurance. If you can get audit insurance, all the fees you would have to pay the accountant for helping you during the audit will be waived, and your books will be better prepared to make the audit go smoothly. An accountant using modern accounting software that includes audit trail functionality will be able to provide the IRS with all the information they need.
6. To save time on recurring financial tasks
Even if you don't hire one, many of the tasks the accountant would ordinarily do still need to be done. That means that someone on your team has to do them. Saving this time is a good reason to hire an accountant.
If you are spending too much time creating expense reports, reconciling transactions, manually entering data, or scanning receipts, a bookkeeper may be all you need. But if you want to have a better view of how your business is doing and what can be done to grow it in the future, it is time to look into hiring a CPA.
7. To get in-depth financial planning and analysis
As we have already mentioned and illustrated, accountants can do a lot more for your business than just balance your books and prepare your taxes. Most accountants have years of experience analyzing the financial health of a business and finding insights that you can use in future business plans.
Using automated cloud accounting and business intelligence software, they can provide you with real-time reports on your business. These reports can help you:
Improve ROI by showing you where to allocate resources to meet your objectives
Determine customer and client behavior and tailor products and services to their needs
Monitor business operations and make ongoing improvements based on data insights
Learn more about accountants and accounting
There are many reasons to hire an accountant, but just because your business needs one doesn't mean you need to hire a full-time CPA. You can outsource your accounting and bookkeeping tasks when these needs come up and still get the same professional service you get from a full-time employee. To learn more about accounting and how it is key to your business success, check out these articles:
Ready to hire an accounting agency for your business needs? Browse our list of top accounting agencies and learn more about their services in Capterra’s hiring guide.