When to hire an accountant for your small business

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Professional accountants can handle much more than general number crunching for your small business or startup. They can offer in-depth financial insights at every stage of growth, from recommending the best company structure and tax deductions to handling business audits and assessing your loan application before it reaches the bank. 

Cost is one of the leading reasons that small business owners don’t hire an accountant. The advent of accounting software, like QuickBooks and Xero, has made it easier than ever for non-experts to track finances for their own businesses. But the time you spend on accounting and bookkeeping isn’t free either. 

For instance, if you’re billing clients $70 per hour, and accounting takes you five hours per month, you’re losing a minimum of $350 every month. Add the cost of accounting and bookkeeping software, and working with an accountant might end up saving you money. 

As you’ll soon learn, there are many benefits to delegating your finances, taxes, and reporting to a knowledgeable accountant. Learn when to hire an accountant and how to find the right one for your business needs. 

Bookkeeper vs. accountant vs. Certified Public Accountant (CPA)

Many accounting firms and individuals provide financial services and business consulting. But their certifications, experience, and services vary widely. 

Here are the biggest distinctions between bookkeepers, accountants, and Certified Public Accountants (CPAs) that every business owner should recognize:

Bookkeeper 

Bookkeepers are responsible for making sure your business books (records and reports) are accurate and up to date. This involves data entry, expense tracking, bank account reconciliation, recordkeeping, and generating (but not analyzing) financial statements. 

Accountant

Accountants generally serve in an advisory role for business owners, although they may perform some bookkeeping functions. Accountants mostly manage the company’s accounts, assess finance statements, and deliver strategic insights using the bookkeeper’s records. 

Accountants aren’t required to meet educational or testing requirements in most states. It’s also worth noting that accountants are classified by default as “unenrolled preparers” by the IRS. This means they can’t sign your tax returns or represent you during tax audits. 

Certified Public Accountant (CPA) 

Certified Public Accountants (CPAs) deliver a higher degree of accounting expertise than bookkeepers and accountants. CPAs have to pass specific exams and meet educational, statutory, and licensing requirements in any state in which they operate. They also complete ongoing education to stay on top of new laws and regulations. 

Essentially, every CPA is an accountant, but not every accountant is a CPA. 

In practice, CPAs perform most of the same duties as accountants. They provide business advisory services, accounting and recordkeeping services, and tax advice. CPAs are also certified to represent clients for tax purposes, which offers an additional layer of protection during a tax audit. 

When to hire an accountant

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Your small business may not have the sales volume or size to necessitate a full-time, in-house accountant yet. That said, you can outsource your accounting needs as they arise. Below are the five key moments when business owners should consult with an accountant or CPA. 

1. When you’re starting your business 

To start off your business on the right financial foot, meet with a CPA first. How you register and launch your business will determine your accounting and tax filing requirements for the rest of your company’s lifetime. For example, a CPA can advise you on organizing as a limited liability company (LLC) or S corporation for the maximum tax advantage. 

A CPA can review your business plan, ensure it’s financially sound, and help you craft a budget to execute it. If you plan to manage your day-to-day bookkeeping initially, a CPA will also direct you toward the best software options for your specific business model. 

2. When you want to save time on recurring financial tasks

Time is a valuable resource. Business owners report it’s the number one way that having an external accountant or tax preparer helps them. Deciding when to hire an accountant may simply come down to time savings for your business. 

If daily tasks like tracking expenses, matching transactions, entering data, or digitizing receipts are eating up time, a bookkeeper could be best for this role. But if you need a front-line professional to regularly examine your business operations, trends, costs, and revenue, it may be time to hire a CPA. 

Your CPA doesn’t necessarily have to take control of these duties. They can simply modify or optimize your current recordkeeping and accounting systems to ensure they’re fast and user-friendly for your current team.

3. When you need in-depth financial planning and analysis

Accountants shine when it comes to planning and analysis. Gaining access to their wealth of financial insights is one of the biggest benefits of hiring an accountant. This is particularly true if you partner with a CPA who’s experienced in your industry or vertical. You can pull them in on any decision or financial goal, from purchasing real estate or acquiring a competitor to reducing your operating costs

Armed solely with accounting software, you’d have to analyze your own profit and loss statements, cash flow statements, balance sheets, and other financial reports on top of running your business. An outsourced or in-house accountant can draw out these opportunities in a fraction of the time. 

4. When you’re applying for a loan, grant, or other funding

Applying for a business loan and other capital is a challenge even for entrepreneurs with a history of successful operations. The first hurdle is to establish creditworthiness, which is particularly difficult for new businesses and startups. But a CPA can help you turn an uphill funding battle into a level playing field. 

They’ll help you evaluate the different methods of building business credit and direct you to low-risk avenues. Even better, a CPA can help you narrow the field of loan options to the ones best suited to your budget. For instance, they might uncover that a line of credit or microloan is more beneficial than a traditional term loan. 

5. When you’re preparing taxes or being audited

Tax time is a well-known business headache fraught with potentially costly mistakes, whether you own a sole proprietorship or C corporation. Business owners must get a second pair of eyes on their tax returns long before it’s time to file. Federal business tax laws are constantly changing, and there are state and local tax codes you need to know.

To spare yourself the headache, you can outsource your tax duties to an accountant, tax preparer, or a CPA who can combine both these roles. CPAs manage both personal taxes and business taxes, and they can deftly navigate tax season, reduce your liabilities, and represent your business if there’s an error or tax audit. 

It’s important to note that not every accounting professional serves as a tax preparer. Be sure you confirm which tax services and protections are included before hiring someone.

Finding the right accountant

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You may only need a part-time accountant to prepare quarterly and year-end tax forms. Or you may prefer an all-in-one CPA for regular accounting tasks, financial advice, and tax planning. In any case, a good accountant is indispensable. 

Reach out to your business colleagues for recommendations, or search your state directory for options. You can also use our free accounting partner finder to get a match in seconds.

Here are some questions you can use to evaluate and compare every accountant on your short list:

  • Are you a CPA? 
  • Are you currently licensed to practice in your state?
  • When and where did you receive your license to practice?Where did you earn your degrees, and what field were they in?
  • How long have you been providing accounting services?
  • Who are some of your clients?
  • How large or small are your clients, and what size were they when you began providing accounting services to them?
  • Do you specialize in any industry or financial area? 
  • How easy is it to reach you? 
  • Are you active in any professional organizations? If so, what are they? 
  • What are your hourly rates or per-service fees?

The bottom line

Knowing when to hire an accountant isn’t an exact science. However, there are some clear-cut scenarios when it makes sense to leverage their skill set. 

Look to an accountant when you’re launching or evolving your business, developing a financial plan, analyzing operational reports, or applying for funds. Their guidance is also critical during complex tax situations, especially IRS audits and compliance issues. You can’t put a price tag on peace of mind.

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