Accounting plays a vital role in running a small business by helping owners track income and expenses, while ensuring statutory compliance. An experienced accountant provides measurable financial information which can be used to set goals and make business decisions.
If you are ready to delegate important financial management, we’ve outlined how – and why – to make the right choice for your team.
What does a small business accountant do?
An accountant does much more than bookkeeping. Hiring the right professional puts a trusted partner on your team to help you establish and grow your business. Here are services typically managed by an accountant:
- Setting up financial systems and processes
- Maintaining financial records
- Tax planning, preparation and filing
- Business book auditing/preparation for an outside audit
- Handling payroll to ensure that employees tax codes and payments are correct
- Helping you prepare the necessary documentation to complete an application for outside funding
The difference between an accountant and a bookkeeper
A bookkeeper sets up the foundation for accountants, tracking finances by recording transactions. This gives a holistic view of your business so you can easily see the amount of money coming into and leaving your business.
Bookkeepers are tax compliant so you can avoid penalties and fees from the IRS. Accountants are qualified to handle the entire business accounting process, while bookkeepers handle recording financial transactions. For accuracy, accountants often advise bookkeepers and review their work. Bookkeepers take care of financial transactions so accountants can analyze the data.
How to determine when you need an accountant
Entrepreneurs are a lot of things – driven, creative, and experts in their market. However, many business owners can easily get in over their heads when it comes to crunching the numbers. Here are signs it might be the right time to bring on help:
- Unfamiliar with accounting terms and processes. You don’t need to be numbers savvy to start and run a business. However, you’ll discover fairly quickly if your knowledge is lacking. If cash flow, balance sheets, liabilities, and other accounting terms are a mystery to you, it’s time to bring in a professional.
- You don’t have a deep understanding of the complicated U.S. tax code. An accountant can file your taxes for you and let you know about the appropriate credits and deductions. If you don’t have an expert on board during tax season you could end up losing money.
- You’re overworked. If you’re working well beyond a 40-hour week, know that your time is valuable. Delegating complex financial reporting can be a lifesaver.
Accountant credentials to consider
Generally, an accountant must have a bachelor’s degree in accounting or another finance degree. Accountants can be awarded additional professional certifications like Certified Public Accountant (CPA).
Hiring Best Practices
Here’s information that can help as you look for an accountant that’s the right fit for your business.
Where to search?
Now is not the time to place a CraigsList ad! According to Entrepreneur, the best way to find a good accountant is to get a referral. Check with your attorney, banker or another business owner. The Society of Certified Public Accountants in your state can also make referrals or check with a local college.
On staff, contract, outside firm?
There are many small businesses that can get all accounting needs met by one outside accountant. Other businesses have more complex needs and require a full-service accounting firm. Some businesses prefer to have an accountant on staff. Once you’ve determined your needs and looked at your budget, you can decide which direction to go.
What are the responsibilities?
Take a look at all of the financial responsibilities of your business. Where do you need a professional to take the reins? Make a list and be sure to hire someone who checks all of the boxes you require.
Do they have small business experience?
Small businesses present unique situations and challenges. Make sure the accountant you bring on has experience in the areas where you need support – taxes, audits, financial records, bookkeeping, etc. If possible, find a professional who has worked with other businesses in your industry before. A restaurant owner might have different needs than someone running an e-commerce company.
Is the personality a fit?
Is the accountant's style and personality compatible with yours? If you’re looking at bringing on a firm, determine who will be your point person. The CPA you initially meet with might not be one you work with day-to-day.
What’s the cost?
You should always ask about fees upfront. Firms can charge by the hour or work on a monthly retainer. The same is true of an individual CPA. You shouldn’t base your decision on only cost – weigh experience as well.
Before you make your final decision, ask to speak with current and past clients, ideally in your industry. Reach out to gauge satisfaction with the accountant's services and fees. Availability is also key. You want to be able to get in touch with a key contact for your business.
When you can DIY
Not every business owner will need to add an accountant to their team. However, there are exceptions. You might not need an accountant if the following is true:
- Your business is a side-hustle or hobby. If you’re only bringing in a small amount of cash, you might not need an accountant. Note that you still have to keep track of your income and expenses for tax-reporting purposes although a simple spreadsheet can do the trick.
- You are a freelancer If you have only a handful of clients, you can probably handle the accounting responsibilities yourself. You will need to keep track of your income and expenses.
- Your tax situation is easy. If your business is a sole proprietorship and your personal tax situation is simple, you may be able to prepare for tax time without help. There are numerous software solutions for small businesses and you can usually get a free trial to find the best fit. Review our article for options to try: 8 Best Free Accounting Software for Small Business.