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When You Need to Hire a Small Business Accountant

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When it comes to hiring an accountant, many small business owners ask the wrong question.

Money is often tight in the early days, and you have to be careful about every penny or cent you spend. So people often ask, “Can I afford to hire an accountant?” 

That isn't the most helpful way to look at it though. Really, a better question is: “At what point does hiring an accountant pay for itself?”

Should you hire an accountant for your small business
Should you hire an accountant for your small business? (graphic source)

It’s true that, for very small businesses with very simple financial affairs, hiring an accountant may be an unnecessary expense. But as your business starts to grow, the financial complexity and the number of tax rules you have to comply with can quickly become overwhelming. In this situation, hiring an accountant becomes less like an expense and more like an investment that will pay rapid dividends.

So in this tutorial I’ll show you how you can tell whether you’re at that stage for your own business. I’ll cover what small business accountants do, the benefits of hiring them, how much an accountant costs, and how you can calculate whether the investment makes sense for your business.

By the end, you’ll be clear about what an accountant can do for your small business, and you’ll understand the simple calculations you can perform to decide whether it’s worth hiring one.

1. What Does a Small Business Accountant Do?

First of all, what does an accountant do? What sort of tasks can they take on for your small business?

We’ll go through a few specific examples later on, but here’s a brief overview of what an accountant can do to help your small business:

Handle Your Taxes

This is perhaps the main task for which small business owners turn to an accountant. Even if you can handle the day-to-day bookkeeping for your business, figuring out your tax liability can be a nightmare.

If you hire an accountant, you can simply turn over your records and have them do all the calculations and fill out your tax return at the end of the year. A good accountant will know all the relevant rules, so you can be sure you’re not missing anything.

Beyond that, an accountant can also help you with tax questions throughout the year. For example, they can advise you on the tax implications of various business decisions, or help you with tax planning, or make sure you’re complying with the relevant regulations for sales tax on each transaction.

Budgeting and Planning

An accountant can help you with much more than taxes, however. They can help you with some of the fundamental planning tasks you need to complete for your business.

As I mentioned in my tutorial on writing a business plan, a key component of effective planning is to create a detailed financial plan and make realistic projections about what your income, cash flow and balance sheet will look like for the next few years, if you hit your targets.

I gave some advice on putting together a basic financial model, both in that tutorial and in an earlier one:

But the process can be quite complex, and if you’re not comfortable with spreadsheets and calculations, an accountant can probably do it more quickly and effectively.

Preparing Financial Statements

Ever heard of consolidated financial statements? That’s the income statement, balance sheet, and cash flow statement that companies produce at the end of each year to summarize their performance. You can find out more in our series on the fundamentals of financial statements.

A sole trader or very small business may not need to produce these at first, but once you start to grow, you may be required to have them, or it may simply be useful to have the big picture of the business that they provide. An accountant can help you produce those statements. They can also help you set up your systems correctly for day-to-day bookkeeping:

Give Business Advice

An accountant can also give you more general business advice. If you’re thinking of expanding into a new market or buying another company, they can help you think through the financial implications of the investment and decide whether it’s right for your business.

A few hours of an accountant’s time can really pay off here, by helping you avoid expensive mistakes or identify exciting opportunities.

2. How Much Does a Small Business Accountant Cost?

Of course, the cost of hiring an accountant for your small business will vary quite a bit depending on your location, the size of your business, and the type of services you want.

But it helps to have a rough idea of what it will cost, so here are a few examples. You can find more specific information on the cost for your particular situation by contacting accountants in your area and asking for quotes—I’ll give tips later in this tutorial on how to find an accountant.

In the U.S., according to CostHelper, you can expect to pay between $150 and $400 an hour for a small business accountant’s time. That may sound like a lot, but if your needs are quite simple, you may not need too many hours. The site says:

The owner of an established Northern California retail store with 12 employees generates her own monthly financial statements using QuickBooks software but budgets about $300-$400 annually for two hours of consultation with her accountant.”

In the UK, some accountants charge fixed fees for defined services. For example, SJD Accountancy, which specializes in accounting for contractors, charges £120 a month plus VAT for a fully inclusive service, including unlimited face-to-face consultations. KPMG Small Business charges £145 a month plus VAT for the basic package.

If you just want a particular service, such as a tax return, it should be cheaper. For example, Ainsworth & Co gives an estimate of £100 to £200 plus VAT for completing a simple Self Assessment tax return. Preparing and submitting a simple set of accounts will cost from £600 plus VAT.

3. How to Calculate Whether It’s Worth Hiring an Accountant

So how do you know whether hiring an accountant will pay for itself?

In the previous section, I gave you some rough estimates of the cost of hiring an accountant. It will vary, of course, so I recommend contacting a few accountants in your area and asking for quotes based on your own situation and what you need. Gather a few different quotes, as you would with any other service, and compare the prices and the level of service on offer.

The next step is to calculate how much time you or a member of your staff spend on accounting tasks right now. Keep track of the time you’ve spent over the past year on everything that you’re thinking of outsourcing to an accountant. Don’t forget to factor in time for fixing mistakes, communicating with the tax authorities, etc.

Then decide how much your time is worth—usually based on how much you could earn or how much value you could add to your business by doing something else.

For example, let’s say that you spent 15 hours overall in preparing your annual tax return, and you value your time at $50 an hour. Then the total cost of preparing your tax return yourself would be:

Cost of preparing the return = $50 x 15 = $750

So then the equation is simple. If it will cost you less than $750 to hire an accountant, you’ll end up saving money by doing that. If the accountant will cost more than $750, you won’t.

Even if the accountant costs more than doing it yourself, you may still decide to hire an accountant for some of the other benefits, which we’ll look at in the next section. If the accountant costs less, then it really is a no-brainer.

4. How You Can Benefit From Hiring an Accountant

Beyond the simple financial equation of whether it’s cheaper to outsource than to do your accounting tasks in-house, there are several benefits of hiring an accountant that may help to tilt the scales more towards outsourcing.

Identifying Tax Savings

A good accountant not only takes the hassle out of preparing a tax return, but can also sometimes save you money on your tax bill.

Tax law is complex, after all, and there may be special deductions or allowances that you’re not aware of. Or perhaps by structuring your business or your transactions differently, you can do business in a more tax-efficient way.

Avoiding Penalties

Small businesses can easily get stung with painful penalties by failing to comply with the relevant tax regulations, by making errors on tax returns, or by missing deadlines. With a qualified accountant, you should definitely not be incurring these penalties.

Saving Time

Remember all those hours you calculated in the last section? By freeing them up, you can apply them to other business activities that may be of great benefit to your business. You can also have more mental freedom and focus, without all those accounting worries swirling around in your head.

Helping You Grow

As I mentioned earlier, accountants can give more general business advice. Often you’ll be working with the same accountant for years, so they’ll get to know your business and will be able to offer an informed perspective on your decisions. They can help you make the right steps and foster growth and profitability.

Making You More Effective in Other Situations

Accountants can help you with many other important tasks in your business. If you’re writing a business plan, they can help you do it right and come up with realistic financial projections. If you’re deciding on the right legal structure, they can advise you on the pros and cons of each one and help you set it up. If you’re buying or selling a business, or making major investments, or trying to secure funding, they can help you through each of these major projects.

6. How to Find a Good Small Business Accountant

If you’ve decided to hire an accountant, you want to make sure you’re hiring the right one.

A good place to start when looking for an accountant is the local accounting association in your country. Many of them have online search tools, and you get the added benefit of ensuring that the accountant you find is properly qualified and is a member of this association.

In the U.S., for example, you can visit the American Institute of CPAs website, which includes links to your local state’s association. If you want to check the credentials of a particular provider, you can visit CPA Verify.

In the UK, the Institute of Chartered Accountants in England and Wales offers a simple online search function where you can find a member firm near you by entering your postcode.

When you’ve found a few possible accountants, received quotes, and decided on some likely candidates, don’t forget to ask them a few questions to make sure they’re right for you. Chartered accountant Greg Atkinson makes some great suggestions, and you can always add your own questions based on your own specific needs and concerns. You may be working with your accountant for many years, so make sure it’s a relationship that’s right for you from the start.

Next Steps

I hope you’ve found this tutorial useful. If I’ve done my job correctly, you should now be clear about what an accountant does, and you should be aware of some particular situations in which an accountant can be helpful for your small business.

You should also have a rough idea of what an accountant costs and be ready to go out and search for one. And, most importantly, you’re equipped to make the decision about hiring an accountant based on calculations rather than guesswork.

If you have any questions or would like to share extra information with other readers, please leave a comment below, or visit the forums.

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