Managing finances is a critical aspect of running a small business. Proper financial management can mean the difference between success and failure. This article explores whether hiring a small business accountant is beneficial for your enterprise. We'll delve into the roles and responsibilities of small business accountants, the advantages they bring, cost considerations, and tips for making the right hire.
What Does a Small Business Accountant Do?
A small business accountant takes on a wide range of financial responsibilities to ensure your business stays on course. Recent surveys indicate that 69% of small business owners now employ their own accounting professionals. Here are the essential tasks managed by accountants for small businesses:
a. Bookkeeping
At the core of an accountant’s responsibilities is bookkeeping. This involves recording all financial transactions, categorizing expenses, and ensuring that all entries are accurate and up-to-date. Proper bookkeeping is essential for understanding your business's financial health.
b. Tax Preparation
Tax preparation is another critical role. Accountants ensure that your business complies with all tax regulations, files taxes correctly, and takes advantage of any available deductions. This can save your business significant amounts of money. Notably, 40% of small business owners spend 80 hours on tax preparation and bookkeeping tasks each year.
c. Financial Reporting
Generating financial reports, such as balance sheets, income statements, and cash flow statements, is vital. Inaccurate or incomplete financial records can lead to inadvertent violations of tax laws, financial regulations, and reporting requirements.
d. Budgeting
Accountants assist in creating and managing budgets, ensuring that your business operates within its means. They help allocate resources efficiently and plan for future expenses.
e. Financial Strategy
Beyond day-to-day tasks, accountants offer strategic advice. They analyze financial data to provide insights into growth opportunities, cost-saving measures, and overall financial strategy. Recent studies suggest that 70-80% of SMEsfail to produce financial reports that contribute to business growth.
Benefits of Hiring a Small Business Accountant
Hiring a small business accountant offers numerous advantages, from financial expertise to stress reduction.
a. Financial Expertise and Accuracy
Accountants bring a high level of expertise, ensuring that your financial records are accurate and reliable. Their professional training allows them to spot errors that might go unnoticed by someone without accounting experience. This accuracy is crucial for maintaining trust with stakeholders and making informed business decisions.
b. Time-Saving
Each month, small business owners devote a combined 131 hours to compliance activities. Outsourcing accounting tasks to a professional allows you to focus on what you do best: running your business. Managing finances can be time-consuming, and entrusting these tasks to an accountant frees up your time to concentrate on core business activities.
c. Compliance and Avoiding Penalties
In 2024, research showed that regulatory fines and settlements paid by businesses in the USA have already surpassed $1 trillion. Staying compliant with tax laws and regulations is vital to avoid penalties and fines. Accountants ensure that your business adheres to all relevant laws, minimizing the risk of costly mistakes. They keep up-to-date with changes in tax codes and other regulations, ensuring your business remains compliant.
d. Financial Planning and Strategy
An accountant can provide valuable insights for financial planning and business growth. They help set realistic financial goals, forecast future revenue, and identify areas where you can cut costs or invest for growth. Their strategic advice can be pivotal in navigating financial challenges and seizing opportunities.
e. Stress Reduction
Managing business finances can be stressful, especially during tax season or when dealing with unexpected financial issues. Having an accountant handle these tasks reduces your stress and gives you peace of mind, knowing that a professional is managing your finances.
Cost Considerations
While hiring an accountant is an investment, it’s essential to weigh the costs against the potential savings and benefits.
a. Cost of Hiring a Small Business Accountant
The average salary for an accountant in the United States is $63,945 per year, while the average salary for a bookkeeper is $44,266. The cost of hiring a small business accountant can vary based on their experience, location, and the complexity of your business’s finances. Options include full-time accountants, part-time accountants, or freelance professionals. While the initial expense might seem high, the long-term benefits often outweigh the costs.
b. Cost of Financial Mistakes
About 45% of new businessesfail within the first five years. While there are numerous reasons behind this, improper allocation of funds due to faulty financial reports is a significant factor. Financial mistakes can be costly. Errors in tax filings, missed deductions, or mismanaged cash flow can lead to penalties, fines and lost revenue. An accountant helps avoid these pitfalls, potentially saving your business money in the long run.
c. Cost-Effective Solutions
The pricing of accounting solutions can range from $7 per month to over $299 per month, but a higher price may not always mean higher value. For startups or small businesses with tight budgets, part-time or freelance accountants can be a cost-effective solution. These professionals provide the expertise you need without the expense of a full-time hire. Additionally, some accounting firms offer scalable services, allowing you to increase support as your business grows.
When Should You Hire a Small Business Accountant?
There are key indicators that it’s time to bring an accountant on board.
a. Business Growth
As your business grows, so does the complexity of your financial transactions. More clients, increased sales, and additional expenses can make managing finances overwhelming. An accountant can help manage this growth and ensure your financial records remain accurate.
b. Complex Financial Transactions
If your business involves complex financial transactions, such as dealing with multiple currencies, significant investments, or intricate contracts, an accountant’s expertise is invaluable. They ensure these transactions are recorded correctly and comply with relevant regulations.
c. Tax Season
Tax season can be particularly challenging. An accountant prepares and files your taxes, ensuring compliance and maximizing deductions. Their expertise can prevent costly errors and save you time.
d. Specific Scenarios
There are specific scenarios where an accountant’s help is particularly beneficial. These include applying for a business loan, undergoing an audit, or planning for significant financial changes, such as mergers or acquisitions.
While you can consider these timings for adding an accountant to your team, bear in mind that waiting too long to hire an accountant can lead to missed opportunities and potential financial missteps. Bringing an accountant on board early ensures that your financial foundation is solid, allowing you to focus on growing your business with confidence.
Choosing the Right Small Business Accountant
Selecting the right accountant is crucial for your business's success. Choosing an accountant with the right qualifications, asking the right questions, and ensuring they fit well with your team will set the foundation for a successful partnership.
a. Qualifications and Experience
Look for an accountant with the appropriate qualifications, such as a Certified Public Accountant (CPA) designation. A CPA has met rigorous education, experience, and examination requirements, ensuring a high level of competency. Experience in your industry is also valuable, as it ensures they understand the unique financial challenges you face. For instance, an accountant familiar with the retail sector will be adept at handling inventory management and sales tax issues, which may differ significantly from those in the tech industry.
b. Questions to Ask
During the hiring process, ask questions to gauge their expertise and fit with your business:
● What experience do you have with businesses similar to mine? This ensures they understand the specific financial challenges and regulations relevant to your industry.
● How do you approach financial planning and strategy? This gives insight into their ability to provide long-term financial advice and support.
● Can you provide examples of how you helped other businesses save money or improve efficiency? This highlights their practical impact and success in previous roles.
● How do you stay updated with changes in tax laws and financial regulations?This ensures they are proactive in maintaining compliance and optimizing financial strategies.
● What accounting software do you recommend, and why? Their answer will reveal their familiarity with modern tools and how they can streamline your financial processes.
c. Finding the Right Fit
The right accountant should not only have the necessary skills but also be a good fit for your business culture. Consider the following factors:
● Communication Skills: A small business accountant should communicate complex financial information in an understandable manner. Doing this ensures you're always informed and confident in your financial decisions.
● Reliability and Trustworthiness: Accountants will handle sensitive financial data. So, it's crucial to feel confident in their integrity and reliability.
● Cultural Fit: Aligning with your business values and working well with your team is also important. A good cultural fit ensures smooth collaboration and a positive working relationship.
Alternatives to Hiring a Small Business Accountant
While hiring an accountant offers significant benefits, there are alternatives to consider, each with its own set of pros and cons.
a. Accounting Software
Modern accounting software can handle many tasks that were once done manually. Tools like QuickBooks or Xero offer features for bookkeeping, invoicing, and financial reporting. These tools can be a cost-effective solution for small businesses, especially in the early stages.
Pros of using accounting software
- Cost-Effective: Generally cheaper than hiring an accountant, especially for startups with limited budgets.
- User-Friendly: Designed for ease of use, allowing business owners to manage finances without extensive accounting knowledge.
- Automation: Automates repetitive tasks, reducing the chance of human error.
Cons of using accounting software
- Learning Curve: Requires time to learn and set up properly.
- Limited Expertise: Lacks the personalized advice and strategic planning that a professional accountant can provide.
- Ongoing Maintenance: Software needs regular updates and maintenance, which can be time-consuming.
b. DIY Approach
Some small business owners prefer to handle their finances themselves. While this can save money, it requires a significant time investment and a solid understanding of accounting principles. The risk of errors is higher, and managing complex financial tasks without professional help can be challenging.
Pros of going DIY
- Cost Savings: Eliminates the expense of hiring a professional accountant.
- Control: Provides full control over financial management and decision-making.
- Learning Opportunity: Enhances the business owner's understanding of their financial operations.
Cons of going DIY
- Time-Consuming: Requires a substantial time investment, detracting from other business activities.
- High Risk of Errors: Increased likelihood of mistakes, which can lead to financial mismanagement or legal issues.
- Limited Expertise: Lacks the in-depth knowledge and strategic insight a professional accountant offers.
c. Outsourced Team
Recent surveys suggest that 37% of small businesses outsource both accounting and IT services. Outsourcing to a bookkeeping service or virtual assistant can provide a balance between in-house management and professional oversight. Services like Wing Bookkeeping Assistants offer dedicated support for a fraction of the cost of a full-time accountant.
Pros of hiring an outsourced team
- Access to professional expertise without the full-time cost.
- Flexibility to scale services up or down based on business needs.
- Can handle a wide range of tasks, from expense tracking to payroll preparation.
Cons of hiring an outsourced team
- Less direct control compared to an in-house team.
- Quality of service can vary depending on the provider.
- Potential for communication challenges and delays.
Bookkeeping, Accounting, and Financing for SMB Made Easy with Wing Assistant
Bookkeeping, accounting, and financing for small and medium-sized businesses (SMBs) are made seamless with Wing Assistant services. Whether you need assistance with tracking expenses, reconciling statements, managing payroll, or preparing financial reports, Wing offers dedicated virtual assistants who specialize in maintaining accurate and compliant financial records. With a robust platform that includes modern tools like QuickBooks and Xero, Wing ensures that your business's financial management is efficient and effective, allowing you to focus on driving growth and innovation.
Final Thoughts on Small Business Accountants
Managing finances effectively is crucial for the success of any small business. This article has explored the roles and benefits of hiring a small business accountant, emphasizing their expertise in bookkeeping, tax preparation, financial reporting, budgeting, and strategic financial advice. It's important to make an informed decision based on your business's specific needs, considering factors like cost, complexity of financial transactions, and the potential for growth. Assessing these factors can help you determine whether hiring a small business accountant is the right choice to ensure financial stability and support business growth.
Aya is Wing Assistant’s blog manager. When she’s not wrangling content briefs, editing article drafts and handling on-page SEO, she is crafting messages for Wing’s other communication materials. Aya writes about SaaS startups, marketing for startups, search engine optimization, and pop culture.