Simplify Your Small Business’s Year-End Accounting With These 9 Easy Tips

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Accounting 101: Understanding Small Business Accounting

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What Are Payroll Taxes? And How Do You Calculate Them?

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What Are Debits And Credits?

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These Top 7 Invoicing Tools Are Your Answer To Sending Small Business Invoices

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Cash VS Accrual Accounting: Which Is Better For Your Business?

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Everything You Need To Know About Small Business Payroll

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What Is A Sole Proprietorship?

Before you launch your business, you have to check a few items off your to-do list. Perhaps you have to purchase inventory, find a commercial building to lease, and explore different types of business software. Maybe you operate a home-based business so your list isn’t as extensive. No matter what type of business you plan to open, though, there’s one thing all business owners must do: select a business structure.

There’s no getting around choosing your business structure. The way your business is set up determines both how you’ll file your taxes and how much you’ll pay. Your business structure may provide you with personal liability protection against the debts and obligations of the business. It will also determine specific requirements for your business, from registering with your state to ongoing requirements (like holding meetings and recording meeting minutes).

If your business has just one owner, one business structure to consider is the sole proprietorship. But before you make that critical decision, it’s important to understand what a sole proprietorship is, registration and paperwork requirements associated with this structure, and the benefits and drawbacks of being a sole proprietor.

While the business structure you choose should ultimately be what’s best for your business, we hope to make the decision process a little easier by breaking down exactly what to expect as a sole proprietor. Keep reading to find out more.

Sole Proprietorship Definition

Merriam-Webster defines a sole proprietorship as “a business owned and controlled by one person who is solely liable for its obligations.”

Let’s break down this definition. A sole proprietorship is a business that belongs to and is run by only one person. If your business has multiple owners, you’ll be unable to operate as a sole proprietorship.

In a sole proprietorship, the owner alone is liable for the obligations of the business. A sole proprietorship is not a separate legal entity. This means that the owner  — you — is responsible for the debts, obligations, and liabilities of the business. Your personal assets may be seized to fulfill debts, and lawsuits can be brought against you personally.

Many people choose this structure because a sole proprietorship is the quickest, easiest, and most inexpensive way to start and operate a new business. A sole proprietor is not required to register with the state. Simply engaging in business activities legally establishes a sole proprietorship. However, the sole proprietor is still required to apply for the appropriate business licenses and permits needed to legally operate in their state.

Sole proprietors can operate under their own legal names or can create a fictitious trade name when doing business. Using a trade name does not establish a separate legal entity, and the business owner will still be held responsible for the liabilities of the business.

Sole proprietors do not have to file separate tax returns for their businesses. Instead, these business owners report business profits, losses, and expenses on a Schedule C form. Self-employment tax for the sole proprietor is reported on a Schedule SE. The Schedule C and Schedule SE are both filed with the business owner’s Form 1040.
We’ll dive deeper into the benefits and drawbacks a little later in this article.

Next, we’ll compare sole proprietorships to other business structures so you can better determine which works best for you.

How Is A Sole Proprietorship Different From A Partnership?

The biggest difference between a sole proprietorship and a partnership is the number of owners of the business. A sole proprietorship has a single owner. A partnership has two or more owners.

Comparing a sole proprietorship with a limited partnership (LP) and limited liability partnership (LLP) reveals a few additional differences. With these types of partnerships, limited partners are protected from personal liability. These partnerships are also more expensive and more complicated to form because they require registering with the state.

Other than the number of owners, a sole proprietorship and a general partnership (GP) are very similar. Neither has to be registered with the state to exist. The profits and losses for a sole proprietorship and general partnership are also filed on personal tax returns.

How Is A Sole Proprietorship Different From A Corporation?

A sole proprietorship is very different from a corporation. A corporation is the most expensive business entity to form, whereas a sole proprietorship is very inexpensive. Corporations must be registered with the state. There are also multiple ongoing requirements corporations must meet, such as holding meetings and having a board of directors. Sole proprietors do not have to register and there are no ongoing requirements.

Corporations may have multiple owners, whereas a sole proprietorship has just one owner. Corporations can also raise capital through the sale of stock — something a sole proprietor can not do.

Corporations also offer the best personal liability protection for its owners. As previously discussed, sole proprietors are held personally responsible for the liabilities of the business.

Another big difference between sole proprietorships and corporations is how each business structure is taxed. Sole proprietors are able to report business profits and losses on their personal tax returns. Corporations are taxed differently — a corporation is the only business structure that must pay separate income taxes. If dividends are paid to shareholders, shareholders must report this on their personal tax returns, resulting in double taxation for the corporation.

How Is A Sole Proprietorship Different From An LLC?

A limited liability company, or LLC, combines benefits of different business entities. An LLC must register with the state, and there are some fees associated with starting an LLC. This is in contrast with sole proprietorships, which are not required to register and are the least expensive to start.

Another difference between the two is that LLCs have liability protections in place to protect the personal assets of the owners. Sole proprietors do not receive these same protections. LLCs may also have multiple owners, whereas a sole proprietorship is limited to a single owner.

There may also be differences in how the LLC is taxed. Owners of an LLC can choose how they are taxed. In some cases, they may opt to be taxed as a sole proprietorship. In other cases, however, owners may choose to be taxed as a partnership or corporation.

What Types Of Businesses Are Sole Proprietorships?

A sole proprietorship is best for businesses with one owner that wants full control of the business without complicated requirements or additional expenses. Self-employed business owners, home-based businesses, independent contractors, and even some franchise owners may choose this business structure.

Any business can be a sole proprietorship provided there is just one owner and the owner is aware of the benefits and risks of this business structure. Smaller businesses are better suited for sole proprietorships. Companies that plan to grow much larger and want to take out business loans or raise large amounts of capital in the future would benefit from another business structure, such as a corporation or LLC. Some common small businesses that are sole proprietorships include:

  • Home Healthcare Businesses
  • Catering Companies
  • Housekeeping Services
  • Virtual Assistants
  • Freelance Writers, Editors, Or Designers
  • Tutors
  • Computer Repair Technicians
  • Landscapers
  • Bookkeepers

Regardless of what type of business you operate, the business structure you select should be based on the long-term needs and goals of your business.

Benefits Of Sole Proprietorships

After breaking down the definition of a sole proprietorship, you should have at least some idea of why business owners would choose this structure. However, let’s take a closer look at the full list of benefits of operating your business as a sole proprietor.

  • Less Expensive: Sole proprietorships are the easiest and least expensive forms of business structures. This is ideal for business owners that aim to keep their startup costs as low as possible.
  • No Registration Required: Sole proprietors simply need to participate in business activities to exist. No state registration is required. However, any applicable permits and licenses will need to obtained to legally operate in your state.
  • No Ongoing Requirements: Sole proprietors are not required to hold meetings, record meeting minutes, or have a board of directors.
  • Full Control Of The Business: As a sole proprietor, you will be the sole owner of your business. There are no additional owners or shareholders to consider. You get to make all business decisions and you receive all of the profits.
  • Easier Tax Returns: Sole proprietors can file their business profits, losses, and expenses on their personal tax returns with just two additional forms.

Drawbacks Of Sole Proprietorships

While being a sole proprietor definitely comes with its benefits, there are also drawbacks to consider when you’re weighing out your decision. Those drawbacks include:

  • No Liability Protection: As a sole proprietor, you will be held responsible for the debts, obligations, and liabilities of your business. If you default on a loan, lenders can come after your personal assets, such as your bank account, vehicle, or real estate. If your business goes bankrupt, your personal finances could be affected. Finally, lawsuits can be filed against you personally, which would also put your assets at risk.
  • Financing Challenges: As a sole proprietor, getting business financing can be a challenge. Most lenders — from traditional lenders like banks to online alternative lenders — only provide financing to registered entities. Sole proprietors also can’t sell stock in the business as a way to raise capital. As a sole proprietor, you may have to get more creative with your financing, such as launching a crowdfunding campaign or taking out a personal loan for business.

Final Thoughts

For many aspiring business owners, operating a sole proprietorship is the right path to entrepreneurship. However, what works for some doesn’t always work for others. After weighing out the pros and cons of a sole proprietorship, consider consulting with an accountant and/or attorney to help determine if a sole proprietorship will meet the needs and goals of your business.

Ready to learn more? Download our free beginner’s guides for business. You can also learn more about the different types of business structures to help you further pinpoint which option is best for you.

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How To Find The Perfect Accountant For Your Small Business

How To Find The Perfect Accountant For Your Small Business

Everyone wants their small business to succeed, which means everyone needs a small business accountant. Yes, even if you use accounting software and do your own bookkeeping, a professional accountant is indispensable.

But how do you even find an accountant? And once you do, how do you know if they’re any good?

In this post, we’ll provide five easy steps for finding an accountant for your business. We’ll teach you where to look and how to tell a good accountant from a bad accountant. We’ll also give you the top tips and tricks for choosing the perfect accountant.

How To Find An Accountant For Your Business
Step #1: Pinpoint Why You Need An Accountant
Step #2: Choose the Right Type of Accountant For Your Business
Step #3: Know Where To Look
Step #4: Learn What To Look For
Step #5: Ask The Right Questions

Know When & Why You Need An Accountant

How To Find The Perfect Accountant For Your Small Business

The first step is knowing when to hire an accountant. Spoiler alert: the answer is now.

Sure tech-savvy business owners can use accounting software to manage their own bookkeeping, but when it comes to actual accounting, you’ll want the many advantages of having an expert onboard. As a small business owner, you should do everything you can to set yourself up for financial success; the best way to do that is to hire an accountant.

Accountants do so much more than just help you file your taxes. An accountant can give sound business advice when you’re setting up your business, analyzing your cash flow, trying to improve efficiency, facing an audit, and much more. Read our full post When Should You Hire An Accountant For Your Business to learn every instance when an accountant can help.

When beginning the process of hiring an accountant, it’s important to pinpoint why you want help and exactly what you want your accountant to do for you. Common tasks accountants can perform include:

  • Basic bookkeeping tasks
  • Verifying your bookkeeper’s work
  • Setting up your business
  • Offering business advice
  • Creating reports
  • Analyzing your business’s finances and assets
  • Cash flow management and projections
  • Providing tax advice
  • Filing tax returns
  • Maximizing your tax deductions

It’s important to know which tasks you want your accountant to perform before starting your search as services vary from accountant to accountant.

For example, if you just want tax advice and help filing your tax returns, you may want an enrolled agent (EA) instead of a full-on accountant. If you want business advice and tax advice, a certified public accountant (CPA) with expertise in your business industry may be a better way to go.

Take a careful look at your finances and your business’s current situation and create a list of problem areas where you would like help from a professional. Do you need help managing your cash flow? Are you worried you aren’t taking all of the deductions you’re eligible for? Are you simply overwhelmed by finances and need a helping hand with the day to day work? Pinpoint these concerns and write them down in a list. Later, when you interview prospective accountants, you can return to your list and determine if their services would be a good solution to address your business’s needs.

Why Picking The Right Accountant For Your Business Matters

How To Find The Perfect Accountant For Your Small Business

As a business owner, you pick tools all the time that help your business — accounting software, a new ecommerce site, a file organizer for your office — you name it. One, if not the, most important tool you can pick is a good accountant. A good accountant will help you successfully manage your finances so that your business can be successful and grow.

But there isn’t a one size fits all accountant. The second step in finding the perfect accountant for your small business is knowing which type of accountant you need. There are three main types of accounting professionals: bookkeepers, accountants, and CPAs.

Type Definition

Bookkeeper

Bookkeepers handle the day-to-day finances and bookkeeping tasks of a business. Tasks can include invoicing, reconciling accounts, managing accounts payable and receivable, creating reports, entering data, and running payroll.

Accountant

Accountants offer business and tax advice and handle the big picture finances of a business. Tasks can include bookkeeping, business advice and planning, tax advice, tax filing, cash flow management, creating reports, and analyzing business financials.

Certified Public Accountant (CPA)

A CPA, or certified public accountant, is and accountant who has passed a certification exam. Often considered more knowledgeable and trustworthy because of the education and work it takes to get and maintain their licensing. Tasks can include everything an accountant can do, plus the ability to create audit reports and represent your business legally before the IRS.

If you are overwhelmed by daily financial takes and looking to save time, a bookkeeper might be the best way to go as they are often cheaper than accountants. However, that doesn’t mean you should hire just a bookkeeper and call it good. You still need an accountant. An accountant will provide insightful business and tax advice that a bookkeeper can’t.

So the real question becomes, does your business need an accountant or a CPA?

All CPAs are accountants, but not all accountants are CPAs. Here’s how accountants and CPAs differ and what advantages each can offer your business:

Certified Public Accountant (CPA) Accountant

Must have a Bachelor’s and have successfully passed the CPA certification exam

Generally has a bachelor’s degree, preferably in accounting

Offers advice and insight about the big picture finances of a business, and can often offer deeper knowledge of tax codes

Offers advice and insight about the big picture finances of a business

Can create audit reports and review reports

Can only create compilation reports

Can legally represent a client

Cannot legally represent a client

Often an experienced CPA will charge more than a traditional accountant, but because of their rigorous education and certification, many business owners view CPAs as more qualified and trustworthy. Plus, a CPA can legally represent your business before the IRS in case of a tax audit. If these are qualities your business requires, you can narrow your search down to CPAs specifically.

Another thing to be aware of is that accountants can specialize in certain areas.

Type Definition

Forensic Accountant

An accountant who analyzes books for fraud, inaccuracies, and discrepancies. Often tasked with figuring out if an employee is stealing from the business.

Management Accountant

An accountant who helps businesses understand how certain decisions affect their finances. Tasks include planning, budgeting, business strategy, and risk management.

Cost Accountant

An accountant who focuses on current costs and how they can be improved. Tasks include cost analysis and budgeting.

Project Accountant

An accountant hired on a project-by-project basis to manage and oversee a specific business project. Tasks include management, approving expenses, project invoicing, job costing, and maintaining budgets.

Knowing which type of accountant you need and what you need them to do will help guide your search.

Where To Find An Accountant

How To Find The Perfect Accountant For Your Small Business

Step three: where can you find an accountant?

Well, there’s always the good ol’ Internet, but let’s face it — there are just some things you shouldn’t Google and an accountant is one of them. The best way to find an accountant is by getting a referral.

Ask your friends and family if they know of any good local accountants. See what accountant your fellow business owners use. Ask your local Chamber of Commerce or other local small business organizations and clubs if they have any recommendations. One tip from the accounting software provider Patriot Software is that oftentimes if you are a member of your local Chamber of Commerce, you’ll have access to accountants who partner with the organization and provide discounts for their services.

A personal referral is one of the best ways to find a trustworthy accountant, but if this doesn’t work, there are some trusted sources you can use to find and vet a potential accountant including:

  • The American Institute of Certified Public Accountants (AICPA)
  • The IRS Directory
  • CPAdirectory.com
  • Accountant-finder.com

If you use existing accounting software, you can often find referrals to certified accountants through your accounting software company. The nice part about this is that the accountants will already be familiar with the software you use.

Factors To Consider When Choosing An Accountant

How To Find The Perfect Accountant For Your Small Business

The fourth and most important step to finding the perfect accountant is knowing what to look for. Here are some of the key factors to consider.

Credentials

Pay attention to the prospective accountant’s credentials. Are they a certified public accountant? Do they have any additional credentials such as a CMA (certified management accountant) or CFE (certified fraud examiner)? Are they licensed to practice in your state? Find an accountant whose credentials you value and trust.

Experience

In addition to credentials, an accountant’s experience speaks volumes. Learn where they went to school, how long they’ve been in business, and what area they specialize in. Do they have experience with your specific type of business and industry? This expertise will be key in choosing an accountant who will help you grow.

Services Offered

Every accountant specializes in different areas and offers a variety of services from basic bookkeeping to taxes to audits to business planning and more. Learn exactly which services and tasks a prospective accountant will perform and make sure their work lines up with your business’s wants and needs.

Location

Ask yourself if location matters. In the past, a local accountant was the only way to go. Now, with the rise of the internet, you could opt for a remote accountant. Ask yourself how important face-to-face interaction with your accountant is so you can find the right fit for your business.

Cost

As with anything, the cost can make or break your decision. Take a careful look at your budget (or take this time to create a small business budget if you don’t already have one) and see how much you can afford to spend on an accountant. When interviewing prospective accountants, ask them about their fees and pricing structure. You want to get a good deal, but more importantly, you want to get a good accountant, so don’t sacrifice quality for cost.

Reputation

When choosing an accountant, analyze the prospective accountant’s reputation. Ask for referrals and speak to current clients. Do a little LinkedIn stalking and see how the prospective accountant interacts with their clients. Are they nice? Do they seem excited about their work? Are the customer reviews positive? These are all good signs.

Personality

As a business owner, you’re going to be working closely with your accountant so personality matters. Make sure a prospective accountant is someone you can talk with, work well with, and get along with. Figure out if they are fiscally conservative or aggressive. You want an accountant who pushes your business to grow, but you don’t want someone who is on the completely opposite end of the spectrum from you and makes you feel uncomfortable about your finances.

These factors will help you evaluate how well an accountant will fit your business and its needs.

Characteristics Of A Good Accountant

How To Find The Perfect Accountant For Your Small Business

In addition to the key factors for evaluating an accountant, you also want to look for the qualities that make a good accountant.  A good accountant should be:

Trustworthy

Above all else, a good accountant should be trustworthy. Not only will you be turning to them for wisdom and advice, but they will also have access to sensitive information about you and your business. You want someone who you can trust and communicate with easily. You should feel confident in their ability to keep your information protected and private.

One of the best ways to gauge this is by asking about the accountant’s privacy policy and/or asking existing clients about their experience with the accountant.

Good Communicator

When looking for an accountant, you’ll want to focus on hiring a good communicator that will keep you posted on the status of accounts, taxes, and business reports. Since accountants often have to explain confusing accounting concepts, you’ll also want someone who is a good teacher and skips the accounting jargon so you can easily understand your business’s finances.

Timely

An accountant should value your time and perform the services you ask of them in a timely manner. A good indicator of this is if they show up on time for your consultation/interview with them. You can also ask existing clients about the accountant’s track record.

Detail Oriented & Organized

When it comes to accounting, it’s all in the details. Accountants have to be incredibly organized and detail-oriented to handle bookkeeping tasks and successfully analyze every aspect of your business’s finances.

Personable

A good accountant should be friendly and have a personality that you get along well with. You’ll be spending a lot of time with your accountant, so you want someone that is a good fit for your business.

Committed

Your accountant should be committed to their job as well as to your business. You want someone who is dedicated to his or her work and who is invested in the success of your business.

Knowledgeable & Wise

As accountants are a source of business advice, you want an accountant who is knowledgeable and wise. CPAs are often the most knowledgeable when it comes to accounting and taxes as they have to meet education requirements every year and stay up to date on the latest tax laws. You also want someone who is knowledgeable about your specific type of business and industry so they can offer sound advice to help your business succeed.

When you meet with a prospective accountant, try to get a feel for how well they display these key characteristics and be sure to talk to existing clients about their experiences with the prospective accountant.

Key Questions To Ask Before Hiring An Accountant

How To Find The Perfect Accountant For Your Small Business

The fifth and most crucial step to finding an accountant is actually meeting with them face to face. You’ll want to set up a consultation to get a feeling of who the accountant is, what services they offer, and if they’re a good fit for your business. Accountants want you to work with them, so most offer free consultations.

Treat the consultation like an interview. Just as you’d perform a job interview to see if a potential employee is going to work for your business, interview a prospective accountant to see if he or she can fill the role you need for your business.

Here are fifteen key questions to ask before hiring an accountant:

What experience and credentials do you have?

Ask the accountant what experience, credentials, and licensing they have. Are they a CPA? Do they have any extra credentials like a CMA? And do these certifications match up with the needs of your business?

How long have you been an accountant?

Often, you’ll want a seasoned accountant who has a lot of experience with accounting and your business’s industry.

What made you decide to become an accountant?

This question allows you to get a feel for the accountant’s priorities and personality. Did they go into accounting because they love their work and want to help businesses or did they want a good paycheck? The answer to this can speak volumes about a person and be a good indicator of how well you’ll get along with them.

What types of clients and size of business do you work with?

You want an accountant who has experience working with your business size and type. For example, if you’re a freelancer, you don’t want an accountant who has never had to file Schedule Cs. The more experience an accountant has with businesses similar to yours, the better they’ll be able to help you succeed.

Do you have experience working with the IRS?

If having a CPA who can represent you before the IRS is important to your business, you’ll want an accountant who has previous experience with audits.

What services can you provide my business?

This question is key. Different accountants may perform different services and tasks. Before hiring an accountant, you’ll want to be 100% clear about what they can do for you. If their services match up with your list of business needs, great! If not, you’ll want to move on to the next prospect.

Which accounting programs are you familiar with?

This could be a make it or break it situation for your business. Not every accountant will work with every accounting program. Some require you use QuickBooks, some only work with Xero. Others may be more willing to work with your existing software. If you’re incredibly attached to your accounting software, you’ll need to find an accountant who works with it.

How much do you charge for your services, and how do you bill your clients?

This is probably one of the first questions that come to mind. It’s important to have a clear understanding of exactly how much an accountant charges and how they bill their clients. Some charge per hour, some charge fixed fees for tasks, and others use monthly retainers. Make sure you know exactly how much to pay ahead of time, but also remember that cost isn’t everything. The accountant’s experience and valuable services they can provide your business are just as (if not more) important than the cost.

Will you be doing all of the work or do you delegate or outsource tasks?

Oftentimes, accountants will delegate certain tasks internally to other members of their firm or even outsource certain tasks. Ask who you will be working with most often and what privacy policies they have in place for their outsourcing. As always, never do anything you don’t feel comfortable with, so if you want an accountant who will be doing all of the work themselves, that’s totally okay. There are plenty out there who do.

Will you work directly with my bookkeeper?

If you already have a bookkeeper, ask if your accountant is willing to work with them. Oftentimes accountants will have specific instructions for bookkeepers about how certain transactions should be recorded, and the two should work closely together to ensure your books are balanced and accurate.

When are you available to your clients and how would we communicate with you?

Make sure you know how and when you can reach the accountant if you need them. Choose an accountant whose availability and response times match your wants and needs as a business owner.

What is your privacy policy?

Accountants have access to sensitive information about you and your business, like your social security number. Ask what security procedures they have in place and how they protect your privacy. Verify that they will not share your information with third-parties.

How can you help me grow my small business?

This question can give you an idea of what the accountant can do for your business and how they can help your business succeed.

Do you have any references I can contact?

Contacting current clients and asking about their experience with a prospective accountant is one of the best ways to gauge the accountant’s reputation and work.

Is there anything else I need to know about working with you?

This question allows your accountant to mention anything you may have forgotten and gives them a chance to explain why you should work with them.

Do you have any questions for me about my business?

If they say “no,” it’s a red flag. You want an accountant who is interested and invested in your business. This question gives them a chance to demonstrate that care.

Tips For Finding The Perfect Accountant

How To Find The Perfect Accountant For Your Small Business

Here are some of our tops tips and trick to help you in your search for the perfect small business accountant.

1. Ask For Referrals

Networking isn’t just about gaining potential clients but also accessing more resources. Put those networking skills to good use and ask friends, family, and other businesses for accountant referrals. This is often the quickest way of finding an accountant you can trust.

2. Cheaper Isn’t Always Better

We all like to save money, but sometimes cheaper isn’t always better. For example, an accountant just starting out might charge less to file your tax return, but an experienced accountant who charges more could get the tax return done in half the time. When choosing an accountant, don’t just look at the numbers. Look at quality as well.

3. Do Your Research

Choosing an accountant is one business decision you don’t want to rush. Don’t be afraid to take your time, meet a prospective accountant face to face, and ask questions. Check out the accountant’s reputation on LinkedIn and Yelp to see what customers have to say. View how they interact on their social media accounts. Do as much research as you can so you can feel confident in your decision.

4. Treat It Like An Interview

Choosing an accountant can seem daunting, so treat it like something you already know. Hiring an accountant is just like hiring an employee. You’re interviewing them to see if they’d be a good fit for your business. If you like them, great! If not, there are plenty of accountants in the sea.

5. Negotiate Your Fees

It’s always worth a shot. Test the waters and see how movable your accountant’s fees and pricing structure are. Try negotiating for lower fees or ask the accountant’s advice on how you can keep the fees low. Maybe they won’t change the rates, but they might tell you certain bookkeeping tasks you can perform to make their job faster (since most accountants charge by the hour, this can help save you some money).

Bottom Line: Trust Your Gut

When choosing an accountant, it all comes down to trusting your intuition. Trust your gut, listen to your instincts, follow your heart, and so on (don’t make us sing a Disney song about it). Seriously though, if you have a bad feeling about someone, or even if your personalities just don’t mash up, move on and look for an accountant you can trust and work well with.

The Hunt Is On

It’s as simple as that!

  • Step 1: Know what you need your accountant to do for you.
  • Step 2: Know which type of accountant you need.
  • Step 3: Know where to look for an accountant.
  • Step 4: Know what to look for in a good accountant.
  • Step 5: Know what questions to ask a potential accountant.

Follow our tips and tricks to help you find the perfect accountant and read our comprehensive accounting reviews to find the perfect accounting software to work with them.

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When To Hire An Accountant For Small Business

When To Hire An Accountant For Small Business

Running a business can be quite a juggling act. Between finding the right business software to getting the funding you need to buying business insurance to managing the actual day to day processes of your business, some things get put on the back burner.

Accounting and bookkeeping are often the first places business owners fall behind, but this is the last area where you want to drop the ball. Managing your finances is the key to a successful business. But when can you manage your books on your own and when should you hire an accountant?

In this post, we’ll cover when you should hire an accountant and how much it’s going to cost you.

When Should I Do My Own Accounting?

Can I Do My Own Accounting?

We all love a good DIY, but let’s face it, we don’t want your business to become a Pinterest DIY fail. Sometimes, you just need a professional. But is accounting one of those times? Can you do your own business accounting?

To answer this question, let’s first talk about the difference between bookkeeping and accounting.

Although the phrases are often used interchangeably, bookkeeping and accounting are not the same things. Bookkeeping consists of daily business finance processes, like data entry, bank reconciliation, entering sales and expenses, creating reports, etc. Accounting analyzes those reports and data and turns that information into actionable insight about your business’s big-picture finances.

Here are some of the other differences between bookkeeping and accounting:

Bookkeeper Accountant

Handles the day-to-day financials of a business

Offers advice and insight about the big picture finances of a business

Compiles reports and business data

Analyzes reports and business data in order to offer actionable advice

Often has real-world experience, and sometimes a certification, instead of a degree

Generally has a bachelor’s degree, preferably in accounting

Can assist with payroll and sales taxes, but does not file tax returns

Files business and personal tax returns

Has knowledge of the business’s finances only

Has knowledge of the business’s finances and client’s personal finances

A business owner can do their own bookkeeping, but actual accounting should be done by a professional.

If business owners have the time and want to be hands-on with their finances, they can handle bookkeeping tasks like:

  • Bank reconciliation
  • Invoicing customers
  • Making payments
  • Accounts payable
  • Accounts receivable
  • Running payroll
  • Creating reports

Accounting software makes it feasible for business owners to perform these tasks with relative ease and manage their books successfully. However, we always recommend that business owners turn to accountants for business and tax advice.

Even as someone who is very familiar with dozens of accounting programs, if I started a business, the first thing I would do is hire an accountant. Yes, I could handle my own bookkeeping and day-to-day finances, but the advice of accountants is indispensable for running a successful business and creating and achieving long-term financial goals. Accountants can verify your bookkeeping, give business advice, analyze areas where your business can grow, offer tax advice, maximize your tax deductions, and much more.

Additionally, just because you can do your own bookkeeping, doesn’t mean you should. If financial tasks are eating up your time and taking away from the success of your business, hire a bookkeeper or delegate some of the tasks to a trusted employee. This will free up your time so you can get back to growing and running a successful business.

Oftentimes, businesses have both a bookkeeper and an accountant. Bookkeepers are more affordable, so they are a better option for daily finance tasks, whereas a better use of your money and your accountant’s time is big picture finances and business planning.

Remember: If you hire an in-house bookkeeper, make sure that you divide accounting tasks. No matter how trustworthy an employee is, you should never have one person in charge of all the books as this is the easiest way for fraud to occur. Delegate accounting jobs and put strong internal programs in place to prevent fraud, or consider outsourcing your bookkeeping instead.

When Should I Hire An Accountant?

Signs You Need To Hire An Accountant

As a business owner, you can handle your own bookkeeping, but when should you hire an accountant? What are the signs your business needs an accountant? And if you already have an accountant, when are the times you should turn to them for help?

Here are fifteen cases when you should hire an accountant for your small business:

1) When Starting A Business

The early stages of business are incredibly important. Put your best foot forward and set your business on the path to success by hiring an accountant as soon as you start a business. An accountant can help you:

  • Choose the right type of business entity (like a sole proprietor, partnership, LLC, etc.)
  • Set up your business EIN and any state licenses or requirements
  • Choose the right accounting software for managing your business
  • Create a business plan
  • Create a tax plan and explain which deductions you need to record through the year

And more importantly, they’ll be able to advise you on how to run a financially successful business.

2) When Incorporating Your Business

If you are starting out and want to become an LLC or if you want to make the jump to incorporating your business, an accountant will guide you through that process.

3) When You Need Business Advice

We said it once and we’ll say it again, one of the biggest benefits of hiring an accountant is the business expertise and knowledge you gain access to. Turn to your accountant when you need business advice. Is your cash flow lower than you’d like? Are you losing money on COGs and can’t figure out why? Having trouble obtaining certain data about your business? An accountant can help.

4) When Filing Taxes

One of the biggest parts of an accountant’s job is preparing and filing taxes. An accountant will help you with your personal and business tax returns. They’ll know which forms you need to fill out, which deductions you qualify for, and how to appease the IRS so you can sleep easy come tax season.

5) When Planning For The Future

If you need advice on how to grow your business and prepare for the future, an accountant can offer guidance and help you create a business plan.

6) When You Need Help Managing Cash Flow

Cash flow is the lifeblood of your business. Without enough cash flow, you won’t be able to pay your bills or employees; too much positive cash flow and you aren’t investing your extra money wisely. An accountant can help analyze cash flow trends, give cash flow predictions, and offer suggestions to improve your financial situation.

7) When You Need Advanced Business Analysis & Reporting

Accountants are experts in business analysis. Not sure exactly where your money is going? Want to know where you can cut back and save money? Accountants know all of this and more. They can help create reports and give financial insight and analytics, so you can take that information and use it to improve your business.

8) When You Want To Save Time On Financial Tasks

As we mentioned earlier, if you are spending to much time on managing your finances, hiring an accountant can free up your schedule so you can focus on running your business. (If you need help with daily tasks, we recommend choosing a bookkeeper over an accountant to save money on services. Read our full post CPA VS Accountant: Which Is Right For You? to learn more.)

9) When Buying Or Selling A Business

If you are considering buying a business/franchise or expanding your current business, talk to an accountant first. They’ll be able to assess if the purchase is a wise financial move. Additionally, if you need to sell your business, an accountant will walk you through the process.

10) When Buying Or Selling Property (And Other Assets)

Along the same vein, talk to your accountant before buying or selling business assets like property, equipment, office furniture, etc. Because accountants know your business finances, they’ll be able to tell you if the purchase is a wise investment.

For example, they’ll tell you if you have the cash flow to buy all new computers for the office or if you should wait until next month when the cash flow trends predict more sales. Accountants will also help you manage your assets, track depreciation, and properly write off the tax deductions you’re eligible for. When selling property or other assets, accountants will know how to records this on your taxes properly.

11) When Applying For A Loan

Believe it or not, having an accountant can help improve your chances of getting a loan. Lenders want to see that you are fiscally responsible and some lenders, like Fundbox, require that you’ve been using an accounting solution for a certain amount of time in order to be eligible for the loan. Accountants can also offer insight into how the loan will affect your business finances.

12) When Facing A Tax Audit

No one wants to be audited by the IRS, but in business, you have to prepare for the worse and hope for the best. And if the worse does happen, you want an accountant — a CPA to be exact — on your side. A CPA, or certified public accountant, can legally represent you and your business before the IRS in the case of an audit. Read our post on CPAs VS Accountants to learn which is best for your business.

13) When You Suspect Someone Is Stealing From You

This is another worst-case scenario, but if you suspect someone is cooking the books and stealing money from your business, you’ll need to hire a forensic accountant to investigate the fraud.

14) When Going Public

If you have a public corporation or want to go forward with an IPO (initial public offering), you’ll need an accountant. Public corporations are required to have audit reports to show to investors. Only a CPA can prepare these reports for you.

15) Whenever You Feel Out Of Your Depth

Bottom line: If you aren’t sure about some aspect of your business or its finances, ask an accountant. Accountants are invaluable resources that can help you whenever you feel out of your depth or like you don’t know what you’re doing.

Benefits Of  Hiring An Accountant

When Should Your Hire An Accountant For Your Small Business

Hiring an accountant will allow you to sit back and relax. You can trust that your finances are in good hands and get back to running your business with the advice and time you need to grow successfully.

Here are some of the biggest benefits of hiring an accountant:

  • Business advice
  • Quality assurance
  • Save time on bookkeeping
  • Tax support
  • Reporting and analytics
  • Managing cash flow
  • Peace of mind

Another important benefit of accountants (CPAs in particular), is that a certified public accountant can legally represent you and your business if needed. This peace of mind is priceless.

How Much Does Hiring An Accountant Cost?

Cost of Hiring An Accountant

It may seem contradictory that to manage your money, you have to spend your money on hiring an accountant, but the cost is more than worth it. Which probably leaves you asking, how much is this going to cost me anyway?

There is no set answer for how much an accountant costs. The price is going to vary significantly depending on:

  • Your business
  • The complexity of your accounting
  • The services you require
  • Whether you hire a bookkeeper, accountant, or CPA
  • The accountant’s experience
  • Location

Most accountants charge by the hour and will give you an estimate of how much the services you require will cost. The best way to figure out how much an accountant will cost is by deciding what you need your accountant to do and then searching for the right fit. Get quotes from multiple accountants and CPAs, ask if they do free consultations, and gather information and referrals from other business owners.

Also, remember that cheaper isn’t always better. A more experienced CPA may charge more than an accountant who’s just getting started, but your business may prefer the expertise of a CPA. Or, maybe one accountant charges a lower monthly fee but another, more expensive accountant is faster — the time saved could be money saved as well.

The real question isn’t how much an accountant will cost, but, can you afford not to have an accountant? That’s a rhetorical question. This is no time to be a Scrooge. The benefits of hiring a professional accountant far outweigh the cost. And, if you choose to forgo an accountant, your business and its finances may suffer. Plus, you’d have to do your own taxes, and let’s be honest, who wants that?

Next Step

It’s true! Behind every good business is a great accountant. Accountants offer financial wisdom and business insight, They make sure your books are balanced and that you get the most out of your tax returns. They walk you through business plans, cash flow management, and can even represent you before the IRS in case of an audit.

Accountants give you the tools to help your business succeed and are an important asset to have. Now that you know when to hire an accountant read our full post CPA VS Accountant: Which Is Right For You? to help you find the perfect accounting professional for your business. Then hop on over to our post How To Find The Perfect Accountant For Your Business to take the next step.

The post When To Hire An Accountant For Small Business appeared first on Merchant Maverick.

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