When should you involve an accountant in your small business? Simply put, all business owners should consider getting an accountant involved before they even launch their business.
Having an accountant involved from the beginning will help alleviate, or avoid, headaches and make sure you start off on the right foot.
How An Accountant Helps Before You Start Your Business
You have plenty on your plate when you’re starting your business. An accountant can help you in a plethora of ways during the initial stages of your business.
One of the first things they can help you with is deciding on your business entity:
- Sole proprietorship
- S Corp
An accountant will help you select the tax impacts of each of the above options. Additionally, an attorney will help you understand the liability of each of the different business entities. With the input of both of these professionals, you’ll be empowered to make an educated decision.
If you’ve already selected a business entity, it’s not too late to have the right conversations with the right people and select the correct business entity.
The second thing they will help you with is understanding your taxes. Different entities and industries will help you charge the right taxes when you invoice, or not tax when you shouldn’t be. Tax compliance is a big deal, and not having the right plan in place can cost you down the right.
Working with an accountant will help you learn how much money you need to make to reach profitability in your business. An accountant will help you plan for cash flow management to ensure cash flow management.
Selecting the right accounting system is an important decision that will impact your entire business. An accountant will help you find the right system that works with other aspects of your business. You might select Quickbooks, while another business owner will benefit more from using Wave. The right solution depends on your business, industry and the other systems you are using to operate your business.
Lastly, they will explain record keeping requirements for your business. Which receipts do you need to keep? How long do you need to keep them? What are the IRS hot spots? What should you track for payroll? Should you store your information with paper or electronic storage systems? The answers to each of these questions will depend on your business and industry. There are different requirements for different types of data as well. An accountant will help you find the right answers to avoid costly problems down the road.
The Role of An Accountant After You’ve Started Your Business
Once your business is in motion, an accountant provides plenty of benefits that will help your business succeed, such as:
- Managing your bookkeeping
- Checking your work to ensure you are properly invoicing clients
- Make sure that you understand the important numbers that are relevant to your business
You don’t necessarily need to invest a large amount of time and money to reap these benefits. An hour or two of training with an accountant will empower you to handle your finances on your own.
As a general rule, $100,000 of revenue is when you should start working with an accountant regularly. However, it may benefit you to work with a bookkeeper or accountant before you reach this threshold to keep your numbers in order.
Tax planning is one of the biggest perks of working with an accountant once your business is operating. Have a mid-year check in with your accountant to help you estimate how much of your revenue should be set aside to pay your taxes.
An Accountant Can Even Help During Your Growth Phase
Once you’re growing and it’s time to hire an employee or two, it’s a great idea to have an accountant in your corner. They’ll be able to help you determine if you should work with independent contractors, or if you need to hire an employee. A contractor controls when they work and how they work, along with taking some financial risk. Conversely, an employee has less control over when and how they work. They also don’t take on financial risks.
If you elect to hire an employee, you should absolutely work with an accountant. You’ll have payroll taxes, withholdings and industry-specific regulations that will apply. You can end up paying more with penalties than simply hiring one to help you navigate everything.
As you grow, you’ll also need to work with a bookkeeper. Bookkeeping can begin as a one-hour a week job, but quickly grow to a five or ten hour a week job. Working with a bookkeeper allows you to focus on your core competency instead of spending your time managing your books.
An accountant can also help you manage your cash flow as you grow to ensure profitability instead of only breaking even. Winging it is great in the beginning, but they will help you plan for your growth phase so that you can continue to be successful.
An accountant will help you stay on top of compliance issues, new software solutions, bookkeeping and many other elements of your business that can be overwhelming to stay on top of. Having someone in your corner will help you navigate the numbers and help you grow successfully.
You don’t necessarily need a local accountant these days. Many are working virtually and can handle clients from anywhere in the country. Find someone who specializes in your industry to work with.