Is having an accountant really worth the extra cost? What do they actually do anyway? Do I only need an accountant to do my taxes at year end?
These are great questions that many small business owners ask themselves. The answers to these questions are actually quite important to the long-term success of your business.
In a nutshell, a good accountant will be able to:
- Help you make better business decisions that result in more profitability
- Generate accurate reports that let you know if your business is making or losing money
- Save you money on your taxes
Let’s dive into these benefits and the questions posed in this article.
What does an accountant actually do anyway?
Generally, an accountant is responsible for taking each transaction that comes through your bank or credit card accounts and classifying it to the correct financial account. This may sound easy, and sometimes it is! For example, when dealing with simple, straightforward transactions (Staples = Office Supplies) it’s pretty obvious what account it should go to. However, when it comes to a business owner taking money out of the company, buying a fixed asset, and booking depreciation expenses, things can get a lot more complicated. An accountant knows how to handle all of this correctly.
Once everything is classified properly, it is possible to generate accurate financial reports – like a Profit & Loss, Balance Sheet, & Statement of Cash Flows. It is also possible to use that information to show trends in your business or perform financial analysis to identify problem areas or areas where improvement may be needed.
Additionally, when working on monthly bookkeeping for our clients, we perform various reconciliations and reviews of the data and reports to ensure that any mistakes are found and corrected each month, and additional reconciliations and reviews are performed annually before taxes are prepared. Of course, accountants can also prepare your taxes for you, which is one headache that you can delegate off your very full business owner plate at the end of the year.
Do I only need an accountant to do my taxes at year end?
The answer to this depends on the size of the business. The smaller the business is, the more likely it can get away with not having an accountant on a monthly basis. That being said, it will depend on the owner of the business to keep detailed records to account for every transaction in an organized manner to submit to their tax accountant at year-end.
The larger the business, the more likely it is that you really need a good accountant on your side. Although you may be able to keep track of everything, it’s going to consume more and more of your increasingly valuable time, all while you are getting busier and busier running your growing business. Additionally, accounting will get more and more complicated, increasing the chances that you make a costly mistake that could cost you hundreds or thousands of dollars in lost deductions on your taxes or could result in bad business decisions.
In general, if your business is generating over $50,000 in sales every year, it’s probably time to seriously consider getting professional help to manage your monthly bookkeeping if you haven’t already. The increased visibility into how your company is doing month over month will allow you to identify and resolve problems before it’s too late. Additionally, the alleviated stress and time savings will more than compensate for the additional cost.
Is having an accountant really worth the extra cost?
When it comes to business decisions, hiring an accountant almost always saves you more money in the long run than what you actually spend on the service itself. Let’s talk about some of the ways an accountant can save you money:
Tax deductions & savings: You may not realize how many potential tax deductions and/or savings you may be missing simply because you’re not a tax expert. Hiring a tax accountant can easily save you way more than what you spend. Mistakes on your financial statements could also potentially cost you thousands on your tax return. Having an expert prepare and review your financial data could save you money in ways you never imagined.
Better business decisions: You may make a decision to buy an asset during a tax year, only to find out that the tax benefit would have been greater if you had waited until the following year. Or, you could decide to hire a new employee, not knowing that you can’t actually afford to do so. Perhaps you are offering two or three different types of services, however, one of those services is not actually generating any profit, in fact, it is consistently losing money. Having the information at your fingertips that you need, when you need it, can potentially save you much more than what you pay for your accounting services when making important decisions.
Tax deductible expense: Accounting costs are tax deductible, so in effect, you are getting an average of a 15-30% discount on your services each month in tax savings – that’s always a good thing!
Freeing up your time: If you haven’t noticed yet, the more a business grows, the less time you have. A common mistake most small business owners make is attempting to do everything themselves. Although this may be necessary in the beginning, as you grow, your time will become more and more valuable, and outsourcing tasks that are not revenue generating can free your time up to focus on becoming more profitable (or to take a much needed day off)! The most successful entrepreneurs are those who delegate.
To sum up, it’s easy to think you’re saving money by not hiring an accountant, but the reality may be entirely different. Leaving your books to an expert will free up your time to focus on becoming more profitable and growing your business. Additionally, having accurate financial data prepared by experts will help you make better business decisions, avoid costly mistakes, and pay less in taxes. Really, it’s a win-win for everyone!