Do you really need an accountant for your business?
Without a solid understanding of the numbers behind your business your enterprise will fail the moment it sets it foot out the door. That is a fact written in stone. So take this as a word of caution – Business owners beware, accounting is by far an important (if not the most) aspect of running a profitable business. Sure, its really easy to get distracted by the other glamorous aspects like creating tag lines, or user friendly websites, or even choosing a perfect business name (and I know how compelling it can seem to entrepreneurs to just loose themselves in that dream) but if you’re numbers are not in order the chances are you will be thrown out of your own house very soon.
One-Third of Small Businesses Fail Because They Ignored the Financials
The Small Business Administration (SBA) complies a list of the top eleven reasons that cause small businesses to fail. Out of these nearly one-dozen reasons, four of them focus on the financial structure of a small business. And, according to the SBA, the number one mistake entrepreneurs make is “believing you can do everything yourself.”
Hiring an Accounting Professional
Unless you’re a bonified numbers wiz or have a degree in accounting, you need to engage the services of a professional to set up your accounting system. To get a grasp on your small business accounting and financials, the first thing you have to ask yourself is whether or not you should hire a bookkeeper or an accountant.
What a Bookkeeper can Do
Each startup situation is unique but generally, most startups can begin with a bookkeeper. A bookkeeper’s services make sense for uncomplicated start-ups which don’t plan on building an empire.
What an Accountant can Do
Hiring an accountant makes sense if you plan to grow your business or if you have a complex business structure such as limited liability company.
Many entrepreneurs initially start a part-time business or work at home to keep expenses low. If this is the case with you, the cost of an accountant on a monthly basis can be too costly for a one-person shop. Either prepare the books yourself or have a bookkeeper get involved on an as-need basis. Then, you can use an accountant for your year-end tax planning.
Cash Versus Accrual Accounting Methods
There are only two generally accepted accounting methods: cash accounting and accrual accounting. Some small businesses have the option of choosing between these two, while other small businesses are legally required to use the accrual method. Check with a financial professional (preferably an accountant) to see if you’re required to use the accrual method.
The accrual method shows your real-time financial health and most accounting software packages simplify the process of accrual accounting. Moving from the cash system to accrual can be as easy as checking a box in your accounting software, and the system takes care of the rest. However, if you run a simple and low-revenue business, don’t feel pressured to adopt the accrual system.