Choosing an accountant is a significant milestone for any small business. Beyond handling your tax returns or bookkeeping, an accountant can be an invaluable resource who can help you make more informed decisions about managing your finances and growing your business.
We spoke to several accountants around the country to get their input on the best times to work with a professional. From its early formation through its sale and closure, here are some key stages when it makes sense to turn to the services of an accountant.
Most SMBs can benefit from hiring an accountant as early as possible in the entrepreneurial process–even before you open the doors to your business. This stage of your business is all about budgeting and planning, and a good accountant can assist with the financial projections that form part of your business plan, including revenues, profits, and cash flow. An accountant can also help you plan for expenses.
Once you’re up and running, an accountant can help you build the right financial infrastructure and organize and manage important finances, such as cash flow. The latter is particularly crucial since many businesses fail in their early years due to a lack of cash flow. He or she can also take time-consuming bookkeeping tasks off your plate.
“Most business owners aren’t experts when it comes to accounting and tax preparation,” says Peter Gurian, a CPA with Dallas, TX, firm Gurian. “By outsourcing this task, you will have more time as a business owner to focus on your expertise–your business.”
A little over 70% of US small businesses operate as sole proprietors. However, as your business grows, decisions must be made about whether to incorporate the business. In addition to affording limited liability protection from a legal standpoint, incorporation (especially if you also elect S corporation status) is a financial decision with tax implications. An accountant can help you determine which form of business structure makes sense for your business based on your fiscal situation and goals.
When you apply for a business loan or credit, you’ll need to present your lender with solid financials.
An accountant can help you manage and monitor your business’s fiscal health long before you apply for a loan, which can help you understand where your finances need help so you can improve your chances of securing funding when you need it.
He or she can also help you choose which type of funding to go for, whether the terms are favorable, and help prepare the necessary financial statements.
Keep in mind that the accountant you hire depends on the type of funding you’re sourcing. Folasade Ayegbusi, CEO of Suncrest Financials, located in the Washington, DC metro area, explains: “If a company plans to seek funding from a venture capital firm, then they should hire a CPA who is qualified to review each party’s financials thoroughly. But if the SMB plans to use its own funding, then a CPA isn’t always necessary, and a qualified accountant could handle the work. It’s all about evaluating your needs and hiring accordingly.”
Managing payroll taxes is ranked as one of the most burdensome administrative tasks for small business owners (SBOs) according to a survey by the National Small Business Association (NSBA).
“If you have employees…it may be wise to hire a professional to make sure you’re doing everything correctly,” recommends Logan Allec, CPA and owner of Money Done Right, an online resource for helping people make sound financial decisions. “If you’re not sure if you’re running your business correctly from a tax and revenue perspective, you are risking large penalties from state taxing authorities.”
If your business is on the verge of a significant business deal–whether it’s a new client or a big project–an accountant can help you review the merits and pitfalls of closing the deal. New business often demands investment in your business (new employees, inventory, technology, etc.) and can also have tax consequences, so it’s important that your accountant has a seat at the table.
“Your accountant should be involved in most decisions to be able to tell you any tax implications and to let you know what your numbers actually mean,” says Atiya S. Brown, a CPA and Accounting Director at The Savvy Accountant. “Do you really know if a deal is worth it? What will it generate over time? Your accountant should be able to tell you all of this. So, you want to keep them abreast of most business dealings.”
Accountants also play an essential role if you decide to acquire another business–whether as a gateway into business ownership or as an expansion strategy. This is likely the biggest deal of your life. An accountant can help calculate your business’s worth with an objective valuation and navigate the tax implications of the deal. He or she can also assist with due diligence and help you uncover any red flags in the acquired business’s finances, such as outstanding debt or tax issues.
If you have a succession plan in place that hands the keys of your business over to a family member or you plan to sell to a third party, a healthy and organized set of books to show potential buyers is a must.
With the help of your accountant, you can show visually, using professional charts and graphics, how your business has performed and financial projections for the future. Your accountant can also help with the due diligence aspect of the deal. Finally, he or she can set you on the path to a prosperous post-sale financial future.
An accountant is an enormous asset to any small business, whatever your growth stage.
As Atiya Brown says, “I often tell SMBs that they should have someone on their team as early as possible. People tend to think that they can leave their finances on the back burner. But you can not wait until the last minute to take care of your financials. They need to be accurate at all times. What if an amazing opportunity is around the corner but they need to know that you are a viable company to be invested in? You do not want to be caught not knowing the financial health of your business.”
Disclaimer: Fundbox and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. Please consult a tax professional for information about tax laws and how they apply to your business.