Businesses Need to be Well-‘accounted’ for

How to know when your business needs professional help

Opening a small business is certainly not without a daunting list of challenges — among them, keeping up with the financial minutiae involved in both day-to-day operations as well as larger-scale governmental tax reporting. 

Regardless of size or type of business, however, one fact remains: Finances must be given proper attention. It is here that the question of accounting comes into play –– whether a small business owner should hire an accountant or whether it is an area that might be maintained by the owner himself. It is a question that varies from business to business, as well from as owner to owner. Ultimately, it can often be a process of trial and error, but there are ways to minimize that error without having to face any hefty penalties.

Avoiding Tax Mistakes

As any accountant worth their fees will tell you, maximizing a business’s bottom line is crucial to success. Part of that maximization is keeping tabs on both profits and losses, as well knowing how best to take advantage of tax laws. Benefits are ultimately reaped at the end of the year, but without proper advisement, small business owners might never be aware of all the ways that their money can actually be made to work for them when it comes time to fill out all those friendly little forms for the IRS. 

As Laura Spencer notes in her October 2, 2009, FreelanceFolder.com article “When To Hire an Accountant,” having a good accountant can “reduce your tax bill by making you aware of all the deductions and credits that may be available to you as a self-employed person.” 

Robert Anderson, of Emerald Coast, CPA, PA, would certainly agree. “It’s helpful to talk to an accountant to help you understand what kind of thing is deductible and the types of things you can do to take full advantage of the tax laws,” says Anderson, whose Mary Esther-based firm handles the accounts of numerous small business clients. Accountants can also be useful sources for advice in deciding on a type of business structure. Sole proprietorships, LLCs and corporations must all follow different methods of reporting; even subtle variations in tax laws can be detrimental to a business, and accountants are equipped to know the latest updates in government requirements. “There are some things that you need to do, some elections [that can be made] with the IRS,” Anderson notes. “It’s good to talk to someone about how to keep things straight and figure out what’s deductible.” 

Employees add an entirely extra dimension to any business’s financial considerations, and things aren’t as straight forward as simply writing a check. Taxes must be taken out, filed, reported and paid. The government is a hard-driving taskmaster, and payroll accounting is often an area in which small businesses face their biggest pitfalls. So, if you’re going to have employees, the experts recommend getting an accountant right away.

“I strongly encourage not to do your own payrolls,” says Destin accountant Jackie Ely, of J. Ely Business Services Inc. During her 30 years in accounting, she has seen the rise and fall of many small businesses and notes, “Payrolls are the places that can cost you the most money if you make a mistake.” 

Understanding the Books

Having an accountant can also minimize the amount of time that a small business owner must invest in overseeing the financial aspects of their business –– a task which can become a distraction from the ultimate goal. “When you decide to go into business for yourself, you do it because you have some kind of a passion … and think that you could [make] a good living doing [it]. Small business owners [often] don’t give enough time to the bookkeeping, and they can find themselves in a mess pretty easily if they don’t allocate enough time to keep their books in order,” says Ely. 

Her advice? If you’re a creative person that just doesn’t like to have to work with numbers, get someone else to do that. It may be that you only need someone once a quarter, if you’re small enough. “[You might not] have to hire somebody to do weekly or monthly work. But I would strongly suggest that … [a business owner] need[s] to allocate several hours a month, depending on the business, to just handle the bookkeeping. If you’re a for-profit organization, you don’t need a CPA. You could find an inexpensive, experienced bookkeeper that can do everything you need except for taxes … [then hire an accountant] to work once a year with you on your taxes.”

Get Referrals

Hiring the right accountant can be a headache in itself, but reputation seems paramount. Ely recommends talking to friends and peers and finding out who they use and like and if they’re getting their money’s worth out of that. Anderson agrees: “Our best clients come from referrals. Talk to friends and neighbors and other small business owners, and find out who they would recommend. Try to get two or three names and interview them. See what their ideas are, what their fees are and if you like them –– you need to find someone that you like.” 

Referrals can also be a great way to spot red flags. As with any service so involved with government regulations, accounting can be greatly compromised by individuals who are less than up-to-date on the latest procedures or are willing to push the limits of legality. What may seem, in the short-run, to be an advantageous way of doing things might have long-term consequences once the government decides something looks suspicious. “Try to gauge their aggressiveness as to what they will do, within the confines of what’s legal,” Anderson advises. “Talk to them, see if their mindset fits your mindset.”

Legalities, however, aren’t the only concern to be addressed. You definitely want to make sure that you get itemized billings.

 “Unless you’re working under a … contract where they’ve got a list of specific things that they’re going to do for you for a set fee, if they’re going to charge you by the hour, you want to make sure that you’re getting detailed information about what they’re doing,” says Ely. “And you also want to keep up with whether they’re actually doing it. [They] might bill you for doing financial statements, for instance, and then you’ll find that they haven’t even reconciled the bank statement.” 

Ely feels that basic knowledge can be your greatest weapon. Her advice is that it’s always a good thing to do the books yourself to start with so that you understand what you’re looking at. Pay your own bills, collect your own money, reconcile your bank statement ––  just so that you understand the pieces.

Small business owners face both risk and reward with so many decisions on a daily basis, and failure rates are often intimidating. The decision to hire an accountant, however, should –– and can –– be one that is easily taken care of, resulting in peace of mind and the ability to focus on the goal: success.