Starting a new business can be one of the most exciting things a person can do. By creating your own business, you’ll have the freedom to pursue dreams and create something you can sincerely be proud to put your name on. According to estimates from the Small Business Association (SBA), about 627,000 new businesses open every year.
Even in the face of all this excitement, you’ll soon discover that starting a new business comes with many challenges. Doing things such as paying taxes, managing payroll, and budgeting will not be the most glorious components of business ownership, but they will still be very important.
At first, you might want to keep your costs low and do everything you possibly can in house. If your business is a sole entrepreneurship with very simplified cash flows (a freelancer with an LLC, for example), you might be able to handle some of the bookkeeping on your own. But even these sorts of businesses can face some surprising accounting challenges and, at the very least, you might be paying taxes than is necessary.
Eventually, your business will almost certainly need to bring in some sort of professional accounting help. The questions that remain, it seems are: when is the right time to “make the leap” and hire an accountant? Furthermore, what kind of accounting help does my business currently?
In this article, we will answer these pressing questions and help you determine whether hiring an outsourced accounting firm is right for your startup.
How can an Accountant Help my Small Business?
As a small business owner, you quickly discover that there are many benefits to hiring an outsourced accounting firm. Accountants are formally trained to help your business manage its books, plan its finances, organize its taxes, and more.
With better accounting practices, your business will be able to make better decisions and achieve its goals. Suppose you run a restaurant and are considering opening a second location. Inevitably, there will be many crucial accounting decisions that will need to be made along the way. How much will open a second location cost? How will you finance this? When will your breakeven point take place? How will you account for this restaurant (and its inventories) on your balance sheet and income statement?
Without having an experienced accountant on your team, answering these questions will be mostly guesswork. But with large amounts of capital at stake, your business can’t afford to do much guessing. Accountants make it easy to plan these sorts of big moves, using data and knowledge to ensure you are making the right decisions. Unsurprisingly, more than 80 percent of businesses who choose to hire an accountant would recommend their accountant to another business.
Should I Outsource Accounting or Hire Someone to Work In-House?
By now, you probably recognize that accounting is incredibly important. A good accounting team will help provide your business with the legal protection, financial planning, and long-term strategies your business needs. But even keeping this in mind, there will still be several important decisions that your business will need to make. Choosing between outsourced accounting and in-house accounting can have a major impact on your bottom line.
While there are some benefits of hiring an in-house accountant (and an in-house CFO), these individuals are considerably more expensive. According to US News and World Report, the median salary for an accountant is just over $70,000. CFOs, typically, make over $100,000 per year. In the startup world, paying these full salaries is often something that not only is not feasible but also is inefficient.
Fractional CFOs and outsourced accountants can give your business the benefits of having a full-fleshed finance department for just a fraction of the cost. Your business will only need to pay for the services it needs. At first, this might just be a few hours every quarter. Over time, you can scale your use of outsourced accounting services and make adjustments as needed. In many cases, your business might decide that even after it’s grown, you still prefer outsourced accounting solutions.
How Much Do Most Small Businesses Spend on Accounting Each Year?
The amount your startup spends on accounting services will depend on many different factors, including the size of your business, the complexity of your operations, and more. According to one recent study, about half of all small businesses spend more than $5,000 per year on accounting services.
The data claims that 23 percent of small businesses spend less than $1,000 on accounting services, while 16 percent of small businesses spend more than $20,000. As you can see, there is a significant amount of variation within the small business community. However, as suggested, even at the more expensive end of the spectrum, the benefits of hiring an accountant will often outweigh the costs.
When is the Right Time for my Small Business to Hire an Outsourced Accountant?
It can often be difficult to know when it’s time to hire an outsourced accountant. However, unless you are familiar with accounting, it is likely that the time is now. Even a single-person business will still need to keep books, pay taxes, and organize their finances. Having a second set of eyes on your books can help you identify possible growth opportunities, identify possible tax deductions, and also ensure that your books are clean. Small businesses do, in fact, occasionally get audited by the IRS. If you do not have a qualified accountant on your side, you could be facing a rather stressful situation on your own. Hiring an accountant doesn’t have to be a major financial commitment—with fractional services available, your business can easily scale as needed.
If you are running a business—of any size and type—you will need to do accounting. Startups often assume they can manage their books on their own but will quickly find themselves in trouble. By making the decision to invest in an outsourced accountant and other financial support, you will be positioning your business for long-term success.
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