Tips for Hiring an Accountant
According to the SBA, small businesses make up 99.7 percent of US employer firms, 64 percent of net new private sector jobs and 49.2 percent of private sector output. With this many small businesses, there is no surprise that their accounting needs will vary greatly. The most obvious difference in accounting needs arise from the types of businesses. Fifty-two percent (52%) are home-based businesses, 2 percent are franchises, 73.2 percent sole proprietorships, 19.5 percent corporations, 21.5 percent employer businesses and 78.5 percent are non-employer businesses.
Whatever the type of business or its size, someone has got to do the paperwork. Choosing your accountant is integral to your business operations. There are however more specific differences that influence if and when to hire an accountant. This article is a guide on when to hire an accountant and when not to. The need to hire an accountant is determined by the following three criteria:
The need for assurance by the business management,
The accounting ability of those inside the firm,
The structure of the firm.
Each of these will be examined in sequence.
The first criteria – whether or not to hire an accountant is based on the need for assurance by the business management. Some business managers feel more confident when an accountant prepares the monthly financial statements and year-end tax returns. These managers might also feel that, if an accountant prepares income tax returns, payroll tax returns or sales tax returns, the state and federal government agencies will be less inclined to scrutinize the returns. Other managers do not feel this way. These managers can complete their own tax returns. These managers & business owners believe that the numbers put on the forms can be justified, so there is no need for an accountant. Some firms might feel confident preparing the payroll tax returns and sales tax returns but not preparing the income tax returns. Different businesses have different confidence levels regarding what can and cannot be prepared in-house. The lower the confidence level of management, the greater the need to find an accountant.
Another need for assurance by business managers arises not from their own need for confidence, but rather for the confidence of outside stakeholders. The most dominant stakeholder requiring professionally prepared financial reports and statements is a loan provider. Banks, credit unions, and other loan providers need periodic financial statements and tax returns to open new loans, re-negotiate old loans, or just ensure business viability in the case of an old loan. With the increase in federal government regulation, banks need more information about a business’ profitability and the more confidence the loan provider has in the financials and tax returns, the better off the business.
Another factor in determining whether a business needs to hire an accountant is the ability of those inside the firm. Larger firms generally have the ability to hire accountants to prepare all the statements and returns. Smaller businesses may not be so fortunate. However, a small business might just have a person who can prepare payroll tax returns. Another small business might have someone that can prepare monthly financial statements. In these cases, management would want to consider having these tasks performed in-house; an accountant could be hired to do everything else. The ability of personnel inside the business may also be a factor in the assurance level mentioned in the previous paragraphs.
The final factor in determining whether to hire an accountant is the structure of the firm. If the firm is very small and has no employees or all the people working in the firm are independent contractors, there may be no need for the monthly and quarterly payroll tax returns. If the business sells goods or services where no sales tax is required to be collected, then sales tax returns are obviously not necessary. The smaller the business, the less likely the business needs an accountant on a monthly or quarterly basis. However, as a business grows, management might want to consider hiring an accountant to prepare and review monthly financials and to prepare payroll tax returns and sales tax returns. The accountant in this case can act like a watchdog, reviewing all the numbers to ensure everything looks good.
In summary businesses hire accountants for a number of reasons but those reasons reduce to these three factors: the need for assurance, the ability of personnel within the firm, and the structure of the business. Very small businesses may only want an accountant to prepare income tax returns. Slightly larger firms may need an accountant to prepare monthly statements and to prepare all monthly, quarterly, and yearly tax returns. Managers seeking to hire an accountant must know exactly what services the accountant is to perform and hire the accountant on that basis. By having this knowledge and making the right selection, a business can save itself a tremendous amount of money.
Contact a Dedicated CPA today to have a free consultation about your accounting needs.