Do you need an accountant for your small business?

Yes, an accountant is essential for your small business. They ensure your financial practices comply with legal standards and help you maintain a clear picture of your business’s financial health through precise record-keeping and reporting. For small business owners, having an accountant means less time spent on financial management and more focus on core business activities.

You did it!

The dream you’ve been working on for years is now a reality: you’re officially a small business owner. Your small business is up and running, and you’re doing it all—juggling multiple tasks every day, thinking you’re saving money by handling everything yourself.

But then, reality hits. Your books aren’t adding up, expenses are getting out of control, and tax season rolls around with more confusion than you expected.

While it’s important to keep an eye on your finances, spending too much time on bookkeeping can distract you from your core duties as a small business owner.

If you think saving a few hundred dollars by skipping an accountant and handling everything yourself is worth the risk, think again. So, do you need an accountant for your small business? Absolutely.

This blog will walk you through why having an accountant is not just a good idea but essential for keeping your business on track.

The impact of quality accounting on business success (or lack thereof!)

This huge blunder occurred because company leaders made false entries to hide real operational costs and artificially boost profits, leading to one of the largest bankruptcies ever recorded at that time.

Now, we’re not suggesting that, as a small business owner, you would ever intentionally falsify your financial records and cook your books, but even small mistakes can snowball and become expensive mistakes.

Imagine, years from now, students learning about your business in discussions about accounting failures of small businesses—surely not the legacy anyone wants to leave, right?

We’re not trying to scare you—just pointing out what the impact of not having a competent accountant can have on your business.

Now let’s take a look at the impact of having one.

Accounting extends far beyond just managing taxes. It involves day-to-day financial management, including payroll, bill payments, invoicing, and ensuring compliance with both state and federal regulations. To fully benefit from sound accounting practices, it’s crucial to establish a solid accounting system. This system should be regularly updated with all relevant data to effectively utilize this information in understanding your business’s financial state as it evolves and grows.

And who can ensure all of that? An accountant.

Attempting to manage every aspect of your business’s finances on your own can lead to overlooked details, especially as your operation expands and financial matters become more complex. Unless you specialize in accounting, the financial intricacies of your business will likely exceed your expertise quickly.

Handling your own taxes might seem like a cost-saver, but accounting mistakes can be expensive. Consider the hours you spend managing finances—recording, sorting, calculating, and keeping up with tax laws.

An accountant, while possibly charging more, completes these tasks faster and with fewer mistakes. In the long run, paying for professional help often costs less than doing it yourself, saving you both money and stress.

What does an accountant do for your business?

So, what exactly does your investment in an accountant get you?

1- Year-round benefits beyond tax season

It’s a common misconception that accountants are only useful during tax season. In reality, their expertise spans several critical areas that can greatly benefit start-ups and small businesses throughout the year.

For instance, imagine a small cafe owner struggling to manage cash flow during the off-season. An accountant here can help restructure the financial strategy, not only helping avoid an IRS penalty due to a mismanaged payroll but also improving the cafe’s financial health by identifying cost-saving measures and better managing seasonal dips, ensuring stability and growth.

2- Business planning and strategy

Every successful business is built on a foundation of meticulous planning and strategic foresight. Accountants play a crucial role in several key planning stages:

• Securing financing: You might have a stellar business idea but lack the capital to launch it, or perhaps your business is already up and running, and you’re ready to expand but don’t have the funds. You’re confident that your ideas will succeed in the market, but how do you convince investors? Through solid financial projections, which aren’t possible without accurate financial statements. And who’s best equipped to prepare these statements? An accountant.
• Securing licenses and ensuring compliance: Whether it’s navigating through obtaining business licenses or ensuring compliance with local, state, and federal regulations, a competent accountant ensures your business operates legally and smoothly.
• Cutting down on operational costs: Investing in an accountant can quickly pay for itself. They scrutinize your business operations to cut unnecessary costs and may uncover additional revenue streams that you hadn’t considered.

Through these services, accountants provide more than just tax advice—they become integral to the strategic and financial health of your small business or start-up.

3- Record-keeping and monitoring

For many start-ups, the need for ongoing bookkeeping and financial monitoring means having a regular accountant—whether full-time or on a fractional basis—is essential. Proper record-keeping and continuous financial oversight are crucial not just occasionally but as regular practices to keep the business running smoothly.

Accountants provide the following key record-keeping services:

• Immaculate bookkeeping: Discrepancies in inventory counts, expense reports, and income figures can occur at any time. With a skilled accountant regularly reviewing your books, you can avoid costly and time-consuming errors.
• Handling payroll problems: Payroll is a significant and ongoing expense. Whether payments are weekly, biweekly, monthly, or per diem, an accountant can help resolve any payroll issues, ensuring that payments are accurate and timely.
• Implementing automation: Automating processes, from creating self-updating spreadsheets to handling complex data processing, is essential for the longevity of your business. An accountant with technical expertise can modernize your systems, ensuring your business operations are up-to-date with the latest technological advancements.

4- Taxes and compliance

Having a regular accountant is key to easing the stress and complications of your annual or quarterly tax filings. According to recent studies, 65%of businesses use accountants primarily for tax services^[3].

Beyond just preparing and filing your business taxes, accountants bring a wealth of expertise to several critical tax-related areas:

• Auditing: Whether you’re addressing a dispute with the IRS or conducting an internal audit for financial clarity, a professional accountant is essential. Without expert guidance, an audit can become a significant barrier to a startup’s growth, potentially deterring investors.
• Liabilities and deductions: Tax obligations can get complex quickly, especially with the unique challenges of your business. Issues like interstate liabilities and specialized deductions might not be obvious to startup owners. Accountants are well-equipped to handle these complexities, ensuring you meet all requirements and take advantage of any possible benefits according to your state of incorporation or specific tax structure.
• Restructuring the business: As your business grows, restructuring might become necessary to enhance your financial health. Accountants can review your business structure and suggest changes that could significantly improve your bottom line. They can identify the optimal times for such restructuring to benefit your startup.

Benefits of hiring an accountant

Here’s how an accountant can significantly impact your business:

• An accountant can identify opportunities for expansion whether you’re aiming to grow locally, nationally, or internationally. They help you strategize and take calculated steps to increase your market reach.
• Accountants are more than just number crunchers; they are trusted advisors. With their unique perspective and business knowledge, they assist you in making important decisions and developing company policies.
• From audits to potential fraud, your startup is safer with an accounting professional. Every deal, partnership, and client relationship brings potential risks. An accountant acts as your safeguard, helping to prevent and address unethical practices and financial risks.

Potential risks of running your business without an accountant

1- Tax law non-compliance and underpayment risks

Understanding tax regulations is crucial but can be overwhelming without an expert’s help. If you don’t pay enough taxes or fail to comply with tax laws—sometimes even by mistake—it can lead to severe penalties, legal trouble, and damage to your business’s reputation. The threat of a tax lien from the government is serious but can be avoided with proper planning and professional guidance.

2- Flawed financial planning and strategy

Without a solid grasp of financial principles, it’s tough for business owners to create practical financial plans. This often leads to poor resource management, unrealistic growth projections, and financial instability. Even if you are well-versed in legal matters, relying on accountants to ensure that financial strategies are sound is always a great idea.

3- Cash flow management errors

Effective cash flow management involves accurate forecasting, budgeting, and oversight. Errors in managing cash flow can result in liquidity problems, making it difficult to pay suppliers or employees, and may jeopardize the business’s operation. Experienced accountants often see patterns across businesses and can alert you to cash flow problems early, offering solutions to fix them.

Also read: What is a cash flow statement and how to read it (Explained with examples)

4- Inaccurate financial records

Accurate financial records are essential, not just good practice. Mistakes in financial reporting can hinder efforts to secure funding or affect business valuation negatively during a sale. Your accountant will make sure to reconcile your books monthly so you can accurately gauge your business’s health, making tax season much less daunting.

5- Challenges in securing funding or investments

Investors and lenders look for professionally prepared financial statements. Without an accountant, your financial records might lack the credibility needed to secure financing or attract buyers. Inaccurate financials can significantly lower the value of your business if you decide to sell. No investor wants to put money into a business without a clear, accurate financial picture.

6- Legal liabilities due to poor accounting

Negligent accounting practices can lead to inadvertent legal issues, such as contract breaches or violations of employment laws. The costs from these issues can exceed the cost of investing in professional accounting services.

7- Inefficient use of your time

While it’s important for business owners like you to understand their financials, spending too much time on accounting tasks can distract from core business activities. This diversion can stifle growth and innovation, costing the business valuable opportunities. Hiring an accountant allows you to focus on what you excel at, maximizing your business’s potential.

8- Scaling challenges without expert financial guidance

As your business grows, so does its financial complexity. Without an accountant’s advice, expanding your business can become disorderly and unsustainable, leading to operational inefficiencies and possible failure.

9- Missing out on tax benefits

Accountants are adept at identifying legal tax deductions and credits that many business owners might overlook.

Also read: 18 popular tax deductions for business owners in 2023-2024

Without this expertise, you could miss out on significant savings, costing your business money that could be reinvested for growth.

Understanding the differences: accountant vs. bookkeeper vs. CPA

Now that you know whether or not you need an accountant for your small business, let’s clear a common misconception.

People often mix up these three roles, thinking they’re interchangeable or that one professional can handle all tasks. We’ll define these key positions within accounting and finance to ensure you understand each one’s specific responsibilities and determine exactly what your business needs.

	Bookkeeper	Accountant	CPA
Specialization	Maintaining and managing accounting records.	Managing the financial operations of a business, ensuring compliance with regulations, handling payroll, expenses, and invoicing.	Providing financial advice, conducting audits, and performing other tasks that require a licensed accountant.
Key duties	Maintains the company’s general ledger, enters data, records and categorizes transactions, processes payroll, generates customer invoices, and manages payment collections.	Reviews financial statements, creates financial reports, ensures accurate payroll and 1099 processing, manages bill pay, invoices, expense reporting, and collections, tracks assets and depreciation, and adheres to GAAP standards for reporting.	Generates audit reports, applies specialized tax knowledge and experience, and operates under a strict code of ethics.
Education requirements	High school diploma or equivalent, often with bookkeeping certifications.	A bachelor’s degree	A bachelor’s degree, work experience, and required to pass Uniform CPA Exam
Analyzing financial records		Reviews financial records for compliance and accuracy, prepares financial statements based on bookkeeping data.	Reviews and interprets financial records at a high level, ensuring regulatory compliance and providing audit services.
Offering financial advice		Provides financial guidance related to managing payroll, invoicing, bill payments, and expenses.	Provides expert financial advice on tax strategies, auditing, and overall financial management.
Representing before the IRS			Authorized to represent clients before the IRS for audits, disputes, and tax filings.

The bottom line

You definitely need an accountant for your small business, and there’s no doubt about the value they bring. The real question is, how do you choose who to hire? With options ranging from hourly accountants to outsourcing or even hiring a full-time in-house accountant, the decision can seem overwhelming. But let us simplify it for you.

At CoCountant, we take care of your financial operations at irresistible monthly rates, so you don’t have to worry about breaking the bank each month.

Our services are tailored for small business owners like you who need reliable accounting and bookkeeping services without the hefty price tag. Choosing CoCountant means knowing your financials are expertly managed so you can focus on what you do best—growing your business.

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