When you first launched your small business, you likely did everything you could to minimize costs, including the expense involved in hiring an accountant. However, small businesses, when well run, can grow rapidly. Increases in profits, changes in investments and expenses and adjustments in business types can result in significant changes to the company’s financial reporting requirements. Additional tax filings and financial statements may need to be completed as well. In many cases, an accountant may be a less costly expense than the risk of incorrectly tracking your finances. Five major clues can help you determine when your small business needs to add the services of an accountant.
#1: Investing Profits
As a business becomes more successful, you will need to decide what to do with the profits being earned. If your company’s profits have reached the point where you are considering branching into outside investments, it may be a good idea to consult with an accountant first. An accountant can outline the risks and benefits of various investment options, and can direct you to other financial specialists as necessary to maximize your return.
#2: Increasing Expenses
As your business grows and your profits increase, your expenses will increase as well. An accountant can help review the relative costs of doing business to help determine at what output your company will be most profitable. Companies frequently have a break-even point where the cost of producing goods or services exceeds the profits gained from them. Accountants can recommend any necessary adjustments to help increase your profits per unit.
#3: Changing the Organizational Structure
As your business grows, you may need to consider changing its organizational structure. Many business owners launch their ventures as sole proprietorships without realizing the risk to their personal assets if the business is sued or runs into other difficulties. In many cases, a partnership, limited liability partnership, corporation or other structure may be preferable. An accountant can help you determine which structure will best help your company become successful while still limiting the risk to your personal assets.
#4: Filing Taxes
The complexity of annual tax filings will change as the business type and size changes. An accountant can help ensure that your business’s taxes are completed accurately while still taking advantages of all possible deductions and credits. In addition, the IRS frequently audits small businesses and will need to see a complete picture of your company’s finances if they choose to audit yours. Accountants are familiar with the audit process and can assist in preparing for it.
#5: Completing Financial Statements
Financial statements, which are an outline of the company’s expenses, profits, net gain and similar numbers, may need to be completed for a number of reasons. A business owner looking for a loan will find accurate financial statements useful when meeting with a loan officer. In addition, if you are looking for investors or partners, you will need to be able to present a full financial picture of the company. As creating financial statements can be very complex, their preparation is best left to an accountant.
As with any other business expense, you must decide whether hiring an accountant is worth the cost. For most businesses, however, this becomes the case at some point; the question is simply whether your business has reached that point yet.
Guest post contributed by Sandy Atwood, on behalf of Martindale.com – a networking site where you can search for job opportunities and law careers. Sandy is an Accountant student, and in her spare time she enjoys writing about accountancy and how it helps small business owners.