Do I need an accountant for my small business?

Do I need an accountant for my small business?
Owning a small business comes with a lot of responsibility, demands on your time, and most small business owners are working on very tight budgets. An accountant may seem like an unnecessary expense when your books are small, but should small business owners need accountants? When is it ok to manage your books on your own? Is there any legal requirement to have an accountant as a small business?

We look at some of the main pros and cons of hiring an accountant for your small business and consider some of the big questions small business owners ask most frequently.

Does every business need an accountant?

The first place most successful businesses start is with their finances. You will need to know if you have enough start-up capital to open and run your business, and you will need to set a price point for your goods or services. Without considering finances, most small businesses are destined to fail. In fact, a recent survey showed that 89% of small businesses say that their success was largely aided by the assistance of an accountant or business advisor.

It naturally proceeds, then, that a business’ finances need to be kept in order. If the goal of your enterprise is to make a profit, then you should be keeping an eye on your bottom line. The easiest way to do this is to set up systems early and keep everything updated and monitored regularly.

Larger businesses will either outsource their accounting or have an in-house accounting team simply because the task of managing finances becomes too much for one person. Spending time trying to sort through financial records and books can also keep you from focusing on what your business is really about.

When it comes to small businesses, it is possible to maintain your own accounts, and there is no legal stipulation stating that you need a qualified or registered accountant, but the advantages tend to far outweigh the disadvantages of hiring an accountant or financial advisor.

One of the main reasons most small businesses don’t use an accountant is simply because they don’t understand the role of the accountant or how helpful they can be. Your accountant can do far more than get your books in order and prepare your income tax documents.

With all of this said, you should be aware that not every small business will need an accountant. Freelancers or hobbyists can usually manage fine without an accountant as income and expenses are fairly straightforward and they rarely employ additional staff. You will know your business best though and should think carefully about how important an accountant is for you for business health and growth.

Is an accountant necessary for a small business?

The simple answer is no. You can choose to do your own accounting indefinitely, until your business grows too large for you to handle it, or until you want to shift your focus and would rather hand the financial side of things to someone else.

There is no legal requirement for small businesses to have a qualified accountant do their books, the only requirement is that you complete your tax returns and have a record of all your incoming and outgoings. With most things going digital these days, keeping these records is usually easy enough.

Ask yourself a few questions to decide if you need an accountant for your small business:

  1. Am I comfortable with a computer? Can I handle accounting software?
  2. Do I really know what accountants do and how hiring one could help my business?
  3. Do I have the time and capacity to handle all of my own accounting?
  4. Do I understand income tax and how to file a return? HMRC do not accept ignorance as an excuse for tax evasion.
  5. Have I set long term goals for my business? Do I have a plan of how to get there?
  6. Am I at the stage where I need someone to give input on financial reporting, compliance, payroll, tax efficiency, or business planning?
If you answered no to any of these questions, then an accountant may be necessary for your small business.

But if you’re still wondering if an accountant is necessary for all businesses, you should be asking this instead..

Is an accountant necessary for small business growth?

The simple answer is yes. But there are cases where the answer is no.

No, because many businesses will succeed without an accountant. However, these businesses are in the minority, and the chances of your business succeeding without an accountant will rely on you having prior knowledge of business as well as a great idea and business plan.

Simply put, an accountant gives you an edge over other businesses. Even if you have business acumen, an external accountant can help you identify your blind spots and help you avoid making financial mistakes while you focus on other aspects of your business.

You also want to make sure that your business growth is healthy. Future increase in demand needs to be supported by your business plan so that your business doesn’t collapse under the additional pressure. A business that grows too quickly without the right scaffolding, or a business that grows in the wrong direction is a lot more likely to fail than one that has been carefully curated. This curation often comes from the input of an accountant.

What do accountants do for small businesses?

Accountants do far more than prepare your accounts for income tax returns and chase you to keep your documents in order.

When small business owners underestimate, or simply don’t understand, the role of an accountant they lose out on a huge business advantage. Accountants train for years to be able to advise you on any number of financial concerns and when you consider that you can hire an accountant for a small once off fee to help you for a few hours, it’s difficult to see the disadvantage of bringing in an expert to help you with your business.

Accountants can help you when you are just starting out, or they can advise you as your business grows and develops. A few of the services most accountants will offer include:

  • Writing a business plan when you’re just starting out. If you are planning to apply for a loan or even rent certain business premises, then you may need a business plan and a good one can give you the boost you need into the industry. A solid business plan also helps you set the direction and course of your business and helps you to create and achieve your business goals.
  • Advising you on your business’s entity structure. Most businesses start out as sole traders, but if your business is growing or if you plan to start out in a partnership, having an accountant who understands the intricacies of business structures can help you set up the best structure for your purposes.
  • Setting up financial software. Even if you plan to do your accounts yourself, hiring an accountant to help you set up software and to talk you through what you need to do and know can save you a lot of time and stress in the future.
  • Brexit. If you are going to have almost anything to do with import or export you will probably run into the new Brexit trade rules. Easier than trying to wrap your head around it yourself, trust an accountant with the right knowledge and understanding to guide you through what you need to know.
  • Smart growth. You may be surprised to find out that not all growth is good. If a business grows too quickly without support in place then it can very quickly collapse. Likewise, if your business is not carefully guided, you might find it growing in a strange direction and feel yourself losing control. Regular meetings with an accountant or financial advisor can help you manage growth wisely and grow smartly.
  • Helping you stay ahead of trends and regulations. Rules and regulations change, as do technology and business trends. If you are focusing on your business, you probably don’t have time to be watching out for changes and new regulations. Part of your accountant’s job is staying on top of these developments so that they can advise you and free you up to concentrate on other things.
  • Income tax returns. This is the big one and probably one of the reasons you’re reading this. Tax season always brings stress, especially to anyone who has not stayed on top of their finances throughout the year. Hiring an accountant to straighten out your books and help you with your taxes might be imperative if your books have not been kept properly or if you find you are running out of time or battling with filling in the relevant forms.
  • Cash flow advice and management. A good accountant will be able to help you control your credit and cash flow. Maintaining a healthy cash flow ensures the current and future needs of your business and can help your small business achieve longevity.
  • Reducing workload. Even if you feel completely proficient in all of the above, there may come a time when your business is simply too much for you to handle without the help of outsourced help. Depending on your budget and your growth you could choose to hire an accountant for a few hours on a regular basis, or even have someone part-time.

When is it ok to do your own small business accounting?

At the start of 2019 there were almost six million small businesses in the UK, with this number rising steadily. With the current recession, and more people wanting to generate their own income on their own terms, small business, especially self-employed or freelance businesses are becoming more common.

Self employed individuals, especially freelancers, are usually fine to manage their own books and accounts. If the aim of your business is to maintain a healthy income to support yourself and your family, then you probably don’t need to worry about an accountant. But if your goal is to set up a company that will grow and be financially successful, then an accountant is going to help you achieve that goal.

If you do decide to manage your own accounting, you should still consider consulting an accountant as you start out so that they can help you set up your accounts and any software you use to handle it. An initial consultation will also help you to make planning decisions that could direct your small business decisions for the next few years.

There are also different options for you if you are doing your own books, but bear in mind that having some prior knowledge of accounting or bookkeeping will be almost essential if you don’t plan on consulting an accountant at all.

  • Keep Paper records if you prefer to work with hard copies. Make sure you record all financial actions and if you do anything digitally remember to print it off so you have a copy of everything all in one place.
  • A spreadsheet and folder on your computer can easily be used to keep a record of your income and outgoings. Be sure to save copies of all your invoices and other official financial paperwork and store it logically on your computer. If you choose this route then you may also want to back everything up either on an external hard drive or on the cloud.
  • The best option available, however, is using purpose-built small business accounting software. There is an array of software now available with both free and paid for options based on the features you need, and many of them have easy ways to link to bank accounts or paypal to help you manage everything in one place. A lot of the software is set up for brand new users so you don’t need any prior understanding and there are online help options or chats if you really get stuck.

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