Some business owners may create financial statements and accounting reports solely to satisfy someone else’s need—like for a bank loan application, loan funds usage report, or a tax return or payroll tax audit and many more examples.
While you may be required to create financial statements for these examples, business owners can use this information to assist you in making business decisions. These documents can help you decide on whether you should buy or lease new equipment, hire additional staff or update your website, for example. Financial information can also be used to track your company’s performance—are you on course to meet your goals?
When you started your business, you were probably the chief of everything officer. Now with some cash flow, you may want to consider what type of assistance to hire. This is because the financial information and systems can become more complex with the growth of your business. And as the business grows, your time may be better spent in areas where you have expertise to generate increased cash flow.
So, Who Will Do the Accounting Work?
When it comes to determining who will take care of accounting in your business, you could either do it yourself, assign someone on your staff to do it or outsource to a bookkeeper or accountant.
If you can afford to hire someone, great! If not, as soon as you’re able to you may want to consider doing so. You started your business because you are good at selling, developing apps, consulting or whatever other activities produce sales and cash flow. It may be more valuable to spend your time producing cash flow than doing bookkeeping.
If you decide to engage someone else, there are two types of financial professionals to consider: a certified public accountant (CPA) and a bookkeeper. Each has different skills and rates, which is why you may want to retain both, but for different tasks.
Basic Accounting for Business Owners
An accounting system can help you file required reports, but it’s really for you to help make smart decisions and track performance. Here are some tips for setting up basic accounting for your business before you hire financial professionals.
- Set up the system: You can use a notebook, spreadsheets or accounting software. Whatever you’re comfortable with is fine; just make sure it tracks transactions, makes projections and focuses on cash. As your business grows, you may grow to have a more systemized and structured accounting system.
- Enter transactions: Transactions may include sales made, cost of material purchased, employee compensation and benefits, hours worked, rent, IT, insurance premiums, office supplies and other expenses paid.
- Report actual results and project future results: Your reports may cover the status of potential customers, sales made, sales made where customers have not yet paid, expense comparisons with the budget and same period last year, all sorts of tax reports, financial statements and information needed to satisfy bank loan covenants.
What a Certified Public Accountant Can Do
A certified public accountant is more than someone who is good at numbers. A CPA is certified by a state examining board after having met the state’s legal requirements. These professionals are granted certain responsibilities by statute, such as the ability to certify financial statements, and may be held liable for professional misconduct.
Accountants—like doctors, lawyers and other professionals—are both generalists and specialists. Accounting specialties may include tax accounting, mergers & acquisitions, nonprofits, etc. In the beginning, your accountant will likely be doing mostly general accounting work. However you may want to do some searching to find the right match for your company’s needs.
Depending on the market and how complex your work, CPAs may charge $100 to $500 an hour. Consider hiring an accountant if you have really challenging work. It may also help if it’s a high-value project such as the quarterly financial reports—especially if you are required to give these financial documents to a bank or are under a government contract. Once your company reaches several million in sales, you may want to consider hiring a full-time accountant on staff, but until then, it may be more economical to outsource.
To find a CPA, considering asking for referrals. You can also check out the various accounting professional society websites.
What a Bookkeeper Can Do
Bookkeepers can perform your company’s basic day-to-day activities, such as gathering employee timesheets, submitting purchase-order invoices for you to pay and entering all the transaction information into your accounting and recordkeeping system.
Once again, depending on the market and duties assigned, a bookkeeper may charge $20 to $50 an hour. Many businesses retain a part-time bookkeeper to help set up their accounting system and enter all the transactions, until the company’s growth can support having someone full time. Even if you are doing the transaction processing yourself, you might want to engage a bookkeeper to help set up your accounting system with an appropriate code of accounts and pre-established report formats.
To find a bookkeeper, referrals are good as well. You can ask an accountant for someone they have vetted and worked with, or look at the classified ads in your local paper.
But Don’t Outsource and Forget It
If you do not have the skills, time, inclination or budget, outsourcing accounting activities can be OK. But remember, this is your company and the financial statements are yours. When you present your financial statements to a bank, file your tax return or any other such use, you will be the one signing the documents. So you will need some understanding of what is included. Consider looking over the important materials and asking for explanations if anything is unclear.
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The information contained in this article is for generalized informational and educational purposes only and is not designed to substitute for, or replace, a professional opinion about any particular business or situation or judgment about the risks or appropriateness of any financial or business strategy or approach for any specific business or situation. THIS ARTICLE IS NOT A SUBSTITUTE FOR PROFESSIONAL ADVICE. The views and opinions expressed in authored articles on OPEN Forum represent the opinion of their author and do not necessarily represent the views, opinions and/or judgments of American Express Company or any of its affiliates, subsidiaries or divisions (including, without limitation, American Express OPEN). American Express makes no representation as to, and is not responsible for, the accuracy, timeliness, completeness or reliability of any opinion, advice or statement made in this article.