Businesses wouldn’t be around without proper expense tracking, which is why accountants and bookkeepers are always in demand. Covering nearly 1.4 million jobs in the US, accountants are in demand for every business and organization in the country.
Well, if your business doesn’t have an accountant, you could be setting yourself up for disaster. Luckily, you can change that. Let’s talk about the importance of accounting and how to find the right services for your needs!
Importance of Accounting
Before we discuss some tips on accounting for businesses, let’s first discuss why accounting services are so important for small businesses. Of course, you can always just “wing it” when it comes to finances, but with the uncertainty of the business world, it’s essentially a death sentence. Here are just a few of the key benefits of accounting.
Especially if you’re new to the world of business taxes, having an accounting system in place will save your business when tax time comes. An accountant will file your taxes appropriately, ensure that you are receiving all appropriate deductions, and ensure you aren’t missing anything.
Not only that, but around 2.5% of small businesses face an audit, meaning that you need to be prepared for the worst. If you file incorrectly, if the IRS notices any inconsistencies, or even if you make a minor mistake, your chances of an audit increase dramatically.
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Well, having an accountant is your best defense against an audit, and the best defense in the event you are audited. A clear and detailed record of your revenue and expenses will show the IRS that your books are in order and that you aren’t worth their time.
Also, you will have expert insight into IRS regulations, deadlines, and more, ensuring that your company is always compliant. This is a great way to avoid fines, fees, and any legal trouble for your business over the long run.
Compliance with the law is very crucial to businesses, and we don’t expect every entrepreneur to be well-versed in business law right off the bat. That’s where accountants come in.
Of course, predicting what will happen within a business is a lot like predicting the weather; it will never be entirely accurate. However, a general idea of what to expect will not only help your business but will also soothe the minds of lenders and investors.
Especially in the cases of startups or newer businesses, entrepreneurs need to have plenty of information about their finances. Investors and lenders are always wary of new businesses, so there’s no substitute for having a professional accountant on top of the books.
Proper forecasts could lead to greater funding for your business, which is always needed in the early days. Lack of funding is one of the most common reasons why 90% of startups fail.
Making Appropriate Adjustments
No budget is perfect, and you can’t always rely on company revenue. Because of this, professional accounting will help you make wise adjustments to company spending.
Accountants offer unique business insights and analysis that you can’t replace with an app or computer program. Accountants are highly trained in business administration and best practices, so they can offer professional insight based on both internal and external factors.
Maybe your marketing budget is too low or too high, you don’t have enough employees, or your prices aren’t set at the right amount for sustainability. Whatever the case is, an accountant will help you determine the appropriate adjustments to ensure the overall health of your business.
For most small businesses, growth is the biggest challenge. With the proper accounting, you can figure out how to make appropriate adjustments to your budget to focus on growing your business.
An accountant will also offer expert advice and individualized insight into your company’s budget and offer a road map for achieving maximal growth with limited risks.
Also, as businesses do begin to scale, expenses and revenue become more complex to track. In the beginning, finances are fairly straightforward, often only using one account. However, as the company grows, so does your need for proper accounting.
The Bottom Line
What is your company’s bottom line? It’s to make money or at least to not lose any.
Well, accounting is one of the most important tools you can use to help your bottom line. If you don’t know how your money comes in or where it goes, you can’t make appropriate financial decisions.
By having an extra eye on the company’s wallet, you can make the right decisions every time and leave less room for second guesses. The expert insight an accountant brings also acts as an extra business associate you can run ideas by without relinquishing any control over decision-making.
Bookkeeping Tips for Small Businesses
Now that you know why accounting is so important, you’re likely wondering how you can improve your systems in your company. Well, it’s easier than you may think. Let’s talk about some important accounting tips to start using for your business.
Separate Business & Personal Expenses
Among the most important accounting tips we have, you should develop a system for separating your business expenses from your personal expenses. Luckily, there are plenty of ways to do this.
One of the easiest ways is to pay yourself a salary. When you do this, you won’t have to worry about owing self-employment tax with the same money you use to live. Instead, you’ll pay personal taxes as you go, have a set amount of money to use in your daily life, and keep the company money where it belongs.
Not only will this be easier to track, but it will also help you budget with your own personal finances, which will save you money in more ways than one.
Use Bookkeeping Software
Of course, having a bookkeeper along with your software is highly recommended. However, at the very least, you should use some of the newer software to help you track revenue and expenses.
When you use the right software, you can upload new expenses and revenue automatically, allow it to track credit card or bank payments, and more. It’s easier than ever to track expenses, and you’ll never need a pen and paper again.
Some technology, like Quickbooks Self-Employed, even allows for more niche tracking. For example, they allow you to snap pictures of receipts and upload them easily, and the app can even track your location to add up business miles to deduct from your tax bill.
Again, this is no substitute for having a bookkeeper or accountant, as it should be used in tandem with an accounting professional. However, the right software could be the difference between needing one bookkeeper instead of 3.
Develop a Long-Term Plan
By analyzing your own data, or after receiving a detailed analysis, it’s time to prepare your business for the worst. A small business can thrive one month and tank the next without proper accounting and planning, so it’s important to set your business up for long-term success.
Conversely, your plan should include preparing for emergencies, alternate funding sources, your budget for the fiscal year (or quarter), and more. Don’t spare yourself the details. A concrete plan when written and implemented correctly is your best defense from a business folding.
Goals should play a major role in your plan. Do you intend to open another store in 2 years or turn a profit in 9 months from now? Consider these goals and write them down, as written goals are 42% more likely to be achieved.
Keep Books Updated
Develop a system for keeping your books updated as often as possible. Whether that means you update everything at the end of the week, use automation, or have a bookkeeper handle it all (or some combination of the three), a system is needed.
With the right technology, you can continuously update your books with each expense with only limited intervention. However, there are better alternatives to doing it all yourself.
Of course, the easiest way to keep your books up-to-date over the long term is by hiring an accountant. Although, there are some things you need to know before hiring. Let’s talk about that.
What to Look for When Hiring an Accountant
When choosing accounting services, there are some factors to keep in mind, most of which are specific to your business. Here are a few of the most important examples.
Of course, it’s important to keep a budget in mind. You do need the services of a professional accountant for your business, but you also want to set a limit before your search.
Remember, the right accountant could save your company a lot more than what you pay them, so just ensure they offer the right services and adjust your budget accordingly. A quality accountant is worth their weight in gold, but you may not have that cash upfront!
Seek Relevant Experience
While searching for accountants, finding one with experience in your field or a similar field is the best idea. The accountant can then offer you the expert insights your company needs for success.
If you work in a more niche field, then it’s unlikely you will find one with direct experience in your field. That’s okay, too. If they have a solid work history and are competent in general business affairs, they will still be valuable to your company.
Online reviews, especially if you’re looking at an accounting agency or freelancer, are a great way to gauge client satisfaction. However, reviews are useless without context, so don’t pay attention to empty reviews, whether they are 5-stars or 1-star.
Instead, review what previous customers actually have to say about the services, as this will best help you understand what to expect. The only downside is that reviews and testimonials are often limited in their scope.
Ask For References
Due to the limits on reviews, it’s always a good idea to ask for references. This way, you can control the questions and get a general understanding from previous clients of a prospective accountant’s performance. Ask about communicativeness, how well they performed their jobs, or whatever it is you want to know.
Agency or Employee?
Here’s the million-dollar question. When choosing accounting services, should you hire an agency or an accountant?
Well, hiring an accountant on your full-time staff is obviously beneficial. They will have their entire time to focus on your business.
However, taking on an accountant on your team is bound to be at least a $50,000 or more salary, which many small businesses can’t afford.
Moreover, hiring an agency or an outsourced accountant will save you money without sacrificing much in the way of quality, especially if you do your research on them!
There is no substitute for a professional small business accountant, especially one that has the right experience and tools at their disposal.
If you want the best bang for your buck, then taking on the services of a long-term outsourced accountant is the right idea. Price and individual attention; it’s the best of both worlds.
Keep Your Business Growing!
Now that you know the importance of accounting and how to choose the right accounting services, you’re in a great position to set your business up for long-term success.
An accountant can help take your company to the next level, so find the right one for your needs. For more information and tips for your small business, keep following our blog for more updates!