Q: What's the definition of an
accountant?
A: Someone who solves a problem you didn't know you had in a way you don't understand.
Okay, so maybe that's not entirely fair. But as with most humor there's a grain of truth to the joke. Most small businesses choose an accountant -- either hiring a "numbers person" on staff or hiring accounting services on a contract basis -- when a business' financial challenges have become too great to handle without expert help. Maybe you want to better the financial function of your business. Or perhaps your accounting software isn't providing the type of data you need to grow your business. Having trouble switching from cash to accrual accounting? Are your financial statements inaccurate or incomplete? These are all good reasons to look for a Certified Public Accountant (CPA).
Many entrepreneurs who launch their own businesses start out by wearing the accountant's hat and doing your own taxes, in addition to doing just about everything else in the business, too. It's become easier for a layperson to keep track of a business' finance with the advent of simple bookkeeping software, such as QuickBooks, Quicken, and Microsoft Office Small Business Accounting. But there comes a time in a growing enterprise when it makes sense to hand over responsibilities for taxes, accounting, and the rest of the financial functions to specialists.
Before you can find the right accountant, you need to determine if you need an accounting firm or an inside accountant.
Choosing the Right Accountant: When
Is It Time?
Many small businesses don't have the
volume of financial transactions that necessitate hiring a full-time -- or even
part-time -- bookkeeper or accountant on staff. Then again, the financial
situation of their business is such that they could benefit from more regular
financial review and planning and up-to-date accounting -- instead of leaving
every invoice, receipt, and ledger to hand off to the tax preparer at the close
of the fiscal year.
The outside firm can often cost less than the salary and benefits of a full-time employee and, at the same time, you may be getting a higher level of advice from a CPA or a tax accountant, the latter of whom usually is a licensed CPA and a lawyer specializing in tax law. Even with the latest and greatest accounting and tax software, it still may be easier to farm out your financials to a CPA firm that can manage your books online through secure software-as-a-service programs than to maintain those software programs in-house.
The outside firm can often cost less than the salary and benefits of a full-time employee and, at the same time, you may be getting a higher level of advice from a CPA or a tax accountant, the latter of whom usually is a licensed CPA and a lawyer specializing in tax law. Even with the latest and greatest accounting and tax software, it still may be easier to farm out your financials to a CPA firm that can manage your books online through secure software-as-a-service programs than to maintain those software programs in-house.
Outside accountant
An accounting firm usually handles
the following accounting functions:
- Tax return preparation
- Preparing financial statements, including the balance sheet, income statement, and statement of cash
- Analysis or problem-solving advice
"Every company is
different," says Jim Chamberlain, a management counselor and financial
expert with SCORE, a nonprofit organization that serves small businesses.
"A business owner may expand the scope of work to include recording of
transactions, but usually this is the responsibility of the "inside"
accountant -- it isn't profitable for a firm to perform this duty."
An accounting firm will offer an
hourly rate schedule, adds Chamberlain. There may be different rates for
different accounting functions depending on the level of complexity and who in
the accountant's firm is actually performing the tasks. "Keep in mind that
a good tax expert should save the company money over and above his/her
fees," Chamberlain says. "The total annual invoice may appear high,
but you now are getting a professional look at your statements and
performance."
Inside accountant
Inside accountant
When the business grows in revenue
and the transactions become more complicated, it is time to consider hiring a
full- or part-time inside accountant. Since the outside accountant's fee grows
with the size of the business, the owner may see some cost savings by bringing
some of the work in-house.
According to Chamberlain, duties and
responsibilities of an in-house accountant usually include:
- General ledger/chart of account maintenance
- Responsibility for daily transactions
- Financial statement preparation and analysis
- Cost accounting and variance analysis
- Treasury and cash management including bank reconciliations
- Payroll and fixed asset accounting
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