Accountants help growing businesses overcome financial challenges both know & the not-so-obvious. In this guide, Fullstack answers the question: When is the right time for a startup to hire an accountant?
Any company at any stage of growth can benefit from consulting with a professional accountant. There are many reasons to engage the services of an accountant — from the earliest stages of business plan development and company formation to financing, tax reporting, and government audits, an accountant can minimise costs and stress.
Why Hire a Startup Accountant?
Seeking advice from a professional accountant doesn’t necessarily mean hiring a full-time or part-time accountant, however. In many cases, engaging an accountant on an hourly basis is sufficient to clear roadblocks and capture critical guidance.
If you’re a small business owner seeking to optimize cash flow and minimize expenses, you may believe that engaging an accountant is prohibitively expensive. Consider the time investment in performing accounting tasks such as tax reporting, however, and ask yourself: is there a more cost-effective use of your time?
If your time is worth $100 an hour, for example, and performing a tax report takes ten hours, you’ve incurred a personal cost of $1,000 by doing your own taxes. Doing your own taxes also increases the risk that you may submit a tax report in error, which could further amplify expenses through over-taxation.
Engaging a professional accountant to perform time-intensive tasks such as accounting significantly reduces the risk of error and frees up valuable time to perform more cost-effective tasks. Tax time isn’t the only scenario in which a small business or startup owner can benefit from engaging an accountant, however.
If You’re Writing a Business Plan, You’ll Need Advice
When writing a business plan, it’s a good idea to engage a professional accountant. Involving an accountant in business plan composition allows prospective business owners to integrate financial projections and other technical data, ensuring that business plans are professional, realistic, and far more likely to succeed.
Leveraging the knowledge of an accountant at the earliest stages of a business provides startups and new businesses with concrete financial guidance that saves considerable time and capital over the long term.
Determining the Right Legal Structure for Your Company
There are many different ways to incorporate a company or launch a business. When launching a new business, there are multiple business structures that must be considered, and choosing the right one for your venture can be complicated and confusing.
Whether or not you launch your business as a sole trader, corporation, limited company, or limited liability partnership varies depending on your individual tax strategy, the way you plan on running your business, and the region in which you will operate.
It’s important to take legal structure into careful consideration before launching your business. If you choose to operate your business as a sole trader, for example, you will work on a self-employed basis and will likely invoice under your own name — which could potentially entitle you to a range of tax benefits.
Operating as a sole trader, however, presents a number of risks. Sole traders are often liable for business-related obligations. If your business defaults on a debt or loses a lawsuit, it’s possible that creditors could potentially seek remuneration by taking personal property or other possessions.
Establishing a business as a company, however, means that the business operates as a separate legal entity. This can provide business owners with a degree of protection from creditors and other factors that can affect sole traders.
Determining the risks and benefits involved with the various legal structures available to business owners is best performed with the guidance of an accounting professional, and helps to establish an effective tax strategy.
Small Business Accounting can be Complicated
Doing your own accounting as a small business or startup operator can quickly become a confusing and time-consuming process. If you find the accounts of your business are becoming unmanageable, engaging the services of an accountant can stabilize and clarify business finances.
In addition to organizing and balancing startup accounts, an accountant can assist with measuring and reporting on key business metrics. If you’re interested in the ratio between salaries, employee payments, and total revenue, an accountant can provide detailed insight into payroll management in order to optimize cash flow.
Accountants that use cloud-based accounting software are able to share accounting insights with business owners in a simple, easy-to-understand format. Cloud accounting software also provides business owners with detailed visual reports such as tables and graphs that provide a concise overview of company finances at a glance.
Delegating Financial Affairs
Maintaining control over the day-to-day operation of any small business or startup is critical to success and healthy growth. Hands-on business owners are able to carefully manage business strategy, execute their own financial strategies, and regulate their own workload. There comes a time in the growth of any business, however, where delegation becomes important.
Mastering each individual component of a business quickly becomes impossible as a successful business scales. Business owners are often reluctant to engage the service of professionals, operating under the assumption that external professionals can’t or won’t understand their business as well as they do. While this may be true for extreme early stage startups, business owners can rapidly become overworked and overstressed when attempting to micromanage all aspects of their business.
Effective delegation is a critical skill to any business owner. Engaging talented, professional individuals to take over complex, time consuming task frees up schedule space for business owners and allows them to focus on the aspects of their business in which they are able to impact positive growth.
Delegating finance management is a highly effective method of optimizing your time as a business owner. Engaging the right accountant for your business means finding a reliable account that understands your business and its financial information. Allowing a more experienced, dedicated party to take over time-consuming accountancy tasks provides business owners with the opportunity to concentrate on more important business operation tasks.
A Startup Accountant Takes the Stress out of Government Paperwork
Dealing with government-led compliance — especially tax reporting — can be extremely stressful for startups and Australian small business owners. Many small businesses choose to engage the services of an accountant when their first tax report is due.
- A professional accountant can help with far more than just tax reporting when interacting with the ATO, ASIC, and other regulatory bodies. Professional accountants can help small businesses with:
- Completing and organizing the spectrum of compliance and legal documents required to register and operate a business
- Ensure your company is compliant with recent tax law
- Compose annual statements of accounts
- Ensure that the status of your company is up to date with government company registers
- Maintain accurate records of directors, members, and administrative personnel
- Manage share register record keeping and record share/stock allocation during business formation or during business structure changes
- Assist with payroll management and ensure that employee tax and superannuation obligations are met
Preparing accurate tax records is a critical element of any effective tax strategy and, in most cases, saves a business more money in taxes than the fee associated with engaging a professional accountant. Effective accountants leverage extensive knowledge of legislation and tax law in order to free up cash flow, get tax efficent, save money, and free up capital for business growth.
Build an Audit Trail — Hire an Accountant in Case You’re Audited
There are over two million small businesses in Australia and a relatively limited pool of auditors working for the ATO — but that doesn’t mean your business won’t be audited. Regardless of the statistical chance of being audited, all businesses should prepare a comprehensive audit trail in order to minimize the stress, time, and expense associated with being audited.
If you’re currently undergoing an audit, it’s essential to engage the services of an accountant. A professional accountant provides businesses with detailed guidance and advice on navigating the auditing process and helps to ensure that businesses don’t violate tax laws subsequent to audit.
Engaging an accountant before an audit occurs is a far more effective strategy, however. Many accounting service providers offer audit insurance. This covers the fees associated with responding to official audit inquiries, as well as the expenses incurred when responding to reviews, investigations, or ATO audits. Engaging an accountant that provides audit insurance can save small business a significant amount of capital that would otherwise be lost on audit response.
Effective accounting strategies incorporate software that builds a comprehensive audit trail. This allows both small businesses and auditors to gain a clear understanding of all transactions that have occurred since the launch of a business and who authorized them.
Applying for Finance
Providing a bank or a credit provider with a strong business case when applying for finance is critical. Access to finance for startups is very limited, with banks reluctant to finance small businesses due to the high level of risk involved.
Hiring an accountant before seeking finance can significantly improve your chances for finance as a new startup. Merely letting a financial institution know that you currently employ an accounting professional can help gain favor with banks, as it implies that a small business is sincere in their financial approach. A good accountant, armed with effective accounting software, can present a compelling business case to prospective lenders and back up your application with concrete figures.
Accounts are able to address any concerns or questions raised by professional lenders and provide detailed insight into revenue projections and expenses. Lastly, an accountant can provide small businesses and startups with guidance on which lender or loan to apply for, and provide information on which terms, conditions, and interest rates are best for your business.
Seek Guidance on How to Properly Grow Your Business
Business growth rarely happens in a linear fashion. Capturing a new client or being engaged to complete a large project can often necessitate rapid growth far faster than most business owners anticipate.
A professional accountant can assist business owners with handling scaling and growth transitions, helping with the time-consuming process of hiring new employees or expanding into larger office space. An accountant will also manage smaller details such as payroll, tax management, utility payments, and property tax, allowing business owners to focus on the larger and more important elements of critical growth stages.
Using the right accounting software, an accountant is able to analyze and report on inventory management, cash flow, and pricing. This allows an accountant to provide a business owner with insight into the best growth strategy through the lens of financial analysis. Financial insight delivered by the right accountant can even help startups determine the best time to launch new products and services or alter pricing structures.
Consult an Accountant Before Taking on a Franchise
Many prospective business owners choose to take on a franchise when starting out in the business world. Franchises dominate industries such as garden care, fast food, cosmetics supply, courier delivery, and car grooming, and allow business owners to be their own boss while leveraging the brand awareness, existing customer base, and marketing efforts of a large franchise structure.
Getting started with a franchise can negate a significant amount of the risk associated with launching a new business, but offers less commercial freedom when compared to launching an independent startups. Franchise operation is also typically associated with higher overheads, as a portion of franchise profits are diverted to the franchise parent company. The amount payable to a franchise parent company varies depending on the franchise itself.
Determining whether taking on a franchise is a complex decision that involves assessing the fees and percentages charged to franchise operators and a broad range of other factors. An accountant can assist with franchise analysis, estimating likely income after accounting for costs. By providing prospective franchise operators with detailed insights and predictions, and a professional accountant can help business owners make decisions with greater confidence.
Professional Advice on Buying or Selling Businesses
Rather than launch a business from the ground up, many business owners choose to purchase an existing business. It’s important to consult with a professional accountant before purchasing any business — a business must be thoroughly audited before you decide to buy it.
An accountant will assess the assets owned by a company and their current ownership and payment status, as well as determine whether or not a company has any outstanding debt. Working together with a lawyer, an accountant is able to discover any relevant information about a company that you need to consider before buying it.
Inversely, a business owner may decide that it’s time to sell their business. Engaging an accountant before selling a business helps to ensure the financial records of the company are in order. Professional accountants are able to create concise, accurate financial reports to present to prospective buyers and use accounting software in order to present the business as an attractive investment.
Engaging an accountant during the business sale process can also help business owners structure their financial affairs in order to ensure the sale delivers maximum value. Structuring the sale in a specific manner can reduce the total amount of tax that must be paid on the sale — hiring an accountant to create a tax strategy for the sale of your business will ensure you get the most money after tax.
Startup Accountants & Your Business
A professional can assist with almost every stage of business operation, from launch to sale. It’s not necessary to hire a full-time in-house accountant, but engaging an accountant to assist with financial decisions, tax, and business structuring allows business owners to focus on operation and growth.
As a business owner, it’s important to focus on what you do best — running your business. To find out how Fullstack can help you manage financial details, increase cash flow, and create effective tax strategies, get in touch today.