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When You Need to Hire a Small Business Accountant

When it comes to hiring an accountant, many
small business owners ask the wrong question.

Money is often tight in the early days, and
you have to be careful about every penny or cent you spend. So people often
ask, “Can I afford to hire an accountant?” 

That isn’t the most helpful way to look at it though. Really, a better question is: “At
what point does hiring an accountant pay for itself?”

Should you hire an accountant for your small business
Should you hire an accountant for your small business? (graphic source)

It’s true that, for very small businesses with very
simple financial affairs, hiring an accountant may be an unnecessary expense.
But as your business starts to grow, the financial complexity and the number of
tax rules you have to comply with can quickly become overwhelming. In this
situation, hiring an accountant becomes less like an expense and more like an
investment that will pay rapid dividends.

So in this tutorial I’ll show you how you
can tell whether you’re at that stage for your own business. I’ll cover what small
business accountants do, the benefits of hiring them, how much an accountant
costs, and how you can calculate whether the investment makes sense for your

By the end, you’ll be clear about what an
accountant can do for your small business, and you’ll understand the simple
calculations you can perform to decide whether it’s worth hiring one.

1. What Does a Small Business Accountant Do?

First of all, what does an accountant do?
What sort of tasks can they take on for your small business?

We’ll go through a few specific examples
later on, but here’s a brief overview of what an accountant can do to help your small business:

Handle Your Taxes

This is perhaps the main task for which
small business owners turn to an accountant. Even if you can handle the
day-to-day bookkeeping for your business, figuring out your tax liability can
be a nightmare.

If you hire an accountant, you can simply
turn over your records and have them do all the calculations and fill out your
tax return at the end of the year. A good accountant will know all the relevant
rules, so you can be sure you’re not missing anything.

Beyond that, an accountant can also help
you with tax questions throughout the year. For example, they can advise you on
the tax implications of various business decisions, or help you with tax
planning, or make sure you’re complying with the relevant regulations for sales
tax on each transaction.

Budgeting and Planning

An accountant can help you with much more
than taxes, however. They can help you with some of the fundamental planning
tasks you need to complete for your business.

As I mentioned in my tutorial on writing
a business plan
, a key component of effective planning is to create a
detailed financial plan and make realistic projections about what your income,
cash flow and balance sheet will look like for the next few years, if you hit
your targets.

I gave some advice on putting together a
basic financial model, both in that tutorial and in an earlier one:

But the process can be quite complex, and
if you’re not comfortable with spreadsheets and calculations, an accountant can
probably do it more quickly and effectively.

Preparing Financial Statements

Ever heard of consolidated financial
statements? That’s the income statement, balance sheet, and cash flow statement
that companies produce at the end of each year to summarize their performance. You
can find out more in our series on the fundamentals
of financial statements

A sole trader or very small business may
not need to produce these at first, but once you start to grow, you may be
required to have them, or it may simply be useful to have the big picture of
the business that they provide. An accountant can help you produce those
statements. They can also help you set up your systems correctly for day-to-day

Give Business Advice

An accountant can also give you more
general business advice. If you’re thinking of expanding into a new market or buying
another company, they can help you think through the financial implications of
the investment and decide whether it’s right for your business.

A few hours of an accountant’s time can
really pay off here, by helping you avoid expensive mistakes or identify
exciting opportunities.

2. How Much Does a Small Business Accountant Cost?

Of course, the cost of hiring an accountant
for your small business will vary quite a bit depending on your location, the
size of your business, and the type of services you want.

But it helps to have a rough idea of what
it will cost, so here are a few examples. You can find more specific
information on the cost for your particular situation by contacting accountants
in your area and asking for quotes—I’ll give tips later in this tutorial on how
to find an accountant.

In the U.S., according to CostHelper, you
can expect to pay between $150 and $400 an hour for a small business
accountant’s time. That may sound like a lot, but if your needs are quite
simple, you may not need too many hours. The site says:

The owner of an established Northern California
retail store with 12 employees generates her own monthly financial statements
using QuickBooks software but budgets about $300-$400 annually for
two hours of consultation with her accountant.”

In the UK, some accountants charge fixed
fees for defined services. For example, SJD
, which specializes in accounting for contractors, charges £120
a month plus VAT for a fully inclusive service, including unlimited
face-to-face consultations. KPMG
Small Business
charges £145 a month plus VAT for the basic package.

If you just want a particular service, such
as a tax return, it should be cheaper. For example, Ainsworth
& Co
gives an estimate of £100 to £200 plus VAT for completing a simple
Self Assessment tax return. Preparing and submitting a simple set of accounts
will cost from £600 plus VAT.

3. How to Calculate Whether It’s Worth Hiring an

So how do you know whether hiring an
accountant will pay for itself?

In the previous section, I gave you some
rough estimates of the cost of hiring an accountant. It will vary, of course,
so I recommend contacting a few accountants in your area and asking for quotes
based on your own situation and what you need. Gather a few different quotes,
as you would with any other service, and compare the prices and the level of
service on offer.

The next step is to calculate how much time
you or a member of your staff spend on accounting tasks right now. Keep track
of the time you’ve spent over the past year on everything that you’re thinking
of outsourcing to an accountant. Don’t forget to factor in time for fixing
mistakes, communicating with the tax authorities, etc.

Then decide how much your time is worth—usually
based on how much you could earn or how much value you could add to your
business by doing something else.

For example, let’s say that you spent 15
hours overall in preparing your annual tax return, and you value your time at
$50 an hour. Then the total cost of preparing your tax return yourself would

of preparing the return = $50 x 15 = $750

So then the equation is simple. If it will
cost you less than $750 to hire an accountant, you’ll end up saving money by
doing that. If the accountant will cost more than $750, you won’t.

Even if the accountant costs more than
doing it yourself, you may still decide to hire an accountant for some of the
other benefits, which we’ll look at in the next section. If the accountant
costs less, then it really is a no-brainer.

4. How You Can Benefit From Hiring an Accountant

Beyond the simple financial equation of
whether it’s cheaper to outsource than to do your accounting tasks in-house,
there are several benefits of hiring an accountant that may help to tilt the
scales more towards outsourcing.

Identifying Tax Savings

A good accountant not only takes the hassle
out of preparing a tax return, but can also sometimes save you money on your
tax bill.

Tax law is complex, after all, and there
may be special deductions or allowances that you’re not aware of. Or perhaps by
structuring your business or your transactions differently, you can do business
in a more tax-efficient way.

Avoiding Penalties

Small businesses can easily get stung with
painful penalties by failing to comply with the relevant tax regulations, by making errors on tax returns, or by
missing deadlines. With a qualified accountant, you should definitely not be
incurring these penalties.

Saving Time

Remember all those hours you calculated in the last
section? By freeing them up, you can apply them to other business activities that
may be of great benefit to your business. You can also have more mental freedom
and focus, without all those accounting worries swirling around in your head.

Helping You Grow

As I mentioned earlier, accountants can
give more general business advice. Often you’ll be working with the same
accountant for years, so they’ll get to know your business and will be able to
offer an informed perspective on your decisions. They can help you make the
right steps and foster growth and profitability.

Making You More Effective in Other Situations

Accountants can help you with many other
important tasks in your business. If you’re writing a business plan, they can
help you do it right and come up with realistic financial projections. If
you’re deciding on the right legal
, they can advise you on the pros and cons of each one and help
you set it up. If you’re buying or selling a business, or making major
investments, or trying to secure
, they can help you through each of these major projects.

6. How to Find a Good Small Business Accountant

If you’ve decided to hire an accountant,
you want to make sure you’re hiring the right one.

A good place to start when looking for an
accountant is the local accounting association in your country. Many of them
have online search tools, and you get the added benefit of ensuring that the
accountant you find is properly qualified and is a member of this association.

In the U.S., for example, you can visit the
Institute of CPAs website
, which includes links
to your local state’s association
. If you want to check the credentials of
a particular provider, you can visit CPA Verify.

In the UK, the Institute of Chartered
Accountants in England and Wales offers a simple
online search function
where you can find a member firm near you by
entering your postcode.

When you’ve found a few possible
accountants, received quotes, and decided on some likely candidates, don’t
forget to ask them a few questions to make sure they’re right for you.
Chartered accountant Greg Atkinson makes some great
, and you can always add your own questions based on your own
specific needs and concerns. You may be working with your accountant for many
years, so make sure it’s a relationship that’s right for you from the start.

Next Steps

I hope you’ve found this tutorial useful.
If I’ve done my job correctly, you should now be clear about what an accountant
does, and you should be aware of some particular situations in which an
accountant can be helpful for your small business.

You should also have a rough idea of what
an accountant costs and be ready to go out and search for one. And, most
importantly, you’re equipped to make the decision about hiring an accountant
based on calculations rather than guesswork.

If you have any questions or would like to
share extra information with other readers, please leave a comment below, or visit
the forums