Do I really need an accountant?
Do I really need an accountant? It is a question I hear all the time, especially from new business owners. If you own a business, you know the importance of keeping track of your income and, of course, your expenditure and, most importantly, making sure that the income part is greater than the expenditure part. So it is natural that all business owners will try to cut costs where and however they can, trimming down any unnecessary expenses. And that just might include the cost of an accountant. After all, how complicated can it be to add up a simple list of numbers or control your expenses with an Excel spreadsheet. But that choice might actually be costing you more than you are saving, and, in the long run, more than you can afford.
90% Of small business failures are a result of poor management caused by a lack of knowledge or understanding principally in the areas of management and financials . So my first response to the question in the above paragraph is always the same. I ask the question, “Do you have a qualification in management or finance?” And sometimes the answers is, yes. Which is excellent. Then I ask, “Do you have the time and the discipline to keep detailed records for your business?” And the answer is almost always, no.
An accountant, a good accountant at least, (and you want to make sure you get yourself a GOOD accountant) will help you to take care of these two critical areas for your business – management and financials. Here’s how.
1. Cash Flow
Poor cash flow is often the biggest warning sign for any business. A lack of cash flow can cause a business to fall behind on salaries, rent, and loan repayments. Poor cash flow also means insufficient available resources to reinvest for future profits such as ordering product stock or supplies and investing in marketing. An accountant will help to identify the early signs that your business has a cash flow problem and help you to plan to rectify it, before it gets critical!
2. Record Keeping
The devil is in the details. Good detailed records are essential to provide a business owner with the understanding he or she needs of the financial status of a company. It is impossible to do any kind of financial planning if you don’t have the knowledge and understanding of simple concepts like cash on hand, outstanding credits and current expenses. Many small business owners don’t have the time or the inclination to keep their financials up to date, regardless of how critical it is to their business. The truth is, any business owner can find a thousand other things just as ‘important’ as keeping records. But for an accountant, this is the single most important aspect of your business and your accountant will get it done for you. And do it well.
Poor planning (or often times a complete lack thereof) is probably the single greatest reason small businesses fail. The old adage that failing to plan is planning to fail is never more true than in the entrepreneurial world of small business. If you don’t know where you are going, you will never get there. A GOOD accountant (you will notice the emphasis on the word, good, again) will help you to plan the for the financial success of your business by calculating the capital necessary to implement your business plan and achieve your business’s goals.
Most businesses relate growth to success. I mean, surely if your business is growing you are doing something right? Well, yes, but is your growth sustainable? Do you have the financial stability necessary to take on the additional commitments that rapid growth requires? What will happen if that growth suddenly stops? Will you be able to meet all of your commitments? A small business needs to maintain a strong financial position during a period of rapid growth to avoid the pitfalls of rapid expansion. And here is where your accountant becomes a critical resource. Your accountant can help you to decide how best to maintain a solid financial base and still make the investments necessary to maintain growth.
5. Tax and Regulations
How a small business manages its taxes has a significant impact in whether it will survive. But the seemingly innumerable rules and regulations in the tax codes are often indecipherable to the uninitiated, and that is when the business owner has the time to read them. But tax compliance is essential for any business, both in the present and for the future operation of any company. A small mistake now can cost millions in the future. Accountants know the tax code. That’s their job. A GOOD accountant will save you money on your tax returns and keep your business tax compliant so that you can focus on keeping your business profitable.
Technology is wonderful. The small business owner now has seemingly endless possibilities to increase the efficiency of his or her business. And this is no different when it comes to managing your business’s finances. A question I get asked a lot is what financial or accounting software I recommend to my clients. And my answer is always, it depends on the client. Most business owners start with an Excel spreadsheet, but most successful business will migrate to a business accounting platform fairly early on. A good accountant will help you choose financial software that works for your business.
Probably the single most important service your accountant can offer you is advice. Because your accountant knows your business’s numbers, he or she will have an intimate knowledge of where you stand financially. But what your accountant has that very few other professionals have is extensive experience about what that means to your business. An experienced accountant will have followed the trajectories of hundreds, often thousands of businesses, through recessions, expansions, booms and transitions. Successful business managers know this, and oftentimes the first person they will go to for advice is their accountant. In a previous article I explained how to choose an accountant for your business so that you get the most benefit from your relationship with your accountant.
Research has shown time and time again that poor financial planning and management are the main reasons most businesses fail. An accountant by definition is a qualified professional who prepares ‘financial statements for planning and decision making’. What better reason to hire an accountant? So if you don’t have an accountant for your business yet, my suggestion to you is to find one soon. It will probably be one of the best business decisions you will have made to date.
Erasmus Pretorius is a Chartered Accountant and CEO of The Accounting Team. He has been helping small business grow since 2001.
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