Date: 25th February 2015
With the end of the financial year looming, you may be looking at hiring an accountant to handle your taxes. Or perhaps you already have an accountant whom you see annually when your end of year taxes are due.
But are you making the most of your accountant? Accountants can handle much more than just your end of year tax returns. What other moments during the life of a typical small business, might you want to employ the services of an accountant?
This is an edited excerpt from Xero Small Business Guides
Besides the end of year tax obligations, a good accountant can help your company interact with the government in other ways, such as:
Preparing your tax documents correctly could save you money – perhaps more money than your accountant charges you. And a good accountant will use their knowledge of tax laws and legislation to suggest ways you can free up cashflow, save money and raise capital for expansion.
If you involve an accountant while you’re writing your business plan, they will be able to use accounting software to add financial projections and other reports to it. This will help you create a business plan that’s realistic, professional and more likely to succeed.
Hiring a professional at this early stage will mean you get the benefit of their financial knowledge and advice right from the start.
An accountant can explain the legal business structures available and help you choose the one that best suits you. For example, if you work as a sole trader you could be held personally liable for any business-related obligations. If your business fails to pay a supplier, defaults on a debt or loses a lawsuit, the creditor could legally come after your house or other possessions. However, with a limited liability company structure, the liability of the business is limited to the assets owned by the business, not you personally.
If you feel you’re losing control of who owes you money and how much, an accountant can help you get back on track.
You may also want to measure key business metrics, such as the ratio of wages and salaries to total revenue. An accountant can help by managing your payroll and producing graphs so you can see how the ratio changes over time.
If your accountant uses cloud-based accounting software, they’ll be able to share your business accounts with you quickly and easily. And they can produce tables and charts that will help you understand your company’s current financial situation at a glance.
As a small business owner, no doubt one of the things you like best is that you have control over your working hours, business strategy and workload. But you might feel that no one can possibly know your business as well as you do, therefore nobody can handle any part of your business as well as you can. This can stop you from delegating.
Delegating your company’s financial affairs to an accountant who you trust is a good start to relieving some of your workload.
It’s statistically unlikely that your company will be audited but if it does happen to you it can be expensive, stressful and time-consuming.
If you don’t already have an accountant at this point, it’s a good time to hire one. They can give you advice on how to work within the auditing process and help ensure you don’t violate any tax laws afterwards.
It’s better to hire an accountant before an audit ever happens, especially if you can find one who will offer audit insurance (audit insurance covers the fees you would have had to pay if your business needed to respond to an official enquiry, review, investigation or audit by the IRD).
Since the credit crunch, lending to small businesses has dropped in most countries, so you’ll need a sound business case when you apply for a loan or overdraft.
An accountant can help improve your chances. Even the fact that you have an accountant might sway the bank in your favour, as it implies you’re serious about your business. With good accounting software, your accountant can present facts and figures that back up your application for funding.
Your accountant can also help you choose which loan to go for, and tell you whether your bank’s terms and conditions and interest rate are favourable to you.
An accountant can help you handle growth transitions, such as hiring employees or taking on more office space. They’ll look after the detail (payroll, employee tax management, property tax, utility payments and so on), leaving you free to look at the bigger picture of the way your business is growing.
An accountant can also use accounting software to analyse your cashflow, inventory management and pricing. They can also provide insight into how to properly grow your business through financial analysis.
You should always consult an accountant before buying an existing business. They will be able to look into the company’s accounts in detail and find out if anything looks wrong. For example, they can check whether the company’s assets are fully owned or leased or part-paid for, and whether the company has any outstanding debt.
If you’re looking at buying a franchise, they can look through franchise contract to find out the fees and percentages charged then help you estimate your likely income.
An accountant will put your company’s financial records in order and produce statements of accounts that you can show to prospective buyers. Using high quality accounting software they can create useful charts and tables to show your company in a good light. They can also talk to any potential buyers’ accountants during the due diligence process, which is often a legal requirement when a business is being taken over.
And, perhaps most importantly, an accountant can help you structure your financial affairs so that you get the most money from selling your business. Depending on how the sale is structured, the amount of money you receive after tax can vary considerably. For example, a lump sum might be less tax-efficient than monthly payments over a period of years.
As you can see, accountants can help you out during every stage of your company’s development. That doesn’t mean you have to hire one, but the right accountant should make life easier for you, so you can concentrate on what you love doing.