Everybody has different reasons for opening their own business, but one thing they can all agree on is the idea of making money. As a business owner, you are forced to make tough decisions in order to maximize your profit. One common cost-cutting strategy among business owners is opting to do their own accounting instead of hiring a professional. While this may seem like a viable strategy at first, it actually ends up costing more money in the long run. Lets take a look at the three reasons you should let a professional handle your books:
Professionalism & Proper Procedures From the Start
Accounting may seem basic at first (it’s all just debits and credits, right?) but the reality is that there is much more to it. While keeping track of transactions is a major part of accounting, the overarching idea behind accounting is to ensure all financial records are current and up to date so your business can run as smart and efficient as possible.
One common mistake among business owners turned self-proclaimed accountants is that they are constantly changing previous months. Maybe they found a receipt in a drawer somewhere that they never accounted for, or they realized they booked something for $1000 when it should have been $100. By going back and making changes to records from previous months, they end up never knowing where their current financials actually stand. The reports that should paint an exact picture of a company’s current state at any given time end up being less useful because nobody knows whether those reports are actually complete. Essentially, you lose the ability to compare financial metrics over time, as you never truly establish a baseline set of financial statements that you can use to measure against.
Furthermore, not all bookkeepers are created equal. Even well seasoned bookkeepers unknowingly make these mistakes because they have not received the in-depth education or gone through the rigors of studying that Certified Public Accountants have. They may incorrectly classify transactions, which can have a negative impact come tax time. This is one of the major reasons why hiring an outsourced accounting department can greatly benefit your company. They will bring the knowledge and discipline that is necessary for staying on top of your financial operations.
Another thing that almost everybody can agree on is that taxes are an annual pain point for startup founders and small business owners. Perhaps the only thing worse than the act of filing and paying taxes is doing them incorrectly. It takes a true professional to understand all of the (sometimes) nonsensical tax laws, as every business has their own specific set of laws and circumstances that apply to them. Property tax, income tax, sales tax, excise tax, and many other forms of taxes all have to be paid on time and correctly. Unfortunately, as soon as you think you have it figured out– the laws change. Hiring a professional who is trained and knowledgeable about all these changes can save you both time and hassle down the road.
In addition, business owners have much more important things to allocate their time to than scouring through pages and pages of IRS regulations. Outsourced accounting departments connect business owners with their in-house professionals who can ensure tax deadlines are met and financial reports correctly reflect the state of the business. In doing so, you can rest assured that the right amount of taxes are paid in a timely and compliant manner. These professionals also have much more knowledge of tax breaks that a business may be eligible for than your average small business owner. While hiring a good CPA is not free, he or she could potentially save you more than twice the amount of money you are paying them just by finding and claiming different tax breaks you may be eligible for.
Analysis & Advice
While professional accountants are best known for ensuring that the necessary financial reports are updated and correct, they also posses analytical and quantitative skills that surpass those of the average Joe. By analyzing patterns in revenue and expenditures, accountants can advise business owners on strategic plans that could bring long term growth to the company. They can also calculate the metrics that are most relevant to your business, and help you make strategic decisions based off those findings.
By outsourcing accounting, business owners also give themselves another professional to bounce ideas off of and ask for advice. When times are tough, owners can turn to their CPA for ideas on where to cut expenses or where to create other streams of revenue. If the possibility of an expansion is in the distant future, accountants can help create models and forecasts to see if an expansion would be as profitable as you hypothesize.
All in all, it is difficult to put an exact valuation on outsourced accounting services, as they provide you with so many different resources. While it is more expensive than what it costs a business owner to do their own bookkeeping, the value is almost always greater than the cost.