Financial management starts with bookkeeping

Bookkeeping is the process of “keeping the books.” The books are the records of business transactions, income, and expenses.  They used to be actual books with handwritten entries; these days, the book is a database.

Keeping the books is an integral part of running a business.   No matter how small your business is, you want some record of income and expenses.  This is important for paying taxes, knowing how much money you have available, raising capital, getting loans, and just knowing what you are spending your money on.

Many entrepreneurs and freelancers rely on bank statements, 1099’s, and guesstimates to estimate their financial situation, but this creates many problems, from overdrawn accounts to costly IRS audits.

Software like QuickBooks is excellent at making the bookkeeping process easier.  You can easily download and categorize transactions so that you are always on top of your financial situation.

Accountants take it from there

Accountants start with the books.  Most accounting firms (including Rosenberg Chesnov) will do the books for you.  Accountants manage QuickBooks so that you don’t have to.

But the books provide only the basic information that accountants need to help you run your business.  Your accountant should provide strategic advice and support that enables you to run your business.

A good accountant will:

  • Set up and manage your bookkeeping software.  As easy as bookkeeping software is, you want to ensure that it is set up correctly for your business.  The correct chart of accounts matters, and your accountant will be much faster at categorizing and optimizing your transactions.
  • Create information out of the bookkeeping data.  Bookkeeping is the starting point, but an accountant will turn the data of your books into information that you can use to run your business.  This includes financial statements, cash flow analyses, profit and loss statements, and other helpful information that builds on the data that comes from bookkeeping.
  • Advise you on your business entity/structure.  Many businesses define their structure by default.  They start as sole proprietorships with intermingled finances, which can lead to tax and liability issues.  You may want to consider a limited liability structure or a corporate structure, both of which offer certain advantages and disadvantages. The choice depends on what you envision for your business and your accountant can help you assess the trade-offs.
  • Help you make critical business decisions.  Managing a business involves navigating a continuous stream of tradeoffs.  You can’t do everything at once, so where should you focus your time and money?  Your accountant can help you ensure you are making profitable decisions that support your long-term vision.
  • Manage expenses and save you money.  Since accountants see many different businesses working in many different ways, they can often tell you where you are overspending compared to others. They can also help you find lower-priced vendors or avoid fees that you may not be paying attention to.
  • Design your strategy and business plan.  Entrepreneurs are typically great at what they do but are not always great at managing a business. Your accountant is a valuable sounding board to help you build your plan.
  • Help you identify and obtain all of the appropriate licenses.  There are several licenses and registrations that your business needs to operate legally.  These include sales tax permits, business licenses, employment accounts, unemployment insurance, and trade-specific permits. In addition, each state and even city jurisdiction can have a very different set of regulations.  Your accountant has been through this before and can help you cut through the red tape.
  • Help you raise money and engage with your investors.  If you are considering raising money to fund your business, having an accountant on your side is vital.  A good accountant will help you prepare for due diligence and all other aspects of the fund-raising process.  They will help you present the best case for investment, structure the business so that it is ready to receive investment, and help you manage the money once you receive it.
  • Manage your compliance needs.  The process of running a business requires complying with a long list of regulations.

These include:

  • Income tax – you will have to file your income tax once a year and make estimated tax payments throughout the year.
  • Sales tax – complying with sales tax in the US is a nightmare; there is really no other way to say it.  There are local and state regulations to deal with, and if you are shipping anything anywhere, you will have multiple jurisdictions to manage.
  • Payroll – managing the ins and outs of payroll is complex.  There are local taxes, state taxes, federal taxes, and several different filings to manage.  An accountant can keep you compliant, help manage the process and even help you decide if you should outsource to a professional employment organization.
  • Other regulatory filings – depending on what you do and where you are, there are any number of regulatory filings you must comply with, including filings that keep your business entity in good standing and protect you from liability.

When you need an accountant:

The list above is a long list of “things an accountant can do for you.”  So, the question is, when do you need those things?  You should consider hiring an accountant when you:

  • Manage a growing business.
  • Have complex transactions.
  • Manage across geographies.
  • Hire people.
  • Need advice on how to invest and plan for the future.

So, when don’t you need an accountant?

As I said in the introduction, 89% of small businesses state they are more successful due to working with an accountant.  That is a significant number and something worth considering when making your decision – regardless of your situation.

But there are some cases where you may be able to get by without an accountant:

Your business is a hobby.  If your business is truly a hobby that brings in a small amount of money on the side, you likely do not need the services of an accountant. Use your bookkeeping software to keep track of expenses and income (don’t wing that part), but very small businesses that are not on a growth track can stick with the default settings and operate without strategic advice.

You are a freelancer.  If you are a freelancer with only a few clients, then you may be able to manage your financial situation yourself.  You may want to talk to an accountant to ensure you have the correct business entity and perhaps get some setup advice.  But if all you are doing is managing a few simple transactions you may be able to skate by without professional help.

Your situation is generally straightforward, and you know what you are doing.  If your tax situation is simple, your business is in a steady-state, and you know exactly what you need and when then you may be able to wing it without an accountant.

But the truth is that even in situations where you may be able to “wing it” without an accountant, you should consider carefully the cost of mistakes and the time you put into accounting.  Often your accountant can help you reduce the time, effort, and annoyance of running a business while saving you enough money to pay for themselves.  So even in the simplest of situations, you might want to consider talking to an accountant.

Though, admittedly, as I said at the beginning, I am biased!

Would you like some help?

If you are a client and would like to book a consultation, call us at +1 (212) 382-3939 or contact us here to set up a time.

If you aren’t a client, why not? We can take care of your accounting, bookkeeping, tax, and CFO needs so that you don’t have to worry about any of them. Interested? Contact us here to set up a no-obligation consultation.

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