When to hire an accountant for your small business When to hire an accountant for your small business

When to hire an accountant for your small business

There are a variety of reasons why you might choose to hire an accountant for your business. Accountants can help you establish the legal structure of your business, they can provide advice around accessing finance and they can help with day-to-day record keeping.

That said, depending on the expertise of your team, many of these activities could be done in-house.

Nick Levine, Institute of Chartered Accountants of England and Wales, shares his thoughts on when to use an accountant and when to manage your finances yourself.

When should you manage your accounts yourself?

1. When you are a sole trader

If your business operates as a sole trader, the requirements for record keeping are relatively straight forward. Unlike a limited company, sole traders do not have to file annual accounts at Companies House or an annual corporation tax statement with HMRC.

Instead they are required to file for a self-assessment tax return. Whilst this isn't too challenging, it is still time consuming. So, if pressed for time, you may wish to engage with an accountant for these services specifically.

2. When you have a low volume of transactions

If you have a low volume of transactions, you may choose to undertake your own bookkeeping as the related activity shouldn't take up a lot of time. For example, you may operate a sole trader business which requires you to generate only one or two invoices a month for clients, alongside receipts for travel and subsistence.

3. For simple record keeping

Taking care of your own day-to-day finances can also be relatively easy if you run a business that has simple and predictable bookkeeping categories. This may be relevant if you run an online business selling goods through an e-commerce platform that has easy-to-define and well-known categories. E.g. monthly rent, stationery and postage costs.

4. If you use cloud accounting software

Cloud accounting software products such as Xero, Sage One and Quickbooks can act as a middle ground between doing your own accounts and hiring an accountant. These online monthly subscription tools allow businesses to do their day-to-day record keeping and submit their VAT returns to HMRC.

Some companies choose to do the day-to-day bookkeeping themselves on cloud software and then separately pay their accountants on a monthly or quarterly basis (to tie in with VAT returns) to review data and correct any errors.

When should you make use of an accountant?

1. To set up a corporate structure

Depending on the complexity of your business and your ambitions for it, you should consult an accountant to define its legal structure before you start trading.

Operating as a limited company can give you more flexibility around paying yourself and potential tax implications. Additionally, this will ensure that the company is recognised as a separate legal entity from yourself, so that your personal assets are not at risk should the business get into adverse trading conditions.

2. For statutory accounts and tax returns

Putting together an annual set of accounts for a limited company and an associated tax return is a complex process that requires the work of professionals. It is important not to fall foul of compliance requirements, otherwise you could face fines and an administrative burden.

Employing an accountant to complete these filings can also save you money by helping you accurately classify tax deductible expenses.

3. For cash flow forecasting

Cash flow is the lifeblood of businesses and is cited as one of the most common reasons for business failure. Putting together a forward looking 12-month forecast will help you better plan for any shortfalls, as well as identifying whether you will need to take out a loan or raise equity finance.

This can also be a useful exercise to set financial goals and targets for where you want your business to be in the future.

4. To get access to finance

There is now a plethora of different financing options for start-ups, including conventional loans, equity finance and a range of more niche services depending on the type of business or sector in which you operate.

An accountant can help you find the types of finance that are most suitable for your business. They can also work with you to put together an application and any supporting paperwork in order to maximise your chances of accessing growth finance.

Whilst accountants can support you during every stage of your company's lifecycle, you may choose to complete basic bookkeeping tasks yourself, if you have the time.

As a general rule of thumb, it's always good practice to spend a couple of hours with an accountant intermittently in order to make sure that your finances are in safe hands.

Cloud software is helping change the roles of accountants to become more advisory, so make sure that your accountant is able to offer growth services such as access to finance and support around business planning.

Are you a retailer looking for guidance on managing your cash flow? Get tips from Clive Lewis, Institute of Chartered Accountants of England and Wales.

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Last Updated: 8 Apr 2020