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Two questions we frequently get asked by entrepreneurs are "Do I really need an accountant" and "How much will it cost me?"
While there is no standard answer, depending on the entrepreneur’s background and experience with bookkeeping, the answer to the first question generally is “yes.”
Primarily, entrepreneurs starting their businesses are concerned about the costs without fully realizing the potential costs involved with not hiring an accountant.
Good financial statements are essential tools to help you run your business. Without them, you are flying blind and relying on the checkbook-balance method of determining whether your business is successful. Just being able to say that you were able to pay your bills last month is not a wise method of determining the success of the business.
Timeliness is another critical issue. Over the past year, I couldn’t even begin to count the number of existing businesses that are looking to expand yet cannot provide a balance sheet. Waiting until the end of the year is not sufficient. Tracking the information monthly, at a minimum, is paramount.
Accuracy can prove to be a challenge as well. QuickBooks is a wonderful program, but it is a garbage-in-garbage-out system. If the owner or employee entering the data makes a mistake, it often will go unnoticed.
Every year we see financial statements that include loan principal repayment as an expense or show items such as negative advertising expense. These errors not only paint a false picture of the financial health of the business but can have financial consequences if carried forward into the company tax return.
As an entrepreneur in the early phases of growing your business, you naturally are wearing too many hats already. Human resources, marketing, running to the bank to make deposits, and let’s not forget the critical part – generating income through your product or service.
Outsource where it makes sense.
My last client who voiced concern about spending $300 a month in accounting was in auto repair. After asking him how many hours a month it would take him to produce his own financial statements, including estimated quarterly filings with the IRS, employee withholding and other documents, he figured about eight hours.
Multiply these hours by his shop rate of $75 per hour, and we already are at $600 in potential lost revenue, not to mention margins on parts. That’s a far greater opportunity cost than the actual expense of outsourcing something that one neither likes nor can do efficiently.
This does not advocate ignoring the financial management side of entrepreneurship. As a business owner, it is up to you to chart the course of the business. Your time is better spent learning how the financial statements work and how to read them, rather than preparing them yourself.
Sit down with your accountant or another financial professional such as the Small Business Development Center to assess the critical ratios or percentages for your industry that drive success or failure. Gain insight as to what drives those ratios and how you can maximize profitability through management of the business.
Slade is regional director of the South Dakota Small Business Development Center
367-5757, www.sdsbdc.org
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