Why You Need a Good Accountant, Starting Yesterday

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If you were a carpenter – or ever took wood shop in school – you would know the old adage, “Measure twice. Cut once.”

The principle applies to almost any human endeavor, but in other areas the measuring device isn’t a tape measure. In your small business, the best financial measuring device is often your accountant.

There are financial aspects of organizing and running a small business that most owners don’t fully understand. After all, tax law changes from year to year, various principles of accounting are not always clear to the nonprofessional, and small business owners often don’t even have the time to fully understand or control how money is flowing in and out of their businesses.

Small business owners are terrific at a lot of things, but handling the financial side of their companies isn’t always one of them.

Unfortunately, many small business owners do not have a single, professional accountant they depend on. Many get by with a bookkeeper and some don’t think about a financial professional until tax time rolls around each year.

This isn’t the ideal approach. We should consider accountants the financial doctors of our small businesses. They can jump in when it looks like something is threatening our financial health and in the good times they can get us on a healthy financial plan that will be most beneficial. However, underlying this approach is developing a strong, ongoing, personal relationship with a good accountant.

For example, what is the best way to organize your small business? LLC? Sole proprietorship? S-Corp? That’s just one important question. Here are other instances where having developed an ongoing relationship with a good accountant versed in your area of business will prove very beneficial.

Year-end tax preparation. Not only will your accountant make sure you are taking maximum advantages of the deductions to which you are entitled, he or she will get you set up with a system that makes year-end, and quarterly reporting easy and efficient.

Staying legal. If an accountant prevents one audit – although you’ll never really know this – it would be well worth the investment. But to put this in practical terms – when your accountant is able to keep you on the right side of the contractor-employee line, it’s a very valuable service. Also, properly sorting personal versus business expenses for a small business owner is critically important.

Training you. I said at the top that many small business owners don’t really know how to read financial statements. Work alongside a good accountant for a number of years and that will change. You’ll improve your financial literacy and it will make you a far better and successful small business owner.

Advise on expenditures. Is it better to buy or lease? Should a purchase be made this year or next? Who is the better supplier for a given item? Which clients should you jettison? Being able to fine tune decisions like these to best suit your current situation can be the difference between a profitable year and one that’s not so rosy.

Let me add one general management principle to this list. It’s always wiser to devote your time to the tasks that you’re good at and grow your business. Even if you could do some of the things a professional accountant will do for your small business, is that the best use of your time?

Wouldn’t it be better to take that time and develop new sources of revenue, train your team better, or optimize a process to make it more efficient?