By Mike Stevens
One of the first investments that the owner of a small business should make is building a competent and experienced accounting staff.
Business accounting can be complex. Because many small businesses don't have the necessary capital, owners tend to do the books themselves. Having experienced accounting professionals in place to handle financial statements is one of the best decisions you can make.
Getting Started Building an Accounting Staff
One of the first steps a small business owner can take to build an accounting department is to hire a bookkeeper for simple record keeping. You don't have to hire someone full time; contractors are willing to work a couple of days per week doing regular tasks like sending out invoices, preparing checks to sign, and handling payroll service.
Getting the right bookkeeper for my business was a little difficult. The bookkeeper we ended up choosing was competent enough, but she had a mind of her own. I wanted to point out to my sometimes flamboyant partner how much we were spending on travel and entertainment. Our bookkeeper insisted on finding other categories for his expenses because she didn't like putting a number in a 50 percent deductible category (T&E) if she could find a 100 percent category, such as training. In the end, I had to give up on that issue.
Taking the Next Step
When it comes to taxes and making strategic decisions, small business owners are best served by an experienced, knowledgeable accountant.
My partner and I decided to change our ad agency's structure from partnership to corporation. Our lawyer suggested a new accountant, one whose billing rate was $250 per hour. At first, that quote seemed high. When I decided to use him to do my own taxes (which I had always done myself in the past), he saved me $8,000 the first year. Do you have the right people who are skilled in business accounting?
Clearly, there are gray areas in accounting that you or a bookkeeper might not know about. If a small business owner insists on doing the books themselves, they need to put serious effort into learning accounting rules and allowances. If a small business owner hires a professional accountant, at the very least they should understand the choices the business accounting department is making on the company's behalf.
What to Look For
Consider a situation in which the owner of a growing technology firm wants to take the company public. He is aware that his books aren't in great shape, so he asks his chief financial officer to hire a well-known accounting firm to get the company's financials ready for an initial public offering.
The CFO interviews several candidates, and then presents his choice to the president who asks how the choice was made. The CFO responds, "I interviewed eight different candidates, and I asked them all the same question: If revenues are $1,000,000 and expenses are $800,000, how much is profit? The first seven candidates answered '$200,000'. The eighth accounting candidate said, 'What kind of a number did you have in mind?'”
Needless to say, the eighth candidate is the type of accounting professional that small businesses should be looking for. While you do want an honest accountant with a high degree of personal integrity, a gifted business accounting professional will be able to massage your numbers.
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