Every business owner must hire outside experts to support company growth.
As your firm grows, you’ll likely retain the services of an attorney, an insurance agent, and other experts to improve your operations. Many owners, however, don’t consider the importance of accounting services.
Use this discussion to learn about the critical need for accounting services, and how they work.
Efficiency: You need experts to perform some of your accounting work, in order to operate more efficiently. Assume, for example, that you post accounting transactions into your accounting software system. If your business grows from 150 transactions a month to 500 transactions, you’ll spend more time on accounting, and your risk of error increases.
An accounting firm can help you maintain efficiency and accuracy as your firm grows.
Find capital: Many owners eventually need to find sources of capital, to grow their business. You may raise capital by issuing stock to investors, or by borrowing money from a bank. Both stock investors and creditors will require a set of audited financial statements prepared by an accounting firm.
Preparing for sale: You’ll need to have a variety of accounting records in place before a company sale can be completed. In addition to audited financial statements, a buyer will want to see supporting documentation, such as bank reconciliations, inventory reports, and payroll accounting records. These accounting records validate the value of your business to a buyer.
Make the decision to contact an accounting firm to discuss your business and the accounting services you may need.
Bookkeeping: Bookkeeping refers to the recording of financial transactions in an accounting system. Rather than perform this process yourself, you can hire a bookkeeper to post customer sales transactions, inventory purchases, and company expenses into your accounting software. Using the services of a bookkeeper frees up your time for other important business tasks.
Payroll services: Because payroll tax laws change frequently, processing payroll is often the most complicated accounting task for a business. Adding new hires, and removing payroll data for employees who leave can be time-consuming. You can hire an accounting firm or a payroll service to manage payroll and to calculate tax and benefit withholdings for employees.
Financial statement preparation: An accountant can use the transactions prepared by a bookkeeper, along with payroll data, to generate monthly financial statements, including the balance sheet and income statement. Business owners use the financial statements to assess business performance and to make informed business decisions.
Audit: An audit is a written opinion provided by an accounting firm, and opinion states whether or not the financial statements are free of material misstatement. The term “material” refers to an error in the financial statements that would change the opinion of a financial statement reader. Assume, for example, a business has a $3 million inventory balance. A $50 error in inventory may not be material, but a $5,000 error may be. Investors and creditors review audited financial statements before investing or loaning money to a business.
Your small business may not need all of these accounting services right yet, but as you grow these services will become vital.
To help you understand accounting services and your business needs, assume that Julie operates Treeline Landscaping, a company that provides tree services and landscaping to homeowners. Julie’s business picks up in March of each year, to keep up with the increased volume she decides to hire a bookkeeper to post accounting transactions.
Treeline’s revenue continues to increase into the summer, and Julie must add a number of accounts for new types of revenue and expenses.
Eventually, Julie decides to hire Bob, an accountant, to manage the bookkeeper, generate monthly financial statements, and to help her make better financial decisions. To save time, Bob and Julie agree to outsource the payroll processing function to a third party.
In September, Julie has the opportunity to purchase a smaller landscaping firm and expand her business. In order to finance the purchase, Julie talks with a group of investors at Premier Capital. Both Julie and the investors agree that Treeline’s most recent annual financial statements should be audited.
Julie retains an independent CPA firm to conduct the audit. The auditors perform test work on each account balance, including a review of Treeline’s bank reconciliations, and a physical inspection to verify ownership of each company vehicle and piece of equipment. Premier Capital’s decision to invest in Treeline will, in part, be based in part on the audited financial statements.
Prepare for Success
As your business grows so the does the complexity of operating it. Many small business owners feel obligated to manage every aspect of their company. This often leads to misspent time and frustration.
Developing a team of knowledgeable professionals is key to the long-term growth of any small business. Hiring an accountant or contracting an accounting firm ensures the accuracy of financial statements as you build your company.