Many small business owners manage their own bookkeeping, at least in the early days. This isn’t really a surprise, since managing your own books is a lot easier now with the advent of smart, online accounting software companies like Xero. Do-it-yourself accounting software makes it possible to manage your own business books, plus it can be a lot cheaper than hiring an accountant.
That said, while small businesses are known for watching expenses with an eagle eye, there comes a time when hiring an accountant might be worth the money for a growing business. In fact, it could be a very smart long-term decision.
What to consider before hiring an accountant
First off, if you’re considering hiring an accountant, be sure to ask for references and confirmation they have experience doing the tasks you need doing. And if your budget is tight, look for a small accounting firm (e.g., a sole trader or a business with 4 to 5 staff at most) as the fees will be substantially lower than at a larger firm.
Be sure to ask if the accountant has professional indemnity insurance (PII). Professional indemnity insurance for accountants is only required for chartered accountants who are members of organisations like the Institute of Chartered Accountants in England and Wales (ICAEW) or the Association of Chartered Certified Accountants (ACCA), but even accountants who are not chartered should have a policy in place. An accountant’s PII ultimately protects you, the small business owner, against a financial loss if the accountant is negligent in their duties.
But how do you know when you’re ready to take the plunge and hire an accountant? Are they worth the expense? How you answer the following questions can help you decide.
Are you incorporated as a limited company?
If your business was set up as a limited company then you’ll need to file your annual accounts with Companies House each year. An accountant can guide you as to what accounting records you need to keep (and for how long) as well as helping you to prepare and file the right forms.
Are you pressed for time?
A small business owner’s time is usually best spent working on growing the business, not keeping records and filing paperwork. If you don’t have time to stay on top of the accounting for your business, it is probably time to hire a professional. In addition to handling record keeping and payroll, ensuring you pay the right tax, complying with government paperwork and more, an accountant can also help ensure you don’t miss any critical HMRC or Companies House filing deadlines.
How well do you know your tax law?
If you don’t (and who does?) then an accountant can keep you on the right side of the tax authorities. For example, did you know that a small business must register for VAT once their turnover hits £85,000 a year? An accountant would know this and could alert you as your business approaches this threshold.
If you’re not up to speed on your tax law then you could make mistakes like missing VAT registration if you rely solely on software like Xero. Because while very useful for organising data you provide to it, Xero does not warn you when turnover is close to the VAT registration threshold (despite users having requested this feature).
This is just one example of how an accountant can be worth the fees. They can also be on hand to answer burning accounting questions you have, like which expenses are allowable business expenses, and which are not. In short, if you’re wondering if it’s time to hire an accountant, it probably is.