Starting A Small Business – Should I Hire An Accountant or a Bookkeeper?
Most new business owners feel that taxes are “evil” and the government reporting is just so lengthy that it is easier to give up before starting up their business because it just isn’t worth their time. It is really easy to think this way about the necessary record keeping or accounting.
Instead, think of it like this, beside being a requirement under the law, bookkeeping or accounting systems are made for you so you can make decisions about customers, marketing, pricing and vendors.
Does my small business need an Accountant or a Bookkeeper?
Small business owners often chat about tax time and the need for an Accountant but what happens when you have painstakingly chosen an Accountant and then when you get to their office you are saddened when they tell you that all your 1000’s of your expenses and income needs to be put in an ordered manner.
“Ordered manner?”, what does that mean you say.
If you want your tax accountant to go through every piece of paper for the last 12 months, put them in to piles, get on the calculator and add them all up for you, then you will be charged at the hourly going rate for an accountant (in the $100’s/hr).
“Is there a cheaper alternative?” you ask.
Your accountant will then tell you that they have an in-house bookkeeper that can do the work for you that is much cheaper. This sounds better, but because of the Accounting firm overheads the hourly going rate is still too expensive ($100+/hr).
Now you realise that finding your own bookkeeper without the accounting firm price will possibly be the best solution for you.
DIY will always be the cheapest. Get a free handout from your end of year tax accountant a “Tax Return Checklist” and simply write the total on there after you have added them up. Then, give this to your accountant at tax time.
If your tax is complicated, it really does make it easier to go to an accountant at the end of the year and the same is true for having a bookkeeping put things into an order that your accountant can use. Bookkeepers and accountants are trained in the same record keeping.
Once the “number crunching” has been done, your bookkeeper or accountant can analyse the data and make recommendations that can result in businesses becoming more profitable.
How Bookkeepers Can Help Every Small Business?
If your business is growing—and we certainly hope it is!—meeting with a bookkeeper quarterly can help in a number of ways. Quarterly meetings with a bookkeeper can help you make sure:
- Your monthly/quarterly Activity Statements are being lodged on time and dealt with timely.
Regular meetings with a bookkeeper can help analyse your profit and loss so you know what areas of your business is profitable.
I know small business owners know their business better than anyone so it makes sense to have the bookkeeper announce any foreseeable problems soon such as putting money aside for income tax at the end of the year. A bookkeeper’s help is vital for continued growth.
When to Hire an Accountant or Bookkeeper
Most accountants and bookkeepers will tell you they could have saved their small business clients a lot of time, money, and headaches. That is if those clients hadn’t waited so long to ask for help. The bottom line is that there are several key times in the course of your business when you don’t want to wing it without one.
Forming Your Business
The formation of your business is one of those key times. An accountant can:
· Help you write your business plan. If you’re not looking for funding, though, do you even need a business plan? If you’re planning to lease office, retail, or manufacturing space, your landlord may require one. Plus, it’s a good idea to have a direction and goals for your business rather than playing it all by ear.
· Advise you on your business’s entity structure. Although most businesses start out as sole proprietorships, your particular business type or personal financial situation might mean another entity structure makes more sense.
· A Bookkeeper will help you get all the appropriate licenses and registrations. GST/PAYG/ABN, business licenses, employment accounts, oh my! Every state has different requirements for a business. And different industries have different requirements, too. A Bookkeeper can help you untangle all of the red tapes and make sure you start your business on the right (read: legal) foot.
· Accountants and bookkeepers can help you set up your bookkeeping software. If you wish to DIY bookkeeping in the early stages then this will definitely save you some money until you earn an income. There does come a point where you’ll want to outsource or delegate your small business bookkeeping. Still, up until that time, you can probably handle your own bookkeeping and hire a bookkeeper to do periodic reviews of your work.
That said, you don’t want to try to set up your own business accounting software, no matter how easy that software seems to be. A bookkeeper can help you set up your chart of accounts and GST correctly and might even train you on how to use your software. If your accountant doesn’t offer this service, then check in your local area for a Registered bookkeeper.
You’ll need advice when you write a business plan
If you involve an accountant while you’re writing your business plan, they will be able to use accounting software to add financial projections and other reports to it. This will help you create a business plan that’s realistic, professional and more likely to succeed.
Hiring a professional at this early stage will mean you get the benefit of their financial knowledge and advice right from the start. That could save you time and money compared with hiring one later.
You’ll need advice about your company’s legal structure
Not all businesses have the same legal structure – several factors determine different types. Some might be called:
Sole trader – legally responsible for all aspects of the business.
Company – when you set up a company, you create a legal entity that’s separate from you. This means the company has the same rights as a natural person and can incur debt, sue and be sued.
Partnership – made up of 2 or more people who distribute income and losses between themselves.
Trust – in a trust structure, a trustee holds your business for the benefit of others (the beneficiaries). A trust is a structure where a trustee carries out the business on behalf of the trust’s members (or beneficiaries)
Co-operative – a co-operative structure is a legally incorporated entity designed to serve the interests of its members.
Indigenous corporation – indigenous business owners can register as an indigenous corporation through the “Office of the Registrar Of Indigenous Corporations (ORIC)”. Indigenous corporations are eligible for additional benefits.
Joint Venture – an agreement between 2 or more parties for the purpose of completing a specific task or project.
You should carefully consider each type before deciding which one best suits you. For example, you may do business as a sole trader, working on a self-employed basis and invoicing under your own name. If this is the case, you might be able to offset some of your living expenses against tax.
However, this also means you could be held personally liable for any business-related obligations. If your business fails to pay a supplier, defaults on a debt or loses a lawsuit, the creditor could legally come after your house or other possessions.
The Australian Government business website has the best reading on “business structure”:
this will help you choose the one that suits you best.
Compliance and Tax Issues
Even if your business plan is written, you have all the required registrations, and your bookkeeping software is new and shiny and ready to go… you’re not quite ready to go forward without a bookkeeper.
There are still dozens of compliance stumbling blocks to overcome. Don’t try to wing it without a bookkeeper if you have:
- Complex GST issues.
Complex payroll issues. Wage and labour compliance issues can sink even the most profitable businesses. As with taxes, some apps and programs can help you with compliance on an ongoing basis, but you’ll want a bookkeeper to look over your shoulder at least quarterly.
You’ll need a bookkeeper to help with setting up payroll
Small business bookkeepers can help you get on track with payroll quickly. When an employee starts with you there are a number of things you need to check and verify, then you need to enter this information into your payroll software.
So, you have hired a work, what now? Now you have additional tax and super obligations to meet while they work for you.
Each time you make a payment to your worker, you must withhold a portion for the tax which is called PAYG withholding. Your worker may be an employee, a contractor with a voluntary agreement or who doesn’t quote their Australian Business Number (ABN).
It is important to withhold the right amount of tax and to do this you will need a completed Tax file number declaration and payroll software and you need to pay and report withheld amounts to the ATO.
You must also pay superannuation guarantee for you employee before the due dates otherwise complete the superannuation guarantee charge statement.
Salaries and wages, tax and super information is sent to the ATO from your STP-enabled payroll or accounting software when you run your payroll. At the end of the financial year, finalise your STP data. This allows your employees to access the information for the income tax return.
It makes life easier if you get the first few employees set up by your bookkeeper in your software system, it will be correct and will be ready to go, so you don’t have to worry.
You’ll need a bookkeeper to help with the finances
Small business bookkeeping can quickly become complex if you do it on your own. If you feel you’re losing control of who owes you money and how much, a bookkeeper can help you get back on track.
You may also want to measure key business metrics, such as the ratio of salaries and other employee payments to total revenue. A bookkeeper can help here by managing your payroll and producing graphs so you can see how the ratio changes over time.
If your bookkeeper uses cloud-based accounting software, they’ll be able to share your business accounts with you quickly and easily. And they can produce tables and charts that will help you understand your company’s current financial situation at a glance. This will help you monitor the pulse of your business and keep track of important things like cash flow.
Hire a BAS Agent or bookkeeper when you have to deal with the government
It can be daunting dealing with ATO paperwork when you run your own business. This is why so many small business owners hire a bookkeeper when the first tax filing is due.
But they can also help you cope with more than just activity statement returns. They can help your company interact with the government in other ways.
A good bookkeeper will be able to:
- Complete and file the required legal and compliance documents for your business
- Keep your company up to date with the latest laws
- Handle your payroll and ensuring that all employees’ tax codes and payments are recorded correctly.
Preparing your business documents correctly could save you money – perhaps more money than your bookkeeper charges you. And a good bookkeeper will use their knowledge of tax laws and legislation to suggest ways you can free up cash flow and save money.
Hire a bookkeeper when you respond to the ATO about superannuation
It is not all that likely your company will ever receive a query from the ATO regarding superannuation guarantee. But if it does happen to you, it can be expensive, stressful and time-consuming. Usually you would only get a query if an employee feels they have not received the correct amount of superannuation and their conversation with you their employer has come to a stand-off.
It makes sense that a middle person such as your trusted bookkeeper can dissolve the situation and get the best possible outcome for you.
When You Need To Understand your Profit and Loss Reporting
Bookkeepers Bunbury are experts at this. Not sure exactly where your money is going? Want to know where you can cut back and save money? Bookkeepers know all of this and more. They can help create reports and give explanations, so you can take that information and use it to improve your business.
If you DIY bookkeeping and you put expenses into the wrong categories, then this will put your profit and loss out of shape and the figures will not be meaningful. A professional bookkeeper will be able to pick this up quickly and rectify this for you when you have regular meetings.
Get a franchise bookkeepers advice before you take on a franchise
Taking on a franchise is a popular method of starting up in business, especially in areas such as car grooming, cosmetics supply, lawn-mowing, courier delivery operations and fast-food restaurants. With a franchise, you can still be your own boss. Yet, in return for a share of the revenue or business equity, the franchise company will support you with brand marketing, sales, product supply and other important matters.
This can take some of the risks out of starting a new business. But on the downside, you will have less commercial freedom and increased overheads, because some of your income will go to the franchise parent company. Franchise contracts vary, so the amount you pay and keep will also vary.
It can be hard for someone new to running a business to tell whether it’s worth taking on a particular franchise. That’s where a franchise bookkeeper can help. They can look through the franchise contract to find out the fees and percentages charged, then help you estimate your likely income after those costs have been deducted.
Only you can decide whether you then want to take on the franchise or not. But armed with detailed knowledge of the finances, you can make that decision with greater confidence.
When Buying Or Selling Property (And Other Assets)
Along the same vein, talk to your accountant before buying or selling business assets like property, equipment, office furniture, etc. Because accountants know your business finances, they’ll be able to tell you if the purchase is a wise investment.
For example, they’ll tell you if you have the cash flow to buy all new computers for the office or if you should wait until next month when the cash flow trends predict more sales. Accountants will also help you manage your assets, track depreciation, and properly write off the tax deductions you’re eligible for. When selling property or other assets, accountants will know how to records this on your taxes properly.
As you can see, bookkeepers and accountants can help you out during every stage of your company’s development. That doesn’t mean you have to hire one, but the right bookkeeper and accountant should make life easier for you, so you can concentrate on what you love doing.
Your speciality is running your business. Leave the other details to the industry gurus. If you and your bookkeeper or accountant use cloud-based accounting software, you’ll be able to keep track of what they do, and always be able to see your company’s financial situation at a glance. Very beneficial and that is what we aim for here at Bookkeepers Bunbury.