Ideally, right away.
You may be able to hold off for a few months if you have some accounting knowledge, but eventually you’re going to expand to the point that you don’t have the time to wear all the hats anymore (CEO, CFO, COO…) or run into an accounting situation that leaves you feeling like Dorothy walking through the forest toward Oz (capitalization, depreciation, amortization…Oh my!).
When that time comes, how do you start the process of creating your accounting department?
Here are some critical questions to ask to help determine how your future accounting department will look:
Do you want an in-house accounting department or is outsourcing a better fit?
Most small business owners prefer to outsource their accounting because it’s the most economical option for their business. While an outside accountant will charge a higher hourly rate, you’ll likely save money overall by avoiding pesky employment taxes. You can always switch to an internal accounting department down the road as your business grows.
Do you need a CPA or a bookkeeper?
That depends on exactly what type of services and support you want.
For tax advice/preparation, stick with a CPA. Business taxes can be pretty complex and CPAs are the experts on tax law. This is especially important if you’re involved in multi-state commerce.
For recordkeeping, financial management and business/accounting advice, a bookkeeper is generally the place to go. Some CPA firms still do bookkeeping, but the majority will refer you to a bookkeeper because they don’t offer that service. Typically a bookkeeper will prepare your unaudited financial statements and a CPA will use those statements to prepare your tax return. If you need audited financial statements, a CPA must prepare them.
If you outsource, will your accountant work on site or from their own office?
Choosing an off-site accountant is your best bet if you’re on a budget, while an on-site accountant is best for those who wish to maintain extremely tight control over their internal financial documents.
Which accounting software do you plan to use?
With so many accounting systems out there (Quickbooks, Xero, etc.), the best way to find a great accountant is to find out who’s a certified adviser for the accounting software you’ve chosen. After all, you wouldn’t hire a Mac expert to manage your Windows-based network!
How much involvement do you want to have in your accounting system?
Do you prefer to dabble in your company’s accounting software, or do you just want to read the monthly reports? Would you rather pass over a box of receipts periodically and have the work done for you? Decide exactly what role you want to play in your accounting system and find an accountant who will make that possible.
What type of businesses do their current clients operate?
Accounting for different industries is often very different; an expert in accounting for the manufacturing industry probably doesn’t have the same expertise to manage your non-profit’s accounting system. Find out what industries they work with and choose someone with experience in your industry.
What’s their educational background?
Let’s face it, the current system of accounting in the U.S. is complex, to say the least. You need someone with a solid accounting education who keeps up on the ever-changing regulations. Most states don’t have any kind of certification or minimum education requirement for bookkeepers, so find out what their credentials are. A bachelor’s degree with an emphasis on accounting should be a minimum requirement for a great bookkeeper.
How do you prefer to communicate with your accountant?
Are you a face-to-face person, or do you prefer email/text/Skype? Communication is key to the health of your accounting department, however big or small. So, make sure you’re on the same page when it comes to how frequently and in what manner you’re going to communicate.
Melissa Anderson is an accountant working with small business and entrepreneurs virtually and in-person. Check out her site at InspiredAccountingLLC.com