When To Hire an Accountant

hire-an-accountantOne of the most common questions that freelancers ask is “how big does my business have to be before I need to hire an accountant

Many freelancers start their business on a shoestring budget. For many, a simple spreadsheet is their only accounting tool because that is all that they can really afford at first.

For the freelancer who understands basic accounting and bookkeeping principles, a spreadsheet may actually be sufficient — at least initially. For the freelancer who has no background in accounting and no interest in learning, however, handling the accounting side of the business with nothing more than a spreadsheet can be frustrating.

Hiring an Accountant

The question of when (or if) a freelance business should hire an accounting professional can vary depending on each individual freelancer’s needs and skills.

Here are two quick answers that might help. It is generally time to hire an accountant if:

  1. Your business is large enough that you can no longer keep up by yourself
  2. You’re having trouble correctly handling all of your accounting

With the increasing number of excellent invoicing and project management solutions available on the web, it’s possible for some people to handle a lot of clients and still maintain their own accounting. That is, if you have enough tax knowledge to pull it off correctly.

On the other hand, if your freelance business has a complicated structure or requires more than the basic accounting systems, then it’s possible that you could significantly benefit from the help of a professional

Let’s look at some of the advantages (and disadvantages) of hiring an accounting professional for your freelancing business.

Advantages of Hiring an Accounting Professional

There are some definite advantages to hiring an accounting professional to take care of your freelance business accounting needs. Having an accountant handle your finances can:

  • Ensure that your bookkeeping is set up the right way, legally and practically
  • Make things easier for you when your taxes are due
  • Help you discover potential problems
  • Provide a second set of eyes to eliminate math mistakes
  • Reduce your tax bill by making you aware of all the deductions and credits that may be available to you as a self-employed person
  • Give you pertinent advice customized to your specific situation
  • Free up your time so that you can focus on tasks that are more central to the core of your business

With all of these benefits to be had from hiring accountant, you may wonder: why doesn’t every single freelancer already use an accounting professional?

Disadvantages of Hiring an Accounting Professional

The biggest disadvantage to hiring an accountant for many freelancers is cost.

Depending on the complexity of your needs and your geographic location, hiring an accountant can range from costing hundreds of dollars to costing thousands of dollars. For that reason, many part-time freelancers and those who are just getting started may have trouble affording an accountant.

If it appears that the accountant’s fee will cost more than your freelancing business earns in a month, hiring an accountant to help with your bookkeeping and taxes may be out of your financial reach. You will have to look for another method of meeting your accounting needs.

A Word About Automated Accounting Programs

For many freelancers, an automated accounting and/or tax software program provides the happy medium between hiring an accounting professional and doing your books yourself on a spreadsheet.

A few popular accounting programs designed to meet the needs of the small business professional include:

(There are other many online packages available as well, see this post for some web examples.)

If you decide to use an accounting software package, make sure to read and follow the instructions carefully.

Many software packages offer a free trial period, which can be a good way of finding out how much use you will actually get from the package.

There are a few disadvantages to software accounting programs:

  • They generally cannot provide the unique analysis of your business that an accounting professional would. (Although some packages provide analytical tools that come close. You may also be able to turn to a software support forum or help desk for help with some specific questions.)
  • They may not provide someone to accompany you to court (or to an IRS hearing) if you have legal or tax problems relating to your freelance business.
  • Depending on the accounting software that you select, you may need to purchase a separate software package to do your taxes.

How Do You Handle Your Accounting Needs?

What have you found to be most effective for handling your accounting needs? Do you hire an accountant, do your books (and taxes) yourself, or do you use a software package? Share what you’ve found to be most effective in the comments.

If you want to read more about this subject, check out this article about four professionals who can help your business succeed.

Comments

  1. says

    When I first started out, my accounting system consisted of a spreadsheet on Google Docs – until I inadvertently deleted a few cells, that is!

    After that, as soon as I could (and probably even before I could afford it, ha!), I set up an account at LessAccounting.com. I did a lot of research, including asking fellow service providers, before I decided to go with LessAccounting. I like that I can do both bookkeeping and invoicing, as well as preparing proposals, generating reports, etc.

    That said, I’ll probably still do my own taxes. Because my books are more organized now, I think it will be much easier.

    However, I do have the possibility of hiring an accountant at the back of my mind. I know the time will come when an accountant’s services will be necessary. I’ll probably even need a lawyer.

    As you said, it all depends on how big our freelancing business gets.

  2. says

    Hi Lexi!

    Thanks for sharing your story. I know that we are not the only ones who started our business accounting on spreadsheets.

    I’m not familiar with LessAccounting.com, but thanks for sharing that resource here as well.

  3. says

    I use QuickBooks because I’m too much of a skinflint to hire an accountant. Besides, when I heard charges approaching $800 annually from one professional I laughed and said, “Get in line behind the IRS!”

    I also use Turbo Tax and take my time putting everything together after the first of the year. I was a business major in college which means I have rudimentary understanding of accounting, but of course everything has gotten so much more complicated since the Jurassic era.

    Down the line I may barter with an accountant who needs web site help in exchange for his/her work. That will probably happen one hour after I receive notification from the IRS that I screwed up!

  4. says

    Thanks for sharing this Matt!

    Accountants can indeed be expensive, but sometimes their advice is very much needed. It will be interesting to see how the freelance community responds, but I would guess that many are on an automated software system like Quickbooks!

  5. Charlene says

    I like working with my accountant, it saves me a lot of headache during tax time.

    His costs are deductible as a business expense to me, so that makes it an added incentive for me to hire him to do my tax returns.

  6. says

    Hi Laura

    I wrote a blog post recently that may add to this discussion of small business accounting at http://icanhazdot.net/2009/07/04/what-i-want-from-accounting-software/

    I have been using Quickbooks for a few years now & I really dislike it. Before the MYOB fans spark up, I started there and ditched it very quickly. These days my needs are pretty simple so I use Quickbooks simply as a tool to create invoices and Excel to add up all my deductions and expenses. I prefer Excel because I can see how everything works – the way Quickbooks works is mostly a mystery to me. I’m not an accountant & I don’t want to be one.

    For the record, when my accounting needs get a little more complicated again I’ll be heading to xero.com. It’s (in my opinion) the nicest way to count beans I have seen so far. I look into Xero , Saasu etc in the blog post I linked to above.

    Hope this helps.

    cheers
    Ewen

  7. says

    QuickBooks, MYOB and online solutions like LessAccounting are great for recording details about your transactions. There’s no doubt about that.

    There is a solution that provides a happy compromise between hiring a high-priced accountant and doing it yourself, however. A professional bookkeeper can take the bookkeeping work off your shoulders and provide the knowledge of taxes that can help you save a bundle. Some examples come to mind:

    A web marketer turned over her monthly invoicing, check entry and reconciliations to a virtual bookkeeper and gained an extra 15 hours of billable time a month — more than paying for the cost of the bookkeeper.

    A coach turned over her monthly invoicing and reconciliations to a virtual bookkeeper — who promptly found two clients who hadn’t been invoiced in over six months, three clients with invoices more than 60 days overdue and one client who wasn’t being billed the current rate! She has already increased her billings by over 10% just by catching those hours she was missing before when she was too busy to take care of her bookkeeping. And pulling in those old receivables has already paid for several months of the bookkeeper!

    A consultant turned over all monthly bookkeeping. It was discovered that he was paying for cab fares, parking fees and other business expenses with cash out of his pocket. These expenses were never on the books before because he didn’t know how to record them! He’s now recording approximately $200 extra dollars in legitimate business expenses each month, saving approximately $80/month in taxes!

    So don’t focus on the cost alone of bookkeeping/accounting help; take into account the billable time you’re gaining, the stress you’re saving, the additional tax deductions you’re catching and all the other benefits.

  8. says

    Hey Laura,

    Another great article.

    Like most freelancers, I’ve been using some basic tools to invoice and fill up my taxes for the past 10 years. Last year however, I incorporated my company. This required an accountant to look over all the corporation and financial aspects of my business. I’d say I got lucky to find an small accountant firm, kind of like myself, who changed a room in his house to an office, to look over my expenses and incomes, and produce my taxes every three months.

    My advice would be to definitely get an accountant if you are incorporating. There are MANY little things that they can help you out.

  9. says

    Ewen, Deb, and Reza

    Great points, all of you. Thanks for sharing your own personal experiences and the tools that you find to work best for you.

    Deb – you rightly point out that these are not the only solutions and I would agree with you.

    Reza – Yes, I think that incorporation almost always requires professional assistance.

    Thanks for keeping the discussion going!

  10. says

    I have been battling back and forth on whether to hire an accountant for a long time now. My fiance was an accounting major in college, so I have even thought about having her do it for my. I think that an accountant can help tremendously, in controlling expenses and finding extra money at the end of the year. You do have to find the right accountant for you, however.

    Andrew Christen
    http://www.XpertFreelance.com

  11. says

    As professionals, we offer value to our clients. We are in business to make a profit, and we expect to get paid for the services that we provide. We tell our clients how much we can help them, and how much better of they will be if they hire us – a professional – than they would be doing it (whatever “it” may be) themselves. We tell them to hire us to write their ad copy, create their logo, design their website, photograph their staff, etc.

    We tell them that because in most cases it’s true … they “are” better off using a pro than trying to do it themselves – the copy will be better written and targeted, the photographs will be well lit and the subjects will be properly posed, the website will create sales leads and rank well in search engines.

    They will be that way because we are experienced, trained and knowledgeable, and because we continue to learn our craft and improve ourselves in our chosen field. They will be that way because we are passionate about what we do, and we care about doing the best possible job we can for our clients.

    But then … wow … we turn around and convince ourselves that “we” don’t have to hire a professional accountant. “We” don’t need someone that has years of training and experience to handle one of the most important facets of our business.

    We can do it ourselves. We’ll just download some nifty software or create a spreadsheet, plug our numbers into it and viola – instant accountant … just in time for our next sales call.

    My my .. aren’t we the hypocritical ones …

  12. says

    Mark,

    You do have an excellent point. Personally, I think accountants are worthwhile (which is why I listed seven benefits that an accountant can provide versus only one disadvantage – cost).

    However, we have readers in various stages of freelancing here – ranging from some freelancers who are very small and may only receive a few hundred dollars a month all the way up to some who have a much bigger business and are even incorporated (see Reza’s comment).

    This post was actually trying to be balanced and serve both audiences by exploring all levels of possibilities for handling accounting tasks. I’m sorry if you perceived it as being against accountants or hypocritical in any way. I’m definitely not against freelancers hiring those in other freelancing professions.

  13. says

    Our approach is to separate the low value book keeping tasks (grunt work like tracking expenses, invoicing) and the high value accounting tasks (preparing taxes, doing strategic planning). In our business it’s definitely worth paying an expert to help with the later, and I’ve certainly saved more in the past few years in taxes than it’s cost me for his time, plus I have the peace of mind that if we’re ever audited there is a professional who has my back.

    But for tracking expenses, invoices, etc. the tools are so easy that it’s easier for me to do it myself than to put it together and pass it to somebody else. I tried once. it too the same amount of my time. Then when needed I pull the P&L and Balance sheet reports and give them to my accountant and he only bills me for his added-value work.

  14. says

    Laura,

    Sorry, my comments were not against your article. I thought you raised some very good points. And yes, it was well balanced and well thought out.

    My comments were geared towards those who those who believe they are saving money by doing it themselves, and my intent was simply to point out the fact that, at least in my opinion, we should be hiring the right people to do the job.

    I honestly do not believe that we are doing ourselves any favours by trying to perform all the various duties that a business demands, even if it may be one that is just starting out and only brings in a few hundred dollars a month.

    My argument is simply that there are people who do certain things very well. I can create a database and program a site around it – I also know that there are people who are much better and faster at database design and programming than me. So I hire those people to perform that work, while I concentrate on the things that I am good at. In the same sense, there are people who are good at numbers, know the tax laws, know how to save me money and can advise me on best practices, so I hire them to look after my finances.

    By hiring the right people, I free up time that allows me to concentrate on growing my business, and I generally save as much money as I pay out to my bookkeeper and accountant. I do understand the desire and the draw to try save some money by doing some of the stuff ourselves, but I honestly just feel that we are doing more harm than good by doing so.

    Just my two cents. Sorry if I seemed harsh in my earlier post. That wasn’t my intent.

  15. says

    Accountants are an expense. Think of them in that perspective. You write off a lot of things when you run your own business. Accountants are one of them. But, they also do save you money in the long run. That is, if you get the right accountant for your business.

    Most people just go to an accountant. Do your research, find an accountant that deals with your field. You will be surprised how much more they know from account x or y about your field. That is their business, that is what they do on a daily basis. Unless your freelancing job is accounting, it is something you will never fully understand.

    Past year, a little rule tax changed which saved me quite a bit of money. If I was doing my taxes myself I would never know of this change. Yes, I do pay my accountant a little bit more than a personal accountant, after all, my company is incorporated, but at the end, the accountant was worth every penny, because he saved me more than couple thousand in taxes.

    So, when is the right time to get an accountant? When your business is your main income and you want to save money….

  16. says

    Disclaimer: Accountant Here :-D

    So I am going to play both sides. I started out as an accountant, so I have an advantage. I have evolved into a business coach and my main service offering is project management. My benefit, I am my own accountant.

    Now – that being said – most freelancers can do their own taxes if they can properly maintain their books. I state this, because my accounting company specializes in Small Business/Freelancers bookkeeping and taxes – and the root of all evil is the bookkeeping. I know, many people think ‘no it is the IRS tax forms’. Not true, if your books are clean and you know how to categorize your books, a program like Turbo Tax will do the deed for the majority of small businesses and freelancers.

    The main problem I always see, is small business owners who don’t know how to keep their own books.

    So think about hiring a qualified bookkeeper first, and not just any bookkeeper, a certified one, one with liability insurance and one that has specifically worked in your field. (i.e. my team has bookkeepers with industry/field specialties – one in property management, one in website design and development) – because what is classified one way in one industry won’t be classified in another.

    That being said – a qualified accountant – that is not part of a large firm – and specializes in small business will charge $400 – $1000 depending on the size of your business for tax preparation. I would be hesitant to hire anyone charging less than that, because chances are they are not insured, bonded or have their certifications up to date.

  17. says

    Thanks very much for this.

    A friend of mine runs his own company and he decided to hire an accountant a year ago and said he didn’t realize how much it would help.

    If I ever find myself in a position where I need one I wouldn’t hesitate to hire one.

    When I was a child I wanted to be an accountant, how weird is that!

  18. says

    With the advent of QuickBooks and Turbo Tax, the need for “accountants” for most small business is nearly moot. (Actually, many business schools no longer prepare CPAs because these two programs eliminate their necessity.) The defining word is “small”, which can be people numbers or revenue amounts–your call. (The fedgov defines “small business” as 10 million and up in sales, not employees; testament to their general detachment from reality, but that is another story.)

    So generally, for bookkeeping, report generation (P/L, cash flow,annuals), payroll, etc. an accountant is not needed if you are running the accountant version of Quickbooks and doing taxes with Turbo tax. If you are soliciting investors, loans, financiers or selling stock, then certain certified reports may be necessary. If you are lucky enough to be at that level, a relationship with an accounting firm is required. Be forewarned, they are most likely using the same software, so you have be using that software correctly and be up to date (current in record keeping). (The accountants might use Sage/Peachtree, but I find their products generally unfriendly and pricey.) If you aren’t running QBks correctly and current, the fix at the accountant’s office can be pricey.

    QKs is simple; don’t assume you are smarter than the program; trust is a must. Back-up daily until you are confident–corrections are challenging (a safe guard to foil people cooking the books). If you err, restore to the last back-up and begin again.

    If data input (rote bookkeeping) is your weakness, (accountants don’t do that; their assist might for the accountant wages, but they do not), then you need a bookkeeper, not an accountant. Big cost difference.

    The high quality and simplicity of QBks is scary. Be glad Intuit is not operating in your area of expertise…

    Finally, all accountants are not created equally. Just because they went to school doesn’t mean they understand business, or more specifically, your business. They are generally unloyal, so do not hesitate to dump one you don’t like.

    QBks/Turbo Tax cons: Regular up-dates and new versions every year; you must repurchase QuickBooks at least every two years; sadly Intuit is a big proponent of MSFT and their bloated, insecure OS–expect future versions to require either Vista or Win7. Turbo tax is only good for the year purchased and incessantly updates….

  19. says

    As an after thought:
    Accountants (and attorneys) are generally forbidden from operating as an s-corporation (where the best deductions and protections are available for small or solo companies) in the USA. So what they tell/advise they read from a book, not from 30+ years of experience of actually doing it like some of us.

    There are only about 16 deductions available to s-corporations (which can included LLCs); so if an accountant found something, it was because you overlooked it. There are no magic refunds/deductions. The tax code is the tax code. All possible deductions are covered in Turbo Tax, provided you can read. Turbo Tax does not have a lie or break the law function. So rest assured. Use it.

    My background is business and law. When I worked with and for accountants, they like many attorneys, didn’t know the law. Do some research; accountant error rate is about 26% on the returns they do. Self-filers (business) is about 10%. 3% scares me; you cannot be that accurate in 1.5 hours sitting in an accountant’s office. And, at tax time, accountants grind ‘em out just like McDonalds. They are, after all, in business to make money.

    As for expense control, any business coach can tell you how to save time, money and effort. Again experience is better than a degree in running a calculator. And a much better value.

    CPAs are not management accountants. Management accountants run corporations, not CPAs (and make $80,000+ per year). Just like the lawyer on the corner is not a corporate lawyer just because he knows more about starting a corporation than you. Corporate counsel run corporations (and make $400,000/year), not the guy on the corner who also does divorces. If you can afford a $400/hour corporate attorney, you should not be here reading this.

    As my comment above says, accountants have their function, as do attorneys. Use accountants for accountancy (not business formation and taxes) and attorneys for litigation (not company forming) and complicated contracts. Use QuickBooks & Turbo Tax for taxes. Find area specialized coaches for other things: marketing, business plans, seminar production, affiliate programs, etc. You be glad you did, be all the wiser and have some money left over in the end.

    https://www.jamesallencorporateservices.com

  20. says

    an accountant with good skill in his vocation will have a high likely hood of finding a job with some business or company. The skills that they have are a solid investment for business to make since accountants will save them money in the long run. find an accountant

  21. says

    Any small business owner or freelancer can benefit from hiring and account. We so often see freelancers think they can manage on their own, and end up making expensive mistakes or just getting too frustrated to go on with the process! Accounting can be hugely easy with the right software, but there does need to be some sort of investment made (either with a software and/or by hiring an accountant). It will definitely save you money in the long run!

  22. says

    Completely agree with Rafal.

    My accountant has saved me a lot of money since I started my business. I can quite easily compare the estimated savings she has made against how much I have paid her and see that it is worth it.

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