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:
- Your business is large enough that you can no longer keep up by yourself
- 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:
- Microsoft Office Accounting Professional
- MYOB Premier Accounting
- Peachtree by Sage Accounting
(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.