Do small businesses need accountants?

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Almost anyone running a small business is keen to reduce costs and overheads, somethings are too important not to spend money on. So what are the pros and cons of hiring an accountant?

Whether or not a company requires an account depends on the size of the business, if there are multiple bank accounts for the business and its future plans. Accountants bring expertise in the context of business start-up and legal structure and may even provide help to access funding. 

Here we take a look at the pros and cons of hiring an accountant: 

Sole trader

If your business structure is that of a sole trader, your record-keeping and tax responsibilities may be relatively straightforward. Your tax return is the simple self-assessment form, and you do not have to deal with the filing of accounts at Companies House or a corporation tax statement, in contrast with limited liability entities and partnerships.

As a sole trader, you may feel comfortable enough doing your own tax return. However, if you find it time-consuming or confusing, it may be a good idea to approach an accountant to help out.

Asking an accountant to help you for a couple of hours may be cost-effective, especially if you are spending more time on doing your tax return than is necessary and this is impacting on your business.

Record keeping

A business must have accurate records of income and expenditure. As a sole trader, you may have a small number of transactions to record, and some costs and invoices may be repetitive, therefore easy to track yourself.

The good news is that financial software is revolutionising how businesses of all sizes are approaching financial monitoring and reporting. No matter what the size of your company, you will want to investigate the market and see what is on offer. 

Some programs will help you to do your accounts more efficiently and reduce the need for professional help. HMRC is committed to making tax digital, and the right software can reduce costs and make for more accurate returns, including VAT calculations.

All of the above means that many small companies will have little need to call upon the services of an accountant, except perhaps for a few billed hours per year.

There are circumstances, however, when the services of an accountant are advisable, if not essential.

When you are setting up a business, you may have a clear strategy as to how you think it will develop. No-one sets out thinking that there are limits on the success of the enterprise and most business owners plan for growth. Seeking advice from an accountant at the outset will help you see just how realistic your expectations are. They will almost invariably have expertise in the sector you are entering and will be working for similar companies.

Company structure

Accountants can advise you on the initial structure of your company. It may be that they recommend a limited company or a limited liability partnership, and there are significant implications if that is the case. The main advantage is that your own assets are not at risk if the company runs into trouble. Although such a structure also offers flexibility as to how you reward yourself, such as taking dividends, it also means that the company’s own tax returns and filing responsibilities, as a separate legal entity, are more complex.

You will almost invariably need to hand over responsibility for tax returns to your accountants, as annual accounts for a limited liability entity and its tax return are a job for the professionals. The administrative burden is too significant for any small business, and you risk severe penalties if the returns are not filed accurately and on time.

As your company grows, you will want to keep an eye on cash flow. As you acquire larger clients, payment terms may change, stretching from 30 to 60 or even 90 days. An accountant will be able to advise on cash flow and make an accurate forecast which will help with future business planning.

Financing and exit strategy

Another area in which an accountant will be able to advise is financing, either at start-up or as the company needs funds to expand and improve profits. Depending upon the sector in which you are operating, there may be a range of funds available with which you are unfamiliar, either from government, industry bodies or elsewhere. Your accountant will be able to advise and help prepare bids for additional finance or lines of credit, any of which will require key financial statements and reports.

At the opposite end of the spectrum is your exit strategy. Most entrepreneurs may plan for their retirement, but many cannot envisage leaving the company they set up and developed. That time will, however, inevitably come, and it is crucial to have a sound strategy in place.

When it comes to the sale of the enterprise, it is vital that your records are in good shape and your accountant can help to ensure this. They will also prepare the accounts for due diligence and liaise with the potential buyer’s representatives to negotiate the best deal. They can also recommend a tax-efficient payment structure once the purchase price has been negotiated.

Modern technology enables today’s entrepreneurs to manage many of the operational aspects of accounting. However, there are a variety of strategic elements in which the advice of a seasoned accounting professional will prove to be invaluable, in addition to assistance with the statutory aspects of accounting for limited liability entities.