I have spent 32 years in the accounting industry and I don't know how many times I have heard, "I don't need an accountant", from a business owner. That attitude will eventually create consequences that you don't want as it tends to come back and bite you in the backside! Personally, I am over seeing people suffer just because they don't understand the value of an accountant, so I thought I would write a blog to explain the main reasons why you need an accountant as part of your staff, whether it be part time or full time. This will help you avoid the pain that comes along with having subpar accounting.
Yes, you could say I am a bit passionate about this topic. Reason being is that I have seen people lose their livelihoods just because they didn't have a trained accountant on staff to help them have the true numbers in their accounting to be able to make decisions from, or even file tax returns that were accurate. Remember, the Internal Revenue Service does not care what your excuse is...you will pay for your mistakes!
The Value Of The Accountant
Let's get down to the Nitty Gritty. Do not be offended at something I say if it aligns with you, simply look at it and change what needs to be changed.
First of all, unless you have been trained as an accountant, you do not understand the complexity of accounting and how it can affect your business if it is not done right. Point being, take off the accountant hat off and give it to someone that is a Professional Accountant.
Too many times I have seen business owners as the accountant of the business while also wearing the hats that the owner should actually be wearing. What tends to happen is that their "record keeping" is nowhere near where it needs to be, to be able to analyze the business appropriately and file taxes correctly. When this setup exists, it is only a matter of time before a mistake makes them pay.
I just recently lost a client due to the fact that she had to sell her business in order to pay off back taxes. When I took the books over a few years ago, I had to restate the prior years as her bookkeeper was not correctly recording the inventory and cost of goods sold. Basically, she had expensed all of her product purchases in her first year (driving taxes down), and had to correct the inventory accounts in subsequent years which created a huge profit that needed to be taxed.
Instead of having a correct accounting department from the beginning, which would have made the taxes more palatable as they would have been spread over years, she had to pay a huge sum of money to clear the taxes. Unfortunately, the only way she could do that was to sell her business that she worked five long years to build. Disheartening.
Another big reason to have an accountant is to monitor for fraud. In my career, I have found millions of dollars in fraud. These were owners and employees that set up elaborate systems to rip the company off, but not until they hired a Forensic Accountant like myself did they find out what was happening.
Imagine the risk they have put themselves through for those companies that hire bookkeepers or try to run their accounting through an Excel Program for many years. Again, this is just setting the business up for hard times.
Another reason you need an accountant is to be able to analyze and understand what is happening with the business!
In my business model, I provide a month end package that consists of the financial statements (Balance Sheet, Income Statement, Statement of Cash Flows, and Budgets), plus a written and numerical variance analysis of what is happening with the business over a course of time.
This type of financial analysis really can help clear a path of decision making that can make the business more profitable because the business owner is seeing how the business is performing at a granular level.
So why aren't more business owners using Professional Accountants rather then untrained individuals, or none at all?
The traditional argument I hear from business owners is that they can't afford to have an accountant. Please hear this; you can't afford NOT to have an accountant.
Believe me, as the person that has had to restate dozens of companies' financials, it is NOT cheaper to be cheap in this area of your business. Take this as truth.
But a good question is; how much should you pay an accountant if you are a small to mid sized business?
As a general rule of thumb, you should be paying anywhere between 1% to 3% of your revenue as your accounting costs. From $0 to $5,000,000, I use 3% of revenue to calculate the monthly fee. From $5,000,001 and up, I scale it down from 2%.
As an example, let's say that you have a $2,000,000 annual revenue business. Using the rule above, your yearly accounting costs should be around $60,000. This budgeted amount can be spread amongst a Staff Accountant and a higher level accountant or you can hire a Fractional CFO (Chief Financial Officer) to do the "soup to nuts" of your accounting.
A Fractional CFO lends their accounting services on a contractual or as needed basis. They provide their expertise to ensure that your financial data is organized and maintained accurately. Their role is to help you save and make as much as possible by providing the business analytics necessary to make profitable decisions (and file correct tax returns).
From journal entries and maintaining the accounting software to financing projects and overall margin increases, the Fractional CFO should be able to do everything that is needed in your business as far as the accounting and finances go.
The beneficial part of having a Fractional CFO on staff is that you are paying for exactly what you need which brings the accounting costs to a level that grows with your business without putting too much pressure on your cash flow.
Now, here's something to pay attention to. The value of the accountant needs to be viewed in terms of the money that is brought back into the business because the accountant exists.
Cost savings, revenue increases, and all the indirect benefits of having an accountant (i.e. someone is willing to buy your business because your accounting is correct and truthful), are all monetary benefits that an accountant should be bringing to your business.
This was a long rant but I am really trying to help you not make the mistakes I have seen others make.
If you have a bookkeeper or no one that is trained in accounting providing the month end close and financial analysis, please consider the reasons above as to why you need an accountant as a business owner. Start with a Fractional Accountant to start out easy.
Blue Collar CFO