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The Importance of a Small Business Accountant
Small businesses are integral in the economy despite their seemingly small size. And proper accounting helps form the foundation for a financially healthy business. The role of a small business accountant is to keep track of the company’s finances, manage cash flow, and handle tax compliance matters.
A proper accounting process also helps the business to be organized by keeping accurate records of all financial transactions on a timely basis. But why is it vital for financial records to be accurate and up to date?
Business owners know that having timely and accurate financial records helps them make better and more informed business decisions. Their records will show which areas are more or less profitable and potential areas of opportunity. Good financial statements will help you decide when to invest or cut certain expenses, as well as keeping track of borrowing and other obligations.
Any business operating in Canada is required by the government, through Canada Revenue Agency (CRA), to keep accurate and up-to-date financial records and file this information regularly with CRA to comply with tax reporting requirements.
Overall, keeping a close eye on your finances is key to the sustainable growth of any business, as well as meeting your legal obligations. A small business accountant can help you achieve it.
The Functions Of A Small Business Accountant
Accountants play crucial roles and functions in a business. These are the areas that a small business accountant near me will typically handle:
- Financial transaction tracking and recording
Accountants track and record all the business’s financial transactions, such as purchases, sales, and bank deposits, uploading them into the accounting system.
- Financial reporting
One of the most crucial tasks of an accountant is to prepare periodic reports on the business’s financial health, such as the balance sheet, income statement and cash flow statement. These could be monthly, quarterly or annually, depending on the needs of the business.
It is crucial since the Canada Revenue Agency requires businesses to produce accurate financial records and statements.
- Tax planning and compliance
Speaking of government regulations, an accountant who provides tax services will also help ensure that businesses are compliant with Canadian tax regulations. This is where having a good accountant can help with your tax planning as a small business owner as well as avoid penalties and fines.
- Financial strategy advisory
Small business accountants can provide tax, accounting and financial advice to their clients. They can help your small business with a wide variety of matters, including analyzing potential business expansions and major capital investments, improving business policies and controls, optimizing cash flow, and crafting risk management plans.
In-house Accountant vs External Accountant?
For some businesses, it makes sense to hire an in-house accountant who will work solely for them, while for many others it makes more sense to work with an accountant from an external accounting firm offering a range of services.
An in-house accountant will typically help maintain the business’s financial records – bookkeeping and financial reporting. They may also perform duties such as payroll management, accounts payable, accounts receivable, tax preparation, tax advice, and drafting financial statements.
The advantage of working with an in-house accountant is they are always available. They work onsite, and they are familiar with the business’s ins and out. But even if you have in-house accounting staff, you’ll likely still need an external accountant to sign off on preparing your financial statements and to complete your corporate tax returns. Given the complexity of corporate tax, few small businesses have the necessary in-house expertise, so they require outside professional accounting help.
Would you rather have your corporate tax return prepared by your in-house accountant who handles one return a year (yours) or the external accounting firm which handles hundreds of similar returns every year?
Small business owners could also get accounting services for your small business from external CPA firms. They can typically do everything an in-house tax accountant can do, just with potentially less familiarity with the business.
Nevertheless, external accounting firms are flexible, meaning they can provide a range of accounting services with deep expertise.
READ MORE: 7 Questions to Ask Your Accountant Before You Hire Them
PART I: All You Need To Know About Hiring A Small Business Accounting Professional
Entrepreneurs often look for a small business accountant who can manage their business’s finances and tax obligations. Here are some of their reasons.
4 Reasons Why You Should Hire A Small Business Accountant This 2024
A small business accountant helps your business by completing a number of critical tasks, such as handling your financial matters, managing your payroll, dealing with tax preparation and filing, and meeting your business’s tax obligations.
Here are the reasons why your business needs an accountant:
Save time and money
Yes, you always have the option to do your own bookkeeping, financial reporting and potentially even taxes on your own, especially if you are familiar with the ins and outs. But it also means dividing your attention between growing the businesses and financial management.
One of the primary reasons why entrepreneurs choose to hire a small business accountant or get tax and accounting services is so they can spend their time on the most valuable activities such as managing their business while the accountant helps oversee the finances. Hence, entrepreneurs can focus on addressing more vital issues affecting business operations.
Some entrepreneurs will manage their own business finances in order to save money, which can work while the business is very small, but only up to a point. Unfortunately, a lot of the time, the opposite happens. Our experience is that business owners who manage their own finances, particularly corporate tax, often end up spending more time and money due to penalties and interest courtesy of CRA. This commonly stems from a lack of knowledge of tax rules, missed filing deadlines and disallowed deductions.
Professional experience and access to different areas of expertise
Most business owners we meet admit that they are not as proficient and knowledgeable as professional small business accountants when it comes to accounting and taxation.
Small business accountants have extensive experience and training in preparing and ensuring all financial documents are accurate as well as complying with the legal requirements, helping ensure that taxes are paid on time, evaluating financial operations, and designing cost-reduction solutions. Businesses can benefit from this professional experience by hiring an accountant for small business.
But you may be wondering, is it the same with outsourcing your accounting services? Basically, outsourcing accounting services is partnering up with an accounting firm for them to perform specific services instead of hiring an accountant directly employed by your business.
The issue with in-house accountants tends to be a limited area of expertise. Few accountants are masters at everything. For example, your in-house accountant may be very skilled at financial reporting, tax laws, and cost reduction strategies, but may not be an expert when it comes to corporate taxes and payroll. This means you may have to supplement your in-house accountant with the services of an external CPA firm or hire yet another internal accountant to fill in the gaps in expertise.
By partnering with an external accounting firm, you can generally get access to the most experienced accounting and tax experts available. Also, firms are more scalable than in-house teams since they already have the staff available and can tailor it to your business needs.
Manage your bookkeeping and create an effective accounting system
One of the reasons why entrepreneurs work with small business accountants is to be able to manage and optimize bookkeeping and have an efficient accounting system in place. Why do all these things matter?
To begin with, an effective accounting system helps provide good actionable financial information. With accurate records, entrepreneurs know which areas are profitable and where they may be losing money.
But the better question is: how do small business accountants implement an airtight accounting system? The key is accounting software and proper setup.
For example, software and tools, like QuickBooks, Xero, FreshBooks, and Sage help accountants manage track income, expenses, invoicing and inventory, as well as assisting with tax reporting.
DISCOVER: 4 Best Accounting Software Options For Small Businesses Recommended by a CPA
Advisory services
You’ll have to take our word on this, but we believe most businesses could benefit from the value add expertise of a good small business accountant. Most accounting firms also provide advisory services. But what exactly are advisory services?
Small business accountants can also provide business advisory in addition to basic business accounting services, including providing recommendations, detailed advice and analysis based on their technical and market knowledge, as well as experience with similar clients.
This advice can be hugely valuable for business owners and come with the added benefit of an outside perspective. A business owner could be working through a number of challenges that an accountant has encountered before with numerous clients. For example, what is the best way to structure a sales commission plan or when is the right time for the business to make major capital investments or pursue an acquisition? A CPA may provide insight into the financial health of your business and market conditions to help inform vitally important business decisions.
Entrepreneurs are sometimes confused when it comes to more complex financial matters such as bank covenants and financial ratios. Not having a strong understanding can make it harder to make good decisions. Having a competent accountant to help you can mitigate these challenges and provide businesses with a fresh outside perspective.
Audit support
Audit support is help from an accountant when your accounts are being checked by a tax authority, like the Canada Revenue Agency (CRA).
An audit is like a financial health check. It’s when the CRA does a detailed check of your accounts. They might choose to check your business for several reasons, like if they spot something odd in your tax return, or sometimes, it’s just random.
Any business can be audited, but not all are. The CRA chooses businesses based on things like their size, what they do, their income, and if they’ve been audited before.
Audits can happen any time but usually happen after you file a tax return. The CRA can check your tax returns from the last four years.
The Audit Report is a report made by the auditor (the person doing the check). It tells you what they looked at, what they did, and whether they think your financial statements are correct.
During an audit, an accountant can make things easier. They can help get together the documents you need, give advice on what to do during the audit, and even talk to the CRA for you. Having an accountant can make the whole process less stressful and make sure you’re treated fairly.
So, while audits might seem scary, having an accountant on your side can help make sure things go smoothly.
Now that you know the reasons why you should hire a Chartered Professional Accountant for your small business, it is time to learn how you can find them.
How To Find A Small Business Accountant In Canada
There are a lot of Chartered Professional Accountants in Canada. The challenge for business owners is to find the best small business accountant for them. Here’s how they can do it.
- Know where to look
You can find your accountant or accounting firm in several ways.
- Internet
Google search is the most common way and with a few clicks, you can find accountants near you. There are also reliable accounting websites like CPA Guide that not only provide a searchable directory of accounting firms, but they can also help match you with the right accountant for your small business that best fits your needs.
Additionally, many accounting firms have websites where they can reach new clients, provide information about the firm and its staff and even share documents securely. Firms are becoming increasingly more sophisticated with their websites, particularly virtual firms that operate exclusively online. Interestingly, there are still a surprising number of accounting firms with no website at all.
- Provincial CPA organizations
You can also find accountants on the website of your provincial CPA organization. All of the provinces differ in the information they provide, but all of them provide some sort of a listing or searchable directory of registered firms. For example, CPA Ontario provides a directory for members and firms in the province.
- Referrals
You can ask your friends, relatives, and colleagues about their accounting service recommendations. Have they worked with a small business accountant before? They can give you names which can act as a good starting point to do your research.
The good thing about word of mouth is you can generally rest assured that the recommended firms provide excellent service. Otherwise, your contact would not have recommended them at all.
- Try local firms
If you want to narrow down your search, you can start with your local area. Many clients prefer working with accountants who provide accounting services near their vicinity, especially since working with them may require frequent face-to-face meetings. Hence, hiring an accountant located outside your city could require you to travel frequently if you’d like to meet in person.
However, you can also hire a virtual accounting firm which exclusively provides online accounting services. As you might expect, with a virtual firm all meetings are done online and your accountant works remotely, so you could work with them for years without ever meeting them in person.
- Interview your candidates
Once you have a list of your candidates, interviewing them can help you find the best one for you. The interview matters because it is an opportunity to assess expertise and fit. Here are the things you can check during the interview:
- Qualifications
You can test your accountant’s knowledge and expertise by asking them to walk you through their credentials. Are they members of professional organizations? Do they have accounting designations? If you’re meeting with an external accounting firm, ask who would be your primary contact.
Among the qualifications you should look for are:
- Industry knowledge and business acumen
- Experience with similar clients
- Proficiency in the latest accounting tools
- Ethical conduct
- Communication skills
- Working style and fit
It is crucial to work with accountants and firms with a working style that is in sync with your own. Are they collaborative with you? Do they maintain open and proactive communication? Having a complementary personality helps build stronger relationships and trust between you and your accountant.
Also, look for the little things. Are they punctual during meetings? How do they handle deadlines? Do they own up to their mistakes?
Lastly, the interview is your way to assess if your accountant or firm can offer value above the basic services they are hired to provide. Do they have truly useful insights they can offer for your business that can translate into more growth and profits?
READ MORE: The Ultimate Guide to Finding Accounting and Tax Services in Canada
PART II: The Cost Of Hiring Accountants For Small Business
Small Business Accountant – The Costs
A common question small business owners ask is how much is the service of a small business accountant near me. There are significant differences in cost between an in-house accountant and an external accounting firm. Here is a quick pricing comparison.
| In-House Accountant | External Accounting Firm | |
| Payment structure | In-house accountants are typically salaried employees, but they can also be hourly. As with any employee on payroll, the employer is responsible for government remittances like CPP and EI. | External accounting firms most commonly charge hourly rates for their service. They may also have a fixed fee for project-based accounting or use value pricing |
| Training and development costs | The business will typically provide training or pay for external courses to maintain skills and satisfy the CPA’s professional development requirements. | The firms are responsible for training their staff and do a pretty good job of it. You can be reasonably sure that if you’re working with a CPA from an external accounting firm, they attend regular training. |
| Overhead costs | You provide your in-house accountant with everything they might need, including tools such as their computer and required accounting software. You might also provide working space in the office for onsite work. | Other than potentially providing a small work area if they require access to onsite records, you’re not responsible for any overhead the external CPA might need. |
How Can I Reduce My Accounting Costs?
We know how tight budgets can be and business owners are always trying to stretch each dollar as far as possible. Here are some potential strategies to reduce accounting costs.
Find the right person for the job
Generally, if you want a stress-free accounting process in your business, the smartest choice is to find a small business accountant near me. But if you need a person who will take care of basic recording and tracking financial transactions, hiring a bookkeeper instead of a CPA can be a cost-effective choice given that bookkeepers tend to charge less. You can then hire a CPA later for review.
However, keep in mind that it does not always work. For instance, if the accounting work becomes too complex and beyond the bookkeeper’s technical expertise, it is better to hire a CPA. Also, the bookkeeper’s work may need some rework and corrections when the CPA uses the information to prepare financial statements and file the tax returns.
Be clear on your needs
It is crucial for you to identify their accounting needs. For instance, retaining the services of an accounting firm to deliver weekly financial reports for your small business with few transactions may be unnecessary when monthly would work just fine. Similarly, working with the top corporate tax expert from a prestigious firm may not be necessary or provide much added value if you’re a startup company with zero revenue.
Learn how to use the best accounting tools
It’s 2024 and there is no shortage of accounting tools and software to help automate or at least streamline your accounting processes. For instance, you could use tools to automatically process payroll, track time, and record transactions. So instead of hiring a CPA or bookkeeper to complete these tasks, first figure out if technology solutions exist to streamline the process.
Start preparing in advance
Putting off financial tasks until the last minute can result in hasty preparation, which can lead to mistakes, oversights, and missed opportunities for tax savings. Moreover, if you’re using an accountant and they need to work overtime to meet your deadlines, you might be charged extra rush fees.
It’s recommended to keep your financial records updated throughout the year. This makes it easier to compile necessary information when it’s time to prepare annual tax returns or financial reports.
In terms of how early you should start preparing, it largely depends on the complexity of your financial situation. But generally, it’s a good idea to start organizing your tax documents at least a month or two in advance of the tax filing deadline.
Understand the billing system
Understanding the billing methods is crucial for managing your expenses effectively. Accounting firms typically use several billing systems, including retainers, hourly rates, monthly fees, or fixed rates.
- Retainer: A retainer is an upfront fee paid to the accountant for a set number of hours of work. Any work beyond these hours is typically billed separately.
- Hourly Rates: With this system, you pay for each hour the accountant works on your accounts. Rates vary based on the complexity of work and the accountant’s expertise.
- Monthly Fees: Some accountants charge a monthly fee for a package of services. This can be a cost-effective choice for businesses that require ongoing accounting services.
- Fixed Rates: For specific projects or tasks, an accountant might charge a fixed rate. This gives you the certainty of knowing upfront what the service will cost.
Each billing system can affect your costs. Hourly rates can get expensive if tasks take longer than expected. With a retainer, you might end up paying for time you didn’t need. Monthly fees can be a good deal if you’re using all the services included.
For small businesses, fixed rates or monthly fees are often the most cost-effective choices. Fixed rates give you a set cost for a task, while monthly fees can cover all your ongoing accounting needs at a lower total cost. But remember, the best system depends on what your business needs. Make sure to talk through these options with any accounting firm you’re considering.
Can’t I just do my own accounting?
You are free to do accounting yourself, but you must consider your expertise and skill sets. For example, there are basic accounting tasks that are easy to learn and can be done on your own, such as tax filing, bookkeeping or keeping financial transaction records.
However, when it comes to more complex and specific tasks, such as corporate tax, it is better to let a small business accountant with expertise and knowledge in that matter do the work.
You should also consider changes in their business situation. For example, as the business grows, the workload and complexity of recording financial transactions will also grow. It can be overwhelming for you to handle the work alone. Hence, the smarter choice is to get a CPA.
If you’re looking for financial statements that are signed off by an accountant, this is an example of a service you’ll have to get from an external accounting firm. Only registered CPA firms can sign off on prepared financial statements – either as a compilation engagement, review or audit.
RELATED: Useful Resources and Tools
The Big Question: What Happens to My Business Long Term If I Don’t Hire a Small Business Accountant Near Me Now?
There are business owners and entrepreneurs who haven’t hired an accountant or accounting firm yet. There are tons of possible reasons why. It could be due to the cost of accounting and tax services. Or maybe the accounting tasks are manageable to do on their own.
Although it is possible for entrepreneurs to do the accounting on their own in addition to running a small business, they should still understand the implications of doing so.
Simply put, as a business owner, accounting tasks are likely not the highest and best use of your time. You may be able to manage your business finances by yourself, but as your business grows, things can quickly become overwhelming. As the numbers get larger, the risk and potential cost of making errors increases, particularly related to taxes and regulatory. Perhaps most importantly, if you’re not confident in the financial information you have at your fingertips as a small business owner, how can you be confident that you are making the best business decisions?
Therefore, hiring an accounting professional is ideal if you want a healthy and growing business. Accounting firms offer a wide range of accounting services, from bookkeeping to tax return preparation. And the challenge for you as an entrepreneur is finding the right accountant for your business.
RELATED: The Benefits of Outsourcing Accounting Services For Your Small Business
Find A Small Business Accountant With CPA Guide
CPA Guide provides the most advanced searchable directory of professional accountants across Canada. CPA Guide matches you with the CPA for your business needs, whether it be bookkeeping services, financial advice, financial reporting, and tax preparation. Let us find the right small business accountant for you.
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