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Just a Professional to Remain in Good Standing With the IRS?
Do not mistake an accountant for just a tax preparer. While most accounting professionals are quite knowledgeable with regards to the tax code as it pertains to entrepreneurs, small businesses and freelancers, these professionals do much more than merely preparing year-end tax returns. The Internal Revenue Service (IRS) highlights that it will accept professionally prepared tax returns from preparers who are not necessarily accountants.
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For the Freelancer: Accountant or Accounting Software?
If you are just starting out and you have one client, the odds are good that a well-designed spreadsheet program can manage to keep track of your income and expenses. Of course, this setup presupposes that you understand rudimentary bookkeeping principles, are committed to using accounting software and recognize that this setup can only be temporary at best. As soon as you increase your client base, or plan on growing the business, it is time to hire an accountant.
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What an Accountant Does for a Business
The Small Business Administration is adamant in its urgency for entrepreneurs to look to the services of an accountant sooner rather than later. They identify a number of business areas where the services of this professional actually help to grow the business.
- Monitoring cash flow. Tracking cash flow is as much a necessity as it is an art, but it is also a rather time-consuming enterprise. If you are an entrepreneur who is focusing on manufacturing widgets, selling them or interacting with customers, the added burden of cash flow tracking frequently falls by the wayside. As a result, budgeting is upside down, accounts receivables and payables are a mess and profits suffer.
- Obtaining financing. There is more to filling out a loan application from your neighborhood lending institution than meets the eye. The bank wants to know that you have a solid business plan and that your financial house is in order. Do you have the time and know-how to put together a persuasive portfolio of your business’ current fiscal health – and run the business to your fullest capacity at the same time? If you are looking to find an investor, would you know where to ask? Are you even hip to all the different types of cash infusions for which your business might be uniquely qualified? An accountant has this type of information – and more.
- Inventory control. Once again, there are plenty of apps for that. Even so, warehousing, obsolete inventory reporting and finding the balance between over-stocking and profitability is best accomplished on advice of a professional.
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Fringe Benefits of the Business Relationship
Aside from the already stated reasons for getting the professional onboard with your small business, there are some fringe benefits that will grow you as an entrepreneur. For example, if your preferred method of record-keeping involves a large shoebox stuffed with receipts, the accountant is sure to quickly train you in a 21st century method of expense tracking.
By working with the professional, you are also quick to catch on how some business decisions affect the venture as a whole, especially the cash flow. Areas of improvement and change become easily apparent, even as accountant works up cash flow reports for your perusal.
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Finding the Right Accountant for a Business
A big accounting firm that specializes in multi-national corporations is probably not going to be a good fit for a freshly minted entrepreneur. Hire an accountant who specializes in working with entrepreneurs, start-ups, small businesses and also freelancers.
Choose a certified public accountant (CPA) -- as opposed to a professional who has not sat for the exam -- if you anticipate this professional to undertake company audits in the near future. (The American Institute of CPAs offers state association information to get you in touch with professionals in your geographic area.) If your business is far too small to even think of audits at this stage, the CPA exam really makes no difference to you.
When interviewing potential firms or individual professionals, make sure you can work with the person. Matching personalities are of great advantage when entrusting someone else with the business paperwork. For example, the Type A personality entrepreneur wants answers – now. The laid back “surfer dude" accountant will get them to you – later. Not surprisingly, this working relationship is doomed from the beginning.
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By now it is clear that the money you initially save pales in comparison to the influx of cash that the advice of a good accounting professional could generate. Do not shortchange yourself but go out and hire an accountant to take over the fiscal aspects of your business; your competition is doing it, and so should you.
- IRS, http://www.irs.gov/individuals/article/0,,id=133088,00.html
- U.S. Small Business Administration, http://community.sba.gov/community/blogs/guest-blogs/industry-word/5-things-talk-your-accountant-about
- Photo Credits: “Cost-Volume-Profit diagram" by Nils R. Barth/Wikimedia Commons via public domain license; “Marginal Costing Structure Flow" by B England/Wikimedia Commons via GNU Free Documentation License, Version 1.2; “General Ledger Accounting cycle" by Club-oracle/Wikimedia Commons via Creative Commons Attribution-Share Alike 3.0 license
- American Instituteof CPAs, http://www.aicpa.org/Research/ExternalLinks/Pages/AssociationsStateCPALinks.aspx