Small business growth is great, but it does come with challenges. More revenue, profit, and investments in the future of your business lead to more complex accounting needs.
Although this may seem intimidating, you can manage these changes as long as you have a solid accounting infrastructure. This leads to an important question, however: Should a professional accountant (such as a Certified Public Accountant, or CPA) handle your accounting needs, or can you get by with an accounting software solution?
Accountants—especially those that work in-house and full-time—cost way more than a subscription to an accounting software. They also offer a personalized, big picture approach that goes beyond number-crunching. You could handle your accounting needs yourself, but unless you have prior experience and can put in the time, your focus is better spent elsewhere.
Ultimately, there are pros and cons to either hiring an accountant or subscribing to a software platform. The best option for your business depends on what you’re looking for at the moment. The accounting needs of a new business aren’t the same as those of a well-established startup. Read on to learn more.
When to use accounting software
Accounting software is especially robust and accessible today. Most industry-leading tools have affordable plans for businesses of all sizes, and can handle a wide range of bookkeeping, accounting, and even tax-related tasks. In this way, accounting software is valuable as a budget-friendly, time-saving tool for managing your business finances.
Every business needs a comprehensive budget that accounts for multiple timeframes. Regardless of the size or the age of your business, it’s important to have a clear vision of how much money you have to spend, and how you’re likely to spend it each quarter and year.
Most accounting software has integrated budgeting that you can adjust as needed with your expected income and expenses. (For what it’s worth, accounting software itself usually costs a flat monthly fee—which makes it easier to budget for.)
The takeaway here is that budgeting is easy, adaptable, and predictable with accounting software. Working with an accountant may have variable fees depending on your needs.
If you’re going to hire an accountant to simply process invoices, handle reimbursements, and keep track of your bank statements, your money could be better used towards paying for software.
Software makes it easy to upload all of your financial documents and create reports, providing a secure backup of your records and automatically syncing all of your various accounts. (This, in turn, makes budgeting especially easy.) When everything is accessible, downloadable, and transferable, you’ll have a clearer view of your finances and you’ll be able to report them (to investors, lenders, partners, or others) when needed.
Similarly, accounting software automates invoicing clients, paying employees, and other repetitive tasks. With these tasks out of the way, you’ll avoid variable accountant fees and save yourself time.
When to hire an accountant
The primary reason to hire an accountant, on the other hand, is that you need a human touch. Larger companies and independent contractors with a variable income may both require a personalized approach.
One of the best things an accountant can do for your business is create a custom financial plan. This goes beyond a budget and may include investment advice, portfolio diversification, and general business guidance. A great accountant is more like a personal advisor who gets to know you and your business, and can help you make smarter, more informed decisions.
If you have specific financial goals for the quarter or year, an accountant can help you reach them. They can help you allocate funds wisely to different parts of your business and reduce overlooked waste. No software can work with you to define responsible goals and develop a step-by-step plan to reach them.
This being said, accountants shouldn’t necessarily supersede software, as digitized books will help them gain insight into your business’s funds and create a plan. You may only need a lower-cost plan if an accountant will have access to the software.
Tax season is time-consuming and complicated for everyone. Small business owners and independent contractors are no exception. Although you can use accounting or tax software to file your taxes, doing so is time-consuming. Plus, unless you have prior tax experience, you’re more likely to make costly mistakes. On the other hand, an accountant who knows your business will understand exactly what you need to file, which tax breaks are relevant to your business, and how to maximize your refund.
Additionally, when it comes to the IRS, you don’t want to take any chances. An accountant can help you mitigate the risks of a tax audit or getting penalized on your filing. By correctly preparing and submitting your tax documents, you can save money and free up capital for your business.
In the event that you are audited, an accountant can help you navigate the process. Many accountants offer audit insurance which covers the fees your business would normally be responsible for if you’re subjected to an audit. That means you won’t owe the accountant for the work they’ll put in to resolve the audit.
The bottom line
The time you spend managing your finances and keeping your books up to date is time you could be devoting to growing your business. Accounting software and accountants each offer innovative, time-saving solutions that ultimately increase your bottom line. However, there are pros and cons to each—as well as possible benefits and drawbacks to using both. It’s up to you to determine which option makes more sense for your business at any given time.