When I first launched my business I was not sure what to do when it came to tracking my money. I even avoided it until the time came to filing my taxes. I bit the bullet and hired a pro (although I've done my own taxes through Turbo Tax for years) because there were too many moving pieces for me to track as a new business owner.
It would become one of the best decisions I've made for my business!
Hiring a professional to help you manage your money is something every business owner must decide upon eventually. Whether you hire a financial pro to help you or not, you are not ever absolved of the personal, legal and financial responsibility for managing your business's money legally, ethically and correctly. So, how do you know whether or not you should do it yourself, or hire a professional?
Let's take a minute to go over the choices:
D.I.Y. (Do It Yourself)
Doing it yourself means that you will keep the day-to-day books for your business, keeping track of income and expenses, saving receipts, and getting them ready for you to do your taxes yourself. Doing it yourself can also mean that you do everything else yourself mentioned above, but then turn over the paperwork to a tax professional or a CPA to do the rest.
Pros: Accountant versus CPA
Many people do not realize that you can be an accountant without having a CPA. The accountant usually has a degree in Accounting, and works in one or many specialties, such as payroll, in an accounting firm. CPAs are licensed by the state and must pass a comprehensive series of tests to show that they understand tax-related laws, and they must also engage in continuing education. When you have a choice, choose a CPA over an accountant. All CPAs are accountants but not all accountants are CPAs.
A bookkeeper is someone who has been trained and is sometimes licensed to perform the daily tasks of a journal entry. A bookkeeper is sometimes doing everything from A to Z (referred to as a “full charge” bookkeeper) or sometimes specializes in specific aspects of bookkeeping such as accounts payable, accounts receivable or specific journal entries. More than likely, a small business owner will want to hire a full – charge bookkeeper.
Pros: Tax Professional
You can find tax professionals at local tax offices such as H&R Block as well as Enrolled Agents (EA) who are certified by the IRS to represent taxpayers before the IRS. Some might argue that EAs know more than CPAs when it comes to representing people before the IRS on issues – because they have to understand taxes, inside and out, and they can practice nationally instead of just by state (great if you have an online business).
8 Questions to Ask Yourself
When you are choosing whether to do it yourself or hire a professional, you need to ask yourself the following questions.
1) Do I understand my rights and responsibilities? – If you've not bothered to read one single tax-related bit of information, or go to the IRS website to look into information about business taxes, you should probably outsource.
2) Are my taxes simple and straightforward? Is my business very small, with no contractors, no special licensing required, and do I earn less than $35,000 a year? – If so, you can probably get away with doing it yourself. However, you can get into trouble with not paying your quarterly taxes. If you cannot figure out how to do that, you need a professional.
3) Do I like numbers and playing around with numbers? – Enjoying numbers, and enjoying learning about all the ins and outs of accounting rules, is a really important factor when determining if you'll stick to keeping up to date with it. If you hate it, outsource it.
4) Do I understand tax laws? – As mentioned before, if you haven't read anything about taxes, and you've never even done your own taxes, why would you now think you should do your business bookkeeping and taxes? Don't do it. Hire a professional.
5) Do I own property and other investments? – How complicated is your return? If your personal return is already complicated enough to hire a tax professional such as H&R Block, or you do them using tax software but you really don't “get it” – please, hire a professional.
6) How good am I right now at keeping books up-to-date? – If you aren't that good, just pass it over to a professional. It's worth it.
7) Do I know without looking how much money I have right now in my wallet or my bank account? – No? Well, don't walk, run to your nearest CPA office and find someone to help you get back on track.
8) Does my business have super specialized rules regarding deductions? – Many rules and regulations change fast and often due to politics. If you're not willing to spend a substantial amount of time keeping informed, go hire a professional.
As you can see, it's probably best that you hire a professional to help you with your business-related income, expenses, and taxes. Especially if you are unfamiliar with updates in the law, have investments, or have a complicated case.
Remember that the more time you spend doing tasks for your business that don't earn you income, the more your income will decrease. When you can hand off tasks to others, you can boost your income enough to cover it. This can free you up to focus on generating money while others complete the tasks for you.
Plus, you can release some stress in the process.