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When Is It Time For Your Startup To Stop Relying On In-House Accounting?

by Ryan Stevens, head of operations for Clutch

As your business grows, you may no longer have time or expertise to effectively manage your finances.

According to Score, 40% of small business owners say bookkeeping and taxes are the worst part of owning a business.

The demands of bookkeeping can leave you short on time for meaningful work. As accounting becomes more complex, you may overlook the broader financial trends and areas of opportunity for your business.

It’s difficult for a growing company to maintain financial visibility, but this is the best time to seek outside help.

Working with an accounting professional can help you to save valuable time, avoid costly mistakes with taxes and compliance, and capitalize on the insights in your financial records.

How, though, can you recognize when your business needs help with accounting?

Use this article to identify when you should seek outside accounting help and how to approach finding the right fit.

1. Make a Decision About Which Accounting Method to Use to Track Your Finances.

To start, you need to determine which accounting system works best for your needs – cash versus accrual.

Cash accounting records income when received and records expenses when paid.

By contrast, accrual accounting records income when earned and records expenses when incurred, not when money is exchanged.

Most small businesses use cash accounting because it’s the easiest way to track cash flow. Since transactions are recorded at payment, you can track your cash position without adjusting the dates for your bills or invoices.

Cash accounting, though, makes it difficult to track your company’s profitability from month to month.

Accrual accounting, on the other hand, allows you to monitor the performance of your business accurately from month to month. This is because work billed in May but paid for in June shows up in May, and the same goes for expenses.

With accurate financial data, you can better forecast, budget, and make business decisions based on your cash position.

As such, accrual accounting is a good system to rely on when to determine  financial clarity and profitability.

If you’re going to be fundraising or applying for a loan, you’ll need to offer up financial information based on accrual-based reporting.

Similarly, if you’ve earned more than $25 million in gross revenue in the past 3 years, the IRS requires you to use accrual accounting when filing taxes.

Accrual accounting is more accurate than cash accounting but it requires extra effort. If keeping up with your finances is overly time-consuming, you can seek help from an accounting professional.

2. Review Your Accounting Tools.

Expect to update your accounting tools as your business becomes more financially complex.

Excel, for example, is infeasible for companies of a certain size due to the effort and time needed to manually edit the spreadsheet. Meanwhile, as more time is spent on data entry, the likelihood of making costly errors increases.

This time would be better spent reviewing financial data and gleaning insights to inform your strategic decisions.

“I don’t want financial planning people spending their time importing and exporting and manipulating data, I want them to focus on what is the data telling us,” said Mark Garret, CFO at Adobe.

Unlike Excel, even simple accounting software such as Quickbooks can help to manage and report on your company’s finances in a largely automated fashion. These programs also provide time-saving features and visualizations to help you understand your business accounts at a glance.

Businesses who adopt these tools can hire an accounting professional to help them learn the software and establish new processes.

3. Choose Your Ideal Accounting Resource.

Accounting solutions exist for businesses of every size. Three key options to consider include:

Accounting software helps you to manage your finances in-house with minimal effort. These solutions automate many accounting processes while helping you to visualize and report upon key metrics in a timely fashion.

Accounting consultants can provide specific assistance in the short-term. For example, a consultant can help you switch to an accrual accounting system, apply for a loan or file taxes after a busy year.

Full-service accounting firms handle your entire accounting operation. These firms look after the details of payroll, taxes, and payments so you can focus on the big-picture actions to keep your business growing.

As a full-service solution, an accounting firm can answer complex questions as they arise, interpret complex financial data, and offer guidance to help you make the smart and solvent decisions.

Each type of accounting solution, details a distinction in cost and involvement. Make sure you consider these factors when reviewing your options.

4. Choosing New Help with Accounting.

At a certain size, a business must upgrade its accounting processes. Doing so helps to free up valuable time, mitigate legal risk, and realize new financial opportunities.

Accountants, whether a consultant or a firm, can help you to streamline your finances and turn insights into sound business decisions.

 

Ryan Stevens is head of operations for Clutch, a data and content-driven platform for B2B research, ratings, and reviews. He manages business and market analysis functions for all of Clutch’s areas of business services research

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