Do You Need an Accountant If Self Employed?

Do I Need an Accountant If Self Employed? | Accounting Smarts
Charles Hall

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Charles Hall

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March 1, 2021

Many self-employed individuals may struggle with the less fun side of owning a business and juggling all the bookkeeping and accounting requirements.

Many self-employed individuals may struggle with the less fun side of owning a business and juggling all the bookkeeping and accounting requirements.

It can be difficult to worry about paying every bill on time and keeping track of small expenses. Accountants can significantly reduce the burden on your shoulders.

In many cases, a self-employed individual will benefit from hiring an accountant. Having an accountant will let you focus more on growing and expanding your business as well as having access to a financial advisor for making better financial decisions.

Many small business owners feel they are merely juggling every aspect of their business. If this is the case you probably need an accountant. The last thing a company wants is the quality or quantity of the service/product going downhill because your business is pulling you in too many directions. 

Read on to learn what accountants will do for you and how they can benefit your business.

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What Work Will an Accountant Do?

Accountants will handle all the financial aspects of your business. If you can afford to hire an accountant, it certainly will not hurt you. For the most part, they will only benefit you and let you give your full attention to your business. Your business will thrive, and there will be no need to worry about finances, which for many will be a huge stress relief. 

Accountants are not just there to keep track of a few numbers and send out checks. While they can do the routine tasks, you can also give them full reign of your finances. They can do much more than you realize for your business and even give you great advice. Being self-employed puts a lot of weight onto your shoulders, so to reduce some of the load, hire an accountant to take care of at least one aspect of your business. 

Some of the jobs an accountant will do for you are:

Taking Care of Invoices

Your accountant will send invoices to clients promptly with the correct amount. Accountants will keep track of any invoices and keep them organized to ensure there are no invoices forgotten. Whether it's a client invoice or an invoice that your business needs to pay, they all need to be paid at the right time. 

If all of the invoices are paid too early, it could take too much of your monthly money before you have more money coming in. If you are out of money too soon, you could cause you or any of your employees not to get paid. If they are spent late, you could lose business and lose money. 

Your accountant can also help lower your expenses. They will be able to pinpoint where your business could stand to cut costs. Your accountant can also help you start a savings account and have a decent cash flow.

Pay Bills

If you have a brick-and-mortar type of location, you need to make sure your power, water, sewer, gas, trash, and all utilities are always paid in full. Even if the money is in the bank, but you miss a bill, it makes your business look awfully bad. Missed bills can also start to tank your credit. It is straightforward to destroy your credit, but it can be tough to get it to come back up.

From the outside, looking in it may make you look less legitimate or of lower quality than your business truly is when you have many unpaid bills. When and if you need a loan, banks will be less likely to grant you one, or you could be stuck with a high-interest rate. Neither of which is useful when your business badly needs a loan

Your accountant will keep all your accounts in good standing, meaning no late fees (which can really add up quickly.) This also means no disconnect fees or lost business due to lack of utilities. In this case, it also means they can pay employees and keep track of everything to do with managing your payroll. 

Keeping Track of Important Documents

Filing and keeping track of all documents to do with your business is an essential part of your accountant's job. Many forms may not seem important in the long run, but they are. Your accountant will know all of the right documents to have and keep track of everything, including:

  • All of your invoices going out or coming in
  • Copies of all bank statements
  • Copies of all credit card statements
  • Employee information and everything they need to perform the tasks associated with payroll (if there are employees)
  • Licenses, certifications, and any other credentials
  • Receipts for any purchases made for the business (can be used for tax write-offs and deductions)
  • Recording all aspects of your payroll
  • Sales income records
  • Tax documents

Giving Financial Advice 

Accountants can propose business plans to you if you would like. They will do a risk analysis and figure out what you may need to do to better your business for the future. Any questions you will have throughout the year, you can ask them. Most accountants will be able to answer or help with any related financial situations that come up. Your accountant is the best person to give you financial advice. 

Filing Your Taxes 

Filing taxes on time and correctly knowing how to complete self-employment taxes (which differ from traditional taxes) is a bigger deal than you may think. Self-employment taxes may seem confusing when you have only dealt with your own personal tax situation. Your accountant will prepare all of your accounts for tax season and file your returns on your behalf. They can also help you with taxes throughout the year if you had questions and give you advice.

As mentioned above, they will keep track of all expenses and receipts. They will help you get any tax credit possible and write-offs or tax deductions as much as they can. 

Referrals

This is a bonus when hiring an accountant. Most accountants will have many clients or work for an accounting firm with many clients. Even when they are no longer clients of that firm, they may stay in contact with their former accountant. This can be a very great thing for you and your business. 

Accountants can contact you about a different client who may be able to work together with you and allow both businesses to grow. They will not give personal information out without asking you. They may simply mention to both parties about their idea to trade contact information and let you both decide. Teaming up with a business that compliments your business can make a very successful company. 

Keeping Your Business Legal

Accountants will make sure to keep your business up to date, legally. They will file any required: 

  • Permits 
  • Certifications
  • Licenses

There are many legal obligations that a company, even more so a self-employed individual, need to follow. 

Accountants – When Are They Needed?

When one person takes on many roles in any business type, big or small, every part can suffer. Being self-employed is so much more than just running your own business. You want to enjoy the side that you set out to do and not have to worry about every little financial part. There are many different situations where an accountant is needed. A few cases are that you may run into would be among the following list.

Making A Mistake on Your Taxes

Filing your taxes incorrectly can cost you a lot of money. Having someone who knows all the ins and outs of self-employment taxes can quickly fly through them while you would still be wondering if you are doing the right thing.

Forgetting to Pay Bills or Invoices

One easy way to hurt your business financially and get a bad reputation is failing to pay invoices for other companies/individuals. With an accountant, they will know every bill and deliver them promptly every time. 

Falling Behind on Orders/Services

Wanting to be self-employed seems to be all about being your own boss and doing things on your own. It is ok to hand off some of the work to someone else skilled in doing that job. If you were to take on more than you and handle, you could easily find yourself falling behind on the services or products you provide.

As mentioned above, an accountant will quickly tackle the job and leave you to master the jobs you want and need to do. The jobs you sought out to do when you decided to become self-employed. They will make life so much easier for you and create a smoother business.

Losing Money or Clients

This goes along with the situation mentioned above. When you fall behind in your business, you can have clients leave. They can smoothly go somewhere else in instances when they are: 

  • Not paid on time 
  • The service/product is late
  • The service/product is not up to par with your standards 

Not Keeping Track of All Expenses

It is hard enough to keep your personal and business life organized. When you then throw in all of the information that Accountants will have far more knowledge about than the average business owner, it's best to remember that's their job; their profession, and they are good at it. Let the accountant take the stress off you and allow your business to thrive. By hiring your accountant, you get the privilege of creating a job while being able to do what you set out to do far better.

How to Choose an Accountant

When picking an accountant, there are some things to keep in mind. You don't want to choose the first name that pops up in a search. Do a little research first. After all, this person will be dealing with your money and sensitive material. Lack of a worst-case research scenario could cripple your business. 

Qualifications

A college degree. It doesn't matter what school (as long as it's a real school). Accountants can have an associate's degree (two years) or a bachelor's degree (four years). Depending on what you need, you can look at what specific tasks your account may be qualified to perform. 

Many accountants choose to go for different certifications to further their careers. This can make it even easier to narrow down which one you want to select. You can choose which accountant fits your needs. These certifications can be broad or very specialized in particular areas. 

Other training areas can include different software programs. Computers skills are essential. Technology is ever-expanding, and you need an accountant who is up to date with every bit of software they will need to use to handle your finances efficiently. 

Recommendations 

A great tip when thinking about hiring someone for any job is to look into their recommendations by:

  • Checking into their business site
  • Look for any and all reviews of their performance
  • Does their site look legitimate, and is it regularly updated
  • Word of mouth
  • This is one of the easiest ways to find a potential employee. 
  • If you personally know someone enough to trust their judgment and give you a name of a person or company they have used before. It's a great place to start.
  • With this, you are not searching for long
  • A simple post on social media asking can be beneficial also

Past Work

It is also imperative to look at past work. While there are always accountants fresh out of school, some people may not want to be the first person they take on. The choice is entirely up to you. If the person seems like a great fit and everything checks out, there is no reason you shouldn't give them a chance.

If you would instead get a more established accountant, that is a good option also. Seeing that your potential accountant has had many clients or even still has a few can put you at ease. It seems like a huge risk, but with a little research, the risk of getting scammed is not as likely. The more you research, the lower the chance is.

How Much Will It Cost to Have an Accountant? 

Pricing for accountants will vary by state, town, and individual.  There are many things to consider when talking about expenses. Let's look at a few other situations when considering what accountants will charge: 

  • By the hour
  • The job needed
  • Monthly
  • Yearly

It is a good idea to make sure anyone you do business with is very open about their fee structure. The last thing you want is to be blindsided by a large bill. On average, in the United States, you may pay around $30 an hour. The bottom line, though, is that it all depends on what will be expected of them.

Area Where You Live

If you live in a rural area, a small-town local accountant will generally be far less expensive than an accountant in a large city like New York or Chicago. Shop around for an accountant that meets your budget needs. 

Experience

Accountants just starting out or an accountant with only a handful of clients can have lower rates than an accountant of ten plus years. Some accountants have many different certifications and can specialize in a wide range of bonuses they could bring to your business. This could increase their rate. If they are a CPA (certified public accountant), they can charge more than those that are not certified.

Business Size

There's a big difference between if you are the only person who works in your business or if you employ twenty employees. If you only have your accountant to file your yearly taxes, this should not cause a significant change in price. A large business with many employees will take more time and effort to keep everything organized.

Your Needs

There are a few situations that most people choose to hire an accountant:

  • When they need their taxes organized and filed each year
  • To take over the books and every financial aspect of your business
  • To handle payroll, sending checks and employee information

If you need a yearly accountant for your taxes, you can, on average, around $100 to $300. Payroll companies can charge about $30 to $200 as their base fee. You will most likely also need to pay a fee per employee. On average, you can expect to pay anywhere from $2 up to $15 a person. 

Accountants – Knowing the Laws

No matter what job you do or if you are self-employed, taxes will need to be paid. You do not want to mess with the government/IRS. Please do not mess around when it comes to owing tax money. Tax fraud can not only bankrupt you but can also send you to prison. 

The average business owner does not set out to avoid paying taxes and skirting around the laws. Unfortunately, even when it's a mistake, a court may still find you guilty, depending on the error. Determining if you had to pay a fine or face harsher punishment would depend on the amount of fraud they see. 

Current Tax Laws

Laws can change often, and it may seem hard to keep up with the ever-changing laws while running a business. Your accountants' job is to know the laws, stay up to date and change how they work accordingly. Accountants typically stay up to date with all new tax laws. Even if your accountant only files your taxes, they can still help you throughout the year by answering any questions you may have.

Payroll Laws and Regulations 

Not paying your employees the right amount that the federal law requires can put you in hot water. These laws, like many others, could change as minimum wages changes also. Your accountant will handle your payroll to make sure every employee is not only paid the correct amount but on time.

Reporting Laws

When dealing with taxes, some things do not need to be reported, while others have a legal obligation to report. Every year the things that need to be reported can change from the previous year. If you fail to report certain things, you could have fines or worse.

Accountants – Protecting You from Yourself

This goes hand in hand with accountant knowing tax laws. There are so many ways that someone can unintentionally put down a wrong number, forget a comma or decimal and hurt their business. There could be financial troubles, but worst-case scenario, there could be legal issues that come up.

Making a mistake on your taxes or not filing altogether will always come back to bite you. If you were unsure what you need to file, you hear nothing from the IRS, pay taxes due, and life goes on. You could be fined down the road for the amount owed plus a lot of interest on top of it. 

This can cause issues and potentially have you audited the next time you file your taxes. An accountant can handle your taxes with ease, getting them turned in correctly and on time. Taxes are among one of the most significant stresses for a business and even more so for a self-employed person when everything falls on them to complete. 

Missing a paper here and there and frantic over what to do? Please put it in the hands of an accountant and let them do what they are trained to do—saving you a lot of time and headache. You are ultimately protecting yourself from yourself.

Are There Disadvantages of Having an Accountant?

There are not many disadvantages to someone who needs an accountant. As long as you have a reliable and credible accountant, there really should not be issues. A few reasons why someone may not need an accountant would include some of the following.

Mistakes Happen 

Their mistake is your mistake. It is simple as that because they are hired under you and working for you. Any issues that may come up due to no fault of your own will most likely still fall back on you. You should have an open and honest relationship with your accountant. If they make a mistake its needs to be fixed immediately. They also need to know what to do in situations like that, even if the accountant has never previously had it happen. 

Simple mistakes can cost you money and time away from your business. For instance, if the IRS found issues with your taxes. It will be on you to pay fines or any other expenses due to their mistake. In some cases, they could cover the fees to keep you happy with their services because they are at fault. Make sure to ask about these types of situations and what they will do.

Not Affordable for Every Person

If you need your taxes filed for you, that is typically reasonably affordable in any area. Bumping it up to handling payroll and it increases. When you need your accountant to handle your business's financial aspect, it can become quite expensive. It would be best if you did not break the bank to have an accountant. They may not be needed for every person and every situation. 

There are many different affordable and even free software's that can help you become your own accountant or bookkeeper. Mint, for example, can help track expenses and is an excellent start for a self-employed business that is slowly growing. The software is free to use and very user friendly.

With Mint, you can keep track of:

  • All of your finances
  • Budget and credit monitoring
  • Create goals
  • Investment tracking
  • Keep all of your bank transactions organized by category
  • Net worth
  • Personal and business expenses – It can also keep them separate
  • Rate of prices and if they have gone up or down

Even though Mint can do all of that and more. Remember, though, with it being free software, you may find yourself outgrowing it. Fortunately, there are many software programs you can consider. You can also try software such as Quick Books Self Employed that is relatively user friendly.

You can have full-service bookkeeping and great insight into your company. There are different plans to choose from based on your needs. The plans range from $15 up to $35 when you pair it with turbo tax. The software is very straightforward and will save you a lot of money until you can afford an accountant, or you may like the software and handling it on your own. 

Mint, Quick Books, and Turbo Tax are somewhat of an all-in-one deal. They all can be interchanged and were created by the same company. Your information can easily be transferred (if you would like) from one to the other software.

Accountants for The Self Employed

There are lots of ways an accountant can help your business. There are also many ways that accountants are needed in the self-employed world. When they are aware of every dime coming in and out, it can also help your business grow, knowing where to cut cost, what sells better, what doesn't. 

Giving you the freedom to enjoy your business like you sought out to do are all great reasons why a self-employed individual would want to hire an accountant. 

Charles Hall

Charles Hall

Charles has spent 25 plus years in the world of accounting and business. His experience includes working as a CPA/Auditor international accounting firms. He has worked as a controller and as a COO for small to medium sized companies.

Learn more about Charles Hall