One of the hallmarks of small business is the idea that each team member often wears many hats. Sales and marketing efforts may fall to one team member, and a single person may handle HR, payroll, and accounting—all tasks that might be delegated to entire teams at larger companies. Especially in the early stages of launching a business, the person handling all of this may just be the business owner himself.
As small businesses in this situation grow and owners need to give some of those hats to other people, they face a tough decision for each area of the business: hire someone to take over, outsource those responsibilities, or find a technology solution to help.
One of the first areas they want to get off their plates? Accounting.
For many small business owners, accounting is intimidating. Without a degree in finance, it can be difficult to understand and the cost of making mistakes is high. (The IRS isn’t known for being forgiving, after all.) But small business owners are often unsure of how much accounting help they need and whether they should accept the cost of hiring someone full-time.
What Does an Accountant Do?
When a business owner handles accounting work, that often means overseeing all areas of it, from classifying transactions and organizing receipts to creating and reviewing financial statements. However, accountants typically have a more limited scope of work.
An accountant’s responsibilities are often confused with those of a bookkeeper or CFO, which can lead to some mismatched expectations between the business owner and accountant. To help clear up who does what, here are the main differences among these three groups:
- Bookkeeper: A bookkeeper’s primary responsibility is to ensure that every transaction (income and expenses) is documented and classified properly. They do not usually create financial reports or offer any analysis. Instead, their role is to keep the books organized.
- Accountant: An accountant will take those organized books and use them to create financial reports. If a business owner is looking for a loan, accountants can provide the potential lender with all the financial information they request. They also often handle tax filings for their clients.
- CFO: The role of a CFO is mostly analytical. They have the chops to create financial reports themselves, but they will mostly be looking at what those reports show and will use that information to help drive strategy.
Starting with these basic expectations can help business owners decide which route is best for them when it comes to bringing in some accounting help.
Luckily for small business owners, there are many options for getting the accounting help they need, ranging from an in-house accountant to an automated software solution. Each option comes with its own pros and cons to consider, and the best option for your specific business will depend on your needs and the amount you’re able to spend.
- Dedicated Accountant
The more complex your finances, the more important having someone that you can talk with every day and ask questions of may become.
However, be aware that if you’re looking for someone to take on both bookkeeping and accounting work, you’ll need to set clear expectations during the hiring process. Another factor to consider is cost, which can be prohibitive for many small businesses.
- Outsourced Accountant
If an in-house accountant falls outside of your budget, outsourcing accounting work may be a viable alternative. Going this route, you’ll work with an accountant on an as-needed basis and will likely pay them an hourly fee. For business owners who mostly need help come tax time, this solution can be ideal.
The downside, however, is that outsourced accountants have many clients. You can’t pop over to their desk and ask them a question, nor will they have an in-depth understanding of your specific business.
- Fractional CFO
Like accountants, CFOs can work in-house or as outsourced help, also known as fractional CFOs. They can help with things like creating forecasting models or building a budget, in addition to helping you review those financial reports.
Because it is a specialized skill, hiring a fractional CFO usually comes at a higher hourly rate than an outsourced accountant. And if you also need help with bookkeeping, it’s unlikely they’ll cover that.
- Accounting Software
Often the most cost-effective option on the market is accounting software. While software doesn’t allow for human interaction or for someone to bounce ideas off of, it does work 24/7. So if a question about your finances comes to you at 11:00 pm, you don’t have to wait until 9:00 am the next morning for answers.
Best of all, software speeds up the accounting process. Thanks to automation, your bookkeeping will always be up to date and the month-end close can be wrapped up in a matter of days. This means that your financial reports will be in your hands sooner and that other important metrics can be tracked throughout the month.
Accounting must be handled with care and accuracy, but that doesn’t mean that every business needs a full-time accountant. Small business owners should first evaluate and understand their specific needs and then find a solution that meets them, exploring all their options from outsourcing to software along the way.
Emilie Bingham, Brand Content Strategist for ScaleFactor ScaleFactor is the essential business OS, offering the most comprehensive view of your business finances. We’re always on and always up to date, so you always know exactly where your business stands. We alert you to what needs attention and make proactive suggestions with your bottom line in mind. Get back to business with the confidence that ScaleFactor is on your side.