Skin care product maker Bushbalm started in 2016 with an initial investment of just $900. By 2021, it was generating close to $10 million in revenue. In order to get the business to this point, Bushbalm’s founders had to keep careful track of their company’s finances.
Co-founder David Gaylord knew that to ensure their business would flourish and attract outside investors, Bushbalm’s founders had to make certain the company’s valuation was accurate. “You build up this valuation, and you have to be able to defend it in a very straightforward way,” David said on the Shopify Masters podcast. They did this, in part, with careful and precise accounting.
Here’s what an accountant can do for your small business, and whether it’s worth it for you to hire one.
Table of Contents
What is accounting?
Accounting is the process of tracking and analyzing a business or organization’s financial information. Accountants use detailed documents that keep track of all assets, liabilities, expenses, and revenue, to help businesses manage their finances and make decisions. Accounting can also help ensure compliance with tax laws and regulations.
What does an accountant do?
Accountants perform a wide range of tasks. Among other things:
- They maintain financial records. Accountants often use software programs, such as QuickBooks Xero, to help keep financial information organized.
- They prepare financial statements. Accountants scrutinize and help prepare balance sheets, profit and loss statements, and cash flow statements.
- They proofread financial data. Accountants are responsible for checking financial data for errors or potential incidences of fraud.
- They provide tax planning and preparation services. Accountants help small business owners and individuals plan for tax season and make sure they take out the appropriate deductions.
- They advise on financial matters. Accountants can also offer advice related to budgeting, loan preparation, or other financial topics.
What to know before hiring an accountant
Preparing certain documents and information ahead of time can help when retaining an accountant. These can include:
- Your business goals. To help your business, your accountant needs to understand your growth goals and what you hope to accomplish within a given time frame.
- Your business plan. When hiring an accountant, it’s helpful to present them with a business plan so they can understand your business’s significant revenue and expense sources.
- Your profit margins. Accountants pay close attention to profit margins because these help them understand how you generate revenue and manage the associated costs. You can calculate your profit margin yourself or use Shopify’s free calculator.
- Your expenses. Many necessary expenses for running a small business are tax deductible. Accountants often want to see a detailed breakdown of your expenses to help prepare your taxes.
Benefits of hiring an accountant for your business
Hiring an accountant can offer numerous benefits. Some ways they can help your business include:
- Improved financial decision-making. Accountants are trained to analyze financial statements to help businesses make better decisions affecting their financial health.
- Increased efficiency and accuracy. Because of their expertise in reading financial data, accountants can detect errors and inefficiencies that might otherwise go unnoticed. They often can improve bookkeeping systems and management of financial transactions.
- Professional expertise and knowledge of financial laws and regulations. Accountants can help ensure your business complies with laws and regulations.
- Potential cost savings through tax preparation. Accountants can help you understand your business’s eligibility for specific tax deductions, which can save your business a lot of money when it files its tax return.
4 types of accountants
- Public accountants
- Government accountants
- Management accountants
- Auditors and forensic accountants
There are many different types of accounting jobs. Often, accounting professionals specialize in a specific area to develop expertise. These include:
1. Public accountants
Public accountants offer their services to the general public. They often work at accounting firms, for individuals and businesses on a case-by-case basis. They usually are busiest during tax season, or the months before the typical April 15 filing deadline, when their services are most in demand. They can also help businesses apply for loans or advice on how to solve a specific financial problem.
Public accountants must pass the Certified Public Accountant examination to practice in the US.
2. Government accountants
Government accountants maintain and analyze financial records on behalf of governments and government agencies. They help calculate vital statistics like government budget deficits and debt figures.
All governments—from the local to federal level—need accountants to help them track their expenses, income, assets, and liabilities. Their reports and analysis shape government decisions about spending and taxation.
3. Management accountants
Management accountants work for a single business or government entity. Because they work for just one place, they’re aware of the finances across the entire organization and may be involved with making strategic business decisions. Management accountants may also supervise lower-level accountants.
Management accountants are responsible for communicating the information analyzed by the accounting department with the rest of the organization. Management accountants need excellent accounting skills and to pass the globally recognized Certified Management Accountant examination.
4. Auditors and forensic accountants
Auditors and forensic accountants are a specialized subset of accountants whose role is to review the work of other accountants. There are two types of auditors—internal auditors and public auditors.
- Internal auditors. Internal auditors are employed by a company or organization and work exclusively on verifying the accounting within that organization. They must carry a Certified Internal Auditor certification.
- Public auditors. Public auditors, on the other hand, are not employees of the organizations they audit. They usually work temporarily to check past accounting work for evidence of inaccuracies, regulatory noncompliance, or fraud. If they find fraud or illegal activity, a forensic accountant may also be hired.
Forensic accounting is the process of uncovering improper or unlawful activity through financial documents. Forensic accountants must have strong analytical skills and pass the Certified Fraud Examiner examination.