As you’re growing your business, there are two main hurdles to jump when it comes to accountants. The first is when it’s time to outsource your accounting. The second is when it’s time to bring a full-time accountant in-house. While these two situations sound very similar (and they sort of are), they’re actually very different. So, it’s important to be aware of when each should occur. Implementing the wrong scenario at the wrong time, can lead to unpaid tax men, vendors, and employees knocking at your door. Today, we’re going to cover the latter hurdle: How to determine when it is time to bring on a full-time accountant as an employee.
Outsourced accounting may be all your business needs for years. In fact, it might be the only accounting you’ll ever need if your company stays relatively small and uncomplicated. However, there are some very obvious indicators that show when it’s time to upgrade:
- Is your company growing quickly?
- Are you arranging complex financial deals with banks, alternative lenders, etc. to bring in more cash flow?
- Do you overload your current accountant and often find yourself thinking that you could use someone that is more dedicated to your specific needs?
Based on the fact that you read the title of this post, and you’re now two paragraphs in, it’s probably safe to assume you answered “yes” to at least one of these questions.
First let’s decide what you actually need to bring in-house
When it comes to accounting services for small businesses, it’s important to differentiate between the need for a bookkeeper and an accountant. Maybe you don’t need a full-fledged accountant on staff. Maybe what you’re looking for is an accounting clerk or bookkeeper. These positions require a little less general knowledge than a high-pedigree accountant.
So, what’s the difference?
To start, most accountants have logged roughly 120 hours of college credits. Most of them have gone on to earn a certification from their state such as their CPA (Certified Public Accountant). These are the individuals who can do the highly technical and complex accounting and finance work such as analysis and SEC reporting. Bookkeepers, on the other hand, are more focused on “running” your books. They manage the day-to-day transnational accounting for your company. They aren’t the ones to provide services such as growth strategy, financial strategies, lending solutions, financial policy advice, and so on.
Now, let’s talk about some milestones. Most small businesses can start out with a basic bookkeeper; someone that will ensure everything is running smooth as far as payroll, AP, AR, etc. But, once you hit some key milestones, it would be wise to climb the accounting food chain and bring a specialist on board.
Is your company structure getting complicated?
When your business was just starting out, you were a one-person wonder! And I can almost bet that to make things simple, and because you really didn’t know how else to do it, you formed your company as an LLC. Don’t get me wrong, there’s nothing wrong with that. It’s just that now you have investors that want to give you funding, employees you may want to issue shares or options to, or maybe it’s time for a jumbo loan from the local bank. The point is, when things start getting complicated, it becomes too much for you to stay on top of. The path gets a little muddy if you’re not careful. Enter a good in-house accountant who can be your guide as you navigate the financial maze that lies ahead, particularly making sense of your tax obligations and strategies.
*TIP* Keep this in mind when you’re hiring a full-time accountant: Their value is in helping you with the financial strategy of your business. You’re not looking for someone to simply come in and update the books or remind you to ask your clients about their overdue payments. If that’s what you need, hire a bookkeeper.
Are you making a lot of money?
While it seems like common sense when you think about it, but one major factor that seems to be forgotten in the decision making process for hiring an accountant, is how much money your business is actually making. The idea is this: The more money you earn, the more money you need to keep track of. Is your money coming from multiple countries? Is it coming from multiple business entities? Bottom line: if there’s a lot of it coming in, and it’s coming from many different places, that means it’s time to hire someone to help you keep track of it.
I already know you’re thinking, “how much is considered a lot.” The answer is: It depends. Some companies won’t feel the pain of keeping everything in line until they’re pulling in well over $1 million. Just keep this in mind: A good accountant will run at least $75,000 USD per year on average. So, if you don’t want half your income going to an accountant, that means you’re probably not quite there yet.
And speaking of a typical accountant’s salary, that brings us to our final point.
How much are you spending on outsourced accounting now?
If you’re spending $70,000 USD or more with your external accounting firm, that’s probably a good sign your business is big enough and complex enough to hire someone in-house. Spending just a little more will enable you to get the more personalized service and dedication that comes with an employee as opposed to an external service provider. Keep in mind though,the benefits of in-house accounting will be a little jump for you price-wise. You should plan on an extra 20% to cover the cost of benefits in addition to the salary you’ll pay.
Again, switching from an outsourced accounting firm to an in-house accountant really is a case-by-case decision. If you strongly believe your current relationship is perfect, and you’re happy with the way things are going, by all means, stay where you are. But if things are getting expensive, and you’re not feeling the benefits match what you’re paying, it may be time to make the jump.
Some last thoughts
I’ve said it once, I’ll say it again. The decision is really up to you. You’re the one that knows your business best. Simply follow the guidelines above, and you’ll know when it’s the right time!