Does Your Startup Need an Accountant?
You’ve started your business. Sales are on the rise and so are expenses. Should you get an accountant or should you wait? Brian Hamilton, chairman of financial information company Sageworks, says this question often confuses the inexperienced entrepreneur.
Focus on getting customers, not on getting an accountant
Hamilton’s advice: “Go get a customer and then get an accountant.” Most new businesses are sole proprietorships and fairly simple to operate. That has a natural advantage in that you can keep your focus simple too: get customers, get revenue.
This doesn’t mean an accountant might not be helpful. They can give you financial and strategic advice and help you to get a loan or plan your estate. And if you’re trying to raise money, certainly an accountant can be helpful. But most new businesses don’t need to run out and get an accountant right away.
Keep it simple
The accounting tasks of most startups can be handled by out-of-the-box accounting systems, like Quickbooks, Peachtree, and Xero. These will help you track sales and expenses. Programs like Intuit will help you file your taxes with a Schedule C.
Hamilton also recommends carefully tracking two key ratios to keep a handle on your profitability:
- Gross margin. Take your revenue and minus your total direct costs of producing the product or delivering the service. Now divide this by your revenue. The result is the percentage of revenue left over after direct costs. Why do you need to know that? It measures the efficiency of your business, which can help guide you in adjusting prices or volume to make your business more profitable.
- Net margin. Make the same calculation, only now include in your costs all expenses of your business, including bank fees and general overhead. This tells you how much of each dollar in revenue you keep after all expenses are paid. Again, this is important for you to track, to make sure you are profitable.
Hamilton adds that at some point, as your business continues to grow, getting an accountant will become important. There is a time for everything…
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