Why You Need an Accountant

How to deal with a new professional in your business life

By Keith Lowe, Entrepreneur.com

Should I hire an accountant? Also, how can I make the most of this business relationship?

One aspect of running a small business that few people give a lot of thought to is the way they deal with professional vendors such as bankers, lawyers, accountants and so on. Most entrepreneurs just dive right into their businesses without giving a second thought to how these professionals should be treated, what they can do for you and what they in turn look for in clients. With a little thought and effort, you can ensure that you get the most from these relationships.

The main thing to remember is that you need a personal relationship with each of these people. They have the ability -- sometimes direct, sometimes indirect -- to drastically influence the success of your business. Your goal should be to develop a long-term, personal relationship with each of them. If you do that, when you hit a bump in the road, they'll be there to help you get over it.

As you become more experienced, you'll find that your accountant and attorney will overlap a bit in their services and expertise. I've found that mine often work together to achieve what I'm trying to do. That being said, here are a few examples of services your accountant should provide:

• Help you decide what type of entity (such as S-Corp or LLC) and ownership structure to have when you first get started; your accountant should work with your attorney on this.

• Design and set up your accounting system so that year-end financial reporting will be easier.

• Ensure that you pay the correct types of taxes in the correct amounts.

• Ensure that you send out W2 and 1099 forms to the proper people at the proper times, and also make sure that if you send out 1099s, the IRS will agree with you that those individuals are independent contractors and not employees. This is a common mistake that can cost you a lot of money and stress.

• Advise you on deductions and how to separate your personal and business expenses.

• Advise and guide you through an audit if you ever have one.

• Advise you on specific transactions, such as whether it's better to lease or buy.

• Compile your financial records for the past period.

• Help you understand your financial statements. You should use your accountant's expertise to help you analyze your financial statements so you can understand what he or she is telling you. If you neglect to do this, you won't know as much as you should about how your company is doing.

You will also need an accountant if you have questions about what kinds of business expenses are deductible. Most of these rules and regulations are moving targets -- they change frequently and often vary from state to state. A good accountant will always be on top of the changing laws and regulations and, more importantly, will know what applies to you.

It's also important to ask your accountant's advice before you take action. It's almost always easier (and cheaper) to structure things properly upfront, as opposed to trying to fix something later.

I've noted in previous columns concerning your banker and attorney how important it is to develop close relationships with them, make sure they completely understand your business and your goals for it, and trust them to help you attain those goals. This advice applies to your accountant as well -- if you take that advice, he or she will be a valuable long-term partner.

© Copyright 2005 Entrepreneur.com, Inc. All rights reserved.