The question of when to hire an accountant will be different for every business depending on their goals, complexity, existing financial knowledge and working capital (the amount of cash you have to spend day to day).
For the purpose of this article, I’m going to make the assumption that you are ambitious and want to grow your business. However, if you are looking to create a ‘lifestyle’ business with the sole aim of replacing a wage then the information is still valid, but the risk of choosing the wrong accountant or choosing an accountant at the wrong time is generally smaller.
Below I’ve identified some key triggers where you should be thinking about:
- If you should hire an accountant
- If you have the right accountant
Different Types of Accountant
Before choosing an accountant it is important to know the different types of accountants available, who they work best with and the advantages & disadvantages of each. The good news is that we have already put all that information together in our ‘How to Find the Right Accountant for Your Business’ article.
What Stage of Your Business Should you Hire an Accountant?
Pre-Start Up to Revenue
One of the most important times to have an accountant is pre-startup. The right accountant can help you ensure your business has the foundations to provide both the business and its initial shareholders with the right structure for success.
One of the biggest influences at this stage will be price. If you know you are looking for investment, you have a ready made business (customers or contracts pre-agreed), you’ve got deep pockets yourself to get your venture off the ground or you want to do things with as solid a foundation as possible then investing in good financial support is really valuable, although you may not see the full benefit for a while (maybe even years).
If you are planning on doing a lot of research and development, the benefits of hiring the right accountant can come far sooner.
However, if you are running your start-up on a shoe-string then you’re going to need to beg, borrow and learn as much as you can in order to reduce your overall costs. It is possible to do all of the above yourself as there is no legal requirement to have an accountant do this when you first start your business, but getting it wrong can affect the business significantly later on.
Using an Economies of Scale accountant or even a bookkeeping firm can keep costs down while you are creating your MVP (Minimum Viable Product), and until you find product-market fit.
The reality is that, if your venture isn’t very successful then choosing a low cost option was the right decision. But if your venture gains traction, these options generally cause issues later down the line, so you should be putting good foundations in place by choosing the right accountant before you even begin your business. These issues could be around ownership structure, who owns assets and intellectual property, whether you’ve taken advantage of the right business format and exemptions/allowances to maximise tax advantages and more.
Obtaining Seed Investment / Debt Funding
If significant financial resources are required to start your business then you may look to obtain debt or some early stage investment (seed investment) to give you the cash to create, distribute and test the product/service. This means you start to add external stakeholders to your business who require:
- Any funding be used wisely
- Appropriate reporting on financial and non financial performance/progress
If you are lucky enough to have an excellent founder or early stage employee who is capable of supporting in these areas then you may be able to deliver these requirements to the external parties. However, I would still question the opportunity cost of that individual (especially if they are a founder) spending their time delivering on these outcomes rather than focusing on trying to find and deliver to paying customers as quickly as possible.
For most though, these actions will require looking externally and that’s where we ask the question again of “if you have the right accountant”. Generally, at this stage you want to look for an Outsourced Finance Director/Finance Function to support you and your business. Other accountants can sometimes help (e.g. Niche Vertical Accountants), but Outsourced Finance Director / Finance Function firms are specifically set up to support through these types of challenges.
Scale-Up / Once You’ve Achieved Product Market Fit
As you continue to grow your business you’ll get to a point where you are changing your product/service less and building systems and processes around delivering your product/service well repeatedly at scale. It’s likely that you’ll look to develop a competent team to move the business to the next step and this may include obtaining funding (investment/equity) to accelerate that growth.
Again, support with business planning may become relevant, but you may need to start working towards international trade and/or more complicated tax planning. It’s at this point that Tax Vertical Expert accountants and Tax Specialists can sometimes be required to support your existing accounting relationship with specialist advice in your area. Although sometimes a Niche Vertical Accountant can also help if the advice is within their limited scope.
One of the reactions you could have to the last paragraph is to assume that you need two accountants, but even if an industry has specific requirements, it may be possible for your existing accountant to gain the required knowledge. Niche Vertical Accountants are unlikely to learn new areas, but many Generalist Accountants and those acting as Outsourced Finance Director / Finance Function may take the time to investigate and develop the knowledge if it makes commercial sense to do so.
Although you will naturally add to your team based on business requirements, there will come a time where the business leader needs to stop working in the business and migrate to working on the business. Read our article ‘How to replace yourself in your business’ to learn how this can be done. At this point, they’ll need to create more organisation within their business and build a team around them.
This is where a decision needs to be made between hiring an internal finance director or choosing to use an Outsourced Finance Director/Finance Function.
For any business, a high quality internal finance director is the preferred option, the intangible knowledge they gain from being in the business daily can really help to accelerate the business growth, create organisation and mitigate risk. However, these benefits have to be weighed with the cost, which can be anywhere from £40k to £130k depending on the level of experience, location and industry.
One of the challenges with getting the most value from an internal finance director is ensuring they spend their time on the right level of work and are not caught dealing with work that could be carried out by lower cost and less experienced staff. Because of this, some businesses get a finance director too soon as they have them conducting many other tasks where they are very expensive compared to what you’d normally pay for that task.
The logic here is to mitigate this with a part time finance director, often called a fractional finance director. At certain revenue and profitability levels a full time or fractional finance director is the right way forward. You would then choose an accountancy firm that worked well with this individual and complements their experience/skills.
It isn’t a perfect science, but the earlier you can have a finance director in your business the better, and one very cost effective way to do this is to use an Outsourced Finance Director/Finance Function. They won't have the benefit of the intangible knowledge an internal finance director has, but they can provide other benefits such as cross-industry knowledge. And they are generally a far more cost effective way to have the expertise of a finance director in your business whilst also having a team of other specialists, from bookkeepers, to financial controllers to payroll experts and more.
At Stryde we provide this Outsourced Finance Director / Finance Function to help a business leader begin to replace themselves in their business so they can focus on growth.
When you hit a relevant audit threshold - at this point you need to get a specific Audit Accountant. There are many firms that will supply both accounting support and audit support. And although these are often different legal entities, they often have the same beneficiaries. My personal belief is that as an audit is a check on the financial processes and records being produced, that they should be different companies. It’s why at Stryde we have chosen NOT to provide audit services to our clients but to work alongside 3rd party audit companies.
There are several variables that need to be taken into consideration when deciding when to hire an accountant, but special attention should be given to what type of accountant is relevant to your goals and ambitions, and your current stage of business. It may be that something triggers the need for you to change your accountant, but when you should hire an accountant is ideally before you even begin your business.