Running a small business is hard work, you need a team of folks in your corner – and at the top of that list should probably be an accountant. We say that with some caveats, of course – we find that when people ask the question of “how they can afford to pay for an accountant” they might not fully understand what an accountant does.
Sure, if you're just starting out and your revenue is still quite low, you may be thinking it's just not financially feasible to hire an accountant. It's important to remember, though, that an accountant can provide valuable insights and expertise that could benefit your business in the long run.
Will an accountant save me money?
First the short answer: yes. The longer answer is a bit more nuanced. First off, there are way too many variables involved to make that kind of claim. We can set you up for success, but ultimately many factors will go into what makes your business profitable. So will you save money when you hire an accountant? The odds increase, for sure – but we wouldn’t be so brazen as to say absolutely without a doubt.
Instead, let’s shift how we look at this: an accountant is more than just a way to save money during tax season. Yes, that is important (and we’ll talk about it momentarily), but hiring an accountant means hiring a business and tax advisor that will give you invaluable advice and help you understand the WHY of your business. Like, “why is my overhead so high?” or “why am I paying so much in taxes?” Or, “why do I need to change my purchasing strategies?” First though, let’s talk taxes.
Maximizing tax savings is the first and best thing an accountant will do – that’s doubly true for a CPA firm
Look, people typically hire accountants for one reason (initially): taxes. A base level accountant will help you get organized and understand where you can write off. So what makes a good accountant? Well, even though this feels pretty straightforward, there are levels of experience and knowledge that can set one team apart from another.
For example: a single CPA with his shingle out might help you do a good job on your taxes, especially if you’re an extremely small business. But they don’t have the resources of a CPA firm. For example, at the time of this writing, at Kaizen we have 13 CPAs who specialize in various practice areas to help our clients. Why? Because the tax code is constantly changing. We have folks reviewing tax codes, researching tax law, looking at cases the IRS has lost – all to help interpret where clients can go with their tax strategies. In that way a multiple and variety of accountants can be a huge benefit to your tax plan at the end of the year.
The cheapest doesn’t mean the best (and neither does the most expensive)
If you’re worried about paying for an accountant or CPA firm, perhaps it's best to narrow down what you’re talking about. If you’re running a simple ecommerce business as a side hustle, you probably don’t need a team of CPAs added to your expenses. That said, if you’re paying for less, understand that you’re also going to get… less.
To understand this, let’s use a metaphor. You’ve got a court case and you need to hire a lawyer. Absolutely, you can find a lawyer for $500, but will they make sure you win? It’s not as if paying a higher fee is any kind of guarantee, but the firm with the greatest resources, best minds, and strategies will increase your chances exponentially. That’s similar to a CPA.
The rule of thumb: Spend about 1% of your revenue on accounting
If you’re having trouble understanding how much you should pay for an accountant – the 1% rule is a good way to go. That’s not to say that some businesses won’t need to spend a little more (or a little less), but that should give you an idea. Typically, most of our clients exceed a million in annual revenue. That said, most don’t want the cost of a full time CPA on their hands as an in-house expense. In that way, an accountant can save you a LOT of money.
One of our sayings is “We’ll be the best $10,000 a year employee you’ve ever had.” And that really does a good job of summing up the value of an accountant. Sure it’s an expense, but it’s a vital one for growing and understanding your business. Finding a good-fit CPA firm should be at the top of your priority list.