Is your small business too small to hire an accountant?

Have you hired yourself as the accountant for your business?

This week, I overheard part of a conversation between a small business owner and one of my staff in the hallway as they wrapped up their meeting.

The business owner, Steve, owns a small business in Indianapolis.  Steve recently contacted us about preparing his business and personal income tax returns.  My staff told Steve how most of our small business clients choose to use our monthly bookkeeping and payroll services in addition to having us prepare tax returns. My firm has developed a package of basic services tailored for small businesses in central Indiana – nothing fancy, just the basics – bookkeeping, payroll services, keeping an eye on taxes, and preparing tax returns for the business and owner(s).

I overheard Steve say that he’s a “lousy bookkeeper” (his words, not mine), and that his records are “always in pretty rough shape”. Then, he said “But I’m just an average small business, I can’t afford to have you guys to do my bookkeeping and accounting.  I have to do it myself.”

Steve’s devotion to his business is admirable.  With his few words, he said a lot:  that he’s determined to be successful and that he’s proud to make sacrifices for his business.  I think he was also saying that in order to survive in this economy, he needs to be smart with his money – he shouldn’t waste it on things that aren’t critical to his business.

I couldn’t agree more.  Small businesses must be lean and mean.  So, why did I cringe when I heard what Steve said in the hallway?  Was it because he admitted to being a lousy bookkeeper?  No.  Was it because his words conjured visions of coffee-stained receipts under the seat of his pickup truck?  No.  What bothers me is that he referred to himself as the owner of an “average” business.

My staff and I have been working with small businesses in Indianapolis for years.  That’s all we do, day-in and day-out.  Every month, we work with almost 150 small businesses to do monthly bookkeeping, accounting, payroll, and tax returns.  Our “average” small business client has somewhere between 3 to 20 employees and annual sales of somewhere between $400,000 and $1,500,000.  That’s what I think of as “average” small businesses.  Steve’s business fits those criteria, so in that sense, he’s right.  His business is “average”.

Over the years, I’ve observed a lot of small businesses and I find them to be amazing.  “Average” small businesses create 80 percent of all the new jobs in our economy.  The amazing part is that “average” small businesses are created from nothing but the passion, sweat and sacrifice of their owners and employees.  My staff and I root for these businesses every day!

At the same time, Steve’s use of the word “average” is upsetting because I know what happens to small businesses if they become “average” within the literal meaning of the word “average”.  They become statistics.  The “average” small business will be out of business in 5 years, or less.  To me, that’s a very upsetting fact.  So while we root for these businesses, we worry about them, too.

In this sense, being “average” is not necessarily a good thing.  The owner’s family makes huge sacrifices during the life of the “average” business.  Kids may not see mom or dad as often because they’re working long hours or weekends.  Marriages bear the strain of stresses that only business owners can understand.  In a short time, these stresses can cause problems within families, affect the owner’s health, and/or hurt his or her financial health.  The employees of failed small businesses end up unemployed.  They put their faith in the owner’s vision.  All these sacrifices are in vain if the business doesn’t survive.

I’ve spent a lot of time thinking about the differences between the 20% that survive and the 80% that don’t.  I think it boils down to a few basic differences:

  1. Survivors spend more time working on their business than working in their business. They develop systems for everything from how salespeople dress to how employees answer phones.
  2. Survivors are more resourceful because they consider value, not just price.  In the short-term, the cheapest approach to everything is to do nothing, but that’s not how to grow a business.
  3. Survivors are cool-headed.  They don’t get too high when times are good, nor get too low when things aren’t going their way.
  4. Survivors are committed to having good financial information and using it to manage their business.
  5. Survivors include professionals on their team.  This often translates to outsourcing bookkeeping, payroll, IT, and legal functions.
  6. Survivors spend more time cultivating relationships with customers, employees and vendors.

In order to be among the surviving 20%, business owners need to be above the “average”. Survivors find affordable ways to operate the way bigger businesses do.  Profitable businesses find ways to focus their time and money on managing the business and taking care of key customers and employees.

Survivors are constantly looking for sensible ways to improve even the most mundane functions of their business – because that’s what it takes to survive.  Accounting and payroll are excellent examples of functions that can be delegated in an affordable way.

So, does the “average” small business really need to hire an accountant?  Hiring a small business accounting firm to handle more than just preparing year-end tax returns might just be the difference between being an “average” small business and a “survivor”.