Being self-employed is a lot of work—from doing the work itself to marketing and administrative tasks, it’s a challenge, especially if you are doing it on your own. There may be times when keeping track of your finances gets complicated, and you may need to hire an accountant to help you sort things out. But do you really need an accountant if you are self-employed? Or should you do your accounting on your own?
Here are some advantages and disadvantages to doing your own accounting:
Advantages of Doing your Own Accounting
- Doing your own accounting means making a habit of keeping close tabs on your finances—which means you’ll be more attuned to what you’re spending and bringing in, and possibly more motivated to save money where you can as a result
- You’ll learn about the accounting cycle, and will likely have a more solid understanding of what your balance sheets, income statements, and other financial reports mean
- Doing your own accounting is cheaper—if you’re on a tight budget, doing your own accounting will save you money, especially in the short term.
Disadvantages of Doing your Own Accounting
- You may not know from the outset what records you need to keep, resulting in complications later, particularly when tax season rolls around.
- Doing your own accounting takes the time you may not have; at minimum, you’ll need to do some research about basic financial reporting and tax law
- While you may be great at what you’re selling, you may not have the meticulous attention to detail a good accountant might—so you may skip over important data that can affect you later
When to Consider Hiring an Accountant
Even if you do decide to do most of your accounting yourself, there are certain times during the lifespan of your business that you may decide to hire an accountant to help sort out your finances. You may still feel confident doing your own accounting, but here are sometimes when hiring an accountant might be a consideration:
1. When you’re Just Starting Out
Professional accountants can often help you save money in the long run by offering advice on tax law for small businesses and identifying trends in financial reports that affect your bottom line. When you’re just starting out, you may decide to consult with an accountant to get some preliminary insight on self-employment regulations on earnings and what practices you can put in place early to avoid saving you hassles down the road. You may decide you can handle your accounting on your own from here, but it’s a good idea to start off with some basic advice from a professional who knows the laws in your area.
2. When it’s Time to do Your Taxes
Some people are perfectly comfortable doing their taxes on their own, even as freelancers. But others may feel intimidated by tax time, and not know where to begin. If you’re feeling stuck, hiring an accountant may be the solution to doing your taxes as painlessly as possible. Although it will cost money, they may be able to save you from paying more taxes by helping you claim expenses and identifying claims you can make when it’s time to file them. Many governments now allow you to file taxes online, and accountants can demystify the process for you enough that you feel comfortable doing it next season.
3. When you Need to Start Charging Sales Tax
Most governments have a cut-off point at which you must begin to charge sales tax on the products or services you’re selling. Once you sign up for a business tax account, an accountant will be able to tell you how to itemize taxes on your invoices, what records you need to keep for income tax purposes, and what sales taxes you will be able to claim back when you do your taxes. If you’re at all mystified about the process, it’s better to get some professional advice upfront than face a headache down the road if you have not applied your taxes properly.
4. When you Hire an Employee
Payroll can introduce an added layer of complexity to your finances, and it’s important to make sure from the outset that it’s done right. Knowing what deductions to make from a person’s paycheque is important, as is knowing how to register to pay their income tax to the government. It’s usually advisable to hire either an accountant or a payroll expert to help you with this unless you’re confident you know how to do it.
Although these are the standard times that someone may choose to seek out professional accounting help, your own level of comfort with the accounting process, in general, may dictate whether you will hire an accountant on a regular basis, just for consultation purposes, or not at all. If you have an accounting background, you may decide that you’d prefer to trust yourself to handle your accounting—whereas if you have very little comfort with accounting, you may decide to hire one to take care of everything. Accounting software has made it much easier and more straightforward to do day to day accounting, and so a common approach is to use accounting software on your own and seek out advice at times when things get complicated.