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When to Hire an Accountant for your NJ Business Startup

Sam Fisher, CPA of Middlesex County shares some tips on when to hire an accountant for your business startup.

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When will you need to hire an accountant for your startup business?

As long as your startup venture is in the prestart stage, during which you or your cofounder may be personally coding the product while working out of your homes, there won’t be a lot of money changing hands, and you can put accounting issues on the back burner. But at just about the time that you feel the need to incorporate your business, you should start acting like a real company and take control of your finances. 

That “should” becomes a “must” the second you take in your first investment dollar, hire your first employee, sign your first lease, or sell your first product. While keeping track of the first few sales and expenses of the company sounds like something you can do yourself with an inexpensive online website, in practice you will find that the details quickly begin to metastasize. 

Without help, there is no question that you are going to end up in trouble some way, somehow. I have an MBA in finance, but I assure you that I wouldn’t consider setting up a startup without consulting with a good accountant.

There are several separate financial-related functions that have to be done for your company, whether you want to do them or not. Some you can (in theory) do yourself, some are best handled by a part-time or full-time employee, some can be handled by a “drop-in” financial consultant, but some just have to be done by a certified public accountant. In sequence, here is what you need to do, and who should do it:

Step One: Your first order of business is to consult with a real accountant to review this list and set up a plan. Most accounting firms are eager for new business and will likely not charge you for this first meeting or at least will charge only a nominal amount. 

The goal is to have them work with you to set up a “chart of accounts” that is appropriate for the business you are building, and to have them instruct you on what they will need you to have done when they come back into the picture later. They will advise you on what software to use and may be able to identify people to fill the other roles you need.

Step Two: With your accounts set up and a plan in hand, you need to start keeping track of all cash flow into and out of the business, including invoices, purchasing, and check writing. You need to set up and manage your bank account and payment processors and regularly reconcile the monthly bank statements to make sure that income and expenses are recorded accurately. All of this is called bookkeeping and is something that starts now and does not stop until the company is no longer in existence. 

While this isn’t rocket science -- as a high-growth founder you are perfectly capable of entering the data into a simple online program -- it takes practice. I find that 95 percent of my portfolio company founders bring in someone else to do it.

For a pure startup, this can be as simple as engaging a freelancer (perhaps someone recommended by your accountant) to come in once a month, take all the financial receipts from the shoebox into which you have thrown them and enter them correctly in your system, reconciling the bank statements along the way. 

As the company grows, the monthly visits should become weekly. By the time you’ve raised your first seed round, you may find that you have enough work to keep a full-time bookkeeper busy on your own payroll.

(One caution: Beware of relying on a one-person internal accounting department without carefully defined and consistent checks and balances. Giving one person the power to disburse funds and balance the books is an invitation to disaster. Making fraud and embezzlement easy creates temptation that may weaken the integrity of an otherwise honest and reliable individual.)

Step Three: With the underlying information accurately captured, you eventually need to make sense of it by having someone transform the raw data into financial statements, as well as maintain your future financial projections. This work is generally beyond the pay grade of your bookkeeper, but also something that is not within your personal skill set, and would be overkill to pay your accountant to do. In larger companies, this would be handled by the chief financial officer (CFO), but at this point you’re likely too small to be able to afford a full-time one. 

Luckily, a new class of “drop-in CFOs” has arisen: experienced financial professionals with CFO-level experience, who handle multiple clients on a time-sharing basis. You will likely engage one of these folks to serve as an adjunct part of your management team until such time as your company has grown large enough to require a fulltime CFO.

Among the tasks that this person will undertake are:

•    Prepare monthly, quarterly, and annual financial reports.
•    Work with you to manage your financial projections.
•    Prepare financial documents for potential investors.
•    Offer you and your leadership team financial advice and guidance.

Finally, some things simply must be done by your accountants. (Remember them?) These include:

•    Preparing your corporate tax returns and dealing with the Internal Revenue Service as needed.
•    Preparing reviews or audits of your financial statements if requested or required by potential investors.

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