At just thirteen years old, I was making between $10,000 and $20,000 a month. It was an impressive feat for someone so young, and I felt a sense of pride in my accomplishments. However, despite this early success, I made one of the most significant mistakes of my life that would have lasting repercussions: I decided to handle my own bookkeeping and financial accounts.
In hindsight, this was a terrible decision. It wasn’t just because I was a teenager; it was because I lacked the necessary experience and expertise. Even if I had some knowledge, the risk would still have been substantial. I was too close to my finances, unable to take a step back and make rational decisions. This isn’t a mistake unique to me; it’s one that many entrepreneurs, regardless of age, often make.
The reality is that the costs associated with hiring a professional bookkeeper or accountant can be daunting, whether your business generates $5,000 a month or $50,000. Once you reach a certain income level, hiring someone becomes a straightforward decision. However, until you hit that threshold, the question often arises: “Can I just manage this myself?”
Why You Should Avoid Doing Your Own Bookkeeping and Accounts
Regardless of your business’s size, one of the first areas you should consider outsourcing is your bookkeeping and financial accounts. Keeping an organized record of your finances is crucial, especially for tax purposes. If you’re not well-versed in financial management, you risk getting into serious trouble if you ever face an audit.
But the implications go beyond just tax compliance. As a business owner, your primary focus should be on growing your business. While it’s essential to understand the finer details of your operations, you also need the ability to step back and concentrate on the bigger picture. When someone else manages your finances, you gain access to the information you need when you need it. Conversely, if you’re the one handling everything, you run the risk of missing critical details or overlooking important transactions.
Although it may seem more convenient and cost-effective to manage your finances yourself, it’s vital to shift your mindset and consider the benefits of hiring a few key professionals.
The Five Financial Professionals You Should Consider Hiring
Over the years, I’ve learned that there are five essential financial roles you should consider for your business and personal life. You may not need all of them right away, and some may become more relevant as your business grows. However, at some point, you should evaluate the necessity of each:
1. Bookkeeper
For most businesses, the bookkeeper is the first financial professional you should hire. A bookkeeper is responsible for tracking the inflow and outflow of money in your business. They don’t make financial decisions, but their meticulous record-keeping allows you to make informed choices. By hiring a bookkeeper, you not only save time but also ensure that your financial records are accurate and up-to-date, which helps you stay accountable for your finances.
A good bookkeeper will categorize your transactions, manage invoices, and reconcile your accounts, providing you with a clear picture of your financial health. This clarity is invaluable when it comes time to make strategic decisions about your business.
2. Accountant
Once you have a reliable bookkeeper in place, the next step is to hire an accountant. Your accountant will use the information gathered by your bookkeeper to provide you with essential insights into your business’s financial performance on a monthly, quarterly, and yearly basis. This information empowers you to make better decisions regarding your operations and growth strategies.
Moreover, an accountant ensures that you remain compliant with tax regulations, helping you pay what you owe on time and avoiding any potential penalties. They can also assist with financial forecasting and budgeting, which are crucial for long-term planning.
3. Tax Planner
The first two hires are critical for any business, but the role of a tax planner becomes essential as your income grows, typically when you reach around $250,000 in annual revenue. A tax planner is different from an accountant; they focus on helping you maximize your financial efficiency and minimize your tax liabilities.
While accountants often take a conservative approach to tax matters, a tax planner encourages you to explore various strategies that can help you retain more of your earnings. They can guide you on how to structure your business, take advantage of deductions, and plan for future growth while ensuring you remain compliant with tax laws.
4. Financial Advisor
Similar to a tax planner, a financial advisor plays a crucial role in helping you grow your wealth. They can assist you in exploring investment opportunities and developing a strategy for building your financial future. However, it’s essential to be cautious when hiring a financial advisor. Many entrepreneurs make the mistake of seeking this advice too early, diverting funds from their business (which they control) to invest in other ventures (which they do not control).
Before hiring a financial advisor, ensure that your business is stable and that you have a solid understanding of your financial situation. This way, you can make informed decisions about where to allocate your resources.
5. Tax Lawyer or Attorney
The final professional worth considering is a tax lawyer or attorney. While you may not need one in the early stages of your business, having a tax lawyer on your team becomes increasingly valuable as your business grows, especially if you reach seven figures in revenue. A tax lawyer can help you navigate complex tax laws, protect your business from legal issues, and ensure that you are as tax-efficient as possible.
They can also provide guidance on structuring your business in a way that minimizes tax liabilities and protects your assets. Investing in a tax lawyer can save you significant amounts of money in the long run.
Evaluating Your Current Financial Team
No matter where you are in your entrepreneurial journey, it’s worth taking the time to consider these five financial roles. Some of them are essential from the start, while others may become important as your business evolves. If you already have a bookkeeper or accountant, assess their performance. Are they meeting your needs? If not, it may be time to make a change.
If you don’t yet have a bookkeeper or accountant, now is the perfect time to explore your options. The earlier you bring these professionals on board, the better positioned you’ll be for success.
Planning for Future Financial Needs
While the roles of tax planner, financial advisor, and tax lawyer may not be immediately necessary, it’s wise to think about them now. Understanding these roles and their importance can save you time and effort later on. Additionally, having a clear vision of your financial future will help you run a more organized, sustainable, and profitable business.
As you grow, your financial needs will evolve. By proactively considering these roles, you can ensure that you have the right support in place to navigate the complexities of your business finances.
Conclusion
Reflecting on my early experiences, I realize that my decision to handle my own bookkeeping was a significant misstep. While I was young and successful, I lacked the expertise to manage my finances effectively. This mistake taught me the importance of surrounding myself with knowledgeable professionals who could help me make informed decisions.
As you embark on your entrepreneurial journey, remember that hiring the right financial professionals can save you time, reduce stress, and ultimately lead to greater success. By investing in a bookkeeper, accountant, tax planner, financial advisor, and tax lawyer, you can focus on what you do best: growing your business and pursuing your passions.
Take the time to evaluate your current financial situation and consider the roles you need to fill. The sooner you make these hires, the better equipped you’ll be to navigate the challenges of entrepreneurship and achieve your long-term goals.
