Let's talk about your average subcontractor in business today. He starts a business, goes to a bank, opens a checking account, starts writing checks and making deposits. This rudimentary accounting works well for awhile, but soon our hero realizes that there is much more to being in business in this day and age. Taxes (sales, payroll, federal, state, county, it goes on and on…ad infinitum), insurance (payroll, auto, liability, theft, bonding, etc.) and other peripheral mandated costs must be dealt with. The 500 pound gorilla in the living room, though, is Uncle Sam's humorless ogre — the Internal Revenue Service — and the equally voracious little troll — the State Department of Revenue. These government entities will not be denied. They are insistent and unforgiving.
In order to keep track of, and be current with all these expenses, as well as his profit and loss picture, at some point our hero does a little research and invests in a commercially available accounting software package. The advent of the computer age has spawned a plethora of user-friendly programs designed to take the accounting illiterate businessman and turn him into Arthur Anderson or the next best thing. There is only one problem: our new subcontractor can be a great journeyman, a good business man and a sterling salesman, but if he doesn't have at least a basic grounding in accounting and accounting terminology, all that new program is going to do is confuse and frustrate. Speaking as one who has no affinity for accounting beyond the very basics, I can attest to this very thing. So what do we do? We either hire a bookkeeper, an account or the very knowledgeable and infinitely more expensive Certified Public Accountant to set up the program that was supposed to be as easy as ABC to manipulate. Why even a child could do it, right?
DIY or hire a pro
A good bookkeeper can usually get the new accounting software up and running, but in many cases the subcontractor will need the help of an accountant to establish a start point as well as a chart of accounts. This way he can properly and meticulously catalogue the various income, expenses and other vital information about the company in a coherent manner. This is necessary so that he knows where his money is going. Plus, reports can be generated that make at least marginal sense when preparing official things like income and sales tax forms. Generating W-2, 941, 1099 and other required documents is also a function of most good accounting software, as is calculating payroll taxes and other recurring expenses.
The accountant or CPA will more than likely need to keep after the books at regular intervals throughout the year, and of course they do not do this for free. One can already see where this user-friendly accounting software program is taking us. Honestly, there are many people who utilize these programs quite successfully. I don't know any, but I'm sure they are out there. So it begs the question: is it easier to hire a professional accountant right from the start? My opinion is yes…and no.
I'm not trying to be a wise guy. If you are in business today, you most definitely need something or someone to help you keep everything straight, to file the right paperwork on time and to keep track of your business. If you can do it, or you have someone that you employ who can, great. But if you have trouble with keeping the books in order, wouldn't know a credit from a debit if you tripped over one, or are simply terrible at that aspect of math then hire a professional. The rules and regulations that govern income tax reporting alone are so convoluted that having an accountant do at least that work is usually a wise move. A CPA will go with you to discuss your taxes with Internal Revenue if there is a question and that is worth a lot of Maalox.
Beyond the IRS aspect though, there is the necessity of keeping current on the health of the business. Producing a Profit/Loss statement each month won't do anyone any good if they don't know how to read and apply it. Further, an accountant can show you if you make money on paper, but he isn't much good at telling you why you don't have any money left when you show a sizeable profit, but have an empty bank account. So working hand-in-hand with your accounting professional or bookkeeper is a must.
Whatever way the subcontractor goes — a bookkeeper, accountant or CPA — the necessity of having such help is pressing and cannot be overstated. Even a one-man show will need some sort of assistance, so figuring out what form that takes and how much you can reasonably afford to pay for it should be a priority. Keeping your books straight is one facet of molding a successful business.
The Brooklyn, N.Y.-born author is a retired third generation master plumber. He founded Sunflower Plumbing & Heating in Shirley, N.Y., in 1975 and A Professional Commercial Plumbing Inc. in Phoenix in 1980. He holds residential, commercial, industrial and solar plumbing licenses and is certified in welding, clean rooms, polypropylene gas fusion and medical gas piping. He can be reached at [email protected].