Does your startup need an accountant?

For startups, earning money is the exciting part of building a business (after building your product, of course). Tracking those earnings, your expenses, your payroll… that can be another ball game.

Even if you use accounting software to stay on top of it all, if you’re not experienced in this domain, you may quickly find yourself out of your depth. But you don’t have to go it alone — working with an accountant can provide the expertise and support you need to manage your business finances confidently.

Of course, you may not need an accountant in the earliest days of your business, depending on the complexity of the business and your own comfort with finances. Since an accountant is an additional cost, it’s important to understand what an accountant really does, at what point you should consider bringing one on board, and how to find the right one.

An accountant can perform a wide range of services, from managing record-keeping to preparing financial statements to providing tax advice. Accountants can also have various specialties, including analysis, planning, taxes, and so on.

Beyond the basics of managing your startup’s financials, accountants can also provide advice. If your company has received a round of equity or loan funding, an accountant can help you strategize, budget, and manage your money. An accountant can review your finances and suggest ways to optimize your current operations. They can also forecast your cash flow and help prepare financial projections.

Most importantly, an accountant can help you avoid financial mistakes. An error on your tax return or failure to comply with accounting standards can be costly, leading to fines, penalties, and reputational damage with your investors. To avoid mistakes — or worse, financial fraud — accountants can also ensure that your startup has internal controls. They know how to look for red flags and maintain proper oversight.

To get a clearer picture of what you should expect from an accountant, here are some of the typical services, expertise, and deliverables.

In your company’s early days, bringing on an accountant might feel like an extra expense — and maybe one you can’t afford. But accountants can often be worth their cost in tax advice alone since they can help you plan properly, avoid penalties and errors, and inform you of deductions you might not be aware of. You may also need someone to help you manage your finances if you’re not comfortable doing it yourself.

While accounting help may be well worth it, if your business is small, you may not need someone full-time or in-house — if that’s the case, you can consider working with an accountant on a fractional basis, or hiring an accounting firm for part-time support.

If you have a smaller business and a good understanding of business finances — or you can’t afford part-time accounting help — there are options. Piecemealing things a bit can be better than nothing: accounting software and a bookkeeper can make sure that your financial records are in order, and a tax preparer can help you file your tax return.

But if you think you’ll need a lot of support with your business finances, well — you probably need an accountant.

The challenge is knowing when to hire an accountant versus other finance roles. Here's a quick comparison of common finance roles at startups. 

Keep in mind that sometimes you’ll “upgrade” (replace one role with another role) and sometimes you’ll “add-on” (add another role with more specific expertise. For example, you may hire a tax preparer while also retaining your bookkeeper. As your business grows or gets more complex, you may add a fractional controller or CFO to lead financial strategy. 

Knowing when to hire an accountant for a business should be based on your current needs and budget, then upgrading or adding on as needed.

How much does it cost to hire an accountant?

How much it costs to hire an accountant can vary widely, depending on whether or not the accountant is dedicated to your company, or outsourced (like works for an accounting firm) and serves multiple companies.

An accountant might start at as little as $40/hour for basic accounting, to $500-$2,000 per month or more paying an outside accounting firm. An accountant’s salary, if you hire full-time, averages $80,000 in the U.S., but can go much higher depending on the level of expertise.

If you’re looking at the costs and asking yourself, “Should I hire an accountant for my small business?” it depends on your budget, in part, but also your risk tolerance. A bookkeeper could handle basic tasks, but you might face issues or tax penalties later without more in-depth expertise.

Like any profession, accountants have different areas of expertise. It’s important to find one that can meet your specific business needs and provide you with tailored financial guidance.

Managing the finances of a tech startup is far different than managing those of a restaurant. Managing the finances of a subscription-based software business is different than doing so for e-commerce. The more experienced the accountant is with businesses similar to yours, the more likely you are to get the advice you need most.

An accountant that understands your industry

Accounting is complex, and there are transactional differences between inventory, real estate, accounts receivable, etc. Each has its own accounting standards based on the types of goods or services being sold and the expenses incurred. Not only should your accountant understand your type of business, but ideally they’re familiar with your overall industry in order to best help you maintain accurate records and stay aware of any relevant accounting changes.

For example, in the US, new guidance for IRS Section 174 was passed in 2017 under the Tax Cuts and Jobs Act and went into effect for tax years after 12/31/2021. Under the new guidance, software development and research activities must be capitalized and amortized, which is different from how such expenses were handled previously.

When a change like Section 174 went into effect, an accountant paying close attention to any rules impacting tech-driven companies would be better equipped to make you aware of the new guidance and help you prepare for its impact. (Plus, as tax laws and regulations are subject to change, it's a generally wise idea to work with a professional who’s staying on top of the updates.)

An accountant that matches your working style

Do you want to be as hands-off as possible with your business finances? Or do you expect to regularly rely on your accountant for advice and partner with them for planning?

Your answer will dictate what you should look for when you’re hiring an accountant. Ask questions about working style, as well as the accountant’s availability. If, for example, you’re hiring fractional help, you’ll need to understand when and how the accountant will be available, whether it’s a few hours a week, monthly meetings, or quarterly strategy planning.

As you scope your options, you should also discuss communication and how you would contact the accountant with questions or concerns, if the accountant is not full-time. Fractional accountants or accounting firms will be juggling multiple clients, so you want to ensure you’ll get the attention you need. You don’t want to feel like your accountant isn’t available, especially if you have a pressing question.

Red flags to watch for when hiring an accountant

Not every accountant is the right fit, and sometimes warning signs will come up during your search. Here are a few things to watch for.

• Vague approach to accounting standards: If an accountant can't clearly explain whether they follow GAAP (generally accepted accounting principles) or how they handle accrual vs. cash-basis accounting, that's a sign they may not have the right expertise.
• Unfamiliarity with your business model: An accountant who doesn't understand the difference between recognizing revenue for a SaaS subscription vs. an ecommerce transaction may misclassify your income or miss important tax implications. 
• Inflexible communication expectations: If an accountant won't commit to a regular check-in cadence, you may find yourself without support when you need it most. Clarify response times and meeting frequency.
• No questions about your tech stack: A good accountant will want to know what tools you're using for accounting software, payroll, and payment processing. If they don't ask, they may not be set up to work within your existing systems.
• Reluctance to provide references: Any reputable accountant should be able to connect you with current or former clients in a similar industry or stage. 

Knowing that you need an accountant who knows your industry and matches your working style, your next step is to start the hiring process.

If the role is full-time, you may want to go the traditional route of creating a job posting. For fractional support or using an accounting firm, you could ask other startup founders for recommendations. It's better to start with someone trusted by others in your industry rather than open the floodgates with a job posting.

And trust matters a lot. You’re relying on your accountant to provide you with the best advice for your business. The accountant will also have access to sensitive financial data and your bank accounts, so you need a seasoned, reputable professional. Have the accountant sign an NDA as part of the hiring process, given the sensitivity of the financial data they'll have access to.

Once you have some job applicants or referrals, discuss their prior industry experience with other clients similar to your startup. Dig into working and collaboration styles and the type of advice you can expect to receive.

A final consideration during the interview process is the accounting software you’ll use. If you’re not already using accounting software, your accountant should help you set that up. Or, your accountant may want you to switch to their product of choice (especially if they’re working with multiple clients). If you aren’t willing to switch accounting software to the accountant’s product of choice, then the accountant wouldn’t be a good fit.

Questions to ask by business type

The right interview questions depend on the type of business you're running. There are some accounting nuances in any industry, and you should ask specific questions of the prospective accountant. 

Here are some examples:

Ecommerce

Ecommerce businesses deal with inventory valuation, cost of goods sold (COGS), and multi-state sales tax compliance. If you're selling physical products across state lines, your sales tax nexus obligations can get complicated quickly. 

Questions to ask:

• How do you handle multi-state sales tax compliance, and do you have experience with sales tax nexus rules?
• Have you worked with businesses that use the same inventory valuation method as ours (FIFO, LIFO, or weighted average)?
• How do you track COGS for a product-based business like ours?

SaaS 

SaaS companies face unique accounting challenges around revenue recognition (ASC 606), deferred revenue from annual or multi-year contracts, and Section 174 R&D capitalization requirements. 

Questions to ask:

• How do you handle revenue recognition for annual versus monthly subscriptions?
• What is your experience with capitalizing R&D costs and software development costs?
• How do you ensure compliance with GAAP?

Agencies and consultancies

If you run an agency or consulting firm, revenue recognition and project-level margin analysis all require an accountant who understands services-based businesses.

Questions to ask:

• How do you track project-level profitability?
• How would you handle revenue recognition for our retainer agreements versus milestone-based projects?
• How do you stay current on IRS guidance regarding employee and independent contractor classification?

For banking services tailored to agencies and consultants, check out Mercury's product features for agencies and consultants. 

Whether you hire someone full-time or part-time, accountant or bookkeeper, you’ll need to spend some onboarding.

Like adding anyone to your team, this onboarding period is critical. The more attention you give it, the more you set the person — and your business — up for success.

Here's a 30/60/90-day plan you can follow. 

Days 1-30:

• Grant access to your business bank accounts, accounting software, and payroll system
• Provide your prior tax returns (both federal and state) and financial statements
• Provide information on your revenue streams and expenses
• Review the chart of accounts and determine if any adjustments need to be made
• Share your cap table and any outstanding loans or credit agreements
• Decide how you’ll communicate (email vs. scheduled calls) and the expected response time
• Complete the first monthly close together so everyone understands the workflow

Days 31-60:

• Establish a reporting schedule of what reports you'll receive and when (e.g., month-end reports by the 10th of the month)
• Put a recurring check-in on the calendar (weekly, biweekly, or monthly, depending on your needs)
• Review the first full month of financial reports for accuracy and completeness
• Complete the first quarterly tax check-in (estimated taxes, sales tax filings, or other obligations)

Days 61–90: 

• Build a cash flow forecast for the next 6–12 months
• Complete an initial tax planning session 
• Document your accounting procedures and workflows 
• Identify any gaps in your financial team or processes and create a plan to address them

If you’re unfamiliar with accounting terms, here’s a quick reference guide:

CPA (Certified Public Accountant): A licensed accounting professional who has passed the Uniform CPA Examination and met state requirements. A CPA can perform audits, prepare tax returns and provide tax advice, and represent a client before the IRS. All CPAs are accountants, but not all accountants are CPAs.

EA (Enrolled Agent): A federally licensed tax professional who represents taxpayers before the IRS. An EA is an expert in tax preparation, planning, and IRS audits, but they don't typically produce financial statements.

GAAP (Generally Accepted Accounting Principles): This is the accounting standard in the U.S., maintained by the Financial Accounting Standards Board (FASB). If you're preparing financial statements for any outside parties, like investors or lenders, they'll expect GAAP-compliant reporting.

Cash vs. accrual accounting: Cash-basis accounting records revenue and expenses when money changes hands. Accrual accounting records them when they're earned or incurred, regardless of when payment happens. Accrual accounting is also needed when a client pays cash upfront, but goods or services (like a SaaS subscription) have to be recognized over the subscription term. 

Internal controls: Processes and procedures a company puts in place for financial integrity. Controls include things like requiring dual approval for large payments, separating who records transactions from who approves them, and regularly reconciling accounts.

Section 174: An IRS provision (updated under the Tax Cuts and Jobs Act) that requires companies to capitalize and amortize research and experimental expenditures (R&E), rather than deducting them immediately. For example, if your SaaS company spends $200,000 on software development in a single tax year, you'd amortize that cost over five years (domestic) or fifteen years (foreign) rather than deducting the full amount in the year the expense occurred.