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Determining When You Should Hire a Full-Time Accountant Often entrepreneurs don't have the core competencies to understand accounting, which could result in a startup failing. Here is how an entrepreneur should approach hiring an accountant or outsourcing her financial tasks to ensure success.

By Alex Katz Edited by Dan Bova

Opinions expressed by Entrepreneur contributors are their own.

Q: Should I employ an accountant full time for my small business or only use them when I need them?
Christopher Oliver II
Orange Park, Fla.

A: During my career, I have seen many companies fail because they did not fully understand their "numbers." In my view, establishing an open and honest relationship with an accountant who will provide analysis and feedback is a critical part of any successful business. That said, whether a business should hire an accountant in-house or outsource the function is largely dependent upon the stage of the business.

At ff Venture Capital, we invest in seed and early stage companies that typically do not have accounting as one of their core competencies. Accordingly, we provide outsourced accounting services (at our cost) to a large part of our portfolio. Some of our other early-stage portfolio companies outsource their accounting function to accountants specializing in such companies. Very few do the work themselves. In all cases, the services should include payroll, accounts payable, billing and collections, sales and use tax compliance, financial modeling and strategic advice `-- all key to a company's success. Over time, though, we expect our portfolio companies to outgrow their outsourced solution and to bring the accounting function in-house.

Related: 6 Things You Didn't Know About Your Financial Statements

The outsourced solution will also be the less expensive option. Rather than an early-stage company hiring a full-time worker for a less than full-time job, it can engage a portion of a person's time through the outsourced firm and still achieve similar results. This is not the optimal solution for later-stage companies, as I will explain later.

I often urge entrepreneurs not to engage a traditional accounting firm to perform this function. Having once practiced as an independent CPA, I understand the pressures of running an accounting practice. A good CPA will have many clients and she can typically afford only slightly more than superficial-level contact with each. Her professional focus will be on audit, tax or even both, whereas a company needs an accounting professional who focuses on its day-to-day bookkeeping and accounting issues and details. In addition, an accounting firm's fees will likely make using it for daily operations cost prohibitive. That said, I urge entrepreneurs to use a CPA firm to provide tax services. It is a good idea to have a tax professional review the work done by an accountant, to look for tax opportunities and to assess risks.

Related: 10 Ways to Keep Your Company's Cash Flow Alive

As a company grows, typically between the time of its series A and series B financings for VC-backed companies, it should consider bringing at least its senior-level accounting function in-house. A controller who has inculcated herself into the fabric of a company and its culture can have a dramatic impact on important decisions a company will make. She can begin to implement systems within a company so that the accountant is not viewed as an impediment to operations, but as an important partner and adviser, while at the same time instituting internal controls and other functions that investors and auditors will demand. An early-stage company can afford to outsource that function, but by the time a company reaches a certain level of growth, it should have the benefit of day-to-day interaction with an in-house accountant who focuses only on that company's needs.

By the time a company completes its series B financing, it should consider devoting the resources necessary to bring the entire accounting function in-house. In this way, the CFO can build out her team to be fully integrated within the company.

Related: What Your CPA Isn't Telling You

Alex Katz

CFO and partner at ff Venture Capital

Alex Katz is the CFO and partner of ff Venture Capital, a New York City-based seed-investment firm.

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