As a Certified Public Accountant and a business owner, I can see the benefits of hiring a tax and financial expert. But I also know some common mistakes many people can make when deciding what type of CPA to hire.
No matter how small your business is, having a tax and financial advisor can be beneficial. If you want to be serious about your business, I recommend getting a CPA, not just an accountant.
What's the Difference?
An accountant is a general term for anyone in the tax or finance profession who follows specific rules and regulations.
I think of CPAs as super accountants because they are accountants who have passed a notoriously difficult licensing examination in a state. So, technically all CPAs are accountants, but not all accountants are CPAs.
An accountant may fill some of your business's accounting needs, but there are specific circumstances in which using the services of a CPA can have its benefits. A CPA is licensed by a state and is current with state and federal tax laws. They must comply with continuing education requirements in order to maintain their licenses.
CPAs can also do detailed financial analysis and offer advice on tax and financial matters. But probably the biggest reason to use a CPA for your business taxes is that a CPA is eligible to represent you before the IRS in an audit, while an accountant is not.
So how can you be sure you are hiring the right CPA for your business? To make sure your accounting is in the right hands, consider these five tips for hiring a CPA:
1. Find a CPA or firm that understands your personal needs.
You need to be able to openly communicate with your CPA. If you're hiring an external CPA firm, it has to understand what you do before you decide to work with them, even if the firm is just doing your taxes. There are too many things that can go wrong if your CPA doesn't truly understand your business.
It's also helpful to make sure your CPA or firm can take you through their process and set clear expectations. Consider finding a practice that's eager to work with you and appreciates your business. Keep an eye out for warning signs, such as slow response time.
2. Remember to keep other qualifications in mind when hiring a CPA.
There's a lot more to accounting than just crunching numbers, especially when it comes to hiring a CPA for your business.
With their deep understanding of complex financial concepts and tax code, it can be difficult to have that broken down into layman terms. That's why I think it's important to look beyond the lines on their resume that might not be exactly to your standards and focus on other qualifications such as communication.
Your CPA will most likely have to work closely with your employees to extract information pertinent to their records. An accountant's ability to communicate and cooperate with others can be just as relevant, if not more so, than the name of their school or their GPA.
Because there are many different types of accounting, you also have to make sure you hire someone who has the right traits for your business's type of accounting. For example, technical accounting requires a certain skill set and personality where one must frequently dive into complex technical guidance, so you would probably need a CPA who is patient and does not get frustrated with complex technologies.
3. Figure out what you need before hiring.
Ask yourself this question: What are your business's specific accounting needs? Are you looking for someone to process your accounts payable and sales invoices, do taxes and payroll or create your budgets and financial statements?
Before you even start the hiring process, come up with a list of services that you and your business need, including what you might require down the road. Once you've done that, then you can find the right CPA or firm that can handle it all.
Remember, revenue alone doesn't always determine your business's accounting needs. If you own a high-end art gallery that sells just a few paintings per month, you might be making big money, but you don't have the volume of transactions that would require full-time accounting help. If you have an auto repair shop with a lot of purchases and inventory to keep up with every day, you may need a more comprehensive service from a CPA.
4. Find a CPA who also does financial analysis.
A CPA or firm can review your business's financial health. Ideally, you want to get key health indicators (such as gross profit margin, aging accounts receivable, net profit, etc.) on a day-to-day basis, allowing you to make the most informed business decisions with the relevant information you receive from your CPA.
5. Avoid doing it yourself if you can.
There's a reason why CPAs go to college and take a grueling exam—accounting is a specialty profession.
An experienced CPA understands the process and can execute it error-free, which is crucial because errors mean negative monetary impact on your business. If you have no experience in accounting, it may be better to leave it to the professionals.
You might be thinking that handling your accounting and finances yourself will save your business money, when in fact it could do just the opposite. Do yourself a favor and consider hiring some help. As a business owner, you shouldn't be spending your time figuring out accounting software and data entry when you could be using that time to focus on the bigger picture: building your business.
Bryce Welker is a CPA and the CEO of multiple companies in the online education space including Beat The CPA. He is also a member of Young Entrepreneur Council (YEC).
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