As a small business owner, you not only need to make sure your financial transactions are accurate and up to date, but that you’re properly strategizing for the growth and success of your business. Working with a CPA can be a great solution to meet many of your business’s needs.
If you’re looking for a professional to handle the financials of your small business, when should you consider working with a CPA? And if you decide that a CPA business is the right fit for your needs, how do you go about hiring one? Here are some pointers.
What Does a CPA Do?
When it comes to financial planning for your business, a CPA or Certified Public Accountant can provide a number of services, explains Catherine Derus, founder of Brightwater Accounting. “Tax preparation obviously comes to mind,” says Derus. “But a CPA may also provide services around tax planning, business advising, personal financial planning and budgeting, bookkeeping and payroll processing.”
Additionally, a CPA is more than just a job title, it’s a business license. As Derus explains, CPAs may need to pass a grueling exam that covers tax laws, business concepts, auditing, financial accounting and reporting. Pass rates aren’t great — about 45 to 60 percent.
“They must also meet their state’s requirements around education, work experience and ethics,” says Derus. “Beyond technical proficiency, a good CPA should have integrity, professionalism and the people skills to build relationships and communicate effectively.” And according to the IRS, a CPA needs to comply with ethical requirements and complete continuing education to keep their CPA license.
Working with a CPA vs. a Bookkeeper or an Accountant
So when should you hire a bookkeeper or an accountant, and when should you hire a CPA?
A bookkeeper is someone who “balances the books” and records your business’s transactions on a regular basis. They put these transactions into the right categories and record accounts payable (who you paid and how much) and accounts receivable (when you get paid, by which company or client and how much). They also keep track of your receipts and create reports such as an income statement, cash flow statement and a balance sheet.
Accountants take the transactions that bookkeepers handle to analyze the data and create detailed reports. They help file tax returns and make sure your taxes are paid in a timely manner. Accountants can also look at your transactions and reports to make recommendations on what financial steps to take for your business.
If you’re looking to hire an accountant to handle your small business accounting, you might consider working with a CPA instead. It turns out that about half of all accountants are also CPAs. While there are about 1.3 million accountants in the U.S., there are only 650,000 CPAs. A CPA has met more rigorous demands and requirements to obtain and maintain their license, points out Derus. Besides performing all the tasks that accountants do, a CPA can come up with financial strategy and planning for your business.
How to Find a Good CPA
How do you hire a CPA and what should you look for? While a CPA will need to know specific state and local tax laws, it’s probably more important that your CPA has a firm understanding of your business’s specific industry, explains Derus.
“Different industries come with their own unique accounting and tax issues,” she says. “Accounting for a food blogger is different than accounting for a retail store, which is also different than accounting for a freelance writer. Your accountant should be aware of tax opportunities that relate to your industry.”
Many online resources and databases for finding a CPA exist, including the American Institute of CPAs (AICPA). While you can find someone in your city or state, many CPAs offer the option of working virtually. If you’re tech-savvy, it can be extremely convenient for both parties. However, if you prefer meeting in person, then you might want to work with a local CPA.
After an initial consultation, you can gauge whether the CPA is a good fit for your needs and type of business. From there, you can schedule a single consultation as needed, or work with a CPA on a year-round basis.
The Benefit of Hiring a CPA
Hiring a CPA can relieve a burden that many business owners have, but don’t know how to handle. Handing your own taxes and accounting takes some expertise and can be detrimental if done incorrectly. Using a CPA to take on these tasks can let you focus on what you do best.
“A business owner should focus on their zone of genius,” says Derus. “Be it business development, creating products or providing services, outsourcing these responsibilities should cut down on stress around tax filings.”
Ready to level up on the financial planning and business strategy of your company? Incfile can help. Besides helping you prepare and file an S Corp tax election, we can assist you in filing a tax return. Reach out to us today.