Finances are an area you don't want to play around with because there can be very serious repercussions for even honest, innocent mistakes. A CPA is a fantastic counselor to have on your team. Even though they have a relatively high hourly rate, they will add immense value and take away the stress of having to make financial decisions on your own when you're not ready yet.
I'm starting this post with a little celebration to mark the beginning of my favorite month: April! Yay! This means spring is here, the weather is warming up, and you can finally start to go outside and play again! And by "play" I of course mean "ride bikes"! Check our this bike stunt (Warning: Don't try this at home. This guys is obviously crazy…crazy AWESOME!):
Back to business. Recently, I finished our final CPA interview, and Nathan and I made our decision about which one we'd like to work with for our business. I interviewed four CPAs from four different firms, and never having interviewed a CPA before, the experience was eye-opening for me. I learned a lot along the way, and I wanted to share what I learned with you so you can be prepared if/when you need to hire a CPA of your own.
Before I begin though, there is something I want to clear up that you may not even know you didn't know! CPA's and accountants are DIFFERENT. I thought they were just different titles for the same job, but they're not. Here is a quick description of the jobs and limitations of CPA's, accountants, and bookkeepers (I want to throw in bookkeepers, because this is another financial position small business owners might consider hiring for).
- Bookkeeper – This person records financial transactions. They keep your business's register of withdrawals and deposits up to date. They do not do taxes or advise on financial matters.
- Accountant – This person can handle nearly all financial tasks – bookkeeping, making cash flow charts, managing equity, keeping balance sheet balanced, etc – but they are unable to advise on financial matters. Accountants cannot work directly with clients or have their own practice – they must work within a firm or other organization.
- CPA (Certified Professional Accountant) – This person can handle all the financial tasks of a bookkeeper and accountant, AND they can advise on financial matters/decisions. CPA's have more education than Accountants or bookkeepers, they have to undergo additional testing, and they are also required to have continuing education every 2 years. When an individual or business is looking for financial advice, even if a bookkeeper or accountant has an opinion, the final word is always from a CPA.
It was very helpful for me to learn about these differences (even if it was a little embarrassing to have to ask for an explanation at one of my interviews when I realized they were different positions). For the time being, Nathan and I will handle the job of bookkeeper and accountant in our business, and we will seek the help of a CPA for making financial decisions and to learn how to keep our own financial records.
I would recommend the same to you. Generally, if you want to do a good job with this:
…get one of these (the real thing, not the mug):
The CPA's I interviewed charge between $60 and $200 per HOUR! This is a lot of money, but here's why I think it's important for your small business to have a relationship with a CPA anyway:
- Important – I have gotten the advice many, many times from business counselors and mentors that a CPA is one of the three most important contacts for a small business (the other two are a lawyer and an insurance agent).
- Avoid/Reduce Taxes – Taxes can quickly eat up a new business' profits, and not knowing what you are entitled to deduct can make your taxes unnecessarily high. Learn about all the ways to save money and reduce taxes from a CPA. For example: Did you know that if you're a small business owner and you're paying for your own medical insurance, you can deduct it in your business taxes? (*Note: You DON'T want to work with a CPA who can help you avoid/reduce taxes through illegal / inappropriate means!)
- Knows the Rules – In addition to your taxes, there are other financial documents that need to be filed regularly for a small business. (Speaking of taxes, did you know that most small businesses are required to file tax documents multiple times per year? It's true.) A CPA can help you make sure you are following all the rules/laws regarding taxes and the IRS so you stay out of trouble.
- Incorporate – A CPA can help you decide which kind of business entity to incorporate as: Limited Liability Company (LLC), S-Corporation, C-Corporation, Sole Proprietorship, etc. Each of these different entities has many different strings attached that will effect not only your taxes, but can also make a big difference if your company ever gets into legal trouble.
- Wealth of Knowledge – A CPA can help you make financial projections, teach you about the financial implications of special accounts you might want to set up (ex: saving for a child's college with your business), help you with investors or other financing, etc. Unless you plan to go get your own degree in finance, there's almost no way you could ever know as much on your own as a CPA.
Finances are an area you don't want to play around with, because there can be very serious repercussions for even honest, innocent mistakes. A CPA is a fantastic counselor to have on your team. Even though they have a relatively high hourly rate, they will add immense value and take away the stress of having to make financial decisions on your own when you're not ready yet.
Of course, we all know that the financial profession has a negative stereotype. To clear this up and help empower you to be unencumbered when forming a relationship with a CPA, I want to tell you a story. When I asked the CPAs I was interviewing for references of client relationships that did NOT work out (I always ask for good AND bad references), two of the CPAs told me they had only ever lost a client to one thing: the desire to bend/break the rules.
But it wasn't the CPA that wanted to break the rules, it was the CLIENT! The two CPAs said they were unwilling to assist a client in doing wrong, and it severed their relationship. These CPA's were willing to lose a client (and potentially lose money out of their paycheck) rather than do anything that might bend or break financial rules. That is a tough situation to make the right choices in, and I am very proud to be working with a CPA who I absolutely know I can trust to do the right thing (we hired one of "the two").
When interviewing a CPA, there are a few key things to keep in mind (same things as when you're interviewing a lawyer). First of all, remember that financial professionals are people too. They want to make a positive impression and have the meeting go well just as much as you do – no need to be intimidated.
Secondly, pay attention to their level of customer service. Make sure they take time to explain concepts to you, help you understand them, return correspondence promptly, show up for meetings on time, etc. And third, in addition to the simple customer service test that ALL of your business contacts should pass, here are some good questions to ask a CPA when you sit down to meet with them:
- Tell me about yourself.
- Tell me about your firm.
- Are you willing to work with my lawyer and insurance agent to help make decisions for my business and provide me with collective counsel? (The answer to this should be "yes".)
- Do you have experience working with small businesses? What percentage of your clients are small business clients?
- Explain to me why having a lawyer is important for a small business. (Hopefully they'll say some of the things I mentioned above.)
- Walk me through my options in terms of how to set up our company and the resulting tax implications.
- What are some things we could be doing NOW to save money on our business taxes?
- Should our business operate on a cash accounting method or an accrual accounting method? Why?
- What software would you recommend that we use to track our finances? Why?
- Can you teach us how to use accounting software? How much do you charge for this?
- Will you review our financial records with us monthly/quarterly to help us make sure we’re documenting things right?
- What is your regular hourly charge?
- How much do you charge to do corporate taxes?
- Can you give me some references (good relationships and ones that didn’t work out)?
I had no idea what kinds of questions to ask a CPA at first, so I emailed a friend who works with a CPA for his small business and asked for a quick question list. Most of the questions above came from my friend. This was a great reminder to me to REMEMBER and USE my resources. If you are trying to do something that you are not sure how to do, always ask for help! There are lots and lots of great people and great resources out there available to you. REMEMBER them and USE them!
Thanks for reading. I hope this was helpful. Please leave a comment if you have any questions or if you have any other information that would be useful to pass on to readers. Thanks, and have a great day!