A certified public accountant, or CPA, is an accounting professional who has passed the Uniform CPA Examination and maintains their qualifications to be a licensed CPA. All 50 states have different CPA licenses, but you can expect that most of them have the ability to act as accounting consultants, tax consultants, auditors, business advisors, financial advisors, and much more.
Along with hiring a lawyer and insurance broker, one of the people you need most on your team is a CPA because one of the most important parts of running a business is keeping your finances in order. Hiring a person or a team of people to work with you on accounting, keeping diligent financial records, filing taxes, applying for small business loans, and planning for the long term is one of the best decisions you can make as a small business owner.
As much as the exam they take is uniform, not all CPAs are created equal. A good certified public accountant will bring invaluable expertise to your business, serving as an advisor as well as an accountant—and freeing your time to focus on other parts of your business.
Certified Public Accountant vs. Accountant: What’s the Difference?
Not every accountant is a certified public accountant. Qualifying as a certified public accountant is the only form of licensed accounting qualification in the USA. In order to become a certified public accountant prospective accountants need to pass the Uniform CPA Examination, but there are other requirements which vary by state. In addition to the exam, applicants often need to have a bachelor’s degree and two years of experience in accounting. Choosing a certified public accountant means that you will have a professional on your side who has already been pre-screened and most likely well trained for your situation.
Accountant, Bookkeeper: Same Thing, Right?
Here’s one thing we want you to fully understand while we’re discussing certified public accountants: an accountant is not the same thing as a bookkeeper. People often use the two terms interchangeably, but they play different—although equally important—roles in a business’s financial management.
Think of a bookkeeper as the person on your team who works with short-term finances, while an accountant works with longer-term finances. Day-to-day expenses are (mostly) the bookkeeper’s domain, while tax returns and long-term financial planning are (mostly) the accountant’s territory. A bookkeeper, if they do their job well, will make the accountant’s life a lot easier by diligently recording the transactions that the accountant will then be able to analyze and report on.
For example, a few times a year—especially around tax season—the accountant will prepare tax documents and enter adjustments as needed using the detailed, and hopefully accurate information logged by the bookkeeper. They can also use that data to make recommendations for the next year.
Additionally, if at the end of the year your company decided to do something like take on a loan to cover the cost of new equipment, the accountant will help prepare the paperwork for the application. If the business is audited by the IRS, the accountant will act as the business’s representative. Accountants and bookkeepers are both incredibly important for your business—and should work together to keep financial records clear and accurate.
Hiring a Certified Public Accountant and a Bookkeeper: Do You Really Need Both?
In a short answer, no—but if you have to choose one you should probably have a CPA .
You can use several software programs to help you manage bookkeeping on your own. QuickBooks Online is one of the most popular choices, both for professional bookkeepers and for small business owners who want to record their own finances. It syncs with your bank and credit card accounts, and lets you create invoices, process payroll, and view simple accounts of your finances. You can also look at FreshBooks and Xero for alternatives.
With the help of bookkeeping software it is absolutely possible to keep your own clear, accurate records; but make sure that a few times per year you turn them over to an accountant for further review. The cloud-based software programs we recommended above make this easy, since you can share your account directly with the accountant. The responsibilities generally delegated to your accountant; like checking your records for errors, preparing your tax documents, and advising you on major financial decisions require an expert’s input.
An accountant can also help you set up this software, so if you’re just starting out and have no idea where to begin with keeping your own books, a CPA might be your best bet.
Certified Public Accountants: Determining Whether or Not You Need One
If your budget is extremely tight—or if you’re confident in your own ability to perform an accountant’s responsibilities—you’re probably considering forgoing hiring a CPA. The best way to figure out whether or not this decision is the right one for your business is by performing a cost-benefit analysis.
What Exactly Does a Certified Public Accountant Do?
Most obviously, when tax season rolls around the CPA will prepare your small business taxes for you.
Although it is possible to do it yourself—and bookkeeping software like QuickBooks makes that easier—business taxes can quickly become complicated and mistakes are easy to make. For example, sometimes businesses have to work with filing taxes for multiple states, especially if their sales are made through the Internet or the interest from a short-term debt needs to be written off properly.
Figuring out which expenses are tax-deductible—your car? Rent? —can also be tricky to do without professional help.
Setting Up Your Business
A CPA also can advise you on choosing the best health insurance policy for your employees depending on your budget and make sure that you’re complying with federal and state employee rules and regulations so you avoid fines.
One advantage of hiring a CPA is that they’ll be able to take an outsider’s big-picture view of your business’s finances, helping you to make long-term decisions and evaluate risk.
Small business owners frequently devote all their time to day-to-day operational issues and may not get the chance to stop to get a big picture view of the larger or long-term challenges they should address.
If the CPA is familiar with your industry, they can even work with you through recessions and economic downturns, helping you to figure out how to stay relevant.
Just as you visit your doctor for physical checkups every year, an accountant can perform financial checkups periodically—usually more than once a year. A CPA can look at your sales data, profit margins, cash flow, inventory, and payroll and determine if you need to make any budgetary adjustments.
A CPA can advise you on whether you should take out a loan, taking into account your cash flow, any associated risks and fines, and the effects that it’ll have on your business taxes. Say, for example, you’re considering changing around the ownership percentages of your business in order to qualify for a loan. The CPA will be able to work with you, advising you on the specifics of changing ownership based on your company structure and referring you to a tax attorney if necessary.
If you can decide to take on a loan, the CPA will also help you through that application by preparing financial statements for you.
Preparing Financial Statements
Another bonus to hiring a CPA is that they can prepare different types of formal financial statements specific to certain situations.
Basic financial statements are the least formal but are useful for the business owner to see a clear picture of the financial health of the company. Here, the accountant is preparing documents based on the information you’ve provided, so there’s no verification of its accuracy. Each page of the report will say “no assurance is provided.”
Compilation reports are a little more involved because the CPA will emphasize their role in compiling them, which is often of use to potential lenders who want to see that you’re working with a certified accountant. The CPA still doesn’t need to verify the information but should use their best judgment as to whether or not it’s accurate. These are sometimes used for loans with heavy collateral, or loans that require less documentation, like short-term loans from alternative lenders.
A review requires a low level of assurance from the CPA meaning that they’re familiar with your company and the wider industry and can provide a formal report about the accuracy of the prepared statements. Reviews are often required for more complex loan applications and financing.
An audit is the full deal: the accountant must verify the accuracy of your numbers to the best of their ability—for example, by physically examining your inventories, bank account, and assets. If you’re looking to make a major business decision, such as selling or merging your company, you’ll need an audit.
Where Can You Find a Certified Public Accountant?
You can ask your attorney or banker for a recommendation. You can also check in with your state’s Society of Certified Public Accountants, or with the Professional Association of Small Business Accountants.
Another option is to ask a small business in your industry for a referral. The advantage here is that you may find a CPA with specific experience in your field, which is particularly helpful for offering long-term advice.
Remember that you’re handing important and confidential financial information over to the accountant, so it’s extremely important that they are trustworthy.
Questions to Ask a Certified Public Accountant
First, make sure your accountant is readily available and easy to communicate with. This will save you from potential problems in the future. If you’re looking at an accounting firm, you also should ask whether you’ll be working with the same accountant for your financial needs and what backup for them exists.
Be sure to ask about their payment structure—are there any additional fees? Do they work on a monthly retainer or do they bill hourly? What are their rates? Do they outsource any of their work to a bookkeeper to keep costs down?
Next, clarify exactly what you expect the accountant to do for you. Will you be handling your bookkeeping yourself, or do you already have a bookkeeper? Do you want them to serve as an advisor in the event that you decide to take on a loan?
And finally, you should feel comfortable talking with your accountant. Personal chemistry is important as this should be a long-term and mutually beneficial relationship and they’ll be serving as an outside advisor and counselor to your company. If you find it hard to communicate with your accountant or feel uncomfortable asking questions about your business’s finances, look for a different one.
Once you’ve found an accountant that seems like a good fit for you, we suggest that you ask for a few of their clients’ names so you can call to check references. Verify the answers to all of the questions listed above and you should feel confident in your decision.
A Final Word on Certified Public Accountants
Every business needs to have a seasoned advisor and that may or may not be a CPA. They are an extremely valuable resource that’ll save you time, money, and energy in the long run. From the decisions you need to make about your company’s structure, budget, and benefits to tax time and loan application — an accountant will add expertise and protect you from literally paying for financial mistakes.
Whether you are a business, individual, or non-profit, we can outline specific steps you should take to minimize taxes, increase profitability, and secure your financials. For more information, contact us at firstname.lastname@example.org or (212) 397-2970.