While many people think of accountants strictly as tax preparers, in reality, accountants have a wide knowledge base that can be an invaluable asset to a business.
A general accounting practice covers four basic areas of expertise:
1. Business advisory services. This is where accountants can really earn their keep. Since the accountant is knowledgeable about your business environment, your tax situation and your financial statements, it makes sense to ask them to pull all the pieces together and help you come up with a business plan and personal financial plan you can really achieve. Accountants can offer advice on everything from insurance to expansion. Accountants can bring a new level of insight to the picture, simply by virtue of their perspective.
2. Accounting and record-keeping. Accounting and record-keeping are perhaps the most basic accounting discipline. However, most business owners keep their own books and records. The reason is simple: If these records are examined by lenders or the IRS, the business owner is responsible for their accuracy; therefore, it makes more sense for the owner to maintain them.
Where accountants can offer help is in initially setting up bookkeeping and accounting systems and showing you how to use them. A good system allows you to evaluate your profitability at any point in time and modify prices accordingly. It also lets you track expenses to see if any areas are getting out of hand. It lets you establish and track a budget, spot trends in sales and expenses, and reduce accounting fees required to produce financial statements and tax returns.
3. Tax advice. Tax help from accountants comes in two forms: tax compliance and tax planning. Planning refers to reducing your overall tax burden; compliance refers to obeying the tax laws.
4. Auditing. Auditing services are required for many different purposes, most commonly by banks as a condition of a loan. There are many levels of auditing, ranging from simply preparing financial statements from figures that the entrepreneur supplies all the way up to an actual audit, where the accountant or other third party gives assurance that a company’s financial information is accurate.
Choosing an Accountant
The best way to find a good accountant is to get a referral from your attorney, your banker or a business colleague in the same industry. If you need more possibilities, almost every state has a Society of Certified Public Accountants that will make a referral.
Don’t underestimate the importance of a CPA. This title is only awarded to people who have passed a rigorous two-day, nationally standardized test. Most states require CPAs to have at least a college degree or its equivalent, and several states also require post-graduate work. When dealing with an accountant, you can only hope they're well-educated and well-versed in your business’s needs. Passing the CPA exam, however, is a guarantee of a certain level of ability.
Once you've come up with some good candidates (five is a good number to start with), a little preparation is in order before you interview them. The first step is to take an inventory of what you'll need. It's important to determine beforehand just how much of the work your company will do and how much of it will be done by the accountant.
Once you've given some thought to your expectations, you’re ready to interview. Your principal goal is to find out about three things:
1. Services. Most accounting firms offer tax and auditing services. But what about bookkeeping? Management consulting? Pension fund accounting? Estate planning? Will the accountant help you design and implement financial information systems? Other services a CPA may offer include analyzing transactions for loans and financing; preparing, auditing, reviewing and compiling financial statements; managing investments; and representing you before tax authorities.
Make sure the firm has what you need. If it can’t offer specialized services, such as estate planning, it may have relationships with other firms to which it can refer you to handle these matters. In addition, make sure the firm has experience with small businesses and with your industry. Someone who's already familiar with the financial issues facing your field of business won’t have to waste time getting up to speed.
2. Personality. Is the accountant’s style compatible with yours? Be sure the people you're meeting with are the same ones who'll be handling your business. At many accounting firms, some partners handle sales and new business, then pass the actual account work on to others.
When evaluating competency and compatibility, ask candidates how they'd handle situations relevant to you. For example: How would they handle a change in corporation status from S to C? Or an IRS office audit seeking verification of automobile expenses? Listen to the answers, and decide if that’s how you would like your affairs to be handled.
3. Fees. Ask about fees upfront. Get a range of quotes from different accountants. Also try to get an estimate of the total annual charges based on the services you've discussed. Don’t base your decision solely on cost, however; an accountant who charges more by the hour is likely to be more experienced and thus able to work faster than a novice who charges less.
At the end of the interview, ask for references—particularly from clients in the same industry as you. A good accountant should be happy to provide you with references; call and ask how satisfied they were with the accountant’s services, fees and availability.