It isn’t cheap to hire an accountant. And if you run a small business, it can be tempting to avoid reaching out for help. After all, you’re in charge of your business. Shouldn’t you be the one most qualified to plan its finances?
Well, yes and no. While you should never relinquish financial control of your ship, a good accountant possesses a lot of hard-won knowledge when it comes to financial planning that goes beyond the finer nuances of taxes.
Chances are, at some point, they’ve worked with companies that have failed—as well as some that have succeeded beyond their founders’ expectations. That experience, in addition to their Certified Public Accountant (CPA) training, means they’re able to offer advice in areas you may not even anticipate.
In this guide, we’ll explain what an accountant does, share some advice on when you should consider hiring one, and give some tips for getting the most value from your CPA.
What an accountant does
An accountant helps you make strategic financial decisions about your business.
While a bookkeeper tracks your daily income and expenses, and provides monthly financial statements tracking the health of your business, an accountant helps you interpret those numbers to make important decisions: where you'd like your business to be in one year (or five years), how to make the most of your tax return, deciding when to incorporate, etc.
They can also file your taxes for you, and help you through an audit.
Are you ready to hire an accountant?
If your business is in its hobby stages, you don’t need to worry about hiring an accountant. But you should still talk to one early on. It will benefit your business, and probably cost you nothing.
Most accountants provide free consultations. They want your business, after all, and a consultation is their chance to show you they know what they’re doing. It’s a chance to get some pro bono advice on tweaks you can make to your financial operations. And you’ll also be better able to understand what they’re able to offer you, in case you choose to hire an accountant down the line.
While there’s no “right” time to hire an accountant, it’s a smart idea to have a CPA on hand once your business starts turning a profit. If your small business is already a for-profit endeavor but you’re yet to bring on a CPA, here are several milestones that indicate it’s time to hire an accountant:
- You plan on expanding your business (especially into another state)
- Your business has recently experienced rapid growth
- Investors are asking for financial reports
- It’s time to file your taxes
- You’ve made errors filing taxes that cost your business money
- You are about to be audited
- Your revenue is increasing but your profit is not (profit margins need to increase)
- You plan on selling your business soon
A qualified CPA with experience in your industry can help you navigate these circumstances.
Finding an accountant
The best accountant for you is one who understands your industry, and has experience working with businesses similar to your own. Talk to contacts in your industry to see if any of them can refer you to qualified accountants. Once you have some leads, schedule an appointment for a consultation with each one.
Here’s what you should be assessing while you talk with your accountant:
How well they understand your business
Someone who has experience with people in your specific industry can help you qualify for common tax breaks and deductions that apply to your business.
If they communicate jargon-free
Any discussion involving taxes—or the IRS—is in danger of becoming bogged down with technical language. Look for an accountant who can communicate high-level topics in a way that’s accessible and helps you more deeply understand your business.
The size and strength of their team
Be sure that whoever you decide to take on as an accountant, they have enough personnel to be able to do what you need them to do. A one-person firm may not have the resources you need.
How often you’ll need to work with them
Depending on what type of services you’re looking for—from yearly tax help to intensive financial planning—you will be meeting more or less frequently with your accountant. Will you consult them monthly? Quarterly? Or only during tax season? Ask them directly, and make sure their expectations are a match with yours.
How much does an accountant cost?
Many accountants charge by the hour, while some work on a monthly retainer fee. Pricing can vary greatly, depending on what level of service the CPA provides. Based on the conversation during your initial consultation, you should have an idea how frequently you will be meeting with your accountant, which also affects the cost.
As you interview multiple accountants, obtain quotes from each of them so you can compare prices.
On average, the cost of professional tax preparation falls between $220 (filing a Form 1040 for a self-employed individual) and $800 (filing a Form 1120 for a C corporation). It may seem painful to pay that much money to have your taxes done, but keep in mind the labor hours you will saved by having a pro handle the task for you. Also, an accountant will likely have a better understanding of tax laws for your industry, and may be able to secure savings that outweigh the cost of hiring them.
How to work with an accountant
Specifically when it comes to taxes, there are some basic questions you should address with an accountant.
What business expenses can I deduct?
There’s a wide array of small business tax deductions, but what you can deduct will depend on the nature of your business. Always remember, only the ordinary and necessary expenses of running your business can be deducted from your taxes. Your accountant can tell you whether you qualify for certain expenses, and highlight ones you may not know about.
Are any of my business expenses partially deductible, and how can I maximize these deductions?
Not all business expenses are one hundred percent deductible—for instance, meals and entertainment expenses, business travel, and any that are mixed-use home office items such as cell phone or internet service. Your accountant can help you calculate which percentage to deduct depending on how frequently you use the item for work.
Do any recent changes in tax law affect my business?
Tax regulations are constantly being updated. Some changes may benefit your business, others won’t. And it’s highly unlikely that every change to tax regulation will affect your business. Part of your accountant’s job is staying up on tax law changes that affect your business, and leveraging them to save you money.
How does the legal structure of my business affect me at tax time?
Ask your accountant if any tax benefits or disadvantages apply specifically to your business’s legal structure. They may be able to help you change business structures in a way that will help you save on taxes. For instance, some LLCs are able to file as S-Corps, and reduce their likelihood of being audited.
Can I deduct the cost of my health insurance?
As a self-employed person, your health insurance premium is tax-deductible. However, if you are eligible to be included in your spouse’s health insurance plan, you can’t sign up for your own, separate plan, and then deduct it. An accountant can elaborate on these rules and determine whether your plan qualifies to be deducted.
Working with an accountant won’t just help you file a great tax return. Consider your CPA as part of your small business team; they can help advise you on financial decisions, ensuring the long term sustainability and growth of your business. Getting the help of a qualified accountant is an investment that costs time, effort and money, but in the long run, it’s one pays off.