In this guide, we’ll explain what an accountant does, share some advice on when you should consider hiring one, and offer some tips for getting the most value from your CPA.
What an accountant does
In small business accounting, an accountant helps you understand your financial health and make strategic financial decisions.
Your financial records are typically handled by a bookkeeper, who’s in charge of tracking your daily income and expenses and providing monthly financial statements. Then, an accountant helps you interpret your business finances and provide advice.
Small business accounting services can include tax planning, forecasting, payroll services, and more. But that’s not all: they tailor their services to your business needs. Think of them as financial advisors who can also file your taxes and help you through an audit.
Are you ready to hire an accountant?
If your business is in its hobby stages, you might not need to worry about hiring an accountant. But you should still talk to one early on. It will benefit your business at no cost, help you form your business plan, and bring your attention to specific deductions for startups.
Most accountants provide free consultations. In an initial consultation, you’ll get free advice and a better understanding of 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 a new business starts turning a profit. Here are several other milestones that indicate it might be time to hire an accountant:
Tax season is approaching and you feel unprepared
You plan on expanding your business (especially into another state)
Your business has recently experienced rapid growth
Investors are asking for reviewed financial reports
You’ve made errors filing taxes that cost your business money
You are about to be audited
You plan on selling your business soon
5 Tips for Finding a Good Accountant
Ready to share the financial load of your business with a CPA? Here’s some tips to find a good accountant.
1. Look for referrals and reviews
Are you part of your local small business community? Ask around for recommendations for accountants who work with companies in your area. This is a chance to use your connections from community organizations like Rotary clubs or the Chamber of Commerce. You may even be able to find a worthwhile referral for a new accountant through your bank, realtor, or loan officer.
If you’re not having luck with local referrals, look online for accountants in your area and use online reviews about their services to guide your selection. Forums and other online communities like Yelp, LinkedIn, or local Facebook groups can be helpful resources.
2. Review your needs and their services
Accountants specialize in different things. Some accountants prefer being a tax preparer for multiple companies, while others would rather help a handful of small business owners navigate financial decisions year-round. Some include bookkeeping services and will prepare your tax returns, and others prefer complicated compliance cases. There are solo operations and larger CPA firms.
As part of an initial consultation with an accountant, ask them about the services they provide their clients. Discuss how they work with clients and how much experience they have in your industry.
3. Examine their qualifications
A good accountant will have the credentials to back up their knowledge and experience with business taxes. Ask if they have a Preparer Tax Identification Number (PTIN). The IRS requires a PTIN for anyone getting paid to help file taxes for others.
In addition to a PTIN, check for other select certifications and licenses. A certified public accountant, an enrolled agent, a licensed attorney, or someone with a certificate from the IRS Annual Filing Season program will be registered with the IRS and searchable in the IRS directory.
A reputable accountant may also have memberships in reputable professional organizations. You can check for membership in a professional organization such as:
These organizations require members to have certain qualifications, like a degree from a recognized college accounting program, a set expectation for years of experience, and a code of ethics and professional conduct requirements. If your accounting prospects are members of one or more professional organizations, the organization has done a bit of the vetting for you.
4. Meet with prospective accountants
Once you’ve done your legwork, it’s time to sit down with your prospective accountants. This is where you will have more meaningful conversations. Before scheduling these meetings, make a list of topics to discuss, including:
Any questions about licenses or professional organizations. Did you turn up anything unexpected, or were you unable to get this information earlier? Ask for any missing information on education, degrees, certifications, and memberships in professional organizations.
Their experience in your field. You may already know that the accountant has some experience with your industry, but how much? You probably don’t want to be their very first client as they open a new shop.
Their rates for various services. Billing is an essential topic to discuss, so don’t be shy. Does the accountant bill per hour? Are bundled services priced as a package? Will you be billed for questions over phone or email?
Ask about tax preparation fees. This will be a major consideration for your business. If available, bring in a copy of last year’s business tax return and ask the accountant what their tax services would cost for the coming tax year. This will be a rough estimate, but asking multiple accountants the same question will help you gain more transparency into their pricing. Look for their rates written somewhere for accountability and future reference.
Any outsourcing they might use. Many small businesses outsource, and that includes accountants. Does the accountant you’re considering also outsource parts of their business? Who’s doing the tax forms at tax time—the person you’re speaking with or someone you’ve never met?
Accounting software they use. Does your accountant use particular accounting software that you can both access in some way? Ask if they have a client portal that can be linked to your financial records, making it simple for your accountant to give and receive information.
E-file policies. The IRS requires that paid preparers who submit more than ten returns for clients do so electronically. Be sure that your accountants are e-filing for clients, and that will ensure they have proven experience in tax filing.
Their communication policies. What is the accountant’s email or phone policy? How long can you expect to wait before you get a response? Do you need a full-time accounting service available around the clock? Think about how much and what kind of communication will be most comfortable for you.
5. Determine your comfort level
The right accountant will be the professional whose financial advice will guide you through long-term decisions for your business and be your guidance through legal statutes at tax time every year.
A good accountant will not only prepare your tax documents but will sign them with their credentials and represent you if any tax questions or issues arise. With information this sensitive and essential, you want to be confident in your decision.
How much does an accountant cost?
In 2015, the SCORE report found that the majority of small businesses spend $1,000 to $5,000 annually on accounting. But this number varies based on the services the CPA provides and the size and complexity of the business.
Many accountants charge by the hour, while some work on a monthly retainer fee. As you interview multiple accountants, obtain quotes from each of them so you can compare prices.
On average, professional tax preparation costs fall 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 remember: you’re saving hours of labor by having a pro handle the task. Their expertise may secure tax savings that outweigh the cost of hiring them.
How to work with an accountant
When it comes to taxes, in particular, there are certain things you should always review. Here are the right questions to ask to make sure you’re getting the most value out of your accountant.
Why am I having issues with my cash flow?
Early stage entrepreneurs often encounter issues with cash flow. If you feel like your business is struggling to stay on top of payments or lacks the capital to make significant improvements, an accountant can help you understand why you face these situations and what business decisions can help you avoid them. Their business consulting can help you go from feeling like a passenger on the wild ride of business ownership to being behind the wheel.
What business expenses can I deduct?
There’s a wide array of small business tax deductions, some of them unique to specific business types.
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 deductions and highlight others you may not know about.
Are any of my business expenses partially deductible, and how can I calculate the maximum deduction?
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. An accountant’s tax advice ensures you properly 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, while others won’t. Part of your accountant’s job is keeping up with tax law changes 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 can file as S corps which reduces 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 plan and then deduct it. An accountant can elaborate on these rules and determine whether your plan qualifies to be deducted.