While passion and hustle can go a long way when starting a new business, smart planning is essential to survival. Poor financial planning is one of the top reasons that startups fail, so the sooner you take ownership of your startup’s financial health, the better.
While the cost savings of doing your own books may be appealing, the reality is that not using a professional bookkeeper for your startup may cost far more than you save in the long run.
Startups face complex tax and accounting situations like cash flow management, compensation concerns, and venture capital financial due diligence—which is why hiring a certified public accountant (CPA) can save you time, money, and possibly your sanity!
Here, we break down how a CPA can help you and how to go about finding one who’s a good fit for your startup.
What does a CPA do?
A CPA is an advanced-level accountant. These number gurus are considered one of the most essential professionals to small business owners.
Bookkeeping and tax filing are probably immediately come to mind. But a CPA also offers a host of financial and advisory services to help you improve your profits and scale your business, including:
Selecting a business entity
A CPA can advise you on business entity types: limited liability company (LLC), sole proprietorship, C corporation, S corporation, or partnership. This will impact how much you pay in taxes, the paperwork you need to file, and your liability.
A CPA can interpret your business’s financial reports and provide valuable real-time insights into your income, expenses, and cash flow. This will help you make better-informed decisions about how to grow your business.
Business consulting and advising
Are you banking on equity funding, loans, or grants to start and grow your business? Or did you launch your startup on a self-funded shoestring? You can turn to a CPA for objective advice on strategic and financial topics, from getting funding, to improving your cash flow, and more.
Financial statement audits, reviews, and compilations
To show credibility to lenders, regulators and investors, your startup needs professionally prepared financial statements. There are three kinds of financial statement services that your CPA can provide: audit, review, and compilation.
A financial statement audit is the highest level of assurance. During this process, your CPA can make inquiries, perform physical inspections, verify balances, and run other tests to confirm your financial statements are free from material misstatements.
If you don’t legally need an audit but would still like an analysis of your financial records, you can opt to instead have a review, which is considered a moderate level of assurance. Here, your CPA can review your financial statements, research your startup’s accounting practices, and do an analytical dive in the hunt for errors.
A compilation is a basic summary of your company’s financial statements. Unlike an audit or a review, this method provides no assurance. Your CPA won’t perform tests or examine any internal controls, but will do a cursory check of your company’s financial statements to ensure there aren’t any obvious issues.
Tax planning and tax preparation
CPAs can help with tax planning and tax filing, including state and federal income tax returns, payroll tax returns, and sales and use tax returns. CPAs must keep up their tax and accounting knowledge with continuing education each year in order to stay licensed, so they’re always up to date with the most recent tax laws and changes.
CPAs specializing in forensic accounting assist with disputes or litigation. They can calculate losses and economic damages for an insurance claim or breach of contract lawsuit, value a business as part of a dispute between business partners, and even search for hidden assets in a divorce case.
How is a CPA different from a general accountant?
The difference between a CPA and a general accountant boils down to certification and skill set. While all CPAs are accountants, not all accountants are CPAs.
An accountant must have a bachelor’s degree, but they’re not required to have a certification or license. Accountants perform bookkeeping, prepare tax returns and profit-and-loss statements, and financial and tax planning.
A CPA, however, must meet the educational and experience requirements of the state they live in and pass that state’s rigorous Uniform CPA Exam, which covers accounting topics and general business knowledge, to become licensed.
This also means that a CPA’s pricing scale is typically higher than a general accountant. CPAs may offer a greater range of accounting services and can take on a more advisory or strategic role in your startup’s finances.
How to find the right CPA for your startup
There’s no one-size-fits-all approach to finding the right CPA for your startup. But there are six criteria you should look for to ensure that you end up with a great match.
1. Startup-specific experience
CPAs who specialize in startups should be familiar with startup regulatory challenges, pertinent paperwork, and investor or board reporting requirements. Additionally, they should be capable of calculating and tracking important startup metrics like burn rate (how fast you’re “burning through” your startup capital each month) and cash zero dates (the date, at your current spend/burn, that you’ll run out of cash) with accuracy.
For tax planning purposes, your CPA should have extensive knowledge of R&D tax credits and startup tax incentives. If you’re a venture-backed startup, your CPA must have a solid understanding of the fundraising process and cap table management to manage your financial statements.
Is your early-stage company located in cities like New York or San Francisco where regulatory and public policy are more complex? If so, your CPA needs to be on top of filing deadlines and government paperwork.
2. Expertise in your industry vertical
Any CPA you work with should have experience working with businesses in your vertical. They should be familiar with the financial modeling, tax requirements, and reporting for your industry. They should also have knowledge of your internal operations and other nuances to help reduce your tax liabilities or mistakes that could trigger an IRS audit.
3. Explores solutions and opportunities
The value of a CPA goes beyond aiding with tax returns and bookkeeping. Find a CPA who can support you as your financial and business growth advisor. For example, do they stay on top of new technology and procedures to provide you with the best service? Do they understand your unique challenges and create opportunities for you to thrive?
4. Timely responses
If you had an emergency or urgent need, how responsive would your CPA be? During your free consultation, ask for details about their contact hours and average response time to gauge how they’ll deal with time-sensitive accounting requests. If your CPA is slow to respond, or you find yourself continuously reaching out to get an answer to a question, then you should move on.
5. Knowledge of accounting software
If you have accounting software like Xero, QuickBooks, or Bench (that’s us!), already in place, check that your prospective CPA knows how to use them. This is especially important for any vertical-specific software. A finance toolkit for a SaaS startup looks different than that of a mobile app business, for example. If your CPA is comfortable with the software, they’ll be able to immediately begin working with it to analyze your cash flow, inventory management, and pricing.
6. Friendly fee structure
Some business owners delay hiring a CPA to keep their costs down, but investing in the right one will be well worth the cost. To find a CPA whose pricing suits your startup’s budget, look for an accounting firm or finance service that offers fixed monthly fees, so you can nail down your budget in advance and get transparent pricing that details how your bill will modify as your startup grows.
Because your CPA would be handling sensitive business data, it’s essential that you ask the right questions before you hire them, rather than finding out they aren’t a good fit for you when it’s too late.
CPA vs. bookkeeper to fulfill your current needs
If you’re not sure about working with a CPA yet, what about a bookkeeper?
There are plenty of bookkeepers who can sufficiently close the books for an ordinary business like a cafe or an auto repair shop. But what about startups?
Startups often face unique accounting and financial challenges at every stage of their growth. So, when does it make sense to hire a bookkeeper over a CPA? It really comes down to the needs and goals of your startup.
Although they’re both numbers-related, bookkeeping and accounting are not the same.
A bookkeeper can track all your financial records—mainly income and expenses. If your startup is in the bootstrapping stages, you’ll most likely be looking for additional funding and will need accurate financial records to present to future investors. Your revenue streams shouldn’t be too complicated yet, so a bookkeeper (or your Bench bookkeeper!) should be capable of meeting your needs until you’ve grown large enough to warrant the services of a full-time CPA.
CPAs typically cost about 15% to 20% more than their unlicensed counterparts, due to their additional training and continuing education requirements. They can interpret your financial records for everything from making sure you pay the right amount in taxes, to making strategic business decisions based on your financials.
Plus, there are specific times when it makes sense to consult with a CPA—for example, to help you handle growth transitions, such as hiring employees or taking on more office space. They can look after specific details (payroll, employee tax management, property tax, utility payments, and so on), leaving you with time to look at the bigger picture of the way your business is thriving.
In addition, if you’re considering going public, it’s a smart move to have your accounting in order before you file your registration statements. A CPA can help you prepare for an initial public offering (IPO).
Further reading:The Founder’s Guide to Startup Accounting
How Bench can help
As a startup founder, you have plenty of responsibilities to fulfill, especially early on. Staying on top of your books doesn’t have to be one of them. If all you need for now is someone to track your monthly financials, paying CPA rates for bookkeeping duties may not be cost-effective for you.
Outsourcing your bookkeeping to Bench means you’ll have accurate, up-to-date financials to assist with tax planning and preparation, applying for a small business loan, getting strategic advice or audited financial statements.
Bench also works well in conjunction with a CPA. After all, let’s be honest: good tax planning, accounting advice, and advisory services all start with good bookkeeping.
If you want to save yourself time, money, and major headaches, consider using Bench alongside a CPA.Then you can get back to building your business empire.
A good CPA can put your startup on the path to financial success
Launching a startup can be an exciting and daunting experience, especially for first-time founders. Profit and funding play a vital role in the early days of your venture, and bad financial decisions can make or break your business.
Making sound business decisions based on accurate bookkeeping and reliable accounting can help protect your investment. But who has time for daily accounting duties during your initial growth period?
Seeking the help of a startup CPA can be a great way to help you navigate the financial and business challenges and avoid costly mishaps so you can concentrate your efforts on other important tasks—strategy, growth, and scaling.