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Do You Need a Small Business CPA? How to Tell and Where to Look

Like many small business owners looking to save money, you may think you can’t afford an accountant. But look at how long it would take you to do certain tasks, like taxes, and ask yourself: Is that a good use of your time?

When you hire an expert to take care of small business accounting tasks, you’ll likely spend less per hour than you would have paid yourself. As a result, you’ll not only have extra time to generate revenue and get a break from the busyness of entrepreneurship, but you’ll also have peace of mind, knowing that an expert is taking care of the details.

An accountant will also give you access to the essential reports and financial statements every business owner should know about: balance sheets, income statements, and cash flow statements.

But when should you hire a Certified Public Accountant (CPA) versus an accountant? And how can you find the best CPA for your small business?

What does a small business CPA do?

The terms “accountant” and “CPA” are often used interchangeably, and both types of professionals share the same goal: Helping your business prosper financially. However, while all CPAs are accountants, not all accountants are CPAs. A CPA is an accountant who also meets the educational and experience requirements of the state they live in and passes that state’s rigorous Uniform CPA Exam.

An accountant takes care of the essential financial calculations that go with running a business, such as bookkeeping, preparing financial documents like tax returns and profit-and-loss statements, and financial and tax planning.

While a CPA can’t make business decisions for you, they can offer sound business consulting and help you make the right decisions, along with handling these tasks:

1. Financial statement compilations, reviews, and audits

For maximum credibility with lenders, regulators and investors, your small business needs professionally prepared financial statements, which range in cost and complexity.

A compilation is one of the lowest levels of assurance a CPA can provide. When doing a compilation, the CPA mostly does a cursory check of the company’s financial statements to ensure there aren’t any obvious issues. It usually doesn’t include auditing or any other extra services.

The next step up is a review. The CPA reviews the financial statements, researches the company’s accounting practices, and makes deep analytical dives in search of errors.

A financial statement audit is the highest level of assurance. The CPA makes inquiries, performs physical inspections, confirms balances, and runs other tests to ensure there are no material misstatements.

Of these services, audits take the most time and money. According to Audit Analytics, CPAs charged an average of $548 per $1 million in revenue for audit-related fees in 2019.

2. 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 maintain their tax and accounting knowledge with continuing education each year, so they’re always up-to-date with the latest tax laws and changes.

Fees for tax preparation services vary widely, but according to the National Society of Accountants, the average cost of filing federal/state tax returns from a CPA is $180 per hour and $174 per hour for other tax services.

3. Business consulting and advising

CPAs give objective advice in both strategic and financial areas, such as getting funding and improving cash flow.

The National Society of Accountants reports that the average rate for management advisory services is $158 per hour.

Many CPA firms also package advisory services with traditional tax and accounting services for a set monthly or annual fee.

(Wondering what to ask your accountant? Check out our blog, Top 12 Questions to Ask an Accountant When You Want to Grow Your Business)

4. Forensic accounting

CPAs specializing in forensic accounting assist with disputes or litigation. They can quantify losses and economic damages for an insurance claim or breach of contract lawsuit, value a business as part of a dispute between business partners, or search for hidden assets in a divorce case.

Forensic accountants typically charge anywhere from $300 to $500 per hour.

5. Additional services

Some CPAs also offer personal financial planning services, human resources or technology consulting, start-up assistance, and estate planning advice. Fees for their services can vary considerably; be sure to shop around.

How do I know if my business needs to hire a CPA?

If you have a small business with relatively few transactions, a straightforward tax return, and little need for additional expertise, you may be able to get by doing your own books with accounting software.

However, you may want to hire an accountant if any of these situations apply to you:

1. Accounting isn’t your forte

A CPA can help you manage your business’s finances right from the start—especially if creating financial reports is overwhelming or you’re unfamiliar with accounting basics.

2. You don’t know how to file business taxes

A CPA probably provides the most value during tax season—potentially saving you hundreds (if not thousands) on your yearly taxes through business tax credits and deductions.

If your tax situation is complex, a CPA can help if you need a consolidated tax return, claim a Research and Development Tax Credit, or have other taxes to pay.

3. You’re choosing your company’s legal structure

Whether you choose a sole proprietorship, LLC, partnership, or corporation, a professional CPA can explain the rules and tax implications for each legal structure and help you choose the right one for your business.

4. You want to take your company public

Public companies must release financial statements based on generally accepted accounting principles (GAAP), document internal controls, and follow other regulatory requirements. A CPA can help you comply with all of these requirements, so you’re ready for an initial public offering.

5. Your business is growing fast

A CPA can keep your cash flow smooth by tracking who you owe and who owes you. A CPA can also spot areas where you can cut expenses and better manage your money.

6. You’re going to buy a business—or sell yours

If you’re buying a business, a CPA can help you look closely at the value and ownership of the company’s assets and whether the company has any outstanding debt on its books.

If you’re selling your business, a CPA can set up your business statements to show your value to potential buyers. But most importantly, they can help you full value in the selling process.

7. You need a small-business loan

You don’t need an accountant to apply for a business loan, but a CPA can help by providing the detailed and organized financial documents lenders want. A good CPA can answer questions about the current state of your financials and your revenue projections; show you’ll be able to repay your loan; and advise you on interest rates, terms, and loan conditions.

8. You have IRS problems

It’s best to have a public accountant before you’re audited. But if you don’t have an accountant when the IRS comes knocking, it’s time to hire one. A CPA can help you through the auditing process and give you best practices afterward—and help you stay off the government’s radar.

Along with enrolled agents and tax attorneys, CPAs are the only professionals who can represent taxpayers during an IRS audit or tax dispute.

Once you decide what services you need from a CPA, it’s time to start looking for one to hire.

How do you find the right CPA for your business?

To find an accredited accountant nearby, decide what services you’ll need, then use the American Institute of Certified Public Accountants’ CPA-location resource to narrow your search.

When evaluating a potential CPA, ask yourself these questions:

How well do they understand your business? Look for a CPA with experience in your industry.

Do they communicate jargon-free? Financial information can be complex and intimidating, but a good CPA can communicate high-level topics in plain language.

Do they have the proper credentials? Make sure the person you find is a state-licensed CPA. They’ll need a Preparer Tax Identification Number (PTIN) to prepare your taxes.

How often will you work together? The services you want will determine how often you meet with your CPA. Make sure their expectations match yours.

How much does a small business CPA charge?

Pricing for CPAs varies, depending on the services provided. Meeting frequency will also affect the cost. Get quotes to compare.

In 2020, according to the National Society of Accountants, tax preparation fees averaged from $220 for a Form 1040 claiming the standard deduction to $913 for a corporate tax return (Form 1120).

Learn more: How Much Does a CPA Cost?

How Bench can help

Some CPAs provide bookkeeping services, but paying CPA rates for your books may not be cost-effective. When Bench handles your books, we charge by the month, not the hour, so it’s often far less expensive to use Bench for routine business transactions as well as monthly and year-end financial statements.

Bench works well with your CPA because we’re an affordable online solution for small to medium-sized business bookkeeping. And good bookkeeping is the foundation for good tax planning, accounting advice, and advisory services.

To save time, money, and aggravation, consider using Bench along with a CPA. You get the best of both worlds at a budget-friendly price. Then you can return to doing what you do best—running your business! Bookkeeping works better with Bench.

What's Bench?

We're an online bookkeeping service powered by real humans. Bench gives you a dedicated bookkeeper supported by a team of knowledgeable small business experts. We’re here to take the guesswork out of running your own business—for good. Your bookkeeping team imports bank statements, categorizes transactions, and prepares financial statements every month. Get started with a free month of bookkeeping.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

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