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Choosing the Right Accountant for Your Business

Choosing the Right Accountant for Your Business

Q: What's the definition of an accountant?

A: Someone who solves a problem you didn't know you had in a way you don't understand.

Okay, so maybe that's not entirely fair. But as with most humor there's a grain of truth to the joke. Most small businesses choose an accountant -- either hiring a "numbers person" on staff or hiring accounting services on a contract basis -- when a business' financial challenges have become too great to handle without expert help. Maybe you want to better the financial function of your business. Or perhaps your accounting software isn't providing the type of data you need to grow your business. Having trouble switching from cash to accrual accounting? Are your financial statements inaccurate or incomplete? These are all good reasons to look for a Certified Public Accountant (CPA).

"It all depends on the size of the company. If you're a small business owner and find yourself sitting in front of QuickBooks wondering where to begin, that's a good indication that it's time to find someone knowledgeable," says Mark Koziel, director of specialized communities and firm practice management for the American Institute of Certified Public Accountants (AICPA).

Here is how to determine whether you need an accounting firm or an inside accountant, how to determine what qualifications to seek in your accountant, and how to choose the right accountant for your business.

Dig Deeper: Accounting for Start-ups

Choosing the Right Accountant: Hiring a Firm Versus an Inside Accountant

Many entrepreneurs who launch their own businesses start out by wearing the accountant's hat and doing your own taxes, in addition to doing just about everything else in the business, too. It's become easier for a layperson to keep track of a business' finance with the advent of simple bookkeeping software, such as QuickBooks, Quicken, and Microsoft Office Small Business Accounting. But there comes a time in a growing enterprise when it makes sense to hand over responsibilities for taxes, accounting, and the rest of the financial functions to specialists.

The right accountant can help a business with not only tax returns, but with longer term tax planning, business planning, networking, and even personal tax planning if your still the major stakeholder in your business. "It is an absolutely critical decision," Koziel says. "You are trusting that CPA with your financial future as a small business. You're hoping that it is someone well versed in what you need, and someone who has had other life experience and can help you from a financial perspective."

Before you can find the right accountant, you need to determine if you need an accounting firm or an inside accountant.

Dig Deeper: Shopping for an Accountant

Choosing the Right Accountant: When Is It Time?

Many small businesses don't have the volume of financial transactions that necessitate hiring a full-time -- or even part-time -- bookkeeper or accountant on staff. Then again, the financial situation of their business is such that they could benefit from more regular financial review and planning and up-to-date accounting -- instead of leaving every invoice, receipt, and ledger to hand off to the tax preparer at the close of the fiscal year.

Hiring an outside accountant or accounting firm on a consulting basis is a good first step for a growing business, Koziel says. The outside firm can often cost less than the salary and benefits of a full-time employee and, at the same time, you may be getting a higher level of advice from a CPA or a tax accountant, the latter of whom usually is a licensed CPA and a lawyer specializing in tax law. Even with the latest and greatest accounting and tax software, it still may be easier to farm out your financials to a CPA firm that can manage your books online through secure software-as-a-service programs than to maintain those software programs in-house.

Outside accountant

An accounting firm usually handles the following accounting functions:

  • Tax return preparation
  • Preparing financial statements, including the balance sheet, income statement, and statement of cash
  • Analysis or problem-solving advice

"Every company is different," says Jim Chamberlain, a management counselor and financial expert with SCORE, a nonprofit organization that serves small businesses. "A business owner may expand the scope of work to include recording of transactions, but usually this is the responsibility of the "inside" accountant -- it isn't profitable for a firm to perform this duty."

An accounting firm will offer an hourly rate schedule, adds Chamberlain. There may be different rates for different accounting functions depending on the level of complexity and who in the accountant's firm is actually performing the tasks. "Keep in mind that a good tax expert should save the company money over and above his/her fees," Chamberlain says. "The total annual invoice may appear high, but you now are getting a professional look at your statements and performance."

Inside accountant

When the business grows in revenue and the transactions become more complicated, it is time to consider hiring a full- or part-time inside accountant. Since the outside accountant's fee grows with the size of the business, the owner may see some cost savings by bringing some of the work in-house.

According to Chamberlain, duties and responsibilities of an in-house accountant usually include:

  • General ledger/chart of account maintenance
  • Responsibility for daily transactions
  • Financial statement preparation and analysis
  • Cost accounting and variance analysis
  • Treasury and cash management including bank reconciliations
  • Payroll and fixed asset accounting

Check with colleagues and other professionals on compensation level requirements per size of company, responsibilities, and type of industry, Chamberlain advises. (Guidelines are available at the Institute of Management Accountants' website or with various employee search firms.) "Remember, you are bringing on board expertise, which the company currently doesn't have so identify the best candidate first, then deal with compensation issues last," Chamberlain says. "You might also want to consider performance-based compensation rather than a front loaded salary."

Dig Deeper: Do You Need a Top-Tier Accounting Firm?

Choosing the Right Accountant: The Key Qualifications

After determining whether you will hire an inside or outside accountant, you need to determine what qualifications your accountant should have before beginning your search. A non-certified accountant may be precisely what you need to handle your business' financial statements, analysis, and bookkeeping. However, when it comes to tax advice and return preparation, business owners usually look to accountants who are certified and licensed. Here are some of the qualifications you may look for:

Certifications. A CPA has an undergraduate degree, and has met the exam and experience requirements for state certification. A CPA must take continuing education courses to remain certified and licensed. A Certified Management Accountant (CMA) is trained to meet the demands of today's accounting requirements in addition to participating on the company's management team. As with a CPA, a CMA must pass an exam, have business experience, and obtain continuing education credits. "In young, growing companies particularly, owners want an accountant who can help them manage financial business performance and have responsibility for the internal control function," Chamberlain says. "A CMA is well-suited for this." There are additional designations that some CPAs have, including Accredited in Business Valuation (ABV), Certified Valuation Analyst (CVA), and Personal Financial Specialist (PFS), among others.

Industry expertise. In addition to certifications, you should look for some type of expertise in your industry -- or a similar industry. "Some firms have a specialty in auto dealers, others specialize in construction contractors, others work with non profits, and some may have experience in retail," Koziel says. "Those specialties can be based on type of service they provide and type of industry." Some accounting firms partner with networks of other firms and can turn to specialists to resolve certain issues if need be.

Size. The array of accountants and firms to choose from can be daunting -- from sole practitioners to national, marquis firms. Some businesses feel more comfortable employing a large, name-brand firm. But while one of the Big Four firms might seem attractive, you have to ask yourself whether a small firm will be overlooked. You also have to know what makes you comfortable as a business leader. You may feel more at ease with face time with a partner in a smaller firm. Be aware that large firms sometimes contract out work to smaller accounting firms -- so make sure you ask who will be handling your account.

Complexity. Your decision on what qualifications to seek in an accountant must also take into consideration what services your business needs from an accountant. Maybe you only seek a firm to prepare your tax return and compile end-of-year financial statements. But if you also want tax and financial planning advice, or retirement planning advice, you may need to seek someone with different qualifications or background. Some businesses also require their CPA to attest to the validity of their financial statements to an outside party, such as a bank. Even with the latest convenience options in tax preparation, such as eFiling and tax software, it is sometimes easiest to simply let a tax accountant do the work for you.

Dig Deeper: What to Ask Your Accountant

Choosing the Right Accountant: Finding a Referral

For an outside accountant, find out who and/or which firms your friends and colleagues are using. Ask people in similar industries for names or referrals. Mention that you are looking for an accountant at the country club or health club. "Word of mouth is one of the best ways to identify good candidates for your business," Chamberlain says. "Maybe your corporate attorney can make a recommendation. Your industry trade association also can be a good resource."

If you are planning on hiring an inside accountant, get the word out to colleagues and friends. Newspaper advertisements, employee search firms, and Internet websites are all resources that can be tapped. "Search firms charge fees, so know exactly what they are providing -- of the scope of work -- before committing to that service," Chamberlain says.

"In a lot of relationships, the accountant is a trusted business advisor to that small business. They act as more than just outside accounting help," says Koziel. "They're a counselor to the family, a priest and a rabbi, and they are involved in so many aspects of the owner's business that the relationship has to be a trusting relationship."

Choosing the Right Accountant: Interviews and Reference Checks

Keep in mind that small business can ill afford to make a hiring mistake -- especially with an accountant. The accountant will have access to the company's books, records, and other proprietary information, Chamberlain says.

It is imperative that the business owner take the time to interview the firms and individual candidates. Check if they have experience in your industry, your size of company, and software sophistication.

If you are interviewing outside firms, ask to meet with the staff members who will be servicing your account. Get comfortable with the firms' culture and most importantly, the time they will dedicate to service your business in a prompt manner. Make sure communication is clear and direct even with negative news or advice.

Finally, check references. This is an important decision and the business owner must perform adequate due diligence before making a decision.

"Choosing an in-house accountant or accounting firm is a milestone for a small business," Chamberlain says. "It is a signal that the company wants to strengthen its financial function, improve its management reporting, and position the company for growth. Many companies wait too long before making this decision resulting in sloppy and inaccurate reporting at a crucial time in the company's growth." Therefore, do your best to hire the right candidate for your business.