Choosing the Right CPA for Your Small Business
'Tis the season to start tax planning discussions with your CPA if you own a small business. No matter the size of your business, think big and think long-term. What do you want this business to look like in 2, 5, or even 10 years? Have you talked to professionals to lay that financial and legal groundwork from day one? I tell all of my small business clients that the first 10 months of the year should be solely focused on growing your business and making it as profitable as possible, with minor tax discussions along the way. In the final two months, we then focus on tax planning and making decisions that have to be made before the clock strikes midnight on December 31st. I hate tax surprises as much as the next guy and the last conversation I want to have with clients is one about a large tax bill in March that we could have planned for in November.
All CPAs have the training and qualifications to be accountants and tax preparers, but not all tax preparers or accountants are CPAs. Below are some of the ways that a CPA can assist in growing your small business:
Management and Consulting: Have regular conversations about your small business with your CPA. Don't be hesitant to e-mail your CPA, or pick up the phone if you read something or get some friendly advice on the golf course. Is this accurate advice, and does it apply to your particular situation? Have you been trained to review your balance sheet and profit & loss statement to make educated business decisions throughout the year?
Financial Statement Preparation: At one point or another, as a small business owner, you may find yourself needing financial statements for financing or other purposes. While bookkeepers and Enrolled Agents (EAs) can assist in cleaning up your books and records, only a CPA can prepare formal financial statements. This is because we are heavily regulated by our state accounting boards to ensure we have ongoing training and are staying up-to-date on changing regulations and procedures with regard to financial statement preparation. Unlike bookkeepers and enrolled agents, we also go through peer reviews of our work every 3 years to make sure our work papers are complete and the finished product meets industry standards. These ongoing education and regulatory requirements are costly to CPAs, but they give bankers and clients peace of mind in the professionals they are hiring.
Tax Advice & Planning: A successful small business owner will need to be prepared to make estimated tax payments throughout the year. Regular discussions with your CPA can help you make accurate and timely payments to the appropriate taxing authorities. If we are doing our jobs properly, we will ask lots of questions during any tax planning conversation. A proper tax plan is like preparing a mini-draft of your tax return. We need to see the big picture to fully understand your situation and give you accurate advice that you can rely on.
There are more and more "inexpensive" tax preparation services showing up on the internet each year. But before deciding to hire one of these to assist you, take into account the fact that there is no required training of these employees (at either the state or federal level). Employees of the "big box stores" or online services may have to take training offered by that corporation, but it is not IRS- or state-approved and vetted education and testing. Enrolled Agents have taken a test with the IRS to prove their competency in preparing taxes. CPAs have a college education in accounting and have passed a rigorous comprehensive exam in business law, tax preparation, and auditing, thus giving them a well-rounded background to help small businesses in many aspects of their journey. In addition, because tax preparers are not tested by approved agencies on a regular basis, the IRS will only talk to and work with EAs or CPAs when problems arise.
Payroll Preparation and Tax Payments: A CPA firm can not only assist you in running payroll, or teaching you how to efficiently run your own in-house, but they can help you stay on top of payroll tax laws and payment due dates. I have unfortunately seen more than one business falter because of unpaid payroll taxes. Because you are handling employee money and being trusted to turn their withholdings over to the taxing authorities, the IRS takes these delinquent payments very seriously and they will follow business owners, even if the business closes its doors. Payroll tax liabilities cannot be discharged, even in the case of bankruptcy. Late penalties and interest can add up quickly (and even become more than the initial tax liability). Get good advice when hiring employees and make sure you understand how and when to pay your employees and the taxing authorities.
Bookkeeping: If you need assistance in bookkeeping, reach out to your CPA with questions in this area as well. I am a huge proponent of using software and technology to ease the burden on small businesses. This can save time and money while providing you with the financial records you need to have regular and meaningful conversations with your CPA regarding the health of your business and where to cut back on expenses or increase profits.
When choosing a CPA to assist you in your small business, find one that you can trust and communicate with easily and regularly. Always think of your business as an extension of your family. In order to thrive, it needs the same time and attention that you would give to any other family member. If you invest wisely in your business, it can provide the financial stability you need to in turn provide for the rest of your family.
If you are a small business and would like to discuss ways in which our office can help, please feel free to reach out to us. You can find us at www.terrijohnsoncpa.com, or make a virtual or in-person appointment at https://go.oncehub.com/TerriJohnsonCPALLC.
I wish you all the best in your journey as a small business owner. This year has been a trying year to all, but the traits that made you begin this adventure in the first place are the same traits that will see you through the tough times and into more profitable ones.
Terri Johnson, CPA