May 11, 2021 | Last Updated on: February 21, 2023
Many small business owners only talk to their Certified Public Accountant (CPA) around tax time. But that’s a mistake – CPAs can act as trusted advisors to small business owners throughout the year.
A CPA can help small business owners with startup considerations, recordkeeping, business advice, and (year-round) tax advice, handling many of the duties that a Chief Financial Officer (CFO) would tackle for a much larger company.
Let’s start by looking at how a CPA can help a startup get up and running. You may want to give this section a read even if you have a mature company; it’s possible you overlooked some key considerations in your early days.
In the early days of your business, you have to complete several tasks and put systems in place to ensure you have the foundation for long-term success.
One of the first decisions you will face is which business structure to go with. Should you form a sole proprietorship, partnership, LLC, or another structure? An accountant can help you weigh the pros and cons based on your unique circumstances.
A business plan tells potential investors, lenders, and partners about your company’s goals and how you will go about achieving them. A CPA can assist you with the financial analysis in your business plan. From there, you can turn to your accountant for advice on the various financing options.
Once you’ve honed in on a particular type of loan, a CPA can help you gather the information needed for the loan application and advise you on presenting yourself to lenders best. By getting all of your ducks in a row, you can increase the chances that you will get favorable terms on your loan – instead of a high-interest rate loan that will hamstring your business for years to come.
Before your business goes public, you’ll need to figure out how you will track your business expenses. A CPA can recommend accounting software – such as QuickBooks – to reduce the time you spend on expense tracking. That said, you may want to turn to a professional for help with record keeping.
Your best bet is to automate as much of your recordkeeping as possible, but you may still, at the very least, want to take on a part-time or freelance bookkeeper so you can focus on higher-value business activities. It would be overkill (and expensive) to hire a CPA to double as your bookkeeper, but an accountant can still play a high-level role in the process.
A CPA may be able to recommend a trusted bookkeeper – or even have one in-house at their accounting firm – which could remove the need for you to take a gamble on someone without references. Additionally, your accountant can act as a second set of eyes, occasionally reviewing your bookkeeper’s work to ensure they are properly maintaining your company’s records. That can decrease the chances of you getting an unwelcome surprise come tax time.
Not only can a Certified Public Accountant give you advice when you’re just getting started, but CPAs are also capable of acting as trusted financial advisors on an ongoing basis.
As stated earlier, there’s a decent chance you’ll need to borrow money to get your business off the ground. But that likely won’t be the last time that you require funds for your business needs. A CPA can help you navigate a constantly evolving lending landscape, alerting you to new programs such as the Paycheck Protection Program (PPP).
However, the right CPA can take it a step further, offering tailor-made financial advice based on your financial statements. With years of experience in various small businesses, a top-notch CPA can factor in several variables to offer forward-looking insights. Okay, but how does that work in practice?
Let’s say you have a flower company, and you have to tackle forecasting for the upcoming fiscal year. You tell a CPA about your business needs and expectations for the upcoming year. Perhaps you expect a surge of sales around Valentine’s Day, Mother’s Day, and the December holidays. But at the same time, you need to have enough money to handle a store renovation in August. In this situation, a CPA would help you create a plan for managing the fluctuating cash flows, ensuring that your budget can accommodate the August business expense.
A top-notch accountant can go beyond budgeting and offer you advice on matters such as employee classification and business agreements.
If you’re looking to make a new hire, should you make them a part-time or full-time employee? Or should you make them a freelancer? There are, of course, financial ramifications with this type of decision. But there are also legal ramifications. For example, if you operate in California, the AB5 Bill may prevent you from hiring gig workers depending on your line of business. A CPA can help you research relevant legislation to avoid getting into hot water with the authorities.
When you are drafting a business agreement, the first person you run it by is likely to be your lawyer, which is a good idea. But you may also want to run it by your CPA. Your accountant can review your potential business agreements and alert you to any unforeseen financial and tax consequences.
That is just one of the many tax situations you may face outside of tax season. A CPA can help you navigate most or all of them.
To stay compliant and minimize your tax liability, you should regularly consult with your accountant. As a tax professional, a Certified Public Accountant can do a lot more than file your tax returns and communicate with the IRS on your behalf.
As a business owner, one of your objectives is to pay as little in taxes as possible – within the bounds of the tax law. A Certified Public Accountant can identify tax credits and tax deductions opportunities, potentially saving you a lot of money.
Let’s say you frequently travel for business conferences. If you’re flying across the country and meeting clients for dinners, you could be racking up thousands of dollars in potentially deductible business expenses. A Certified Public Accountant would help you identify which expenses are tax-deductible – and which aren’t.
Of course, there are more complex tax situations that you may encounter. If you are considering purchasing a piece of property and building a new plant, for example, the decision would significantly impact your current and future taxes. In this situation, you may be able to record depreciation to reduce your tax bill for many years to come.
A more routine situation you will encounter is quarterly estimated taxes. If you’re paying quarterly estimated taxes for the first time, you will have to do a bit of work to determine your tax liability. But if you’ve paid them in the past, your CPA should be able to send you estimates based on the previous year’s payments.
Finally, let’s address every business owner’s worst nightmare – an audit. Prevention is the best cure; a CPA can decrease the IRS’s chances of auditing your business activities by ensuring that there aren’t any red flags around your tax returns. But, of course, some audits are randomized. A CPA will help you keep meticulous records, so you aren’t sent scrambling in this potential scenario.
A Certified Public Accountant can be a massive asset to your business outside of tax preparation. From day-to-day issues to big-picture insights, an accountant can double as a trusted financial advisor and help you achieve your business goals.
By enlisting the help of professionals, you can focus on your core competencies and get strong outcomes in areas where you don’t have much expertise. Consulting with an accountant is just one example. Another possibility is to use a small business lending platform – such as Biz2Credit – to handle your financing needs.
