Most small business owners start out with a great idea and a passion for what they plan to offer to the public. They can spend countless hours organizing to finally open their doors to the public. For most people, the first few months can be stressful, a baptism of fire, if you will. With each passing day, owners are learning more and more about what works and what doesn’t in terms of attracting leads and closing sales.
Hopefully, the company did their homework before opening their doors and discovered that their business will have tax liabilities that they never had before as individuals. If the business is a corporation, then they will have to pay themselves as W-2 employees. This means that the company will withhold the payroll tax from the employee (essentially from themselves) and will also have to pay half of the company. Then, of course, there are deductions that the company can take to reduce its tax liability. Sometimes deductions can be made, but are overlooked by busy business owners. Things can get messy very quickly, and before you know it, that nifty Quickbooks program the owner bought can turn into quicksand, sucking up the most precious commodity any business owner has, time, immediately.
Sooner or later, most businesses turn to an accountant to handle their financial record keeping. A quick web search for an accountant using Google will return thousands of CPAs, independent accountants, and bookkeepers. At this point, you may be confused and wondering, what’s the difference? Well, why do you think I wrote this article? The recording of all daily financial transactions and their proper classification is usually done by a bookkeeper. Some bookkeepers will also provide other services, such as financial statement compilation, payroll processing, quarterly tax returns, and income tax preparation, along with other services. In essence, a bookkeeper who provides all of these services is acting as an independent accountant, that is, an accountant who is not state chartered as a CPA is. Unlike a bookkeeper or independent accountant, the CPA (Certified Public Accountant) can perform an audit, as well as any of the other tasks that others can perform. Unfortunately, to the public, in many states, the only one of those three professionals who can advertise as “Accountant” is a CPA. Makes you wonder how strong their lobby is, doesn’t it?
To become a CPA, a person must take a certain number of accounting master’s courses along with their undergraduate courses that do not necessarily have to be business related. That person can then take the state CPA exam immediately and then work under the supervision of an already licensed CPA for 2 years, or vice versa. It’s certainly a long and tedious process, and you’ll be charged accordingly (student loans aren’t cheap). That’s all very fine and elegant, and surely anyone who undergoes that kind of academic study is worthy of respect. No one is arguing against that. However, as a consumer, I personally look for the best price and the person who will do the job right. Yes, CPAs are highly educated, but do I really want to pay exorbitant prices to someone who went to school for a decade just for my accounting? My answer is a resounding no. (Especially when some bookkeepers are highly qualified. Some even have MBA degrees.)
Of course, there are companies that require the seal of approval that comes with having their financial statements audited by a licensed CPA. A company looking to attract investors to invest millions of dollars, for example, will definitely want to have its financial statements signed by a CPA to alleviate any investor fears. Someone looking to get an extremely large loan from a bank (99% of small businesses don’t borrow millions of dollars from banks) will also need a CPA to do an audit. But let’s be real, most small and medium business owners will never need an audit by a CPA. Even if they needed an audit from a CPA, that doesn’t mean they can’t get one using financial data collected by an independent bookkeeper or accountant.
A CPA will only verify and sign the work already done by the bookkeeper (and will charge a thousand dollars for their signature). Most CPAs don’t do the actual day-to-day work that bookkeepers do. They either have accountants that they keep on staff to do that job or they outsource the bookkeeping work to an accounting firm. So why would anyone want to pay ridiculously high prices to a CPA to do the bookkeeping for their small or medium business? beats me
In all fairness, I can see how someone with no knowledge of the accounting industry would feel more confident with the CPA. He has the title, the big office, and the prestige to impress any small business owner. However, the truth is that any serious, hard-working, self-respecting bookkeeper can do as good a job, if not better, than that exorbitantly priced CPA at a much fairer price. In fact, if he’s ever had his bookkeeping done by a CPA, then it’s likely that the work he saw was done by a trusted accountant. My advice to anyone looking for an accountant is to save a lot of money and delegate your financial record keeping duties to a professional bookkeeper who also provides the other services I mentioned above. Chances are, you’ll not only get a better price, but you’ll also get better customer service because businesses like yours are a bookkeeper’s bread and butter, not just a supplemental source of income like most. CPAs perceive them to be your accounting clients. Not only that, but you’ll likely develop a lasting relationship with your bookkeeper and have a great asset on his team. I hope you enjoyed my post for the day and stay tuned for more to come.
Alex Cruzet CEO, Precision Bookkeeping Solutions Inc.