Start Your Own Business (27 page)

Read Start Your Own Business Online

Authors: Inc The Staff of Entrepreneur Media

BOOK: Start Your Own Business
12.6Mb size Format: txt, pdf, ePub
Hiring an Accountant
 
Don’t assume only big companies need the services of an accountant. Accountants help you keep an eye on major costs as early as the startup stage, a time when you’re probably preoccupied with counting every paper clip and postage stamp. Accountants help you look at the big picture.
Even after the startup stage, many business owners may not have any idea how well they’re doing financially until the end of the year, when they file their tax returns. Meanwhile, they equate their cash flow with profits, which is wrong. Every dollar counts for business owners, so if you don’t know where you stand on a monthly basis, you may not be around at the end of the year.
ALL THE RIGHT QUESTIONS
 
H
ere are ten questions to ask when interviewing a potential accountant:
1. Are you a CPA? (Don’t assume every accountant is.)
2. Are you licensed to practice in your state?
3. When and where did you receive a license to practice?
4. Where did you go to school, and what degrees did you earn?
5. Who are some of your clients? (Call them.)
6. In what area do you specialize?
7. How big or small are your clients, and what size were they when you began your relationship with them?
8. How accessible are you? (Some accountants are only available during business hours; others will give you their home or pager number.)
9. To what professional organizations do you belong? How active are you in those groups?
10. What are your fees? (Ask to see some current invoices.)
 
While do-it-yourself accounting software is plentiful and easy to use, it’s not the sole answer. Just as having Microsoft Word does not make you a writer, having accounting software doesn’t make you an accountant. Software can only do what you tell it to do—and a good accountant’s skills go far beyond crunching numbers.
In fact, perhaps no other business relationship has such potential to pay off. Nowadays, accountants are more than just bean counters. A good accountant can be your company’s financial partner for life—with intimate knowledge of everything from how you’re going to finance your next forklift to how you’re going to finance your daughter’s college education.
While many people think of accountants strictly as tax preparers, in reality, accountants have a wide knowledge base that can be an invaluable asset to a business. A general accounting practice covers four basic areas of expertise:
1. business advisory services
2. accounting and record-keeping
3. tax advice
4. auditing
 
e-FYI
 
The American Institute of Certified Public Accountants has a website that provides news updates, information about legislative activities and general consumer information, as well as links to state CPA societies, where you can get CPA referrals. Visit aicpa.org.
These four disciplines often overlap. For instance, if your accountant is helping you prepare the financial statements you need for a loan, and he or she gives you some insights into how certain estimates could be recalculated to get a more favorable review, the accountant is crossing the line from auditing into business advisory services. And perhaps, after preparing your midyear financial statements, he or she might suggest how your performance year-to-date will influence your year-end tax liability. Here’s a closer look at the four areas:
1.
Business advisory services
. This is where accountants can really earn their keep. Since the accountant is knowledgeable about your business environment, your tax situation and your financial statements, it makes sense to ask him or her to pull all the pieces together and help you come up with a business plan and personal financial plan you can really achieve. Accountants can offer advice on everything from insurance (do you really need business interruption insurance, or would it be cheaper to lease a second site?) to expansion (how will additional capacity affect operating costs?). Accountants can bring a new level of insight to the picture, simply by virtue of their perspective.
2.
Accounting and record-keeping
. Accounting and record-keeping are perhaps the most basic accounting discipline. However, most business owners keep their own books and records instead of having their accountant do it. The reason is simple: If these records are examined by lenders or the IRS, the business owner is responsible for their accuracy; therefore, it makes more sense for the owner to maintain them.
Where accountants can offer help is in initially setting up bookkeeping and accounting systems and showing the business owner how to use them. A good system allows you to evaluate your profitability at any given point in time and modify prices accordingly. It also lets you track expenses to see if any particular areas are getting out of hand. It lets you establish and track a budget, spot trends in sales and expenses, and reduce accounting fees required to produce financial statements and tax returns.
3.
Tax advice
. Tax help from accountants comes in two forms: tax compliance and tax planning. Planning refers to reducing your overall tax burden; compliance refers to obeying the tax laws.
4.
Auditing
. Auditing services are required for many different purposes, most commonly by banks as a condition of a loan. There are many levels of auditing, ranging from simply preparing financial statements from figures that the entrepreneur supplies all the way up to an actual audit, where the accountant or other third party gives assurance that a company’s financial information is accurate.
 
AHA!
 
If you’re looking to master accounting for your new business—or simply don’t want to be left in the dark when talking to your accountant—check out
Small Business Accounting Simplified
by Daniel Sitarz (Nova Publishing). This useful reference book features easy techniques you can use, simple solutions to common problems, and everything you need to gain an overall understanding of the accounting process. It also includes a CD with commonly used forms.
Today, more and more accountants are moving into a fifth area: personal financial planning. For many, this is a natural extension of their familiarity with their clients’ financial affairs.
Choosing an Accountant
 
The best way to find a good accountant is to get a referral from your attorney, your banker or a business colleague in the same industry. If you need more possibilities, almost every state has a Society of Certified Public Accountants that will make a referral. Don’t underestimate the importance of a CPA (certified public accountant). This title is only awarded to people who have passed a rigorous two-day, nationally standardized test. Most states require CPAs to have at least a college degree or its equivalent, and several states also require post-graduate work.
Accountants usually work for large companies; CPAs, on the other hand, work for a variety of large and small businesses. When dealing with an accountant, you can only hope he or she is well-educated and well-versed in your business’s needs. Passing the CPA exam, however, is a guarantee of a certain level of ability. Once you have come up with some good candidates, a little preparation is in order before you interview them. The first step in setting the stage for a successful search is to take an inventory of what you will need. It is important to determine beforehand just how much of the work your company will do and how much of it will be done by the accountant.
Accounting services can be broken down into three broad categories: recording transactions, assembling them, and generating returns and financial statements. Typically, the latter part—that is, the generation of returns and financial statements—requires the highest level of expertise. But though the other activities require a lower skill level, many firms still charge the same hourly rate for them. Given the level of fees you are prepared to pay, you must decide where your responsibility stops and where the accountant’s begins.
A LITTLE HELP FROM YOUR FRIENDS
 
M
entors can be valuable sources of information at any stage of your company’s growth. It is always in your best interest to reach out to a variety of sources of information when you make decisions, advises SCORE. An SBA partner, SCORE offers 12,400 volunteer members and 364 chapters throughout the United States.
 
 
Mentors can often give you a fresh perspective on problems or challenges because they’re not personally involved with your business like other advisors, including attorneys, accountants and friends. For this reason, it’s important to find not only a mentor who has experience and knowledge, but also someone you can trust and feel at ease with.
 
Building a relationship takes work on your part, too. Everyone likes recognition, to get a note, to have someone say thank you. You get goosebumps just thinking about it. That’s better than anything for a mentor.
 
To get matched with a mentor, your first step should be locating your local SCORE chapter. Call (800) 634-0245, or visit
score.org
. If there’s not a chapter near you, no problem. SCORE also offers free e-mail counseling provided by its 12,400 volunteers.
 
Other mentoring resources can be found through networking in your community. Join the local chamber of commerce, Rotary Club or Toastmasters. Attend luncheons, seminars, and conferences related to your business and talk to guest speakers. Find out what types of business organizations closely match your company so you can team up with other individuals with similar interests and concerns. Developing these types of personal and business relationships can put you in touch with successful people who may be potential mentors.
Once you have compiled your documentation and given some thought to your expectations, you’re ready to interview your referrals. Five candidates is a good number to start with. For each candidate, plan on two meetings before making your decision. One of these meetings should be at your site; one should be at theirs. Both parties need to know the environment the other works in. During the ensuing interviews, your principal goal is to find out about three things: services, personality and fees.
1.
Services
. Most accounting firms offer tax and auditing services. But what about bookkeeping? Management consulting? Pension fund accounting? Estate planning? Will the accountant help you design and implement financial information systems? Other services a CPA may offer include analyzing transactions for loans and financing; preparing, auditing, reviewing and compiling financial statements; managing investments; and representing you before tax authorities.
Although smaller accounting firms are generally a better bet for entrepreneurs (see “The Size of It” on page 171), they may not offer all these services. Make sure the firm has what you need. If it can’t offer specialized services, such as estate planning, it may have relationships with other firms to which it can refer you to handle these matters. In addition to services, make sure the firm has experience with small business and with your industry. Someone who is already familiar with the financial issues facing your field of business won’t have to waste time getting up to speed.

Other books

Longfang by Mark Robson
Trapped by Alex Wheeler
Comanche Dawn by Mike Blakely
Werebeasties by Lizzie Lynn Lee
A Christmas Carol by Charles Dickens