What does a CPA do?
When you’re looking for a CPA (Certified Public Accountant), it’s helpful to have a broad understanding of what CPAs do. Most CPAs can be divided into two different buckets: Audit and Taxes. Some CPAs are consultants or specialize in certain areas, but for the sake of our discussion, we will look at the two main categories.
1. Audit:
Some accounting firms or CPAs specialize in audit, which is an overall look at your systems and processes and how they conform to GAAP (Generally Accepted Accounting Principles). When your business gets to a certain size, the bank can require either a review or an audit to make sure your financial reports are legitimate.
A review is a first-level assurance that your financials are materially correct. A CPA in review will ensure that you’re not overstating or understating the financials of your business to your audience (your bank and/or lenders).
An audit is a deeper financial analysis than a review. When a CPA performs an audit, he or she will spend a lot more time looking over your financials and may even bring in a team of accountants to be more forensic and detailed.
For our company, we have an informal review system in place (we get about 90% of a review without paying for an actual review). We have a team of CPAs that look over our shoulder on a regular basis, review how we book transactions, reconcile our bank statements, and look at how we put together our financials each month. We also have a CPA produce quarterly financials from all that data so that we’re beyond reproach when we meet with the bank or financial partners.
2. Taxes:
Other accounting firms or CPAs specialize in tax and help you prepare for the most efficient tax results. When you start to work with a tax CPA, he or she will probably provide a checklist of financial documents that you’ll need to give him or her for tax season. Once your tax CPA evaluates your information, he or she will be able to create a tax strategy for your business.
When creating a tax strategy, a good CPA will consider complex depreciation schedules, fluctuating tax policies, and other financial circumstances to calculate your taxable income in a way that best benefits you (without cheating, of course) for tax season. In this case, good CPAs will pay for themselves, so don’t skimp by hiring a cheap CPA. The longer you work with a CPA, the easier this process gets. Your CPA will get to know you and understand your business, helping you be as efficient as possible in your operation and bookkeeping.
In our company, we sit down with our CPAs in the late fall (November) and talk about what’s ahead to prepare for the tax season. We will discuss our profit expectations for the year and our tax circumstances before December in case we need to make any adjustments before the end of the year. This meeting helps our CPAs have an understanding of where the business is before diving into the ins and outs of our taxes.
Why a Good CPA Is Critical:
1. An average person will not have the necessary knowledge to handle accounting needs.
This is especially true if you plan on your business having any scale at all. Between day-to-day management issues, properly booking transactions, reviews and audits, and/or tax season, a good CPA is absolutely critical to the success of your business.
2. A good CPA provides an additional layer of security and integrity within your business.
Even if you have a bookkeeper or accounts manager that does a great job, a good CPA can step in to make sure that every transaction is correct and accurate. With more than one level of security, you can feel confident in your business’s financial integrity.
3. A good CPA helps you develop trust with a bank.
Bankers see all types of people throughout the course of the year, many of them dreamers, not planners. When you have a good accounting strategy that matches your business strategy, a bank is liable to trust you and your vision more. I make sure my bankers are aware that a CPA watches over everything our businessdoes and helps produce our quarterly financial reports. Once a bank understands this, we gain a new level of credibility with them. Of course, I must have a CPA that I know and trust in order to establish this chain of credibility.
4. A good CPA can help you produce quarterly financial statements.
I think every business, rental property included, should produce quarterly financials (at a minimum) and review them in a timely manner. It’s a time-sensitive process to push new financials out to your bank and/or business partners. If you and your CPA can establish a set pattern for this process, your business will be much more successful.
5. In the case of an IRS audit, a good CPA will have your back.
As your business becomes more sophisticated, your tax strategy will become more complex. The more complex your tax strategy, the more likely you are to be flagged by the IRS for an audit. If this ever happens, a good accountant will be critical.
If you’re audited, a good CPA will be able to communicate with IRS auditors and answer their questions in a professional manner, using a language that the average business owner isn’t as familiar with. During an IRS audit, a credible, professional accountant can be the difference between a business’s success and failure.
6. It’s easy to have a CPA engaged in the day-to-day operations of your business.
There are several great accounting software that allow your accountant to access your business’s financial information on a day-to-day basis. At our company, we use the accounting software QuickBooks. QuickBooks is great because it allows a CPA to login to your company’s site without any additional charges, and it updates your systems in real-time. Most accounting softwares allow accountant oversight for free.
Finding a CPA or Accounting Firm:
A great place to look for CPA recommendations is at your bank. Most of the time, bankers will have a working knowledge of credible CPAs and can provide you with some good options. Another place to check is with your attorney. A lot of times, attorneys will have experience working with CPAs, especially if their speciality is in business law.
Choosing a CPA:
Much like any other professional relationship, you get what you pay for when you hire a CPA. With this being said, don’t choose a CPA just because he or she is cheap, friendly, or convenient. You need to choose a CPA that can help you effectively manage your business, so take the selection process seriously. Below are a few good points to keep in mind:
1. Be willing to wait for an appointment.
You may have to wait a week or two before you’re able to meet with a good CPA. Bepatient, and it’ll be worth your time. Also, when scheduling your appointment, be mindful of the tax season. The best time for an appointment is probably early to mid-summer or late fall to early winter.
2. Ask intentional questions.
I recommend pulling from the following list:
- Can you tell me about your history?
- Do you have experience in audit?
- Do you have experience in taxes? (Ideally, you’ll find a firm or CPA(s) with experience in both audit and taxes)
- Do you work with other businesses similar to mine?
- How do you bill? (Personally, I prefer a monthly bill)
- What is your hourly rate? (It’s typical to see anywhere from $150-200 an hour for a good CPA)
3. Look for a CPA that is willing to be an active participant in your company.
Some CPAs will just “keep score” and take a passive role in your business. I think it’s more beneficial for a CPA to play an active role in your business rather than watch from the sidelines as a referee. The more involved your CPA is, the better results you are likely to have.
4. Look for a comfortable connection.
It’s important that you can be vulnerable with whoever you choose as your CPA. You should be able to think of him or her as a counselor of sorts—you need to be able to disclose when things are going great and when things are going bad. This level of rapport and comfort is absolutely essential for the success of your company.
When Working With a CPA:
Just like any other relationship, a relationship with a CPA takes a mutual level of trust and respect to succeed. Here are some important guidelines to follow when maintaining your relationship with a CPA:
1. Be respectful of your CPA’s time.
A CPA’s time is his or her livelihood, so don’t waste it. When you interact with your CPA, email him or her ahead of time and describe the things you’d like to discuss further. Be organized with your financial documents and proactive in the time you spend with your CPA. Doing so can help indicate your interest in your CPA’s success.
2. Keep your CPA involved in your business.
It’s not a bad idea to meet three times a year or so with your CPA to discuss the macro-view of your business. By inviting your CPA into both the details and the big picture of your company, he or she will be more invested and involved in your business throughout the year. These meetings provide your CPA with a healthy level of context, so as you contact him or her with follow-up questions and concerns, he or she will be able to reference the concepts you discuss.
3. Outline a good communication style and establish touchpoints with your CPA.
It’s important that you and your CPA understand that communication is essential all the time, not just when something goes wrong. Be sure to talk through this with your CPA and establish communication expectations and touchpoints. Once a CPA takes you on as a client, it’s important that he or she gets back to your phone calls or emails within 24 hours.
In Summary:
- A good CPA is critical to the success of your business. You’ll need help with auditing and taxes, so you must establish a good accounting partnership.
- A good CPA can help you develop a higher level of financial integrity, establish credibility with a bank, produce quarterly financial statements, and defend you in case of an IRS audit.
- When you choose a CPA, be patient, ask intentional questions, and look for an accountant who will be an active participant in your company and a trustworthy, comfortable partner.
- After your CPA accepts you as a client, maintain a respect for his or her time, invite him or her into your company, and establish healthy expectations for communication.