When you start a business, an accounting professional is one of the first investments you should make in your business. Why? Well, between taxes, bookkeeping, and financial analysis, it can be a confusing maze to navigate alone. Many business owners want to avoid the last-minute hassles of tax season and financial statement requests, but don’t know who to hire for help. That’s where this post comes in.
For purposes of this discussion, we’ll be dividing the industry into three types of accounting professionals:
There is some overlap between them, but let’s jump right in to help demystify who they are and what they do.
“Accountant” is an umbrella term that is typically used for anyone in the profession. Some accountants are bookkeepers, some tax preparers, and others are neither. A combination of education and experience has provided the accountant with the necessary skills to serve clients appropriately. There are general accountants that service all kinds of companies in a variety of ways, and industry-specific accountants who have niched down to serve a specific type of client. This means that there is a wide variety of types of services that an accountant provide, including:
Sales Tax Support
Audits and other Reviews
Financial Statement Analysis
Since not all accountants do the same type of work, you’ll want to pay special attention to their service offerings. Do they serve other clients like you? What is their focus and does it match with your needs?
Also, note that not all accountants are Certified Public Accountants (CPAs). A CPA has passed the licensure requirements in their state and the corresponding national exam in order to obtain the designation, and must keep up with annual continuing education requirements to stay in good standing. If you are specifically looking for a CPA to serve you and your business, make sure this is specified in the provider’s credentials.
At a base level, the main role of a bookkeeper is to ensure that the financials of a company are accurate. Generally, this starts with the categorization of transactions throughout the month, which includes both income and expenses, as well as transfers. A bookkeeper is going to ask questions to make sure that items are in the appropriate account, and confirm that the balances in your accounting system match bank, credit card, and loan statements. They should reconcile to the support documents to make sure that there are no duplications or missing transactions, and present at least the balance sheet and profit and loss for the period so that you can see where the business stands.
Some bookkeepers take the service a step further, offering additional services as part of the ongoing package or as add-ons to the original scope of work, including:
App Integration - Ensuring that the applications that power the rest of your business are properly talking to your accounting system.
Consulting - Recurring or ad hoc calls to talk through details of your finances and answer your questions.
Projections - Looking forward to see cash flow, as well as budgets and forecasts to help you strategize about the future.
Training - Empowering you to review your documents with a sense of understanding, to have a sense of what you should focus on, and enable you to take on the financial tasks outside of what they do for you.
Sounds self-explanatory right? A tax preparer is a person that prepares your tax returns, usually annual returns for individuals and businesses. This job encompasses more than just filing a return, and a good tax preparer will also advise you on strategic ways to save on taxes and avoid surprises at tax time. They should file accurately and timely to help you avoid fines and penalties for late submissions, and assist with follow-up if you have questions or receive correspondence from federal and state agencies. Keep in mind that annual tax returns don’t typically include the following:
Biannual reports (usually required by the state for LLCs)
Personal property tax
Legal documents required for your business
If these are items that you need assistance with, make sure to determine whether your preparer is the right fit for your needs.
NOT ON THE LIST: FINANCIAL PLANNERS
While accountants typically deal with historical data in order to help forecast what the future will look like, decisions about what to do with extra money lies with a financial planner. From investments, insurance, and long-term planning, a financial planner or advisor is using the information from your accounting professionals to help you make strategic decisions about how to use the money you have leftover to save or spend. Financial planners have different designations than accountants (and a completely different skill set) so if you’re looking towards the future because you’re flush with cash, make sure to hire the right person for the job.
These descriptions aren’t meant to be all-inclusive, but provide a baseline for what each role does as you look to make decisions about who to hire to help you manage your finances.