How to Choose an Accountant for Your Small Business

By Lynn Truong on 21 February 2010 (Updated 25 April 2010) 8 comments
Photo: starfotograf

Small business owners often overlook the importance of having a good accountant on their side. The role of the accountant doesn't have to be limited to tax preparation. He can be a valuable adviser for your business year round. Here are some things your accountant should be involved in for your small business.

Taxes

This is the area of expertise your accoutant should know backwards and forwards. Get an accountant who has a lot of small business clients — even better, a lot of small business clients in your industry. There are a ton of tax laws and codes, and the more experience your accountant has in your particular industry, the better he can help you optimize your tax planning. He can advise you on common practices and keep you up to date on recent developments. He should also be monitoring your business growth, and be able to advise you on options as you grow. For example, he may recommend that you change your business structure (from LLC to C-Corp) if it looks like you can see significant tax savings based on your earnings. You should also be calling your accountant before you make large purchases or enter into lease agreements to see what options are most beneficial to you from a tax standpoint.

Money Management

Beyond tax considerations, your accountant should be able to advise you on all aspects of your financial planning and management. He can be a sounding board when you are considering an investment for your business. He can guide you through financial hurdles. Whether you have a problem with cash flow, credit, or collecting money due, your accountant should be the first person you call before taking any action. In addition to your business finances, you can go to your accountant for personal finance advice. Because he knows your business so well, he can make good recommendations on how you should save or invest your own money.

Employment Laws

From labor laws to benefits, your accountant can help you navigate through all the rules and regulations required of employers. Once you have employees, you'll need to find out about workers comp insurance, health and retirement benefits, and payroll taxes. If you're not ready to have a full fledged Human Resources department, your accountant can fill in. It can get complicated, and it'll be wise to have an accountant ready to guide you, especially as your business grows. For example, some employment laws only apply after you have a certain number of employees. It's important that someone is on top of the various phases of your business, and sometimes it's just nice if it doesn't have to be you.

Numbers Analysis

Numbers are a second language to accountants. You don't have to be good with numbers if you have an accountant. He can look at your sales figures and determine profitability. He can verify that your debt vs. equity ratio is appropriate. He can be a resource to help you compare your benchmarks within the industry. He can provide profit forecasts, cash flow projections, perform annual audits. These reports can help you greatly in monitoring and optimizing business performance and growth.

Business Financing

A good accountant is invaluable if you are seeking capital. He can help you evaluate various options available for business financing. He can read your financial statements and tell you exactly what your lenders are looking for. He can prepare you for the questions you'll need to answer and the documents you'll need to prepare. Additionally, it's likely that he'll have access to resources and contacts that will give you an edge for obtaining the best financing.

As tax season rolls around, you may want to give more thought to building a relationship with your accountant, or shop around for one who can provide expert advise for your small business.

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Guest's picture
Ted

We are about to get an accountant for our business. Thanks for the helpful advice. It is a bit overwhelming as to the great importance your finances are for a small business. Especially a business starting out. Thanks!

Guest's picture

Great post Lynn,
One of the greatest difficulties that small business owners have with accountants is they can't understand what they're saying becasue they speak a different language!!
There is no doubt that driving a business for tax and driving one for profit can be two completely different things.
If you can find a good accountant who speaks simple clean language which is understandable then you have found a very person. Too often though small business owners are frustrated and only go to an accountant to get their tax completed and even then can be resentful at the size of bill they have to pay.

Guest's picture

Lynn you are so right regarding accountants. I am an accountant so I know first hand the frustrations that follow with, finding an accountant that you can trust one that is honest up front about the expert knowledge they may or may not have and the most important part what the accountants fees are.

I have been an accountant for more than 25 years and I have also ran other business's before. So finding an accountant that has first has experience running a business other than working for an accounting firm is hard to do. I on the other hand have many years experience owning my own business, worry about how I am going to pay the payroll to my employees, how to market my business, and how to make a profit.

Knowing both sides has been and continues to be a great combination for me and my staff at First Tax Solution.
http://firsttaxsolution.com

Guest's picture

i knew that accountants were important to small businesses but i didn't know that they were this important. i am for the opinion that the business owner should also be very good particularly with the accounting of the business and so i have been studying this area so that financial speak my not be gibberish to me. Nice post by the way very informative but this should in no way make business owners ignore accounts because he has accountants. on the contrary he should study it very well because business owners should be very familiar with every facet of their businesses

Guest's picture

I would say trust would have to be the main factor above all.

I would place it almost above experience and everything else.

If I am going to "bare" my business soul to someone, I want to be able to trust them

Guest's picture

Too many times from my own personal experience and those in the field often come across people who choose to learn it on their own, which often becomes costly and sometimes unmanageable. Always ask for references, levels of experience, and don't skimp on what a person is worth. Ultimately the money is better spent on doing it right the first time, than costly taxes, interest and penalties.

Guest's picture
Sidd

I am one of those people who believe that in order to find someone who is good enough to take on important responsibilities, you have to stand in their shoes and become a master or gain a better level of understanding and practice what makes them perfect.

In my years of entrepreneurship career i've practiced this rule of thumb and found it to be greatly effective. Of course, in those days there was no internet, and no good websites/blog like this one. However, i still feel that if you are going to start and run a small business, you must take some accounting courses meant for entrepreneurs and non-finacial managers to be able to build your business strong enough to afford an accountant. Hey, lets face it. Not everyone starts off with a huge capital under their belt.

Over the years i've taken many online courses and find them to be really effective too. Great post!

Guest's picture

Great Article Lynn!

I have worked for Big 4, Regional Firms, etc and it always amazes me when accountants fail to realize how important they are to small businesses and how much they can help!  This beneficial relationship is sometimes forgotten by both parties, but proves highly beneficial.

Building a relationship with a good small business accountant is the first step toward long term success and planning - and the best relationship should resemble trust and detailed awareness in monitoring for excess spending, watching for delayed account collections, and maintaining an edge on industry news and tax changes/benefits.

Over the last two years and into the future a personal relationship with a small business accountant will provide profitable navigation through a roller coaster of tax law updates and new governmental packages.  It is never too late to renew this partnership and increase your acceleration down the path of prosperity and success.

I look forward to reading more of your articles!