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So you’ve decided to start your own small business and you're getting advice from friends, family and associates on what you need to do. If you're like most people, all of this advice conflicts and you’re back to square one and probably more confused than when you started.
One consistent item however, is how to pick the three most important advisors for your small business. Your attorney, your banker and your accountant. I’d like to see if I can help with your choice for an accountant.
My first word of advice would be to use only a CPA. If you find an accountant without a license more than likely your needs will not be met as an accountant without a license is limited in what he can do for you.
When choosing a CPA you first need to assess your needs as a business. What are your short and long term financial goals? Do you have an exit or retirement strategy? Is your business unique in that it requires special expertise? What are your financing needs? There are many questions that will arise, let’s visit a few.
It can be as easy as flipping through the yellow pages. You can use your cousin’s guy. Word of mouth is always the best way as you immediately know someone who is happy enough to recommend their guy. Keep in mind however, that what is good for your friend is not always good for you.
Most small businesses don’t need large accounting firms. Larger firms (over 50 people) are geared toward, you guessed it, large businesses. These firms contain several levels of employees with large hourly billing rates and quite often staff are learning on the job while you pay for their education. Oftentimes, these firms are unable to give you the personal attention and time necessary to help your business succeed. I would start by selecting five to ten firms with varying sizes up to the 50 person firm. This size firm usually has experienced bookkeepers as well as well informed partners who can give you personalized time at a much lower rate.
Speaking of rates, I’m sure cost is one of the first things that pops into your mind. You should be very concerned about the fee quote a CPA gives you. Remember that you get what you pay for. When you compile your various quotes try to delete the ones that are obviously high, but also throw out the ones that appear too low. These folks have more than likely misread the amount of time it would take to service your account. The inevitable answer is that you would be due for a huge increase in fee in year 2, which may lead you to another search for a new CPA and you only want to do this once. The other alternative is that you are getting the low bid, because the CPA isn’t very good and is looking for work at any cost.
If you find a good CPA, but don’t know how to pay the fee, suggest alternate deals. For instance, sign an engagement letter that covers several years at the same annual fee, but make it back loaded by paying more in later years. Also, suggest an exchange of services in lieu of cash. Instead of hourly rates, suggest a fixed fee payment plan to predict your cash flow. There are several ways to compensate a CPA if he knows you will be a long term client. If he agrees to work with you on the fee right away, you know you’ve made a decent choice.
Do you want your CPA to be your insurance agent, your financial planner and your human resource director? Maybe you do for simplicity. Maybe you don’t want all of your eggs in one basket. Inquire as to the other services a CPA offers and see if he is concentrating on servicing your business or just generating additional fees for his own benefit.
You are hiring a CPA. Treat him like a job applicant for your company. Ask about his clients with similar business models. Can he provide references from his clients? Can you call them? What kind of turnaround time on your projects can you expect? Does he return all calls within the same day? Does he understand the pitfalls of your startup business? Have him share a story of how he successfully helped one of his clients.
Is your prospective CPA a member of professional organizations? How about industry specific organizations? How many years has he been in the business? Is he an active member of his community? Does he volunteer time to a charitable cause? Is his firm peer reviewed? Does he satisfy the continuing education requirements for his license and how? These are all intuitive questions to see if you are dealing with a professional who is serious about servicing his local community and is aware of the local advantages and pitfalls of the geographical area that you share.
At no time will a real CPA guarantee anything. There is no such thing as a CPA who knows about “special” deductions or little known secrets that the IRS allows. If he asks how much of a refund you want, you are probably dealing with the wrong guy. Remember the IRS will come after you, not the CPA so you need to know that the CPA is on the up and up.
A valuable tool each CPA provides is his client list. Any business needs bankers, suppliers and yes customers. The CPA can be a valuable resource of business referrals for you. Ask about the amount of business he has and does he put his clients together for the benefit of one another. Does he attend business functions where he can find sources of business for himself and his clients?
By now you may have narrowed your search down to two or three well qualified CPA’s. In the end you need to pick someone you trust. Someone who you think will always have your best interests at heart. Someone you are comfortable with. The winner may be the guy who has similar entertainment interests as you. Someone with a similar family situation. It’s ok to make this your final criteria. After all, if you just don’t like the guy, the relationship won’t work.
Howard Hyde is a senior manager and small business specialist at Weber Shapiro & Company LLP in Ramsey, NJ. Howard can be reached at 201-327-0400 or howard@webershapiro.com.