Mario Lucibello joins the 23rd session of Smart Brand Marketing with your host Tom Libelt.
In this episode we cover how to setup your accounting right for the business so that you don’t run into trouble down the road.
Accounting and How to Get it Right for Your Business
Running a business is hard. After all, if it were so easy, everybody would be doing it. What makes a business a challenge to operate is the fact that there’s a lot of aspects in it that you should look after either one after another or simultaneously.
However, there is one aspect in your business that is as important as everything else (perhaps even more so, depending on who you’d ask) but not a lot of people would want to tackle. That aspect is accounting and getting it done right can make or break your business.
Why You’d Be Best Off Looking for an Accountant
Let’s get this out of the way: accounting is something that not a lot of business owners do not because they are lazy but because of reasons that are quite valid and sensible. Here are just some of those reasons why it’s best that you relegate this aspect to another, if not better trained, person.
1. Running the Business is Already Time Consuming
Unlike a lot of professions out there, being a business owner is a 24/7 job. Much of your schedule will revolve around responding to calls and e-mails, meeting contacts in the market, and trying to find ways to earn money. There are also emergencies to handle, employees to train (or berate for poor performance. It happens), and even seminars to attend. The point is that once you’ve become the owner of a business, you will be attending to its needs every single minute of the day.
What other business-related activity out there that demands the same level of commitment? The answer is accounting. In fact, a lot of accountants can get lost under a pile of spreadsheets, bank account statements, and other finance-related document just to make sure that the business’s accounts are balanced and the business meets tax requirements, only returning to civilization when they have to eat or take a bath. The problem with this if you also handle accounting is that it’s not exactly an income-generating activity. As the owner, you’d be better off doing something that can earn your business money.
This is where a dedicated accountant will become important for your business. All you have to do is provide all the financial records that the accountant is asking and they would do the rest, giving you a lot of free time to do something else important.
2. Most Business Owners are not Certified Public Accountants
This reason has got to be the most common cause why a lot of business owners don’t do accounting. They’re just not trained for it. Basically, accounting is an entire field of discipline in itself. If you really want to master it, you’d have to enter a college program that can last for 4 years, get the necessary work experience, and then pass the licensure exam to become a certified public accountant.
Another thing to consider is that accounting for the business is something that involves more than just filing income tax returns. You also have to balance income statements, organize cash flows, and constantly update yourself with whatever changes are made to the federal income tax code. The brain can only handle so much information before you get overwhelmed. This is why you need someone who is adept in this field to do accounting for you. After all, more experienced hands tend to lead to better results.
3. Tax Audits Become Riskier when in Business
The one drawback of becoming successful with your business is that you start attracting the attention of the government. Don’t take this as a threat, though, as the government only wants to make sure that you are paying your dues based on your most recent financial performance. This is why you will start getting notices for a tax audit regularly once your business starts getting bigger.
For some reason, sole proprietor businesses tend to get more audits than companies although eventually becoming a corporation or LLC won’t give you the assurance that the IRS will pay less attention to you as far as audits are concerned. Either way, you will need someone who is fully capable of dealing with tax audits under your employ.
4. You’d Rather not Miss Out on Tax Savings
Although taxes are a large burden for businesses, the IRS does offer some deductions and tax credits for those business owners that do file their taxes on time. In time, and with your due diligence, your business might just become a candidate for tax deductions.
The only problem is identifying which savings apply to your business the most. Also, the IRS does not take kindly to businesses that file for tax deductions that they are not eligible for. An accountant can tell you which tax savings are available for your business which could help you save thousands of dollars per year.
5. Tax Fraud
For business owners, tax fraud is becoming an increasing problem as they could potentially lose thousands of dollars from fraudulent tax refund plans and whatever other shady tactics that conmen might think of next. You might not even know that you are paying more than what you should now because you don’t know any better.
The services of an accountant, however, can tell help you make sure that all your business’s tax returns are filed properly and on time. On paper, this should lessen your chances of becoming the next new victim of a tax fraud scheme.
On the flip side, if you do become a victim of tax fraud, an accountant can help you explain your case to the IRS so they won’t come down hard on you. This way, the case will not only be resolved but you remain on the IRS’s good side.
Looking for an Accountant: What to Ask Them
By now, it should be apparent to you that accounting is not something that you can’t tackle on your own or, if you are fully capable of doing it, something that you’d best relegate to someone else. It should also be apparent to you that you will need the services of an accountant to do everything accounting-related for you.
So what should you look for your accountant? You might say that you want someone who’s licensed and competent but those are, well, basic qualities. If you really want the best results, it’s time that you ask harder questions like the one’s below.
1. How Long Have You Been an Accountant?
This is quite basic but you have to make sure that the accountant you are about to hire has a considerable amount of work experience for your business especially if they will be handling all of the accounting. As a standard, make sure that the applicant has no less than 5 years of work experience.
Does this mean that your business will remain off-limits to new CPAs? No. Once you have set up an accounting department, you might start giving newly licensed accountants a chance to gain work experience while also helping your business manage its finances. Just make sure that you have experienced senior accountants on standby to help the new ones get the hang of the work.
2. Do You Have any Experience in Fields Relevant to the Business?
Here’s a secret that a lot of accountants won’t tell you: they actually don’t learn everything in school. An Accountancy program will only teach them the basics to pass the CPA licensure exam while the rest they will have to acquire through further specialization.
For example, if your business offers stock options then your applicant of choice should have considerable experience dealing with stock-related accounting concerns. Seniority will also be important quality as seniority often connotes experience and complexity especially in accounting.
How your applicants answer this question will tell you if they are qualified or not. A professional accountant will tell you that they are not fit for the job because they are a.) The job that you offer them is too simple to warrant their assistance or b.) Too complex for them due to them lacking experience in that field. Either way, you have to pay attention to how they will handle this question to get an idea if they can handle the work.
3. What Other Licenses and Degrees Do You Have?
Of course, the first thing that you must make sure is that the applicant is a CPA. After all, this license tells you that that person is at least competent to handle basic accounting tasks.
However, there’s a secret you should know: you don’t actually need a CPA for your business. If you are just starting or want to keep your accounting as simple as possible, then a person with considerable accounting experience but with no license is an option. There are certain risks if you choose this applicant but, hey, an option’s an option.
Credentials only become important once the accounting for your business has to accommodate more complex areas like corporate and fiduciary tax. The point here is that theirs is no correct answer to this question. It’s in the way that your applicant presents their credentials that will tell you if they are a perfect fit for the job.
4. How Much are You Charging for Your Work?
The beauty of becoming better in the field of accounting is that you can start dictating how much you should be paid for your work. On the flipside, this can be a problem for employers especially those that don’t have enough money in the bank.
For example, a senior accountant might charge in between $300.00 to $700.00 per hour depending on their specialization. If you hire them for a 5-day, 8-hour weekly work load, then the accountant will stand to earn somewhere in between $8,000.00 to $25,000.00 per month. That’s quite lucrative for any accountant but it’s not tenable for the business.
Again, there is no correct answer to this question but you should base your offer on whatever figure they answer you with. For example, if you can’t hire them on a full-time basis due to their figure, then they can work part time. This will make sure that your business gets its accounting right at prices that won’t break your bank account.
5. How’s My Current Accounting System for You?
What you’d be looking here for is feedback from the accountant as this will tell you if they know their accounting tools or not. On the other hand, you can tell if your current accounting system (assuming that you have one set up, of course) is up with current standards or similar to what accountants prefer to use for their in recent years.
You can ask your accountant to take a look at your system and provide you with a point-per-point feedback on how to improve on it. After all, there is a chance that what you currently have is not what is the best considering the most recent standards.
Also, this will give you an insight on how the applicant treats their clients. The best accountants out there will actually give the most honest feedback possible on how to improve a business’s accounting system. The best, however, do not only tell you how to improve on your accounting system but even lend a hand on improving it.
There’s no denying that accounting is hard, even the ones that revolve around small businesses. Fortunately, for you looking for the best accountant is comparatively easier than balancing income statements and keeping up with tax clu codes. What is most important here is that you find the right kind of people that will meet the accounting demands that your business has.
What other qualities do you look for in an accountant? Have you tried managing the business’s operations and accounting by yourself and how did you cope with it? Let us know in the comments down below!
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