Definition: A person whose work it is to inspect, keep or adjust accounts
Accountants help you keep an eye on major costs as early as the
startup stage, a time when you're probably preoccupied with
counting every paper clip and postage stamp. When you're looking at
the details, accountants help you keep your eye on the big
picture.
Even after the startup stage, many business owners may not have
any idea how well they're doing financially until the end of the
year, when they file their tax returns. Meanwhile, they equate
their cash flow with profits, which is wrong. Every dollar counts
for business owners, so if you don't know where you stand on a
monthly basis, you may find you're not around at the end of the
year.
No other business relationship has such potential to pay off.
Nowadays, accountants are more than just bean counters. A good
accountant can be your company's financial partner for life--with
intimate knowledge of everything from how you're going to finance
your next forklift to how you're going to fund your daughter's
college education.
While many people think of accountants strictly as tax
preparers, in reality, good accountants have a wide knowledge base
that can be an invaluable asset to a business. A general accounting
practice covers four basic areas of expertise:
- 1. Business advisory services
- 2. Accounting and record-keeping
- 3. Tax advice
- 4. Auditing
These four disciplines often overlap. For instance, if your
accountant is helping you prepare the financial statements you need
for a loan and he or she gives you some insights into how certain
estimates could be recalculated to get a more favorable review, the
accountant is crossing the line from auditing into business
advisory services. And perhaps, after preparing your midyear
financial statements, he or she might suggest how your performance
year-to-date will influence your year-end tax liability. Here's a
closer look at these four areas:
1. Business advisory services. This is where accountants
can really earn their keep. Since the accountant is knowledgeable
about your business environment, your tax situation and your
financial statements, it makes sense to ask him or her to pull all
the pieces together and help you come up with a business plan and
personal financial plan you can really achieve. Accountants can
offer advice on everything from insurance (do you really need
business interruption insurance, or would it be cheaper to lease a
second site?) to expansion (how will additional capacity affect
operating costs?)
2. Accounting and record keeping. Accounting and
record-keeping are perhaps the most basic accounting disciplines.
However, most business owners keep their own books and records
instead of having their accountant do it. The reason is simple: If
these records are examined by lenders or the IRS, the business
owner is responsible for their accuracy; therefore, it makes more
sense for the owner to maintain them.
Where accountants can offer help is in initially setting up
bookkeeping and accounting systems and showing the business owner
how to use them. A good system allows you to evaluate your
profitability at any given point in time and modify prices
accordingly. It also lets you track expenses to see if any
particular areas are getting out of hand. It allows you to
establish and track a budget, spot trends in sales and expenses,
and reduce accounting fees required to produce financial statements
and tax returns.
3. Tax advice. Tax help from accountants comes in two
forms: tax compliance and tax planning. Planning refers to reducing
your overall tax burden; compliance refers to obeying the tax
laws.
4. Auditing. Auditing services are required for many
different purposes, most commonly by banks as a condition of a
loan. There are many levels of auditing, ranging from simply
preparing financial statements from figures that the entrepreneur
supplies all the way up to an actual audit, where the accountant or
other third party gives assurance that a company's financial
information is accurate.
Before engaging an accountant, ask about fees upfront. Most
accounting firms charge by the hour; hourly fees can range from $75
to $275. However, there are some accountants who work on a monthly
retainer. Figure out what services you're likely to need and which
option will be more cost-effective for you.
Get a range of quotes from different accountants. Also try to
get an estimate of the total annual charges based on the services
you've discussed. Don't base your decision solely on cost, however;
an accountant who charges more by the hour is likely to be more
experienced and thus able to work faster than a novice who charges
less.
Don't hire anyone with getting references, particularly from
clients in the same industry as you. A good accountant should be
happy to provide you with references. Call each of the references
they supply and ask how satisfied the client was with the
accountant's services, fees and availability.
After you've made your choice, spell out the terms of the
agreement in an "engagement letter" that details the returns and
statements to be prepared and the fees to be charged. This ensures
you and your accountant have the same expectations and helps
prevent misunderstandings and hard feelings.