You can be on Entrepreneur’s cover!

Choosing the Right Financial Professional With advice from an expert, we can help you figure out just who you need to assist you with the financial side of your business.

By Cliff Ennico

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

A reader recently e-mailed me this question: "I'm starting a small business and will need some help with the financial side of things. What's the difference between a bookkeeper, an accountant and a certified public accountant (CPA), and which professional is right for my business?"

To get the right answer, I went to someone with a little experience in the financial field. Linda Hunt, president of SumSolutions, a financial and management consulting firm in Trumbull, Connecticut, says that there are actually four types of accounting professionals.

First, there are bookkeepers who record your daily business transactions but don't prepare or file your tax returns. According to Hunt, bookkeepers come in two varieties. A "basic" bookkeeper is basically a clerk who can handle your accounts receivable and payable records, and perhaps take care of your payroll each week. A "full charge" bookkeeper, on the other hand, can handle a wider variety of more complex transactions. "Since most small businesses look for someone who can handle all their financial transactions, they should always look for a full charge bookkeeper," advises Hunt.

Then there are accountants and CPAs. Contrary to popular belief (and to what a lot of CPAs will tell you), Hunt says there's really no difference between the services that accountants and CPAs provide. "A CPA has met the requirements of state law and has a license or certificate from the state, says Hunt. "When you're an accountant, you study the same things but you don't take the state exam." Both accountants and CPAs can help you prepare your tax returns and organize your books and records, Hunt explains, but only CPAs can file your tax return as a "paid preparer" or audit your financial statements.

Lastly, Hunt points out that there's a fourth accounting professional: the "enrolled agent" who falls somewhere between an accountant and a CPA. Often a former IRS employee, an enrolled agent is "not an accountant or lawyer, but someone who understands the federal and state tax laws, has sat for an exam, and can file your tax return as a paid preparer," according to Hunt. In Hunt's view, enrolled agents are usually more knowledgeable than accountants because they're held to a higher standard of education and performance, but are not as knowledgeable as CPAs or tax lawyers.

So which one do you choose? Hunt believes it's best to have both a bookkeeper and either an accountant, enrolled agent or CPA. "An accountant or CPA knows what the tax deductions are, what's legal and illegal, and your bookkeeper isn't trained to do that," explains Hunt, "but accountants and CPAs usually charge a lot of money to record your business transactions. A bookkeeper is usually a lot less expensive."

Cliff Ennico is a syndicated columnist and author of several books on small business, including Small Business Survival Guide and The eBay Business Answer Book. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick

Business Ideas

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.

Business News

This Highly-Debated Piece of Cinematic History Just Sold For Over $700,000 at Auction

The wood panel from "Titanic" is often mistaken as a door. Either way, he couldn't have fit. (Sorry.)

Business News

From Tom Brady to Kevin O'Leary – See Who Lost Big in the Wake of the FTX Crypto Collapse

The crash exposed an $8 billion hole in FTX's accounts, leaving investors and customers scrambling to recoup their funds.

Starting a Business

How to Find the Right Programmers: A Brief Guideline for Startup Founders

For startup founders under a plethora of challenges like timing, investors and changing market demand, it is extremely hard to hire programmers who can deliver.