It is not abnormal for small business owners (especially newer ones) to ponder the prospect of hiring a CPA or accountant to help manage the finances of their company. Most entrepreneurs are aware that the software market is full of relatively inexpensive solutions for small business book keeping- with most of these offerings having a year end functionality to aid in tax prep. Many principals are also aware that these software platforms are only as good as the operator, which leads to the quandary of whether to self prepare books or outsource to a 3rd party. For many, where things get murky is in trying to establish exactly what can be expected in terms of services and deliverables from an accountant, as well as what is safe.
Founders and owners like me, often start out as technicians and practitioners with some understanding that there are financial functions that occur in a business, and give little further thought to the matter. Hopefully we learn as we go, and keep our obligations to regulators. Often that is the ceiling on the financial development and education of small business owners, as we go about our mission of solving the problem or filling the need of the market we serve. The trouble is, in order to truly run our business, and understand the financial levers we have at our disposal, our education must run far deeper than the manual of our book keeping software. On occasion I hear business owners who have become aware that there may be more to business finance than simple book keeping, musing that finding the right CPA or Accountant may be the next step on the ladder of success that they're climbing. This is where things can become confusing, problematic, and ultimately expensive.
Accountants are historians of financial data. They produce an "account or accounting" of financial transactions that have already occurred- also known as keeping the books (book keeping.) In addition to this, in order to produce a valuable market offering, they offer compliance consulting- an analysis of the data produced by the book keeping, and its' implications under the current relevant regulatory codes. Commonly this is referred to as book keeping, reviewed financials, audited financials, and tax preparation. This, in general, is what CPAs and accountants do. It is possible to find an accounting firm that specializes in serving a specific market of clients, and does well at utilizing certain accounting rules to produce the tactical result desired for their specialized clients, but ultimately, credits are credits, and debits are debits.
While many are clear that there are financial functions inside of a business that exist as the business conducts transactions, often that is where perspective ends. In reality, there are far more financial functions within a business that are completely unrelated to the training and usual services of a CPA or accountant than those they actually serve. This is where things can get wobbly when engaging the services of a 3rd party. Without a clear understanding of the finance silo of the business, its' functions, and relationships to other silos in the business, small business owners can be in for a rough ride when outsourcing financial managment.
In general, the finance silo of a business will have the following functions:
Compiling and maintaining compliance documentation
Client credit analysis
Invoicing
Collections
Accounts Payable
Credit Management
Funds Disbursement
Securing Financing
Cashflow Managment
Cashflow Forecasting
Maintenance and assembly of Ledger Reports
Maintenance and assembly of Cost Reports
Tax payments
Tax return prep
Profit Planning
Cash Planning
Payroll Processing
Performance Analysis
Maintenance of employee benefits
The list goes on, but these are some of the basic functions that must occur in a business, and there are only 4 that are really relevant to the training of a common CPA or Accountant (they are italicized for reference). While it is true, that data prepared by a CPA may be used in many of the other processes, the assumption that the preparer is knowledgeable or skilled in the application of the reports they produce is a dangerous and often frustrating trap. It is also true that many accountants and CPAs have gone beyond classical training in order to produce broader market offerings, but in general it is not wise to assume that the title accountant or CPA suggests that they would be helpful or well equipped for involvement in the financial management of your business.
To be clear, I'm not picking on CPAs or accountants, nor do I hold them in negative regard. I will never come close to understanding tax code the way the most general CPAs do, so I will continue to trust them with my tax concerns.
My point is that although they dwarf my understanding of current depreciation tables, or standard deductions, I dwarf their understanding of what kind of business I have coming up next quarter, who it's with, what kind of capital outlay will be required in order to capture it, where I will get that capital, and when I expect the return to show up. These are things unique to each industry and business. It is unreasonable to expect that an accountant or CPA can offer real value on these topics unless they have specific experience with successful operation of a business of similar size in a similar market and industry... which is uncommon.
Every business owner contends with goals and variables unique to their situation. These specifics often dictate the financial strategies and decisions that best serve the business. A company oriented toward growth must make very different decisions than one oriented toward, say, ownership succession. A company 5 years old must make very different decisions than one 25 years old.... the variables are infinite.
In the end, a skilled accountant or CPA is a critical tool in the business owners' toolbelt, but just like a hammer, they are only useful for specific pieces of work.
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