If you are looking for an accountant, the level of expertise required is one good way to distinguish between them.
If you are starting a small business, do not hire an accountant who specializes in personal income taxes or in handling estates. Such specialists know little about small businesses. Instead, find someone who runs a small business and has to deal with such things as how to depreciate equipment and what tax accounting methods to use.
For your purposes, knowledge of the tax code isn’t essential; just learn it on your own when you need to. Tax rules change so often that you will be getting updates just by keeping up with the news in any case. What you want from an accountant is understanding of the principles: How does depreciation work? Why do I have to file quarterly returns? What choices do I have about accounting methods? And so on.
The most important job of an accountant is not taking care of your taxes but helping you run your business well. A good accountant will be worth far more than his or her fees for this reason alone.
When you are choosing an accountant, you need to know what kind of financial information you need. The more complicated your business is, the more expertise it will take to keep track of your finances.
The most reliable way to find out how good an accountant is is to ask other business owners in the same line of work about their experience. You can also look up online reviews of various accountants, but be aware that sometimes people will post fake reviews, or write reviews right after they have had some service done by the company.
If you are looking for an accountant who can provide tax services, make sure you are clear on exactly what those services are, and how much they cost. Some companies will charge you for certain things that are required by law or by ethical standards that they should be free to provide for you.
It’s good to have an accountant. A good one can save you money, and some of them actually make it for you. But how do you find one?
- You want someone who understands how to put your numbers into the right categories on the forms that send to the IRS and your state revenue service;
- someone who can answer questions about what things on your tax form mean;
- someone who will point out things on your financial statements that you don’t understand;
- someone who will help you understand why there’s a difference between what QuickBooks says your profit is and the profit shown on your year-end profit and loss statement.
To do all that, though, a basic level of expertise in accounting is necessary. An accountant must be able to read a profit and loss statement, balance sheet, and statement of cash flows for a small business. If they can’t, they aren’t going to be able to advise you well about those things.
There are three things to look for in an accountant:
- do they understand your business
- do they give good advice
- do they communicate well.
If you don’t know anything about accounting, hire someone who knows more than you. This is the only way you’ll learn what you need to know.
If you’re just starting out, this means that you should go to an accounting firm that specializes in working with startups. It’s not just that their client list will be full of other startups; they will also know more about the particular challenges of startups than an accountant who does mostly big company work. The big company accountant will still be better than nothing, but you can do better if you look around.
What do these startup-oriented accountants charge? The rates will vary depending on where you are, but expect to pay between $1000 and $5000 per year for a decent full service firm (more if there are lots of stock options). If the business is really taking off and growing quickly, this may seem like too much money. But then again, if that’s the case you probably already have enough money; what you need is advice on how to grow it even faster.
When you need a lot of accounting help, it helps to know what kind of accountant to hire.
Accounting has been described as the language of business. It isn’t that. Accounting is a method for digging information out of business records. Like a method for drilling for oil, or a method for sending email, a good method is a tool to be used by experts and novices alike.
An accountant is an expert in accounting. What does that mean? One way to think about it is that you need an expert when the numbers get complicated.
If you’re a small business and all you want to do is record your expenses and sales and compute your taxes, then any old spreadsheet will work just fine. And even if your business gets more complicated, there are basic steps any adult can master. But if you want to do something fancy with your books — like setting up a corporation or figuring out how to value warrants or reorganizing companies or dealing with things like international tax law, then you need an accountant who knows what he’s doing.
When the numbers get complicated, the accounting part of what you do gets complicated too. And because accountants deal with money, even a small mistake can cost you a lot of money (or save you a lot). A good accountant costs more than an incompetent one, but not that much more: maybe 30% more for a decent one instead of an incompetent one. But the cost of the mistake when the numbers get complicated? That can be enormous — maybe millions of dollars, maybe bankruptcy.
If you’ve ever hired an accountant, you know it’s like hiring other professionals: the more specialized the expertise, the more you’re willing to pay.
But accounting is different in one respect: if you hire a highly specialized accountant, you’re not just paying for his specialized expertise. You’re also paying for his generalized ignorance — or rather, for his lack of specialized knowledge in things that don’t relate to your business. That might even be hidden from him. He may have no idea that he doesn’t know about them.