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Spring 2000 Making it Count: How to Find the Right CPA

One of the greatest challenges you face in starting and running a business is sustaining an effective, workable, year-round system of financial management. A good accountant plays a major role in establishing and maintaining that system—and the health of your business.

If you use an accountant only to prepare your taxes or year-end financial statement, you’re probably asking for trouble. Yes, you save money on the fees an accountant charges for year-round involvement. But the ongoing financial advice of a knowledgeable, professional third party—a certified accountant—is worth far more than those savings, especially in the business’s early stages. If your budget dictates that committing to year-round service is truly out of the question, then your accountant’s involvement can include year-end financial statements, tax return preparation—and a two-hour meeting every quarter. That’s a good start.

If your business is past the start-up stage, then you’re probably experiencing an even greater need of ongoing financial input. If your business is doing well and growing fast, you need professional advice to help manage this growth, and advice on raising capital to support it. If your business is struggling, you need advice on how to achieve and then maintain profitability.

Strictly CPA

Many small-business owners make the mistake of hiring someone for the wrong reasons. They may hire a particular accountant because she’s a friend. Or maybe they hire someone because his fees are low. But the bottom line is that you need a professional with experience and objectivity (and it can be difficult for a friend to be objective).

You want an accountant who can be a resource in helping you run a profitable business. So how do you choose one? First and foremost, whomever you hire should be a Certified Public Accountant, a CPA. This assures you of a standard level of competency. A non-certified accountant is essentially just a bookkeeper, no matter how experienced and well-versed in finance and tax law. A CPA, on the other hand, must go through a rigorous process to obtain the CPA designation and state license. The first step is a college degree. Then he or she must pass a strenuous four-part test covering practice, theory, auditing and law—a test that sometimes even the brightest accounting majors take more than once before they pass all four parts. The candidate must also have at least two years of qualified on-the-job training. Then once licensed as a CPA, he or she must take at least 40 hours of continuing education each year to maintain the license and stay up-to-date.

Where to look

According to the American Institute of Certified Public Accountants, there are more than 100,000 CPAs in public practice in the United States. And as you now know, every one of them is qualified according to strict standards. So how do you find one who is right for your business, and what should you look for?

The best way to find the right CPA for you is within your own industry (even friendly competitors!), and through your professional contacts. Your banker and lawyer, for example, are in close contact with CPA firms and individual CPAs, and can provide you with ideas and names of those who likely to be a good fit with your business.

What to look for

The key to a successful search is to take your time. Here are the main factors to consider:

Industry Expertise—While it may not be necessary to find a CPA who works with 10 other specialty retail businesses, you don’t want to go with a CPA or CPA firm that specializes in manufacturing or health care. Make sure the one you choose has extensive experience in working with businesses like yours or related to the specialty retail industry.

Honest Objectivity—It is vitally important to find a CPA who will not be a “yes person.” You need someone willing to ask hard questions about your financial decisions, so that you don’t wind up asking them after they’re made. However, objectivity is hard to assess if you haven’t had much contact with the CPA, so you may need outside input. Ask others who have worked with that CPA. Or bring in someone whose opinions you trust to help ask questions and gauge responses for objectivity.

Tax Expertise—If the individual CPA who will serve as your contact doesn’t have tax expertise, make sure someone else in the firm does. Sound tax advice and preparation are invaluable.

Contacts in the Community—Find out how well connected the CPA and his or her firm are within the community. CPAs are often valuable resources for small businesses needing to borrow money or raise capital from other sources. A well-connected CPA might help you get a foot in the door with a bank or investor.

Similar Business Style—You may find a CPA who meets all of these criteria, yet if your styles differ greatly, it probably won’t work in the long run. After all, ideally this is a relationship. Yes, you want objectivity and someone to ask the hard questions. But you don’t want to be constantly butting heads on even the smallest financial decisions.

How much?

CPA fees vary widely. In some areas, an inexperienced CPA just starting out might charge as little as $15 an hour for basic bookkeeping services. By contrast, large accounting firms charge $100 per hour and up—way up—for most services. If you’re the typical small-business owner using a local or regional CPA firm, you can expect to pay between $50 and $100 per hour for most of the services your CPA will provide, such as statement preparation, tax work and consulting time.

Regardless of the CPA’s hourly rate, what you must remember is that a good CPA will save you money by helping you comply with certain laws and regulations; helping you become more efficient in your operation; and with good tax planning, helping you pay less to Uncle Sam.

More is more

Obviously, the more work you need done, the more you’ll pay. The level of professional expenses you pay a CPA will also vary significantly according to the financial statements you require. CPAs can provide three levels of financial statements—compilation, review and audit.

Compilation—The CPA basically takes your accounting information and puts it into a financial statement format. The CPA performs no verifications and expresses no opinion as to the accuracy of the information. As a result, this is the least costly of the three.

Review—The CPA not only puts your accounting information into a financial statement format, but also performs certain analytical tests—for instance, checking inventory turns and monthly sales cycles against historical and industry standards. As the next level of financial statement, the review will cost a bit more than a compilation.

Audited Financial Statement—This is the version that requires the CPA’s closest scrutiny. And it’s the one you see in large public companies’ annual reports. The financial information is not only put into an acceptable format, but both the information and accounting process must conform with what is known as “generally accepted accounting principles.” As a result, the audited financial statement costs at least twice as much as a review.

For most small-business owners, a financial statement at the compilation or review level will suffice. However, an audited statement may be required by a potential investor who is considering injecting capital into your business, or by a bank as a condition for extending large amounts ($1 million or more) of credit.

Even so, there are a couple of important steps you can take to hold accounting fees in line. Before you hire the CPA, ask for a proposal letter breaking out specific services and their respective proposed fees. Also ask for a fee schedule for specialist services such as tax planning.

Once you hire a CPA, you can save money by doing routine bookkeeping tasks in-house, and by maintaining a good system to keep your financial records well organized. If you show up at your CPA’s office every reporting period with a box full of checking account statements and cash register tapes in no particular order, you’ll pay much more in fees than if you organize the information first. Along the same lines, make sure that your in-house financial record-keeping system is adequate, and compatible with that of your CPA.

You also can ensure that your CPA fees are in line by going out to bid from time to time. If you do seek competitive bids, be sure you compare the proverbial apples to apples. But don’t change CPAs just to save a relatively insignificant amount of money. The time and fees you spend re-educating a new CPA will more than eat up any small economizing. And banks and investors frown on businesses that frequently change CPAs.

Finally, you might save money on fees by changing your fiscal year end. If you currently use a calendar year end to close out your year, your statements are being prepared during an accounting firm’s busiest time. Instead, consider changing your fiscal year end to June 30th or September 30th, when things are generally slower for accountants. Your CPA is likely to give you a discounted fee schedule if you do.

Adding It Up—Choosing the right CPA is one of the most important business decisions you will ever make. Whether you’re looking for a CPA for the first time or you’ve decided it’s time to make a switch, take your time to find the one who will give you the appropriate level of service and expertise you need.


J. Tol Broome, Jr.

J. Tol Broome Jr. is a freelance writer based in Greensboro, N.C. He can be reached by e-mail at .

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