Many small business owners talk with their accountant (or try to find one) only at tax time. Those who do, however, are missing the opportunity to develop a real relationship with one of the most important business advisors that you will have. Accountants have a large range of expertise that will be crucial to you at every stage of your business:
- For those just starting a business, your accountant, along with your attorney, can advise you on the optimal business structure (Corporation, S-Corp, LLC, etc.) for your particular set of circumstances. This is the time to interview several accountants to pick one whose style and personality work with yours. It is important to develop a relationship with your accountant so that they are aware of your goals and issues, as well as the operations of your business.
- When choosing an accountant make sure that they are ready to think strategically about your business and advise you, rather than just “crunching numbers”. It is a good idea to make sure that your accountant is a Certified Public Accountant (CPA), which means that they have passed certification exams and required continuing education to keep up-to –date with the pertinent laws and regulations. Communication style and personality are also important factors to consider, because you want your accountant to be an easy-to-work-with proactive partner in your business.
- A good accountant will help you set up your books and accounting systems so that you will have accurate records from the beginning of your business. No matter how small your business, your business records and bank accounts should be separate from your personal accounts. Whether your accountant offers bookkeeping services, recommends a qualified bookkeeper, or trains you to maintain your own books, you should at least have a periodic check to make sure that all is in order. This should not wait until tax time, because then it is often too late to fix errors that should have been caught and corrected during the year.
- Your accountant can help you to run and understand important decision-making reports such as CashFlow statements and Profit and Loss reports. These are crucial for your own purposes in understanding your business, meeting your benchmarks and controlling costs while you are getting there. Failure to analyze your financial statements in a way that you completely understand means that won’t know as much as you should about how your business is doing. Accurate reports are also needed when applying for a business loan.
- Once you grow from a one-person business, it is crucial to have your accountant who understands the difference between an employee and an independent contractor, as defined and strictly enforced by the IRS. The accountant will ensure that all of the required forms are filed and withholdings made in accordance with the federal and state laws, and that W2 and 1099 forms are sent to the proper people at the proper times. This is one of the reasons why it is so important to deal with a local accountant. Employees who work in your Virginia business but who live in Maryland or DC have different withholding, and there may be different laws that apply. Using your brother-in-law accountant from Massachusetts may save you some money in the beginning, but can cost you significantly if you end up with back taxes and penalties because your accountant was unfamiliar with local laws.
- You should be talking with your accountant at tax time, even if you will be filing your taxes yourself. Do not wait until tax time to discuss what kinds of business expenses are deductible. Many of the laws and regulations about business deductions differ by state and change frequently. A good accountant will keep up-to-date on the changes and will know which ones apply to your business if you have developed the relationship and your accountant understands your business. There may be things that you can do to minimize your taxes before the end of the calendar year and to plan for next year’s growth – now is the time to talk with your accountant!
- You should meet with your accountant at any transition point in your business. Is it time to grow, in terms of space, products/services or employees? Do you see your company getting into government contracting, for which accurate accounting is absolutely crucial and which may require specialized accounting systems? Are you thinking of retiring or selling your business? An accountant who understands your business can help you. The accuracy of your books will help in the valuation of your business.
Choose your accountant well, and trust them to be an important partner in developing your small business. You want to run your daily business operations and make the “big plans”. You do not have time to try to learn all of the things that your accountant already knows! Get the most from this important business relationship.