You most likely didn’t start your business because you wanted to loose money, or because you simply enjoy the headaches of being a small business owner. Chances are you started your business to make money (profits) doing something you enjoy doing. In order to measure your performance, you need to know where you are in that process. Accounting and finance are a close second to sales in terms of importance to your business. Yes, you first must have sales, but then very quickly you must book the sale, related expenses and ultimately keep your books in order to know what assets you have, taxes you owe, and profits you make. The more you have a handle on this the more money you will make, plain and simple.
Every business owner has to make the decision about which bookkeeping program they want to use, whether they can set up their chart of accounts themselves and lastly whether they can or should calculate their various taxes due. Some businesses find it easier and more economical to farm out their bookkeeping to a bookkeeper (non-licensed) or a CPA firm (licensed). Others prefer to have a bookkeeping firm assist them in setting up their chart of accounts and getting started, then being a resource to them on a time and expense basis.
There are several benchmarks for producing accounting documents that I believe should be etched in stone. The are:
- Every business should be able to produce an Accounts Receivable (A/R) aging that is 100% accurate on a daily or at least weekly basis. This is where collections come in. There should be someone in the business who reviews A/R and sets credit limit. It should be the first report run every day and it should be regular collection calls to keep A/R as clean as possible.
- Businesses should be able to produce an accounts payable (A/P) aging that is 100% accurate at least weekly. All entries should be entered before the month end close, so that A/P.
- Most all businesses should be able to prepare an in house set of financials by the 15th of each month for the prior month. Ideally, these internally prepared statements should be available to management by the 5th of the month following month end closing. This gives management the ability to react to changes that have recently occurred.
A business can meet these benchmarks a number of different ways. They can do all their own in house bookkeeping, reconcile their own bank statements, and use their CPA as a resource on an hourly fee basis to help them when they have a tax or accounting question. The CPA nearly always prepares the annual tax returns and often prepares the quarterly IRS 941 filings. However, an accounting savvy can easily prepare these and other regular and routine regulatory tax forms once understand where to get the information from. My preference is this approach. This helps keep the accounting costs down, while still having access to a licensed CPA who can give you the best accounting advice possible.
Since I have worked with so many CPAs over the years, I have mentally divided them into two categories: 1) tax preparers, 2) tax preparers who can give strong business advice in their field of expertise related to running your business. I prefer the second over the first. In my experience, the CPAs that fall in the category of tax preparer may be very good at preparing your taxes and understanding your tax code, yet they may not understand how a banker uses your financial statements, nor might they understand how to advice you on restructuring your debt or making changes to your financial structure that will benefit you. Believe it or not, the second category of CPAs is very hard to find.
The best way to find a CPA whose skills and business styles match yours is to ask your other trusted advisors who they might recommend. Make a list of what kind of service you believe you want from your accountant and discuss it with your attorney, banker, and insurance professional. Explain to them that you are looking for the kind of accountant who could act as an hourly paid CFO.
Good CFOs are normally employees but can easily be outsource and available on either a temporary basis or part time basis. A good CPA is one who has spent some time either acting as a CFO for a company, has worked in business in an accounting or other management position, or who has been an “interim CFO.” Another good way to find an accountant who is good for your business is to ask business peers. Hopefully this article has given some food for thought and will help you determine what is most important to the success of your business.