Does My Business Need an Accountant?
by Kristina McMenamin, on Jul 21, 2017
Welcome to Part 2 of our “Does my business need…” series, where we break through financial gobbledigook to help you figure out your business’s needs. Jargon out, simplicity in.
What does an accountant do?
An accountant digests and presents the information that a bookkeeper enters into the accounting system. Their role is less transactional than a bookkeeper’s and more interpretive. Accountants help management make business decisions; they compile financial statements like income statements, balance sheets, and cash flows; assist with tax returns; and enter more complex journal entries (deferred revenue, accrued expenses, etc). While a bookkeeper generates data, an accountant helps you understand and turn that data into action.
When do I need an accountant?
You need an accountant when:
- The information your bookkeeper provides isn’t enough to help you make decisions about your business
- You are growing quickly and making a lot of money, but still having having trouble paying your rent
- You’re entering your busiest time of year and need someone to actively manage your cash flow
- Tax season comes around and you need someone to prepare and file your taxes
- You’re thinking of making big purchases and want to know the tax implications
Let's say you own a construction company and you are looking to purchase new equipment. An accountant can help you identify the tax implications of purchasing new equipment and help you evaluate when the best time to purchase might be. If, for example, you had a great year and are looking to reduce your tax liability, it might make sense to purchase a new piece of machinery before year-end to take advantage of special tax rules regarding depreciating assets. An accountant can help identify these tax saving opportunities, helping your company take advantage of existing tax laws.
Frequently asked questions about accounting
Do I need a bookkeeper and an accountant and what’s the difference between the two?
It depends on how much financial insight you’re looking for and how complicated your financials are. Read our blog post, What Does Your Business Need - A Bookkeeper, or an Accountant?, for more info.
What’s the difference between an accountant, a CPA, and a tax preparer?
Accountants record and report business and financial transactions, following specific rules and regulations. Typically accountants do have an accounting-related degree. However, anyone who performs these functions can call themselves an accountant.
CPAs are accountants who have passed a licensing examination in a state. All CPAs are accountants, but not all accountants are CPAs.
Additionally, tax preparers do not need to be accountants or CPAs. Read our blog post, What Is The Difference Between An Accountant And a Tax Preparer?, to learn more.
How do I know my accountant is doing a good job?
Nothing is late, sales tax is being paid on time, taxes are being filed accurately, and you’re not getting IRS notices. A good accountant is proactive so you are receiving information regularly without having to ask for it. You know how your business is doing because they are keeping you informed and together you’re figuring out how to use the financial information for your business’s benefit.
If all your accountant is doing is maintaining your books, you’re likely paying accountant prices for bookkeeping services.
Should I pay a retainer for my accountant?
Would you pay a retainer for your doctor?
You shouldn’t have to pay the same price month-over-month, regardless of how much you’re using your accountant’s services. Pay for the support you use when you use it by paying your accountant on an hourly basis.