Many business plans from hopeful small business owners and new entrepreneurs come across the desk of Kyle Schneck, chief lending officer at St. Mary’s Bank in Manchester. One of the things he examines closely is the team of professionals that surround the applicant.
“A lot of entrepreneurs jump into business thinking they are going to make money on day one,” says Schneck. “But the truth is it’s very challenging to build a business, so we want to be sure that the business owner really has gone through and gotten some objective advice, and that they have ongoing support. Who is your attorney? Who are the industry mentors helping you through this? Who is your accountant?”
That last one can be critical, not only to the success of a loan application but to the success of the business at every step, from startup to growing pains to succession planning. Small business owners need a good accountant on their team.
John Forgiel is a certified public accountant (CPA) who operates a private practice in Bradford and works for Supporting Strategies, a business finance consulting firm based in Boston. He says many startups or small companies make the mistake of thinking all they need an accountant for is tax preparation.
“The thing we run into all the time is new clients who will tell you, ‘I’m using QuickBooks or some kind of accounting system and my books are good,’ but I’m not so sure they know if their books are good or not,” says Forgiel. “Are they reconciling their bank accounts? Are they classifying their transactions properly? If they plan to hand that stuff to an accountant to do their taxes, that accountant is at least going to want to understand what’s behind the numbers before they sign their name to a tax return.”
Bookkeepers, Accountants and CPAs
Garrett Kelly, a CPA and senior tax manager at the Merrimack offices of national accounting and consulting firm Marcum, says new business owners in particular need to understand that bookkeepers, accountants and CPAs all bring something different to the table.
“A bookkeeper may be able to do some reporting in multiple ways, but an accountant can tell you the tax impacts, the long-term impacts of a decision. It’s more consultative,” says Kelly.
“CPAs work with hundreds of businesses a year, and so they get more insight into how similar businesses in the community are doing,” he says. “If there are changes in the economy, we can see it within our client base. We can see a lot of similarities or trends. If someone has a question about acquiring a new line of business, for example, we might have three other clients in the firm that have explored that, done that, maybe succeeded at it.”
An accountant is typically an unlicensed professional with a bachelor’s degree in accounting, while a CPA has earned a license through education, experience and examination. In addition to a B.A. in accounting, CPA candidates must pass the four-part Certified Public Accountants examination, including a portion on ethics, and document at least one year of experience working as an accountant under the supervision of a licensed CPA.
“There are very good accountants out there who don’t have their CPA,” says Kelly. “But having the CPA does provide folks with a level of trust and comfort that you went through the vigorous testing and hours of study and classes to achieve that, and so I think that I’ve noticed there is a difference. But in general, I’ve met some CPAs who don’t have the critical thinking skills, and I’ve met accountants without a CPA license who have great critical thinking skills and grasp of the industry or market that a business owner is considering.”
Business Plan Insights
One of the most important and yet most often overlooked aspects of a business plan is the extent to which it addresses all the potential scenarios that might arise, good or bad, also known as contingency planning, and that’s where an accountant is particularly helpful.
“Bookkeeping is traditionally going to be monthly reconciliations and month-end close of financials. The bookkeepers are in the bookkeeping software day-to-day, assisting with accounts receivable, accounts payable, and that’s the foundation. That’s the good information,” says Kelly. “The CPA adds value by interpreting that information and helping clients with projects or business decisions, based on those accurate reports that the bookkeeper has prepared.”
Providing Expert Insights
In addition to short-term and long-term business planning, you should expect a CPA to identify tax credits or incentives; ensure that financial statements comply with “Generally Accepted Accounting Principles,” and assist in hiring other financial experts like an in-house accountant on a payroll or consultant basis.
Accounting expertise also comes into play in the early stages of business formation, when owners must decide whether to incorporate as a Limited Liability Company, S-Corp or any of the other options made available by the IRS; or if a business needs an audited financial statement for a bank or bonding company. Accountants can also assist with succession planning.
Business owners can tap into a range of accounting services and can decide to have limited contact with their CPA or accountant or daily consultations depending on their needs. “A firm or individual client can decide I’m just going to do tax returns or go all the way to really having me as part of their team and helping them make decisions,” says Kelly, “It’s a huge spectrum.”
As businesses grow, they tend to need the services of a larger firm with diversified expertise. “Sometimes the best thing a sole proprietor (CPA) can do for a client is to refer them to a bigger organization that has more resources,” says Forgiel. “We have limitations. We can’t know everything and do everything.”
And while technical expertise is important, don’t underrate soft skills. “I personally think there’s a lot of value in someone who is willing to sit down in person with you and discuss things face-to-face. It creates more trust when you can have sit-down meetings and identify needs you wouldn’t identify in a zoom meeting or email,” Kelly says.