THE BLOG
08/19/2014 02:34 pm ET Updated Oct 19, 2014

Fun Read: How to Work With an Accountant

Having a good accountant is essential for every business. To learn how to make the most out of this relationship, Fundastic interviewed Celina Lam, a CPA with three decades of experience working with small businesses in the San Francisco Bay Area. Here is the Q&A:

Why do business owners need an accountant?

Building a relationship with an accountant is essential for every business. They don't just file your tax return when it's due. They also advise you on matters like local business laws, corporate structure, business licenses, sales tax, payroll compliance, tax minimization strategies, etc. Accountants are like your CFO. They help with the financial planning for your business and make sure you are current on all government requirements.

How do business owners find an accountant?

First, I recommend that you use the same accountant for both business and personal purposes. Your accountant will be able to help you assess your overall financial health and plan accordingly. For example, if your spouse has a large bonus from her work this year, your accountant might recommend strategies to minimize your overall tax by minimizing business income, such as upgrading your business's software, acquiring equipment (for depreciation), or increasing profit sharing. This will be hard if your business accountant is different from your personal accountant.

For small business owners, I would suggest going for a smaller local CPA firm. Bigger firms typically charge higher hourly rates and they are less accessible to small businesses for consultation. You might not get the attention you need. You are also more likely to negotiate a low, fixed monthly price with a small firm. This will encourage you to really leverage their expertise and service. I think business owners can greatly benefit from talking to their accountant.

How do you know if the relationship is working?

Well, you are using a service so you want them to be responsive to your needs. On a personal level, you should feel you can comfortably ask any relevant questions and get good advice. You should also be in contact on a regular basis. Discuss with your accountant anything that involves money, such as cash flows, financing, tax, payroll, employee benefits, etc. There might be things that you are not aware of as a business owner. Experienced accountants typically have worked with hundreds of business owners throughout their careers. They have seen so many examples. It's great to tap into their knowledge base to help you make decisions.

On the other hand, if you can barely get the hang of your accountant, it's time to switch to a new firm.

How do business owners go about bookkeeping?

Bookkeeping is extremely important for businesses. It's the only way to know if your business is profitable. If you don't keep accurate records, how do you track income and expenses? I would also highly recommend accrual-based accounting (instead of cash-based accounting). I had a business owner tell me that he had a lot of cash in his bank account so he is doing well. But those were prepayments, and he still needed to deliver the products for the next 12 months. At that point in time, it looked like he had a lot of cash flow from the advance payments, but the expenses would be incurred over the next 12 months as the products are delivered. Using accrual-based accounting gives business owners a clearer picture of their profit and loss. Most business owners start with cash-based accounting, but I suggest business owners switch as soon as they can, assuming it's a superior financial model for their specific business.

As for the actual bookkeeping, it is important to understand the needs of your financial statements users. For example, your tax accountant may want you to keep the books on tax basis. You, the business owner, may want to categorize the income and expenses in a way that's easy to digest -- for you to see the profits and loss and make business decisions. If you plan to obtain financing from banks, investors, or go IPO, the books should be prepared according to GAAP (General Accepted Accounting Principles). Your accountant will ask you to clean up the books at least once a year during tax season. You can pay them to help clean up the books but you are ultimately responsible for keeping the books.

It's best you have an in-house bookkeeper to keep track of the business income and expenses. Preferably the bookkeeper will be you, the owner, or someone trustworthy who will stay with the company for a long time. Identify the person and have the person sit down with an accountant/professional bookkeeper to learn the basics and use software like Quickbooks to track the numbers. There are so many online tools you can use these days that connect to your bank accounts. It should be a pretty easy task if you do it regularly. Put in as many details as possible for each record. Trust me. This will help you in the future.

What should businesses do if they plan to get financing?

When you file your tax returns, your accountant is required to do some due diligence to have a reasonable belief that the records you provide him are accurate. Banks always require you to submit 3 years of personal/business tax returns to apply for a loan.

Depending on the size of the loan, your lender may ask you to provide compiled, reviewed or audited financial statements. Among the three, the audited financial statements provide the highest level of assurance that the transactions are recorded properly in your books from the accounting firm.

The CPA will look at your books and verify the records. So if you don't keep clean books or have the right records, it's going to be hard. The CPA will also contact your suppliers and customers, check inventories, etc. to make sure the transactions on your books did happen. These audited financial statements are quite expensive (at least a few thousand dollars) especially if you need the CPA firm to clean up your books. It is part of the transaction cost of getting a big loan. But when the time comes for getting these certified financial statements, well kept books are always a great asset.


Do you have a good accountant to work with you and your business right now? If not, it's time to find one!