Hiring a Certified Public Accountant (CPA) offers tremendous benefits for business owners, freelancers, and other individuals with complex financial needs. CPAs bring expertise in tax law, financial planning, compliance, and other valuable services. We’ll explore these benefits in this guide and explain how a CPA’s services go beyond what general accountants can offer.
What is a CPA?
Definition and Role of a CPA
First, let’s define what a Certified Public Accountant, or CPA, is. This licensed financial professional has extensive knowledge of tax laws, a deep understanding of accounting principles, and the ability to help lay out financial strategies for their clients.
A CPA’s role will very often extend beyond just tax filing assistance. They also can act as strategic financial advisors to their clients by assisting them in making smart business decisions, handling various regulatory compliance issues (and the ongoing changes to such regulations), and helping them plan ahead for long-term growth. All are particularly valuable as CPA expertise helps clients who are facing more complex financial situations.
In the United States, the only licensing qualification for auditing and accounting is the CPA credential. Additionally, CPAs must pass what is called the Uniform CPA Exam, which is a thorough check on accounting skills and knowledge that is directly related to a newly licensed CPA’s work. CPAs must also fulfill their state-specific mandates and keep up their license by meeting various continuing education requirements. This process and oversight not only gives CPAs high-quality qualifications but also helps to protect the public’s interest by making sure only such professionals become licensed.
CPA vs. Accountant: Key Differences
While both CPAs and more general accountants handle financial matters, CPAs have distinct qualifications and responsibilities, as mentioned above. Unlike an accountant who may only have a bachelor’s degree in accounting or finance, a CPA must undergo additional training, pass rigorous tests, gain specific work experience, and meet licensing requirements. To get specific, key differences between an accountant and a CPA include:
- Ethical Standards: CPAs are bound by a fiduciary duty (much like some certified financial planners) to act in the best interest of clients, while non-CPA accountants are not.
- IRS Representation: Interestingly, CPAs can represent clients when negotiating with the Internal Revenue Service (IRS), yet non-CPA accountants are not afforded that privilege. These situations can include audits and appeals, making them especially valuable during any tax disputes a client may have with the government.
- Education, Certification, and Continuing Ed: CPAs need to pass the Uniform CPA Exam to meet state-specific experience needs and stay up to date on tax laws and changes.
Benefits of Hiring a CPA
Expertise in Business Taxes
As we often discuss in our blogs, tax regulations can be challenging to navigate for more complex business entities. A key role for CPAs is an understanding and specialization in business tax laws (particularly as related to a certain industry type, say financial services or in healthcare). These ensure clients are being compliant and, of course, to minimize any risk for errors.
Time Savings and Increased Efficiency
We also often discuss how, by using outside accounting and tax counsel, businesses can benefit from time savings and reducing internal resource workloads. By streamlining these financial processes, be it bookkeeping, financial documentation (reporting), or tax preparation and filing, businesses benefit. By handling these tasks, CPAs can create the space that business owners need to focus on their firm’s core operations. Also, having an “outsider perspective,” CPAs can help identify red flags and missed financial opportunities for a company.
Take Pulse Network, a rapidly growing provider of outpatient care facilities across several southern states. With the company working to expand, managing complex financial situations across multiple locations (for Florida, Georgia, and Mississippi), each with its own set of regulatory requirements, has become a challenge. They saw the need to turn to outside assistance.
First, by delegating tax preparation to expert CPAs, Pulse significantly lowered their own finance team’s work and stress. Instead, these managers could focus on the financial factors that affect their facility expansion program and even their customer service improvement initiatives.
With CPAs pouring over the numbers, they were able to also better identify inefficiencies in the company’s financial processes and find places for savings. For example, Pulse’s supplier contracts were outdated and overpriced. This was leading to wasteful spending in some of the company’s earlier (and underperforming) locations. Also, as the company was building its community health outreach programs from scratch, it was overlooking important tax rebates and other government incentives for credits for new medical equipment. The CPAs identified these omissions.
Improved Financial Accuracy and Compliance
Another advantage is that companies benefit from CPAs who produce more accurate financial statements such as income statements and cash flow reports. These documents are essential for making informed business decisions. If a business such as a growing one like Pulse cannot project its cash flow, financial troubles may ensue. These projections will also be incorporated into other types of forecasts, such as tax projections. Their knowledge of regulatory compliance also protects clients from potential legal or financial penalties.
CPA Services
Financial Planning and Strategy
CPAs assist with financial planning, helping businesses develop effective strategies for sustainability and growth. Their expertise in financial modeling, forecasting, and budgeting aids in identifying cost-saving opportunities and streamlining financial operations.
For instance, a biotech startup company in the Tampa, Florida, area is focusing on developing cutting-edge treatments for rare diseases; it’s facing unique challenges navigating the stages of initial funding, as well as research and development cost projections. Here’s a case in which a qualified CPA could be instrumental during these early significant periods, as well as subsequent events such as mergers and acquisitions. They are even getting help in their firm’s investor relations planning, something necessary when the startup goes public. Such expertise in financial modeling and projections is invaluable in making informed decisions that will align with the company’s long-term strategic goals.
Tax Planning and Preparation
Tax planning is integral to a CPA’s services. In the case of the biotech startup, during tax time, a CPA’s understanding of available credits for the aforementioned R&D can benefit the company with substantial savings, giving them the financial resources to funnel back into their research. They can help clients navigate complex tax regulations and, importantly, represent clients during IRS audits and handle all related correspondence.
When to Hire a CPA
Before Starting a Business, Tax Time and More
For some individuals and even smaller businesses, handling accounting tasks on their own may make sense. However, for many others, particularly people with more complex accounting needs and businesses with complicated financial situations, hiring a CPA firm is almost always the right move. For instance, when launching a business, a CPA’s help will make for greater tax efficiency and help guide the initial filings and financial planning. They are necessary for accurate returns, compliance with regulations, and, most importantly, audits. They can offer guidance on budgeting and forecasting, as well as various cost-saving strategies that any individual or business would clearly want. This expertise can even extend to more significant financial events, like when a merger or acquisition occurs. CPAs can handle the tax implications and also conduct necessary upfront due diligence on the entities involved.
Take Midtown Diagnostics & Imaging, a growing set of facilities that offer advanced medical imaging services. As they work hard to expand their operations and grow the business (mostly through acquisitions to the point where they are nearing 100 employees), the financial complexities they face are also growing. Hiring a CPA could help the center manage its increased financial activities, provide guidance on equipment purchases and facility expansions, and handle the intricacies (and often headaches) of billing insurance companies.
As tax regulations change when a company grows to such a size, accounting representation is important. For instance, employee benefit plans a company offers may need to be audited when the staff grows to 100 employees (or possibly 120 employees if a plan hasn’t been previously reviewed). There are deadlines, extension possibilities, specific forms, and other issues at play.
Finding and Hiring a CPA
Online Search and Directories
So how does one even go about hiring a qualified and reputable accounting firm that will learn the intricate details of one’s personal or business financial situation? Often it starts with a personal connection. Recommendations from friends, family, or other business professionals (that you trust) can be one of the best methods. When you learn firsthand about a CPA firm being reliable and having the right expertise for your situation, it will be easier to find a trusted resource. Some will ask their personal financial advisor, some will ask their lawyer, and so on. Word-of-mouth often works well.
If that’s not an option, turning to professional organizations that list directories of accounting firms is another logical step. For example, the American Institute of CPAs (AICPA) or specific state CPA groups (or societies) can also be resources and convenient as they often allow filtering by location and by specialty.
Once a firm is identified, verify credentials. The IRS offers a simple search tool on its website to ensure a person or firm employee is actually a certified public accountant. And like many things today, checking online reviews can also be a helpful step. Feel free to request references from the company to review the experiences of current or former clients to make sure it’s a good fit.
Industry-Specific Considerations
Compliance Requirements and Regulations
As you wouldn’t go to an entertainment attorney when seeking counsel for a divorce, going to a CPA with limited experience in your field doesn’t make sense either. Of course, there are many firms that can handle a wide range of tax and accounting situations across various industries, while some specialize. That said, different industries can have different compliance requirements.
Take healthcare, for instance. Here’s an example in which a medium-sized assisted living facility is providing residential care for the elderly. They are looking to expand their services to include specialized memory care units and have had issues getting a handle on changes in the regulatory environments in which they are operating. As they were initially and solely located in the northern Florida region, trying to expand into the suburban areas outside of Atlanta has been challenging. As they planned this expansion, managing the financial aspects became increasingly complex as it involved new construction costs, hiring additional specialized staff, and adjusting to various and differing billing models for their services. A CPA firm for them became invaluable. The accountants, for instance, were particularly useful in overseeing the financial planning and loan applications needed. All financial actions were compliant with healthcare regulations and deemed “economically sound” as well.
Working with a CPA: A Few Basic Tips
First and foremost, having clear communication with your CPA (or CPA firm) is needed. It’s the basis of trust in such an important relationship. You’ll have to outline your goals and make sure that they deeply understand your needs. Like any relationship (both personal and professional), having clear expectations on both sides of the table will result in better outcomes.
Depending on the complexity of your needs, having somewhat regular meetings and updates with an accounting firm may be necessary. Things change, and reporting progress and addressing any issues as they arise will prevent troubles down the road. Be proactive with your CPA and learn all that they can offer you – it will often go much further than just handling a tax return.
For instance, CPAs often provide long-term strategic planning, something that can be quite invaluable for companies that need help with budgets, forecasts, and other financial management actions. Businesses need stability and growth, and as your firm changes, your tax and other accounting needs will change as well.
Conclusion: The Indispensable Role of CPAs
We think it’s needless to say that depending on the circumstances, the expertise of a Certified Public Accountant is truly indispensable. By enlisting the services of these professionals (and taking into consideration the ideas and tips presented in this article), individuals and companies can streamline tax accounting processes, save money, and gather insights for both present and future needs.
