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10 Pros And Cons Of Hiring A CPA For Your Small Business

If you are running a small business with a limited budget hiring a CPA might sound like a good move, but a big decision. Some pros and cons must be considered to maximize the benefits of such a service or accomplishing it yourself.


Shira Mizrachi
Shira Mizrachi
July 15, 2022

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Running a business can be quite demanding when you have to do most of the work by yourself. At some point, it may be a good idea to consider paying someone to help you out with some of these tasks. 

Of course, you could hire permanent employees, but some of these tasks don’t require full-time staff. Filing your taxes, for instance, is something that can be done annually. As such, you can hire a certified public accountant (CPA) to file returns for your small business. 

Since hiring a CPA can add to the overheads, many people are skeptical of choosing this option, especially when they think they have the necessary financial knowledge to complete the task. 

If you’re not sure whether to hire a CPA after bringing your business idea to life, this article is for you. Here, you’ll learn all the pros and cons of paying these experts for their services. You'll also get to understand the most ideal scenarios when you should consider these accounting services as an entrepreneur. 

Who is a Certified Public Accountant (CPA)?

A CPA is a professional licensed to carry out accounting for individuals and businesses. The license is issued to a qualified accountant by the state’s Board of Accountancy. Getting a license requires passing a few strict requirements. For starters, applicants must have at least a bachelor’s degree in business administration, after that, one must pass the Uniform CPA exam and have at least 2-years of experience in public accounting. 

Given the requirements mentioned above, you can be sure that you're getting somebody capable when you hire yourself a reputable CPA firm. However, that’s not to say all CPAs you come across are ideal for the job. There are still a few factors that you should keep in mind before making your final decision, such as the following:

Consider your field

Many CPAs like to specialize in a given field while others can handle accounting problems across various industries. Inasmuch as both are qualified to file your returns, it would be a prudent idea to hire someone who understands all the ins and outs of your field. This way, they’ll know how to combine both their accounting knowledge and other industry-specific factors. 

Also, working with a CPA that has enough experience in the field your company’s in means they’ll be able to give you unsolicited advice where necessary. In the long run, you’ll be able to strengthen your financial side of things for the betterment of your business. 

Experience

The number of years a CPA has been in business is very crucial to the quality of accounting services they’ll be able to offer. Of course, there are many young and upcoming CPAs who can do the job, but experience plays a huge role, especially if your business finances are somewhat complicated. 

It's also important to consider hiring someone whose work experience meets your needs. For instance, if you’re planning to sell your business in the next five to ten years, you should make sure you give the job to a professional who has worked with similar clients before.

Compensation

There are different payment methods adopted by CPAs, so you should never assume that they all use the same formula. Some charge hourly rates for both consultation and accounting services. In such cases, the amount of work required throughout the filing process will determine how much you’re going to pay at the end of the day. 

Others will charge you a flat rate, regardless of what happens during the tax-filing process. You'll also see CPAs charging based upon the percentage of your company’s tax return. So, make sure you understand all these and choose a professional whose compensation method is favorable to you. 

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	a trackpad of a desktop computer displaying real-time  charts.

What are the Pros and Cons of Hiring a CPA

Before you decide to pay a professional to file your small business taxes, it’s important to understand what you’re getting into. What benefits will you enjoy and what are the disadvantages of investing in these services?  Read on to learn more.

“Remember, even the slightest of mistakes can land you in trouble when it comes to filing returns”

The Pros of Hiring a CPA

1. CPAs are familiar with both small business tax law as well as local, state and federal fax reporting regulations

The first benefit of hiring a certified public accountant is the fact that they understand exactly what they’re doing. Unlike with personal finances, there are a lot of technicalities that apply to the financial side of your small business. There are a lot of things that need to be considered before finalizing the tax-filing process, and a CPA can handle financial data to make the process easier for your company. 

Remember, even the slightest of mistakes can land you in trouble when it comes to filing returns. For instance, placing a decimal point in the wrong place in your figures will give a whole different meaning and that could easily attract the unwanted attention of the IRS. 

Given their experience in the accounting field, a CPA will ensure that all the records presented to the relevant financial authorities are error-free. They'll counter check every detail to make sure that the numbers add up as expected so that you don’t land in trouble.

2. They save you time

You'll want to maximize your company’s operations every minute, and the only way you can do that is by outsourcing some of your work. Hiring a CPA, for one, will reduce the number of tasks on your to-do list. They'll handle tax-related and accounting tasks, leaving you to work on other areas of your business.

Being able to offload some of your operations is great, especially if you’re still looking to expand your company to cover the needs of more customers. You can dedicate this time to improving your marketing strategies and developing new products for your target consumers without compromising other aspects of running your business.

3. They offer unsolicited advice

Managing multiple aspects of running a small business can be quite tricky, even for someone who has been in and around the business world for the longest time. Regardless of your experience, at some point you may need expert advice from a business coach or financial professional before making certain decisions. Given their financial knowledge and the fact that they’ve worked with many similar ventures, an experienced CPA will be able to offer such advice. 

For instance, if you’re struggling to determine a proper pricing structure for your current or new products, a good CPA will analyze everything and recommend the best strategy. Similarly, if you’re planning to sell your business in the near future, their advice will come in handy before you make any final decision.

4. They simplify your financial analysis

Analyzing the finances of your business from time to time gives you an idea of where you stand in the market. However, this task can be quite demanding and too technical for someone who doesn’t have enough financial background. A certified public accountant has all it takes to analyze every bit of your business performance.

They'll provide you with a simplified report of where the finances of your business stand. This way, you’ll know how your expenses and revenue compare to each other, and what you can do to increase your overall profits. Your CPA should also be able to help you manage these aspects of your business to improve performance. 

5. Easy access to accounting services

As a small business, your focus should be on building your brand and expanding the customer base. You can only achieve this when your operational costs are sufficiently optimized, and one way of doing that is by trying not to hire too many people for multiple jobs. Apart from filing taxes, your business will also likely have accounting needs, and a CPA firm can offer both.

Most certified public accountants have accountancy firms that also employ bookkeepers. As such, you’re basically paying for both tax-filing and bookkeeping services. A benefit of having these tasks handled by people from the same form is that they can coordinate more seamlessly as a team, working hand in hand to come up with the best tax strategy for your business. 

Of course, hiring a CPA from such firms doesn’t mean you must pay for both services. Opting for either of their products is okay, but if you’re looking for both, then getting them from the same place is a convenient option. In fact, that could also save you some money since you may be eligible for discounts on service bundles. 

“As a small business, every penny matters. You need to make sure that whomever you hire is within your budget”

The cons of hiring a CPA

Even with all the benefits that come with their services, it’s still important to be mindful of the challenges you might face as an entrepreneur. So, what are the cons of paying a CPA to file your returns or offer accounting services?

1. Adds an extra burden to your funds

As a small business, every penny matters in your operations. You need to make sure that whatever you purchase or whomever you hire is within your budget. Filing returns for your business is a legal requirement, so you’re usually better off paying a professional to handle this task. However, you have to remember that fees paid to your CPA add more burden to your already-stretched budget. 

It's also worth noting that CPAs charge more for their services than other specialists like bookkeepers. The fact that they’ve gone through rigorous training before getting their licenses may be one of the reasons why CPA fees are comparably high. 

Given these extra costs, many small business owners decide to give the job to their existing employees. You can also choose to do the same unless the services of a CPA are a necessity in your situation. Make sure you hire a CPA only when it’s the only viable option to avoid spending too much on a service that you could have found somewhere else at a cheaper price. More on these later in the article!

2. It’s easy to lose touch

When your in-house bookkeepers take on the accounting tasks, it’s easier for you to monitor the process and even follow through any recommendations. However, when you delegate these duties to an external accountancy firm, it’s easy for you to lose touch with the finances of your company. Knowing that an expert is handling your taxes may encourage you to take your foot off the pedal.

To avoid this scenario, it’s important to consider your relationship with the CPA as a partnership with both parties playing an active role. You need to reach out to the firm on a regular basis to make sure that everything is moving smoothly. 

3. You might need to queue for their services

CPA firms are quite busy as they handle many clients every day. Depending on the company, the number of those waiting in line could be in the hundreds. As such, you might need to wait for some time before your tax return is done. If you don’t contact your CPA early enough, this process could run until your deadline day.

Of course, the best way to avoid such is by ensuring that you reach out to these professionals well before your official deadlines. In the event that you don’t file your returns before the stated date, your CPA may file both a tax extension and the returns for your business. 

4. Missed learning opportunity

Outsourcing tax return services to an external firm denies you and your staff a chance to learn more about the whole process. While it does save you time and money, if you don’t understand the deductions that apply to you, then the whole idea may not be ideal for you. Since your in-house accountants will be focused on other tasks, they’ll not have time to learn one or two things from the CPA. In the long run, you might end up paying for the services of these professionals every year when you have reputable staff members who can be trained to do the tasks instead. 

5. No guarantee of a mistake-free service

Inasmuch as CPAs are well conversant with their trade, they are still human. As such, there is no guarantee against mistakes even after you’ve spent a fortune paying for their services. Of course, everyone makes mistakes at some point and it’s not much of a big deal if it can be corrected quickly. 

However, if it’s something huge, it can be disastrous in the long run. The fact that you’ve entrusted them with your most crucial data means any significant mistake in their accounting process could have huge financial repercussions for your company.

Take, for example, a scenario where the CPA is exporting your company’s expense data to their accounting software. Unfortunately, one crucial piece of information isn’t transferred. This is a common mistake that can be corrected by simply going through the transfer process again and ensuring that everything is sent. 

But if the CPA doesn’t pick up on this issue, you could easily miss out on an important deduction when it’s time to file your returns. As a consequence, your tax liability will rise higher than it should be. So, as you plan to hire a CPA for the job, be ready to deal with such problems once in a while. 

A female accountant types on a calculator while checking on a printed sheet of paper she holds in her
	hand.

When to hire a CPA

Now that you understand the advantages and disadvantages of investing in CPA services, when is the right time to hire these professionals? The fact that their services are expensive means you need to pay for them only when you need them. Also, most CPAs prefer to act as consultants and part-time accountants rather than full-time employees. 

That said, here are some of the most ideal situations when you might need to hire a CPA firm for your business:

When filing returns

Another time to opt for part-time CPA services is when you're filing your small business returns. This is actually one of the main reasons most entrepreneurs go for outsourced accounting services. It's worth noting that business taxes are very different from personal taxes. 

So, even if you have an idea of how to file personal returns, your business finances will give you a whole new challenge. It becomes even more challenging when you’re running more than one branch of your business simultaneously.  Hiring a third party to take care of the whole tax-filing process will save you time and headaches.

During special financial circumstances

Apart from helping you file your business returns; a CPA can also represent you when facing the IRS. This can be when you want the IRS to clarify some parts of your returns or have a case to answer regarding the same. 

Have you received a letter from the IRS about an upcoming auditing process? Even the most experienced entrepreneurs may find this situation quite intimidating and that’s why they always hire a CPA to represent them. You can do the same to ensure that the whole auditing process is seamless. 

Another special circumstance that may prompt you to hire a CPA is when you’re thinking of taking a loan to expand your small business. Given their time in the field, these professionals understand the challenges of your business and the best course of action that can help resolve the issues you have. 

They'll also advise you on the ideal amount you should borrow for your small business and how the same will impact on your business finances in the long run. Going into debt knowing what to expect in the future is very important because you’ll be able to properly plan ahead. 

Right before you start your business

Are you planning to start a new business? For you to be successful, you'll need to be well prepared financially and have a proper strategy in place. However, it can be quite tricky to come up with a functional plan if your finances are not in order. 

That's where a CPA comes in. This accounting expert will help you set up your start-up business properly. They'll offer assistance with regards to your business structure. If you're not sure which structure fits your goals, a CPA will advise you on the best options. 

They'll also help you choose the ideal accounting practice, keeping in mind your needs and budget. The recommendations they'll give here will range from the main procedures you should consider to the best accounting software to purchase. Hiring CPA services during these early stages of your business will help you avoid unnecessary mistakes that could hinder your growth.

When you’re anticipating a huge change in your business

If you’re anticipating or already going through significant operational and structural changes, you’ll need an expert to guide you through the process. For instance, if you’re planning a merger, it’d be a good idea to have a CPA beside you. This way, you can consult them on important decisions and they’ll warn you in case of any irregularities in the deal.

The same applies when you’re looking to close or sell your business. The CPA will help analyze all the assets and your financial records before you start looking for a buyer. Doing this will give you an idea of how much your business is worth and what you should accept as the minimum purchase price. 

Conclusion

Hiring a CPA is a good move and a major decision, especially if you’re running a small business with a limited budget. The best way to know which decision is good for you is by taking a look at where your business stands and the scope of your needs. If none of your staff members have the right skills to complete the tax returns process, then hiring a CPA as a specialist is your best bet. However, you should also remember that hiring a CPA might cause you to miss an opportunity to learn more about business tax returns. Weigh these pros and cons, and see what works for you.

If you’ve decided that hiring a CPA is important, you should only go for their services when you require them the most. This way, you’ll be able to maximize their benefits and enjoy financial success as an entrepreneur. Some of the main situations when a part-time CPA should be on your list of required personnel are when starting your business, filing your returns, and during special circumstances. You should also consider the same when you’re planning to either merge, close or sell the company.


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