Fiducial | We help your business grow and be profitable.

FEATURE STORY

Finding the Right Financial Professional

You’re running a small business that’s growing and now you’ve reached the point where it may be time to bring in some professional financial help. With all the financial service providers available today, over 2 million in the U.S. alone, understanding the difference and what they can bring to a small business can be confusing.

What’s in a name?

“There are four primary financial service providers.” says Van Ballantyne, EA, MBA, ATP, Fiducial Franchise owner in Greenland, NH. “The bookkeeper, accountant, certified public accountant and enrolled agent. Each professional brings a specific level of education and ability to the table and it’s up to the business owner to decide what type will be the best fit for his or her needs.”

Bookkeepers

Bookkeepers are perfect solution for managing the daily tasks of expenses in and out, keeping your accounts receivable and payable (general ledger), paying bills and processing weekly payroll. There are several types of bookkeepers as well, including the full-charge bookkeeper who can handle most small business accounting issues excluding tax preparation and auditing; a certified bookkeeper, has passed a national examination and has at least two years’ experience (for a listing of certified bookkeepers visit the American Institute of Professional Bookkeepers web site at www.aipb.org); a general bookkeeper, an assistant bookkeeper and freelancer. Each type of bookkeeper can assist with the day to day financial management duties and help to streamline and organize your business’ financial life.

A bookkeeper that maintains accurate records can:

• Help you attract investors.

• Give you a clear picture of your financial situation.

• Help you compare your budget vs. actual expenditures.

• Help you avoid cash-flow problems.

• Facilitate tax preparation and reduce the likelihood of an audit.

Accountants & CPAs

Contrary to popular belief, there are very few differences between accountants and CPAs with regard to daily and monthly activities. Both accountants and CPAs study the same coursework, but the CPA continues on to complete required ‘public’ accounting field hours and takes the final examination, whereas the accountant does not. CPAs are licensed by the state and can legally attest to the validity of a company’s financial statements and tax preparation. “Both accountants and CPAs can help in the preparation of tax returns,” Ballantyne explains. “It all depends on how your company is structured and if you have a board or shareholders who require audited financial reporting. If that’s the case, then a CPA is your best solution.”

CPA firms can leverage their relationship with small businesses and help them in outsourcing their higher level accounting projects. For example projects software integration requires process knowledge specific to a small business, IT skills, and accounting process standardization skills. While CPA firms may not have all the skills needed for these projects, they can act as a liaison between the small business owners and outsource providers in outsourcing and ensuring that the final records produced are valid.

There are three levels of audit:

• Compilation – This task is fairly inexpensive but gives no assurance of the numbers. For small business compilation can provide approximate information and help to verify if the business is on the right track.

• Review – Includes compilation and a higher level of review.

• Audit – Includes compilation, review and testing (verification) performed by the CPA to ensure the validity of the data. A CPA is the only financial provider that can legally perform an audit.

If the business is actively trading stocks or has a complicated tax preparation with required audited financials, then it definitely makes sense to utilize the expertise of a CPA.

The Enrolled Agent (EA)

The last financial professional is the Enrolled Agent. The EA is the only licensed representative by the U.S. Treasury. The history of the EA goes back to the Civil War when EAs were created by Congress to help settle claims against the U.S. government. For example, if a farmer claimed they lost 20 head of cattle as a result of war damages, the US Treasury referred the farmer to an enrolled agent where he could make his claim. The EA would represent the taxpayer and defend his cause to the government to seek reparations. Today, enrolled agents work much the way they were originally created in the 1860's. The EA represents the taxpayer before the Treasury acting as the intermediary between the taxpayer and the Internal Revenue Service (IRS). The EA is a tax expert but doesn’t perform audits. The EA can perform reviews or compilations but cannot attest to the facts the way that a CPA can. The primary task for an enrolled agent is to ensure the tax return is prepared in accordance with the tax code. If there are queries, the EA can represent the taxpayer before the IRS (as can CPAs, Attorneys, and a few others). “Enrolled agents are required to specialize in tax and tax only and are required to have a high level of education including CPE hours annually and a rigorous examination process,” says Ballantyne. “Locally, sixteen percent of the candidates in the Portsmouth, New Hampshire area passed the exam the first time through.”

The difference between the CPA and EA is primarily in the area of taxation. A CPA is required to have a specific amount of education and testing in the areas of tax and audit. They need to demonstrate proficiency and are licensed by the state. After licensing they don’t have to work in the field of taxation, they can also work in audit. In larger public accounting firms most CPAs will be working in the area of audit. CPAs are also licensed and practice in a specific state, whereas enrolled agents can practice in any state.

Finding What Suits You

The small businessperson needs to determine if a CPA has a strong background in tax before establishing a working relationship. “For a small business of $1M in annual sales or less, a full audit isn’t generally necessary so the services of a CPA may be excessive,” says Ballantyne. “Need will also very depending on the type of business and what requirements are placed on the organization by external oversight such as a board of directors or shareholders. Often these governing bodies will require a stricter standard of accounting and verification versus smaller privately held organizations,” he continues.

How to decide what you need:

• What is the business entity type? Is the company closely held or does it have external investors?

• What is the complexity of the business? Are there numerous divisions or multiple entities that are related parties?

• Are there external investors who require a level of assurance?

• Will the organization be going through expansion, a purchase or sale? If so, it may be required to provide proof of financial accountancy.

Interview questions for financial professionals:

• What level of experience they have in general business matters?

• What level of taxation experience do they have with businesses? There are many professionals who do 1040 returns, but they may not handle more complex partnerships or corporate returns.

• Are they performing financial accounting using the standards set by the American Institute of Certified Public Accountants (AICPA) and Generally Accepted Accounting Principles (GAAP)?

• Do they have references?

Rule number one in finding a financial professional is to take your time and be sure the relationship is a good fit. “Ask questions and spend time interviewing candidates so you’ll know what you can realistically expect from the relationship,” says Ballantyne.

Remember that it doesn’t always matter how much you spend on a financial professional but what that individual can do for your business that really counts. Outline what you think you need from a financial professional and then talk with peers and see what processes they use and who they recommend locally. To learn more about financial professionals, talk with a Fiducial Advisor by calling 866-Fiducial or visit the web site at www.Fiducial.com.