Managing your finances can be daunting, whether you are a small business owner, high-income professional, freelance/independent contractor, or just seeking financial advice. You’ll likely have a financial crisis without the required expertise to ensure accurate financial records, keep up with tax laws, and gain practical insights on achieving your financial goals. However, you can avoid this if you hire a CPA.
A CPA (Certified Public Accountant) is a financial professional who provides tax, accounting and financial management services for individuals and businesses. They help with auditing financial records, creating financial statements, providing strategic financial advisory and making financial forecasts. While CPAs and accountants have some similar roles, CPAs are different from accountants. Let’s look at some qualities distinguishing a CPA from a non-CPA.
Differences Between CPAs and Accountants
A CPA is a licensed professional who offers financial advisory and management services including tax filing, auditing, financial report preparation and business advisory to individuals and businesses alike. To be qualified as a CPA in most cases, a person must hold a Bachelor’s degree or higher in accounting. Alternatively, they could take business-related courses at an accredited university or college, pass the CPA exam, gain a certain amount of professional experience under a licensed CPA and obtain a license to practice. While these are the basics, different US states have different qualifying processes.
While both CPAs and non-CPAs are qualified to work in the accounting sector, the major distinction between them is that the former is licensed to practice while the latter is not. CPAs go through a more rigorous preparation than accountants. Also, while CPAs have a governing body and are subject to a code of ethics, accountants do not.
In addition, CPAs have the legal right to act on behalf of their clients (known as fiduciary responsibility) while accountants do not. While non-CPAs can provide some financial management services such as tax planning and bookkeeping, they do not have the same expertise and legal authority as CPAs.
When to Hire a CPA for Personal Finances
Usually, managing your personal finances revolves around keeping accurate records and paying your taxes regularly, requiring no financial expertise. However, some circumstances warrant the expertise only a CPA can provide. You’ll need to hire a CPA in the following conditions.
Complex tax situations
Complex tax situations make it difficult to file and prepare your taxes. They usually occur as a result of having multiple sources of income, a high influx of cash flow, foreign assets, complex investments such as cryptocurrency and stocks, the inability to calculate tax expenses as a freelancer or self-employed contractor, confusing state tax laws, etc. Navigating these situations on your own can lead to errors, financial risks, legal issues and penalties. You need the expertise of a CPA to handle these situations effectively.
Major life changes (e.g., marriage, divorce, inheritance)
Life changes such as marriage, divorce, childbirth and inheritance can trigger an increase or decrease in your finances, which significantly impacts your tax situation. For instance, marriage and divorce affect your tax filing status, as married people can file their taxes jointly and get lower rates, while single people qualify for deductions. Getting an inheritance will trigger an increase in your income, which qualifies you for property tax and increases your tax rates. Childbirth qualifies you for Child Tax packages which come with lower tax rates. You need to hire a CPA to help you handle the paperwork and ensure you make the most of your tax situation.
Estate planning
Estate planning is the process of arranging how your estate – your possessions such as your houses, cars, investments, assets, etc. – will be managed if death or incapacitation occurs. While it involves creating legal documents and working with a qualified attorney to consolidate the process, you need to hire a CPA to handle the financial aspect. A CPA will help to value your assets, identify efficient strategies to minimize taxes, manage future risks, and work with your attorney to ensure both the legal and financial perspectives of your plan align.
Investment advice and retirement planning
Retirement planning deals with devising strategies that help you save and invest for long-term use in your golden years. While a CPA is not necessarily an investment expert, they can help you understand the tax implications of your choice investments. They can also help you identify opportunities to reduce your tax liability and maximize your investments. However, for holistic advice, consider hiring an investment advisor alongside a CPA too.
These rules are applicable in most countries with an efficient tax system such as the United States, Canada, United Kingdom, etc., with slight variations depending on the local contexts.
When to Hire a CPA for Your Business
From accurate financial reports to business advisory to risk management services, CPAs are assets to any business. Hiring one can be costly, but these fees are an investment. Having a CPA means you have a better chance to keep your business in good financial shape and ensures maximum profitability. Let’s look at when to hire a CPA for your business.
Business formation and structuring
Business formation and structuring are important for entrepreneurs who want their ideas to become legally recognized and enjoy greater flexibility for profit-making. While you can generate business ideas and structures on your own, you need to hire a CPA to help you assess the tax implications of your business formation and structuring, make financial forecasts and advise on the appropriate structure, file and complete the necessary paperwork, etc. Building a business without CPA expertise is building on a shaky foundation.
Financial statement preparation and analysis
A financial statement is a compilation of your business’s financial activity, showing your income, balance sheet and cash flow over a period. However, this can’t be done just by anyone because the financial activities need to be converted into a financial statement using accounting principles. After, the data is analyzed to determine the financial health of the business. As such, you need to hire a CPA to prepare and analyze your financial statement accurately.
Tax planning and compliance
You need to strategically plan your financial activities to avoid unnecessary tax charges and adhere to all tax regulations. Failure to do this can get your business in trouble with tax authorities. Since tax laws are complex and often fluctuate, you need to hire a CPA to help you audit your books, mitigate financial risks, prepare and file your taxes and legally represent your business if necessary.
Auditing and assurance services
Auditing means examining a business’ financial statement to determine if it aligns with accounting standards while assurance services include assessing operations and IT systems, reviewing financial statements and assessing compliance with regulations to provide detailed information to the stakeholders. Both functions are vital to the sustenance of a business and can only be performed by a CPA. CPAs provide unbiased information, which elevates the credibility of your business’s financial health in the eyes of your investors and other decision-makers.
Business advisory services
Without strategic advice and tailored support for the key areas of your business such as operational efficiency, financial management, business valuation, risk management, etc., you’ll find it difficult to achieve your business goals. A CPA has gone through a rigorous process of education, experience and examination, and gained the financial expertise to analyze your business performance, make informed decisions and spot and mitigate risks. Also, CPAs often have a wide and diverse network of business professionals, which can spur your business growth.
Benefits of Hiring a CPA
If you want to reach your full potential in your personal finance or business, your best bet is to hire a CPA. Money matters are too volatile for anyone who hasn’t undergone any training or examination to navigate alone. One little error can make your finances crash. Here are some reasons you should hire a CPA.
Expertise in tax laws and regulations
Tax laws and regulations are always evolving. What qualifies as tax deductions and lower rates last year may change this year. Besides, there are usually variations among federal, state and local tax laws, which can range from slight to huge. You also need to thoroughly understand the financial jargon to be able to interpret these tax laws and apply them to your financial situation. Without CPA expertise, you’ll be lost in the process.
Strategic financial planning
Every successful person or business has something in common – strategic financial planning. Achieving anything significant in life or business rarely comes by chance or guesswork, you have to make proper decisions, allocate resources, measure performance and ruthlessly pursue your goals. Due to their training and experience, a CPA is in a good position to devise strategies to improve your bottom line.
Time and stress savings
Managing your financial situation by yourself can be time-consuming. Imagine how overwhelming it will be to prepare the paperwork, file the taxes, review the statements, etc. Besides, you’d have no time to focus on other priorities such as your job or product development and marketing. A CPA takes this stress off you and helps you save time, which translates to more productivity and financial increase.
Avoidance of costly mistakes
Non-CPAs are highly likely to make mistakes when dealing with tax and financial matters. A simple miscalculation or uninformed decision can result in financial setbacks. This is avoidable if you hire a CPA. With their accurate calculations, timely reports, and proactive financial forecasting, CPAs will help prevent costly mistakes and nip potential problems in the bud.
Enhanced credibility with stakeholders and investors
Investors and stakeholders consider business structures and financial statements vetted by CPAs more credible than those that aren’t. It reflects a commitment to financial transparency and accountability on the part of the individual or business owner. A CPA’s involvement with your personal or business finances is a seal of approval that makes the scaling process easier.
How to Choose the Right CPA
Hiring the right CPA is an investment in your future and can make a difference in your personal and business finances. The right CPA won’t only deliver on their tasks but also give you peace of mind. Below is a guide on choosing the right CPA.
Factors to consider when selecting a CPA
- Expertise: Run a background check on the potential candidate when you want to hire a CPA. Is the person licensed to practice? How many years of experience do they have? Have they worked with other people and what are those people saying about them? Do they offer the services you need? It’s advisable to go for someone who ticks all these boxes.
- Billing Practices: It’s important to know the fee structure of the CPA and what it covers. Do they bill per hour, use a flat rate or want a retainer agreement? What is the scope of services their fees cover? You can consider comparing prices and scope of services before settling for one person. It’s important to note that higher prices don’t necessarily mean more services or high quality and vice versa.
- Accessibility: You don’t want to hire a CPA you can’t get a hold of, or who has too many commitments that hinder your work. Your CPA should have open communication lines and a willingness to explain financial jargon in a way that you’ll understand. Easy accessibility and regular communication are the pillars of any successful client-CPA relationship.
Questions to ask potential CPAs
- What services do you offer?
- What is your fee structure?
- Have you worked with clients in a similar industry?
- What do your past clients have to say about you?
- How available and accessible are you?
- Are you the one handling my work or are you passing it to one of your staff?
Checking credentials and references
It is important to check the credentials and references of the CPA to confirm their credibility. Here are the things to check out.
- License: Confirm that the CPA license is legally recognised in your state. This legitimizes their practice in that state
- Professional affiliations: Check if the CPA is a member of professional organizations. Usually, CPAs have a governing body whose regulations they abide by. A CPA who isn’t a member is a red flag.
- References: Feedback from previous clients lets you know if your choice is a good fit. If your potential hire has a proven track record, the references will reflect it.
Conclusion
Hiring a CPA for your personal or business finance is an essential investment. You’ll agree with us that navigating it all by yourself stresses you out and puts you at risk of financial losses. But if you hire a CPA, their tax and financial advisory services can position you for better financial health and greater profitability.
However, strong financial management goes beyond just having a CPA; you also need someone who can handle the daily demands of financial reports such as data entry, account management and payroll processing. At Wing, we have trained bookkeepers to help with these daily demands. Wing bookkeepers are committed to your tasks during assigned hours, ensuring a high level of accuracy and professionalism.
Reach out to us now to get the right bookkeeper for your personal and business needs.
Aya is Wing Assistant’s blog manager. When she’s not wrangling content briefs, editing article drafts and handling on-page SEO, she is crafting messages for Wing’s other communication materials. Aya writes about SaaS startups, marketing for startups, search engine optimization, and pop culture.
