Constantine Accounting

Starting and managing a cash basis small business is no small feat. Entrepreneurs often wear many hats, from marketing to sales to customer service, and yes, even managing the finances. Small business owners often ask themselves many questions. One of the most common is, “Do I really need a Certified Public Accountant (CPA) for my small business? or I’m just going to have my CPA who does my taxes do my bookkeeping”. This is something I have heard many clients say.

Hiring a CPA can feel like the safest bet. It’s important to weigh the pros and cons before hiring a CPA. Surprisingly, the answer leans more towards “no,” especially for many cash basis small business owners. I am the daughter of a CPA. I understand how many CPAs are not equipped to do bookkeeping. They often struggle to help clients with their day to day operations and business decisions. There are levels. If small business owners properly delegate tasks to the proper “levels,” they can actually save money. They will also have a better grasp on their financial position. Let’s dive into why that be the case.

Understanding the Role of a CPA

Before deciding if you need a CPA, it’s essential to understand what they do. CPAs are licensed professionals. They are qualified to handle a range of accounting tasks. These tasks range from preparing and filing taxes to offering financial advice. Their role is to make sure that your business complies with tax laws. They help maximize your deductions. They also keep financial records in tip-top shape.

But here’s the kicker: Many small businesses don’t need the full scope of services that a CPA offers. This is especially true in the early stages.

Statistical Insight:

According to a survey by the National Small Business Association (NSBA), 42% of small business owners spend over 80 hours per year dealing with federal taxes. Small business owners spend a significant amount of time dealing with federal taxes. They spend this time handling federal taxes alone. This seems like a reason to hire a CPA. but, the same survey found that nearly half of small business owners handle their taxes in-house without professional help.

The Cost Factor

One of the first things to consider is the cost of hiring a CPA. CPAs are highly trained professionals, and their ability comes at a price. For many cash basis small business, the cost of a CPA can be prohibitive. This is especially true for those just starting out or operating on a tight budget.

Let’s break it down:

• Hourly Rates: CPAs typically charge anywhere from $150 to $400 per hour. If you need a CPA to handle your bookkeeping, tax preparation, and financial planning, the costs can add up quickly.
• Flat Fees: Some CPAs offer flat fees for specific services. But, these can still be quite steep. They often run into thousands of dollars annually.

If your business is small, with straightforward finances, these costs outweigh the benefits. For many cash basis small businesses, the cost of a CPA is a luxury. They simply don’t need it, particularly those with simple financial needs.

Statistical Insight:

According to a report by Clutch, 71% of small businesses spend less than $5,000 annually on accounting services. This indicates that many small business owners opt for more affordable alternatives rather than paying premium fees for a CPA.

Simplified Accounting Tools

In today’s digital age, there are many accounting tools available that can simplify the process of managing your business’s finances. These tools are user-friendly, affordable, and can handle most of the tasks that you would otherwise hire a CPA for.

Some popular options include:

• QuickBooks: A comprehensive accounting software that can manage invoices, track expenses, and run reports. It’s designed with small business owners in mind and offers various plans to suit different needs and budgets.
• Wave: A free accounting software. It offers many features that small businesses need. These include invoicing, expense tracking, and basic financial reports.
• FreshBooks: This tool is particularly popular with freelancers and service-based businesses. It’s easy to use and offers a range of features, including time tracking and project management.

These tools often come with step-by-step guides. They also offer customer support and online resources. These help you navigate the world of business finance without needing a CPA. For many cash basis small businesses, these tools are more than enough to manage day-to-day financial tasks.

The DIY Approach

Another reason you not need a CPA is that you can handle much of your business’s financial management yourself. This is especially true if your finances are straightforward.

Here’s how you can do it:

• Bookkeeping: Keep track of your income and expenses using a simple spreadsheet or accounting software. This can be done weekly or monthly, depending on the volume of transactions.
• Invoicing: Use online tools or templates to create and send invoices. Many accounting software options, like QuickBooks and Wave, have built-in invoicing features.
• Tax Preparation: If your business’s tax situation is simple, you can handle tax preparation on your own. You can use tax software like TurboTax or H&R Block. These tools are designed for small business owners and walk you through the process step by step.
• Financial Planning: Set aside time each quarter to review your finances, set budgets, and plan for the future. You don’t need a CPA to do this, especially if you’re using accounting software that offers financial reporting features.

While the DIY approach requires some time and effort, it can save you a significant amount of money. Plus, having a hands-on understanding of your business’s finances can be incredibly valuable.

Statistical Insight:

According to the U.S. Small Business Administration (SBA), about 60% of small businesses handle their accounting internally. While the DIY approach requires some time and effort, it can save you a significant amount of money. Plus, having a hands-on understanding of your business’s finances can be incredibly valuable.

When a CPA Is Necessary

While many cash basis small businesses can thrive without a CPA, there are situations where hiring one be beneficial. It’s important to recognize when your business’s financial needs outgrow your ability to manage them on your own.

Consider hiring a CPA if:

• Your Finances Are Complex: If your business has multiple revenue streams, employees, or complicated tax situations, a CPA can help. They can navigate these complexities for you. They make sure that everything is handled correctly.
• You’re Facing an Audit: If your business is being audited by the IRS, a CPA on your side can be invaluable. A CPA can give representation during the audit. They also help you respond to any requests from the IRS.
• You’re Planning to Scale: If you’re planning to expand your business, a CPA can give financial advice. They can also help you plan for growth. They can also help you secure financing by preparing financial statements and projections.
• You Want Peace of Mind: Some business owners simply feel more comfortable having a professional handle their finances. If having a CPA gives you peace of mind, it be worth the investment.

Statistical Insight:

The SBA notes that 46% of small businesses outsource at least one financial task. Examples include tax preparation or payroll. They outsource these tasks to professionals. Many small businesses handle finances in-house. but, there are specific scenarios where outsourcing to a CPA or another professional is necessary.

Alternatives to Hiring a CPA

If you find that your business needs some financial ability, there are alternatives to consider. You not need the full scope of services that a CPA provides.

Here are a few options:

• Bookkeepers: A bookkeeper can handle the day-to-day financial tasks like recording transactions, managing payroll, and preparing financial reports. Bookkeepers are more affordable than CPAs and can keep your finances organized.
• Accountants: An accountant is less expensive than a CPA but still offers a higher level of ability than a bookkeeper. They can help with tax preparation, financial analysis, and more complex financial tasks.
• Outsourced Accounting Services: Many companies offer outsourced accounting services that can be tailored to your business’s needs. These services are often more affordable than hiring a full-time CPA. They can be scaled up or down as your business grows.
• Financial Advisors: If you need help with financial planning or investing, a financial advisor can offer guidance. A financial advisor doesn’t give the same services as a CPA. But, they can help you make informed decisions about your business’s finances.

The Importance of Financial Literacy

Even if you decide not to hire a CPA, it’s important to build your financial literacy as a business owner. Understanding the basics of accounting is crucial. Knowing tax laws is also essential. Financial management knowledge can help you make better decisions for your business. These can help you avoid costly mistakes.

Here are a few ways to improve your financial literacy:

• Take Online Courses: Many platforms, like Coursera and Udemy, offer courses on accounting, finance, and tax preparation. These courses are designed specifically for small business owners.
• Read Books and Articles: There are countless books and online resources available that cover the basics of business finance. Reading up on these topics can give you a solid foundation.
• Join a Business Group: Many local and online business groups offer workshops, seminars, and networking opportunities focused on financial management. These can be a great way to learn from others and share experiences.

By improving your financial literacy, you can manage your business’s finances more effectively, even without the help of a CPA.

Statistical Insight:

A study by Intuit found that 40% of small business owners consider themselves financially illiterate. This highlights the importance of improving financial literacy to make informed decisions about your business.

Knowing When to Reevaluate

As your business grows, your financial needs change. What worked when you were just starting out not be enough as your business scales. It’s important to regularly reevaluate your financial management needs and adjust so.

Ask yourself:

• Has my business’s financial complexity increased?
• Am I spending too much time managing finances and not enough on other aspects of my business?
• Am I confident in my ability to handle my business’s financial tasks?

If the answer to any of these questions is “no,” it is time to consider bringing in some professional help. This would be a CPA, bookkeeper, or accountant.

Conclusion: Do You Really Need a CPA?

The decision to hire a CPA for your cash basis small business ultimately depends on your unique situation. For many small businesses, especially those with simple financial needs, the answer is no. With the right tools, you can manage your business’s finances. A bit of financial literacy and a DIY attitude can help you avoid the hefty cost of a CPA.

But, it’s important to stay flexible and open to reevaluating your needs as your business grows. The ability of a CPA become necessary at some point. When it does, the investment be well worth it.

In the meantime, don’t underestimate your ability to handle your business’s finances. With the right approach, you can keep your business on track and save money in the process. After all, every dollar saved is a dollar that can be reinvested into growing your business.

Consider the pros and cons of hiring a CPA discussed in this blog. You can then make an informed decision about whether a CPA is necessary for your small business. Remember, it’s all about finding the right balance between cost, convenience, and complexity.

If you need more information or personalized assistance, Constantine Accounting is here to help. We’re dedicated to supporting you with expert advice and tailored solutions to meet your financial needs.

Sources

National Small Business Association (NSBA) – 2018 Small Business Taxation Survey: NSBA Small Business Taxation Survey

Clutch – 2021 Small Business Accounting Survey: Clutch 2021 Small Business Accounting Survey

U.S. Small Business Administration (SBA) – Frequently Asked Questions About Small Business Finance SBA Small Business Finance FAQ

Intuit QuickBooks – 2019 Small Business Financial Literacy Report Intuit Small Business Financial Literacy Study