For some people, when it comes to hiring someone to help with business finances, a bookkeeper will be enough, but for others, they may need a CPA – or certified public accountant. And, it might even be cheaper to hire both. It really depends on what type of business you have.
A CPA can legally represent you in tax court and can fill out and file your taxes for you after your signature. A bookkeeper can set up the accounts and do all day-to-day, monthly, quarterly, and yearly entries and do closing entries on the software. Then, they will give it to the CPA to do taxes, unless the bookkeeper also has EA (enrolled agent) designation. In that case, they can also do your taxes and represent you in tax court.
For example, if you sell services, you may be able to get away with a bookkeeper, as it’s a straightforward business that will run on a cash basis. When a business is on a “cash basis,” it just means that they recognize income the moment they receive it and expenses the moment they make them.
As a service-based business, unless you’re a firm hiring contractors, you won’t have many invoices or expenses. You can get a bookkeeper to set up your chart of accounts, inform you about the best software to use, let them set up the automation, even teach you the system, then they can be hands-on once a month only to do closing entries.
However, if you have inventory, you may be required by law to use an accrual basis, which is very different with a lot of tricky components to it. For an accrual-basis, you only recognize income when you have finished earning it in order to make allowances for returns and other issues. In this case, you really do need a CPA and probably a bookkeeper too.
The best way to deal with these decisions is to first go to a CPA firm to talk to them about your business and your finances. Make an appointment with the CPA firms in your local area because they not only employ CPAs, but they have Junior Accountants and Bookkeepers. This is one thing that can make a firm the best place to go over individuals, so you can have a one-stop-shop for all your business financial needs.
Once you have talked to the firms you have discovered, you’ll have an idea of what your budget needs to be to contract with the firm. Usually what happens is they provide the CPA to set up everything, and then they will also provide a bookkeeper who will handle ensuring that automation is working, and they will either train someone on your team to handle unautomated entries, or they will do it themselves. Certainly, they will handle each month’s closing entries, dealing with quarterly tax payments, reminding you of inventory, and so forth.
As you can see, some of this is very complicated, which is why it’s so important to go to the professionals to help you get it set up and at least automated before trying to do it on your own.
In the meantime, though, as you are interviewing the right professionals, at least start keeping track of all your income and all your expenses. It’ll make it easier for you to get your taxes done with or without a professional while you are getting your legit business set up. Also, stop co-mingling your personal funds with your business funds – even if you have an LLC or an INC – because if you do that, you are voiding your protections.
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