28 Mar What To Look For In Picking A Good Accounting Firm?
Ok so the joke goes like this:
If an accountant’s wife cannot sleep, what does she say?
“Darling, could you tell me about your work.”
“When people hear I am a CPA, they get that look in their eyes. It is that glossed-over, tortured, “I hate the dentist” look. Many people love what they do, and they are good at it! Whether they are building something, selling something, or helping someone. But most share one common thing. The fact that they have to actually look at financial statements and understand the numbers, beyond just “what are our sales and profit yesterday or for the year” numbers, gets most people panicked. But in order to run a successful company, you must have a working knowledge of your own financial state. This of course starts with good internal controls and a strong leader internally that can compile and present the numbers. But then what? We all have to file taxes, and most will say that is all their accountant is good for. But what else should they do and why? What should you look for when hiring an accountant? Here are three tips to keep in mind:”
- A good accountant will employ Ethical Practices: Most accountants will ask you for your yearend numbers and use that to determine your tax liability and file your tax return. These numbers should easily be generated from your accounting software, such as Quickbooks. However, remember there is a fine line between maximizing available deductions and allowable write-offs vs. making unethical adjusting journal entries to lower taxes. Make sure your accountant is not doing anything that could possibly put you and your business in harm’s way. Ultimately, it is your tax return, and you are responsible to the government for the figures you are signing off on. One example –if you are a jewelry store and write your inventory to $0. Since most jewelers sell a product that has an intrinsic value, there is not much of a valid and reasonable argument that you can make, that your inventory would be valued at $0. You may, however, write down “aged” or “non-sellable” inventory to its scrap value, and then if it is sold, take the profit at that time. Think carefully about what you are adjusting and make sure it makes sense to you and your specific business.
- Create financial statements beyond a tax return: There are three levels of services that an accountant can be engaged in. A compilation – This is when an accountant assists management in the presentation of financial statements without undertaking any sort of analytical procedures to provide any assurances regarding any possible modifications to the financial statements. If your company has a strong CFO or Controller, many times they can just compile the financial statements themselves, and you do not need to engage an accountant to do so. However, you may want to engage an accountant to perform a review. In a review engagement, the accountant will perform analytical procedures and inquires, to provide a reasonable basis for obtaining limited assurances that there should be no material modifications to the financial statements. This allows you to have a third party looking at your numbers. Most privately held companies will opt for either a compilation or a review. However, some credit agreements require An Audit. During an audit, the accountant will perform analytic procedures, inquiries, and assess the internal controls and risk of fraud. An auditor will issue an opinion that the financial statement is presented accurately. Why are any of these important? Because as a business owner you have to have a grasp and handle on how you are performing. You should be looking at your numbers at the very least once to twice a year, but the goal should be monthly. You should compare the results to prior years as well as your expectations. Monitor your cash flow and cash balances to make sure you can meet your financial obligations.
- They understand your business: Although all accountants should have an understanding of the industry they are engaged to work in, some know and understand more than just the basics. Try to find an accounting firm that understands the intricacies of your specific industry, or is willing to learn them. Many accountants are taught a certain way in school and apply those principles to all industries. If you have a good relationship with your accountant, don’t be afraid to talk to them about the way they are presenting your numbers and discuss better alternatives that make sense to your business. Although they may be doing your tax return, they should also be reviewing your numbers. This will allow them to better understand your financials, identify trends or question areas that may need to be reviewed, and allow them to become a valued advisor. Ultimately, if you can find areas of improvement, such as ways to cut expenses and maximize profit, everyone wins!
Try to look at your accountant as more than just a once-a-year meeting with the dentist. Ask questions, encourage them to ask you questions, and provide feedback. Numbers tell a story, learn how to read them and make the most out of the tale they tell.
Ann Arnold is an expert in manufacturing, finance, and strategy. She earned her CPA working for Deloitte, and was the VP and later CEO of Lieberfarb, a US-based manufacturer of wedding and engagement rings. This 27-year industry veteran is currently the owner of Arnold Advisory Group, which provides comprehensive, scalable, industry solutions that deliver dramatically improved performance to businesses in various industries and the owner and CFO of H. Arnold Wood Turning.