I think I've made it abundantly clear on this website that I live in the business space before the phrase "I need a CPA" enters your mind. I am not a CPA, and I don't offer CPA services. Instead, I help you to DIY your business, finance, and bookkeeping. So the question is, how do you know when your business is ready for a CPA?
The answer depends entirely on you, but today, I'm going to help you make that decision. Because I'm helpful like that.
Quick disclaimer: I am an accountant, but I'm not your accountant. This post is for informational purposes only and should not be taken as professional advice. The decision to invest in a CPA and receive professional advice is yours to make. Additionally, any discussion of legal or tax matters in this post is A) limited to my experience with U.S. law and B) not professional advice.
What is a CPA?
First, we should probably address what a CPA even is. CPA stands for Certified Public Accountant. Not all accountants are CPAs. The CPA designation is prestigious and well-recognized in the business world.
The CPA license involves a college education (requiring more college credits than what comes with a standard Bachelor's degree in accounting), a lot of actual work experience, and a lot of study for an extremely difficult exam. Plus, CPAs have to earn additional continuing education credits regularly in order to maintain their licenses.
Without getting too far into the details, it's typically a sign that they know their stuff. Which is why I typically skip over "hiring an accountant" and go straight for "hiring a CPA."
So! In what situations should you go to one of these professionals for your business? Well, you probably need a CPA if...
You're ready to separate from your business
When you're just starting, you literally just have to get started if you want to be a business. You're automatically a sole proprietor as soon as you start doing something with the intention of making a profit. (Though, you'll want to do research in your state and county to make sure you don't have to file for any business permits/licenses!)
As a sole proprietor, legally (and for tax purposes), you and your business are the same.
So if your business earns money, that money is no different from any other money in your bank accounts. You could theoretically earn ad revenue from your blog and turn around and spend that at the grocery store, no questions asked. (I do not recommend doing this, by the way.)
Related Post: The Best Time to Open a Blog Bank Account
On the flip side, if someone sues your business because you gave them bad advice, they are coming after YOU and YOUR personal assets.
Don't let this scare you too much, though. Being a sole proprietor is completely fine. As long as you make sure to keep good legal documents, contracts, disclaimers, etc. If you have these, you're not likely to get sued unless you're really involved in some terrible business practices.
Sole proprietorship business structures are simple, easy, and plenty good enough for a new blogger.
Eventually, though, you may start looking into becoming an LLC or fully incorporating one day. When you're starting to generate a lot of money and see a lot of business activity, it may be worth doing the research to determine if you should take further steps to protect you and your business.
When you get to this point, consider consulting a CPA. Sometimes, you can get an answer with a quick phone call or consultation appointment. Other times, you may want to look at a long-term relationship with an accountant. It all depends on your situation, which is why it's worth it to consult a professional.
You're going to start hiring employees
Ya'll, payroll can be a beast.
When you're managing your business for yourself, you can afford to make mistakes and figure things out.
But as soon as you're bringing on someone else to your team, you're suddenly responsible for their livelihood. Their paychecks, their taxes, their federal withholding - that's all on you. You do not want to mess up someone else's money...remember that scenario about getting sued?
If you're ready to hire employees (not just hiring freelancers/contractors, that's a lot simpler), I'd recommend going to a professional to make sure you know what you're doing.
And do not hire someone as a freelancer who is entitled to an employee role. In America, per the IRS website, you should consider three factors when deciding if you're hiring a contractor or an employee:
Behavioral control: Do you tell the worker what, how, and when to do their job?
Financial control: Do you control the business aspects of the worker's job? For example, do you control how they're paid, whether or not certain expenses are reimbursed, etc?
Type of relationship: Is the work performed a key aspect of the business? Are you offering employee-type benefits?
If a contractor goes to the IRS to complain and say they should be a W-2 employee and not a 1099 contractor, the IRS will come in and do a full payroll audit and will almost always side against you, the business.
Not only do you have to pay them the right way, but you also have to file your payroll tax returns and remit your withholdings to the right people at the right time. If you're about to dive into the world of payroll, don't do it alone. Go talk to a CPA. Their firm may do the payroll for you, or at least get you started so you can be sure you're doing it right.
Side note: You could also look into outsourcing to a payroll company, but weigh your options carefully. Many of these companies are way overcharging for the services performed. And also, many of them are just bad. I only have workplace experience with a few payroll services out there...and I hate most of them.
You suspect you may be REQUIRED to collect and pay sales tax
Different states have different laws regarding sales tax requirements.
It really boils down to physical presence and direct connection to a certain state, geographically. If you're working with other companies in a state, or selling specifically to certain populations within a state, you might be required to collect sales tax on your sales and remit it to the state government. You can learn more here.
This can get really tricky with online businesses selling digital products. I don't want you to freak out though, if you're just collecting ad revenue, selling some digital courses and/or ebooks, and offering some freelance services via the internet, you're probably not required to collect sales tax. But do your research!
If you're moving into a physical market, starting to work with other brick-and-mortar companies, or establishing a physical presence for your company (moving into a physical office location?), you're walking closer to the line.
Sales tax is particular to your state (or the state your business activity is being conducted, regardless of where you live!), so again, this is why it'll be a good idea to consult a professional. Actual sales tax returns aren't usually that complicated, but you want to make sure you're - you guessed it - doing it right. #BrokenRecord
You need tax planning help, not just tax compliance.
As a reminder, my tax experience is solely with U.S. tax law.
Filing your taxes is an after-the-fact event. The money's already moved throughout the year, you're just reporting it.
Usually, this is fine for most people. But if you're reaching a point where your taxes are becoming chaotic, unpredictable, and painful because you didn't know to plan ahead, you may need help with tax planning.
Tax planning involves making strategic moves with your money throughout the year to soften the tax consequences you'll face on your next return. It's all about proactive strategy! It's about making tax projections throughout the year so you can set aside funds in advance or making quarterly payments to the IRS. Tax planning is highly strategic and requires an in depth understanding of tax law, which you'll only get from a professional.
If your taxes are getting complicated, and your financial situation is resulting in very large tax consequences, you don't want to wait to deal with it a week before deadline. (And trust me, your CPA doesn't want to deal with it a week before deadline, either.) You'll want to hire a professional to walk hand in hand with you and make sure you're doing everything you can to prepare a year in advance!
How do you know if your situation is complicated? Here are some signs that might mean your taxes are a little complex:
You have a lot of financial investments and/or real estate.
You have money in foreign accounts.
You've taken money out of any of your retirement accounts.
Your business has made a lot of money (especially you haven't been setting aside anything for taxes!). This is extra important if you weren't expecting it to earn as much revenue as it has.
It's also worth noting that I typically put out a blanket recommendation for people to have their taxes prepared by a professional, regardless of whether or not you need one for tax planning throughout the year. There are just so many ways a tax return can go wrong, and we're all too lazy around here to deal with that mess.
There are lots of CPAs who specialize in taxes, so go find one. Depending on your area and your tax situation, you can probably expect them to charge anywhere between $100-$400, which is definitely a worthwhile investment.
(It goes without saying that this is a totally subjective estimate - don't get mad at me if you live in the middle of New York City and your nearest CPA charges triple that. I wouldn't know, I ain't a city girl.)
You suspect you're in trouble with the government.
If you're getting an itch in the back of your mind making you wonder if you've neglected some aspect of the law, do not ignore it.
Some acts of neglect could be generating fines, penalties, and interest every month you delay!
If you're concerned that you haven't filed your income tax correctly, haven't paid someone correctly, haven't sent in the right documents, or missed any other business/financial/legal action, talk to a professional today. They will help you determine if a misstep was actually taken (so you can calm your mind!), and create a plan of action in case something was neglected or done incorrectly.
You make enough money and you're ready to outsource to free up time!
As your business grows, you'll want to make changes to sustain that growth.
Managing your own books has worked up to this point, but eventually, you'll start to feel those growing pains! There are only so many hours in the day, and a small start-up is way different from a thriving company.
Be proactive, and start delegating the tasks that you don't have to do.
I'm not telling you to put together a team. If you want to be a solopreneur, by all means! I'm in the same boat!
But that doesn't mean you can't outsource certain tasks that don't absolutely have to live on your to-do. When you contract out to capable people, they'll know what to do. You don't have to train, manage, lead, or inspire. You'll pay them to do what needs to be done so you can focus on sustaining your business' growth and earning that free time that most of us are striving for!
Hiring an accountant to manage your finances and watch for warning signs and analyze your growth is one of the best investments you can make for a growing business.
You feel like your business organization is slipping through your fingers.
On the flip side of that last positive point, it could be that you've already surpassed sustainability and you're feeling like a disaster. If you can't keep up, you need help.
Option 1 is to hire a CPA, which is the entire point of this blog post! If the reason you can't get ahead is because your business is way too big for your own hands, head on back up to that last point. Outsource for your sanity.
Option 2 is to hire a coach to give you some clarity and point you in the right direction. Maybe your disorganization isn't due to a crazy growth spurt. You may just have gotten a little muddled trying to balance too much! Take a smaller step and talk with someone who can help you see the difference. And it juuuuuust so happens that I offer that type of service!
To CPA, or not to CPA...the choice is yours.
Another variable to throw in here is that you can define your business relationship with your CPA.
Your CPA can do your taxes and payroll, but you handle your own books. Or your CPA can just do payroll. Or do all three. You're able to work out those details with him/her based on your own needs and comfort level!
It's probably always a good idea to have a CPA's phone number handy, in any case. Don't waste their time by always asking for free advice, though. That's rude.
So take a look at where your business is at, and make a few calls!
If you don't think you need a CPA but you do need some affordable guidance for your finances, you can learn more about my coaching service here!
Until next time!
- Katie Scott