There’s a reason “Shark Tank” venture capitalist Kevin O’Leary, aka Mr. Wonderful, asks entrepreneurs about their numbers immediately after pitching their product and business model product, says certified public accountant Ahamadou Alainchar Bocar.
“Accounting can be the base for companies to project budgets, seek capital financing or understand performance metrics, especially profitability,” says Bocar, a partner at CohnReznick in Sacramento, a national accounting and tax advisory firm, headquartered in New York. “Having timely and accurate reporting gives decision-makers piece of mind on the reliability of the data used.”
“Many private companies see the accounting function more
as a burden to help with regulatory compliance rather than a significant component that supports their decision-making with respect to business growth and risk management.”
Ahamadou Alainchar Bocar, certified public accountant and assurance partner, CohnReznick
With accounting, it’s important to continuously take stock of what could be done to better manage and understand a business’s numbers. While there’s no one path to successful accounting practices, there are common misconceptions that some accountants encounter to help a business’s bottom line. One is that outside accountants are expected to correct and fix all of the company’s accounting woes, end to end.
“As much as we partner with our clients to drive deliverables,” says Bocar, “the company’s internal team is responsible for taking responsibility and approving most of the deliverables from the outside firm. So developing the internal capacity inside the company in terms of accounting expertise and sufficient staffing is
key to ensure that the company has an accounting function that matches the goals and objectives of the owners and other company stakeholders.”
Bench Accounting, a Canadian online bookkeeping company that serves small businesses internationally, says that deciding how to structure and manage finances is one of the most important parts of running a business, and there are a lot of questions to answer — how to take payments, where to stash cash and what accounting practices to use to make the company’s money grow — according to its resource guide, “Small Business Accounting 101.”
Corporate tax, personal tax and general accounting are the most common services for which businesses use accountants. Typically, companies
engage with an accountant “early in the life of their business, with 53 (percent) reporting they did so right at startup and 13 (percent) within six months of startup,” according to “Sage Small Business Accountants Usage 2013 Study.” The study surveyed small-business owners and found that 55 percent of business owners believe outside accounting services are “critical” to the success of their businesses. However, Bocar says, “Many private companies see the accounting function more as a burden to help with regulatory compliance rather than a significant component that supports their decision-making with respect to business growth and risk management.”
Bocar advises businesses should always assess and reevaluate their internal accounting process to ensure the department or system is able to provide timely and reliable information to the company’s decision-makers.
Angie Papendick, principal at AP Group in Folsom, says it’s important for business owners to plan for the amount of tax they will owe as well as to make sure their financial statements are strong and telling. “If business owners don’t know how they are doing, they can’t make the best decisions for the company,” she says.
Bocar says, “Most CPAs now specialize in industry groups, and as a company grows its business and engages in more complex transactions, it is recommended to seek subject-matter experts as the company onboards new employees or encounters new accounting matters.”
He adds that for smaller companies, bad accounting will simply not provide proper metrics and data, which commonly leads to many owners thinking their business is doing much better than it actually is.
Bench recommends that if businesses are serious about growing and eventually selling the business, they should team
up with a CPA early on. Beyond filing a tax return, an experienced CPA can help with financial strategy, tax planning and compliance, lease negotiations, treasury management, financial reporting, and long-term big-picture decisions about the future of the business.
When looking to hire an outside accountant, Bocar says companies should assess the same way they assess other vendors and service providers “to ensure the accountant provides value.”
Bottom line, small businesses need to invest in a good controller or bookkeeper, and hire an outside CPA who is available for planning throughout the year, Papendick says. “To manage the business properly,” she says, “the business owner should know how they are doing at all times.”