How to Choose the Best CPA Firm for Your Business

by | Dec 2, 2021 | News

According to Accounting Today, there are about 46,000 CPA firms in the United States, and over 600,000 licensed CPAs. How should you go about finding one that fits your needs? What should you pay attention to? Here is our guide to help you do your due diligence.

STEP ONE: Define your needs

It’s always best to start your search for the right CPA firm with well-defined needs.

1. What kind of business are you?

CPA firms usually specialize in specific types of businesses. Are you a small or medium-sized business? What is your business structure? Are you aiming to go public one day? Are you a for profit or not-for-profit? Are you a sole proprietorship? It’s best to choose a firm that has experience working with businesses similar in structure and size to your own. This will save you time, money, and minimize the opportunity for costly mistakes.

2. What industry are you in?

If you own a dental office, you may want to search for a CPA firm in Las Vegas that works with a lot of medical professionals. If you own a restaurant, you may want to find a CPA firm that caters to restaurateurs.

Some industries have very specific needs – make sure the CPA firm you would like to engage can meet them.

3. Where are you located?

Do you operate in multiple states or just one state? Will you need to file multiple state tax returns, or only federal tax returns? Do you have employees in multiple states? In today’s times you do not necessarily need to work with a CPA within driving distance (hello Zoom calls!), but you do need a CPA familiar with state and local laws that are applicable to your business.

4. What services do you need?

CPA firms provide tax, accounting, auditing, financial, and consulting services. Which of these services is important to you?

Are you looking for just a tax preparer? Or do also want advice on reducing your taxes or growing your company, such as tax planning or outsourced CFO services?

Are you getting notices from the IRS and need tax resolution?

Will you also want the same firm to handle your personal taxes, in addition to business taxes?

Make a list of all the services you are looking for and make sure the firm you end up choosing offers all of them.

5. What price point are you looking for?

The mantra “You get what you pay for” also applies to tax and accounting advice. Perhaps a chain tax office will have great prices, but not the best quality.

Because tax and accounting services are so very vital to a business’s health, we recommend going with the firm that offers the most value and experience, and not one that offers the biggest discount.

6. How would you like to communicate with your CPA firm?

Some business owners prefer to make in-person appointments and have phone conversations, while others are fine with video conferencing and email. How will you be communicating with your tax adviser? It’s a good idea to make sure you can talk and exchange information in a way that suits you the best.

In addition, ask how long it will take someone to respond to your email or your request for assistance – during both tax season and “off season”.

7. What software are you using?

With the myriad of payroll, accounting, and tax software out there, make sure the CPA firm you choose supports the software your firm is using.

8. What accounting method are you using?

Are you using cash accounting or accrual accounting? Which method does your potential CPA prefer working with?

Accrual method means revenue or expenses are recorded when a transaction occurs.

Cash accounting means revenue or expenses are recorded when payment is received or made. 

What’s the difference between a CPA firm, an accounting firm and a bookkeeping firm?

Now that you have defined all of your needs, the next step is to make sure you know what type of firm to partner with. Do you need a CPA, accountant, or bookkeeper? Many people use these interchangeably, but assuming all three are the same is a big mistake!

A CPA will have the most credentials, while a bookkeeper will have the fewest.

1. What does a bookkeeper do?

A bookkeeper is a record keeper of your company’s transactions and financial records. They enter data from sales, expenses, everyday transactions. They enter and store this data in an accounting system, such as QuickBooks Online. They may also handle a company’s payroll, invoices, and make sure bills are being paid. 

A bookkeeper does not need to be certified, and they generally do not prepare income tax returns. 

Many businesses hire BOTH a bookkeeper AND an accountant / CPA.

2. What does an accountant do?

An accountant analyzes data entered by the bookkeeper, verifies data, gives forecasts, makes adjustments, and prepares financial reports such as balance sheets and profit and loss statements. An accountant can advise a business owner on a higher level: how healthy is your business? How has it evolved? Where is it going? 

An accountant may prepare an income tax return, and usually has a degree in accounting or finance. They may be or may not be licensed. 

3. What does a certified public accountant (CPA) do?

A CPA, or Certified Public Accountant, must have a degree in accounting or finance, and then must pass a very strenuous exam (comparable to the bar exam), in addition to various licensing requirements. A CPA is licensed and must maintain their license in good standing (for example – by completing continuing education courses). A CPA can interpret tax law and represent you before the IRS. CPAs can work as business advisers, tax consultants, auditors, CFOs, and in many other fields.

A CPA can sign tax returns, attest before the IRS, and is governed by the American Institute of Certified Public Accountants, which, among other things, dictates various ethical and professional standards.

Not all accountants are CPAs, but all CPAs are accountants.

Ask about services and tax advice offered

Businesses have diverse tax and accounting needs, and there are many types of services offered by certified public accountants.

Typical CPA services include:

  • Income tax preparation (business and individual)
  • Accounting services
  • Conducting audits
  • Tax resolution
  • Chief Financial Officer services (CFO services)
  • Tax planning / tax reduction
  • Forensic accounting
  • Preparing financial statements (audited or unaudited), such as profit and loss statements
  • Providing tax advice / tax consultations – such as advice regarding tax law and tax implications of various business decisions
  • Communicating with the IRS on behalf of taxpayers
  • Preparing and sending various tax documents, such as S-Corp elections, appeals, responses to tax notices, etc.

When choosing a CPA firm, ask if they can provide exactly what you need in terms of services.

Ask about billing

Will the firm be billing you by the hour or a flat fee / by the project? What is their hourly rate? What payment method do they accept? Will they require an upfront minimum retainer? How much will each service cost and how often will you be billed? These are definitely things every small business owner should know before signing a contract with a new CPA firm.

Ask about experience

Perhaps the most important element of the equation is a CPA’s experience. How many years have they been practicing? Have they previously helped a business similar to yours?

The best tax professionals have in-depth knowledge of tax law / tax code, have been practicing for several years, and know a lot about your industry.

The right CPA will provide additional value – such as helping you reduce your taxes or helping you increase your company’s worth.

Ask about document sharing

Days of CPA offices filled wall to ceiling with manila envelopes stuffed with tax returns and financial statements are over – or are they?

Some firms will exchange password-protected tax documents via email; others will invest in convenient cloud-based tax portals. Some do not accept physical documents (so-called paperless offices), and some have no problems with processing your paper documents.

Document sharing is not only about convenience, accessibility, and time – it is also about security. Choose a firm that offers a document sharing method you are comfortable with.

Ask about accounting software used

There are many types of accounting software on the market. Some firms work with multiple types, some only support one type. Switching accounting software can be a tough process, therefore the right firm should support the software you are currently using (or looking to switch to).

Ask who you would be working with – will it be a Certified Public Accountant?

Many firms have lower-level staff actually doing the work, and a CPA will only supervise and check for mistakes. It’s a good idea to ask who your main point of contact will be, and what their credentials are.

Ask about outsourcing or offshoring

Income tax return preparation and accounting are extremely competitive fields. In order to lower costs, some CPA firms outsource their tax return preparation (or accounting) to freelance tax preparers or other firms who perform these tasks at a fraction of the cost the CPA firm charges.

Some firms send tax returns outside of the US (which is called offshoring).

The problem with these practices is obvious: you are paying a premium price for (potentially) rushed and cheap labor.

If your tax returns are offshored, your personal information is no longer protected by US regulations.

When interviewing a CPA firm, ask who will be preparing your taxes or working on your accounting, where they will be located, and what their credentials are (CPA license? Accounting degrees?)

Investigate reviews

A good rating on Google and Yelp, as well as positive testimonials on LinkedIn, increase the likelihood that a firm is reliable and knowledgeable. Read all reviews – both the good and the bad – to get a feel for the firm.

If reviews contain a common theme (either positive or negative), this is probably what you yourself will encounter when working with them.

Investigate licenses

CPAs and CPA firms should have a valid license issued by the state they are headquartered in.

A license issued in, e.g., Illinois does not mean a CPA cannot prepare and file a California income tax return, or create a tax plan for a Nevada business! States recognize CPA licenses issued by other states (with very few exceptions).

Ask about a firm’s Preparer Tax Identification Number (PTIN) and Electronic Filing Identification Number (EFIN)

A Preparer Tax Identification Number (PTIN) allows an individual to file an income tax return on your behalf, in exchange for a fee. All paid preparers must have a PTIN and renew it on an annual basis (each PTIN expires on December 31st of a given year).

An Electronic Filing Identification Number (EFIN) is required for a tax professional to file an income tax return using the IRS’s e-file system (to file the return online on behalf of a client).

Therefore, if a CPA is charging you to prepare and file your income tax return via the IRS’s e-filing system, they should have a current PTIN and EFIN.

Look at social media

Check out the firm on Facebook, Twitter, or LinkedIn. Does their account contain helpful articles, information about deadlines, or tax tips for small businesses? An active social media account might indicate that the firm goes out of its way to provide useful information to the public and its clients.