For the February/March issue of Barista Magazine, I wrote a column about how to address your business’ bookkeeping and legal matters. Read the full article below. Order your copy of the Feb/Mar Barista here.
Assembling Your Financial Team.
When do you need an accountant, CPA, or bookkeeper? And for that matter, a payroll service?
Have you taken the DIY approach to accounting and legal matters for your café? Or do you have a bookkeeper—the cheapest one you could find? These approaches might be saving you money, but probably not. You might in fact be throwing away profits, along with your precious time.
To give your café its best chance for success, consider ponying up for advice and assistance from real financial experts. An accountant can be one of the most important professionals you can hire—and not just at tax time. Essentially, accountants are business consultants (especially CPAs, who have to pass a brutal licensing exam plus do about 40 hours a year in continuing education to keep their credentials).
Most accountants can help you maintain financial records and generate reports. A good one can interpret the financial and operational data of your café and offer advice on operations and growth.
Here are all of the great things an accountant can do for your business while you focus on your own expertise:
1. Basic Bookkeeping. All accountants are trained to produce business financial records and to generate the related documents and reports. They can also help you open business bank accounts and set up direct deposit systems for vendor payment and payroll.
2. Money Management. An accountant, more than a bookkeeper, can advise you on managing cash flow and inventory, price control, and business financing. This can be invaluable for staying afloat and growing your business. Think about this value in terms of projecting coffee purchases whether roasted or green—either way, a major part of your cash flow.
3. Tax Law. The constantly changing legislative landscape makes corporate tax law a moving target. Many accountants, and definitely CPAs, are familiar with corporate and tax law, staying up to date with changes to legislation. Thus, they can help you structure your business appropriately, assist with setting up any new ventures, plus file corporate tax returns with all the pertinent deductions. Before making any major decisions, consult with your accountant. This will help you avoid losing money and/or getting yourself into trouble. (If you’re already in trouble, you may need a tax attorney. See sidebar.)
4. Tax Planning and Reporting. In addition to standard tax reporting, a good accountant offers general tax planning advice to maximize your business tax deductions. This is one area where hiring an accountant can pay for itself.
5. Technology Tips. Navigating the numerous accounting software applications, services, and business tools on the market is no less than confusing. A good accountant will be familiar with accounting software and services and how to integrate them into your business.
If you still fear the idea of paying for accounting services, there are a few ways to minimize your costs:
1. Use a small firm or private individual. Small accounting firms and self-employed accountants generally charge less for their services. But do be sure to look into their experience, credentials, and any references they provide.
2. Use an accountant instead of a CPA. Assuming you don’t need the special services of a CPA, stick with a regular accountant. However, try to use a firm that is run or supervised by a CPA, to gain the benefit of CPA oversight. If you hire a CPA, be prepared to pay more. CPAs generally charge more because they provide more in-depth services.
3. Be clear about the price. Ask the accountant about their structure before you agree to work with them. Most accountants work from an hourly rate. Find out the average amount of time required to complete each task.
4. Keep your books in order. Ask your accountant how they’d like your data presented to them. Keep in mind:
a. Missing documentation will slow down your accountant and cost you money. Ask your accountant for advice on how transactions should be recorded and what accounting systems should be used.
b. Don’t combine business transactions with personal ones. Keep separate accounts and credit profiles.
A word on relationships. Contact your accountant on the same day every month to discuss your business’ operational and financial performance. Make sure they completely understand your business and your goals, so when you hit a bump in the road, they’ll be there to help you get over it. They can have major influence on your success.
Payroll: DIY or outsourced?
If you have more than a couple of employees and you don’t have some solid accounting know-how, and you’re not willing to research the laws and deadlines, you should probably pay someone else to do it. Like hiring an accountant, a payroll service frees you up for the million other duties that go along with running a café. Plus, payroll and withholding obligations can be complicated. If you don’t do them just right you could end up owing the IRS back payments and penalties.
Managing payroll isn’t just about writing out paychecks and calculating withholdings. In addition to issuing paychecks, withholding taxes and filing quarterly reports, your payroll responsibilities probably include:
Paying withholdings to government agencies
Issuing annual W-2’s
Summary filings at the state level
Managing employees’ health and pension plan contributions
Assessing state disability, unemployment and family leave
Notifying the government when employees are hired or leave the company
The cost for a payroll service is anywhere from $2 to $3 per check for issuing basic checks and up to $5 to $7 per check for the more in-depth services listed above. A good tool for comparing services and prices is PayrollServiceComparison.com. You’ll be asked to answer a few questions about your business and payroll needs and then get free price comparisons from payroll services. TopTenReviews.com also has a handy review of several major payroll service providers.
Regardless of which payroll service you use, you are ultimately responsible for the withholdings and filings. A payroll company will not take responsibility for the data you provide and will not necessarily help you understand what data is required. Monitor payroll reports for at least the first year you’re with a vendor, and consider having your accountant review them.
Again, if you don’t have more than a handful of employees, you can balance outsourcing and keeping payroll services in house by printing paychecks with any accounting software program and calculating withholdings. You can then outsource the complicated reports for quarterly and annual filings.
Accounting fees vary depending on your business’ size and location, the experience of the accountant, the particulars of their service, and your financial situation. Some are willing to do a first consultation at no charge, but expect to pay their hourly rate going forward.
Bookkeeper: This broad, basic job is can be done without any formal education. By definition, a bookkeeper records the accounts or transactions of a business. The “books” refer to your financial records, whether actually kept in books or on computer software. A bookkeeper can also make bank deposits, balance accounts, handle payroll, prepare and send invoices, etc.
Accountant: The term generally refers to a formally educated professional who helps maintain and analyze financial records, and/or makes sure taxes are paid properly. They may or may not be certified as a public accountant (CPA), but an accountant has thorough knowledge of equity, cash flow, balance sheets, chart of accounts, etc., and their effects on a business. Accountants do not, however, have standing with the IRS regarding signing tax returns or representing clients at tax audits.
CPA (Certified Public Accountant) is a professional designation that is regulated from state to state. To become a CPA, one must take 150 hours of college-level business courses, do a year of corporate accounting under the supervision of a CPA, then pass a test of business, auditing and accounting skills. Every year, CPAs must complete several hours of continuing professional education (usually 40 hours, depending on the state) to stay current on financial rules and regulations. Suffice it to say, a CPA can provide more services than an accountant. They often serve as business and financial strategists who help chart the paths of businesses by determining effective financial and business strategies, advising on the profitability of new product lines, seeking creative financing opportunities, and diversifying investments. They can even sign your tax returns and represent you before the IRS if you’re audited.
Tax attorney: Let’s hope you never need one. A tax attorney helps resolve audits and other problems with the IRS or state revenue department. CPAs can perform much of this function, too, while tax attorneys can go further by helping to get fines reduced, liens removed, as well as generally navigating the minefield of small business self-employment tax issues, seeing potential trouble spots and advising you on how to avoid them.
Seems daunting, but consider the economic costs associated by not considering at least one of these options. Need more assurance? Brewed Behavior works with clients from their profit and statement to identifying areas of opportunity, and even we have our own CFO.