Hiring your first accountant for small business growth

BY • POSTED August 10, 2018
Home / Accounting / Hiring your first accountant for small business growth

Welcome to business!   You’ve probably already heard the thousands of lectures on what you need to be successful, and read countless articles on how to be in business for yourself.   I promise this isn’t one of those lectures or articles.

Guess what one of the most important tasks are when setting up your business, right after deciding to be in business?  Get an accountant.

In this article, I’d like to talk about the different types of accountants, specialties, memberships, and credentials.   The purpose…..   Most people believe that a CPA knows about everything about finance.  Please keep reading.

Accounting

Defined and minimized, accounting is the language of business.   It is the measurement, processing, and communication of financial information about economic entities.

There are several fields, including:

  • Financial
  • Management
  • External audit
  • Tax
  • Cost accounting

There are standards designed by several monitoring organizations, in the US is the Financial Accounting Standards Board (FASB), who develop guidelines such as Generally Accepted Accounting Principles (GAAP).

Ok, I’m not going to reopen the pain we all had in accounting class.  This little blurb was intended to provide the enormous scope to which the accounting function represents.

Accountant Education

Please feel free to skip this section for purposes of quicker reading.

College/University

Most professionals today have gone to a university with an accredited accounting program, both undergraduate and graduate.

According to the Cleveland State University website and outline for degree programs (https://www.csuohio.edu/business/sites/csuohio.edu.business/files/4_yr_plan_accounting.pdf)

Undergraduate Accounting

  • 120 total hours
  • 36 accounting core hours (12 classes)
  • Specialize in public, government, management, or audit accounting

Important footnote here, all undergrads take 120 hours of classes to graduate, and most programs require 36 hours of major specific core courses.

Graduate Accounting

Some go back for graduate work.   The Cleveland State graduate program (https://www.csuohio.edu/business/academics/master-accountancy) consists of:

  • 30 additional credits
  • Requires specialization, either audit or tax (requiring only 9 hours, 3 classes, to specialize).

Great!   Your accountant took 150 hours at a university (assuming grad school), 66 of those hours are accounting related, and took 15 classes specializing in something.

Professional Designations

CPA (Certified Public Accountant) – What does it take to be a CPA?  According to The Accountancy Board of Ohio,   $800 and 150 hours of education.

A CPA is a designation intended to show expertise as a financial accountant.  These individuals are geared for public accounting. Also required are continuing education credits, often up to 40 hours per year, to keep the certification.   When your accountant graduated, he/she had to sit for four exams targeting four major areas of the profession:

  • Audit
  • Business Environment and Concepts
  • Financial Accounting and Reporting
  • Regulation

He/She had to get a 75% on each to pass.    Your accountant may have missed one out of four questions and still holds the title, and he/she gets to take the test as many times as they want to pass, along with only needing a 2.5 GPA to graduate (a C+ average).

CMA (Certified Management Accountant) –   A CMA is a CPA without the fluff (of course, I am biased to my own opinion from professional experience).   A CMA is a professional designation given by the Institute of Management Accountants.

What does it take for an accountant to be a CMA?

  • Bachelor’s Degree from an accredited university (notice, it doesn’t have to be accounting or finance)
  • Two years of continuous experience in management accounting or financial management
  • Membership in the IMA
  • Abide by the IMA Statement of Ethical Professional Practice
  • Complete and pass parts 1 and 2 of the CMA exam
  • 30 hours of continuing education

*Information from IMA website

https://www.imanet.org/cma-certification/current-cmas?ssopc=1

Summary-

These are two different paths that an accountant could (and should) consider to demonstrate professional and academic success.

In today’s climate, the CPA gets the most notoriety due to its avenue to enter the profession immediately upon graduation.   It also means that your accountant is up to date on tax and audit code.   They can work in public or private industry, but often stay with the large accounting firms.

The CMA indicates that the professional you’ve hired has likely held titles in private industry such as Controller, AR/AP Manager, CFO, COO, VP of Finance, or is a consultant.  This career designation means your accountant isn’t just a tax person, but is an analytical numbers geek- one that is focused on profitability and improvement.   The CMA also often has experience dealing with Lean Six Sigma and may be a QuickBooks Pro Advisor (more on this in the Bookkeeping article).    They went to school too, but received their hard knocks in the school of work, climbing the ranks, and understanding what finance means to industry.   They hire the CPA for functions in your accounting department.

When you are picking a finance professional for your small business, consider these differences- each are educated, but with professional experience focused differently.

Variations of “Accountant”

Would you hire a patent attorney to handle a criminal case?  Would you hire a photographer who specializes in pet photography for your wedding shots?   Hopefully you said “no”.   Accountants are specialized much like attorneys and photographers.   There are different education requirements, levels of experience, and professional designations- one size does not fit all.

Financial Accountant

A financial accountant is an “expert” in financial statements, both preparing and analyzing.  This individual is (or should be) a pro when it comes to GAAP.  Bookkeepers fall under this category, as they must understand compliance regulations, T-Charts, and how their entries affect financial statements.  The information they provide to shareholders, stakeholders, governing bodies, financial institutions, and management is based solely on the financial transactions of the business.   Additionally, the accounts payable and receivable functions have an impact on the financial accounting of your business.    Your financial accountant passed the CPA based memorized experience from school.

Management Accountant

The management accountant is an “expert” in profitability.   He/She manages the functions of your business (a/p, a/r, procurement, tax, general ledger entries, payroll, etc.) and is the person who is responsible for budgeting, cash flow, expenses, and managing revenue.  The management accountant is also a cost accountant, responsible for making sure costs are as low as possible.   They must be aware of industry and economic changes and how business growth can result in volume discounts for your business or to forecast profit for the business.   They are strategy-minded, and focus on how every transaction affects the bottom line.

This person should have relationships with vendors such as attorneys, realtors, banks, investors, major purveyors of goods, and have the intuition needed to find such resources.

Now in all fairness to the CPA reading this, they also can have the same qualifications as a management accountant.   This would only be done if he/she worked in private industry.

Communication with your Accountant

You’ve decided who you want to run the finances of the business.  Maybe it’s your brother, sister, cousin, best friend.   You have a connection whom you trust, and you’re ready to open the books and hand them the keys.

Not so fast….

Every business is subject to embezzlement, and often is not discovered until well after the damage has been done.  Why does this happen?   Most business owners insert their finance person, trusting that it’s just being done.  You want to make it and sell it, then put finance on auto-pilot.

Make it a point to meet on a regular basis with your finance professional (monthly at least) and go through the books.   Ask questions about entries, and understand what your budget is.   If something looks weird, it probably is.   Go through the P&L together and all forms before they go to the tax preparer.

Lastly, have your books audited at least semi-annually.   Hire an outside professional to ask questions.

Ok this is really the last thing.   Always have a non-disclosure on file.  You don’t really want your secrets going to your competitors… and if you think Aunt Millie won’t sell your soul, it’s your funeral.

Conclusion

Now you’re ready to hire an accountant.   Hopefully this article was helpful in understanding the key differences between professionals.  In the best case scenario, we always recommend having a management accountant to manage the process along with a tax accountant just to file the tax forms.   This is of course my opinion, but to best gauge the financial health of your business there is a level of analytical prowess needed to effectively communicate and bring in the right people to round out your finance department.

Do your homework and follow up.   We are happy to help you find an accountant, audit your books, or develop the process.

This information is based on the experience of Ryan Dietrich, consultant and principal at Finance Jack, LLC.   Ryan has over 10 years of strategic management accounting experience, and has led finance activities at Fortune 500 companies and small businesses alike.   Ryan has developed policy, managed risk, and led teams at all levels. Finance Jack focuses on strategic management in the accounting and finance areas of small business, startups, and scaleups.   To contact Ryan Dietrich please email ryand@financejack.com.

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