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When Should You Hire a CPA?

Jamie Johnson
Jamie Johnson

From choosing a business structure that helps you save the most money on taxes to providing advice on a major business move, there are key times when your small business needs a CPA.

  • CPAs are accountants who are tax experts.
  • Before you start your business, you should meet with a CPA for tax advice on which business structure will save you money and the accounting method you should use.
  • If you're audited, a CPA can represent you before the IRS.
  • This article is for small business owners who want to know when they should seek services from a CPA.

As a small business owner, you may find it difficult to gauge when to outsource responsibilities or handle them on your own. This is especially true in the case of a certified public accountant (CPA), especially if you've just started your business or if your company has grown beyond an expected size. 

While you can certainly take care of the day-to-day accounting yourself – especially if you have good accounting software – or hire a bookkeeper, there are instances when the expertise of a CPA can help you make sound business decisions, avoid costly mistakes and save you time.

What is a CPA?

CPAs are tax experts who can file your business's taxes, answer important financial questions and potentially save your business money. While CPAs have accounting degrees, their certification differs from traditional accountants.

CPAs have passed the Uniform CPA Exam – a rigorous exam that tests one's understanding of tax law and standard accounting practices – and obtained a state license, which includes ethical requirements. They must take professional education courses to maintain their license, and may lose it if they are convicted of fraud, negligence or ethics violations. Furthermore, CPAs have unlimited representation rights to negotiate with the IRS on your behalf.

Key TakeawayKey takeaway: A CPA is a specialized type of accountant with tax expertise who can represent you before the IRS.

CPA vs. accountant

An accountant is someone who has earned their bachelor's degree in accounting or finance. A CPA has a bachelor's degree, but has earned additional designations upon graduation.

To become certified, an accountant must have work experience, pass the Uniform CPA Exam, and meet all state licensing requirements. The exam covers their knowledge of business, accounting, tax and auditing. Additionally, CPAs are required to take continuing education courses throughout their careers to stay up to date on laws and regulations.

Because of this certification, a CPA has a fiduciary responsibility to their clients, while an accountant does not. This means CPAs are legally required to act in the best interest of their clients, whereas a standard accountant does not have a license to lose.

Key TakeawayKey takeaway: A CPA is also an accountant, but only about 50% of accountants are also licensed CPAs.  

What does a CPA do?

CPAs can wear many hats for your small business. They handle bookkeeping, preparing important financial documentation (e.g., tax documents and profit-and-loss statements), financial planning and tax filing, among other tasks.

They can also provide sound financial advice for your business as you continue to grow, so you can concentrate on running your business. These are the general responsibilities you can expect from a CPA:

  • Tax filing, planning and advice: CPAs are qualified to handle all of your business tax needs, including year-round recordkeeping and filing tax extensions with the IRS.
  • Tax and financial compliance: If you are audited, CPAs can reduce the cost of audit findings by negotiating with the IRS on your behalf. Because of their extensive knowledge, CPAs can catch financial and tax problems before they become an issue, thus preventing an audit.
  • Consulting: CPAs can assist you with important financial decisions, budgets, financial risk management problems, and other financial services. They can also provide valuable advice on complicated financial matters.
  • Forensic accounting: CPAs can help monitor your books and prevent fraud.
  • Payroll: If you're not already using top payroll software, CPAs can set your business up with a platform that works for your company.
  • Bookkeeping: CPAs are qualified to help you create, maintain and review financial books throughout your business lifecycle.

Key TakeawayKey takeaway: In addition to bookkeeping and payroll, a CPA assists with tax advice, planning and compliance. They can also consult with you on your budget and other complex financial matters.

What's the average cost of hiring a CPA?

The short answer is that it depends largely on your business and the services you need. According to the U.S. Bureau of Labor Statistics, the median hourly wage for CPAs is $40. This may not, however, cover specific fees for certain services and consultations.

It's important to have an idea of the kind of services you need before you meet with a prospective CPA. This way, you can have a clear discussion on how they are going to bill you.

By itemizing costs, you can gain a realistic idea of how the CPA could help your organization thrive. You'll also be able to weigh the cost and benefits of outsourcing certain services that you may be able to complete through a software program or other means.

While it's hard to pin down a concrete number for how much you can expect to pay a CPA, it is important to have a knowledge of typical fees and expenses. These are some typical expenses to review before you meet with a CPA:

  • Hourly rates
  • Administrative fees
  • Paperwork fees
  • Other fees and services

Key TakeawayKey takeaway: The national median wage for a CPA is $40 per hour. Before hiring a CPA, ask about their hourly rate and other potential fees that apply.


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When you should hire a CPA?

You don't necessarily need to hire a CPA as a full-time or even part-time employee to benefit from their knowledge of the ins and outs of business finance, as many offer their services as consultants. These are times you should consider hiring a CPA:

1. Before you start your business

When you're launching a business and money is tight, the idea of paying hundreds of dollars for a few hours with a CPA may seem extravagant. However, like many other startup costs, it's an investment (and it's a deductible expense).

A CPA can help you set up your business so you can avoid costly mistakes. These are some of the decisions a CPA can assist you with as you get your business up and running:

  • Your business structure: CPAs can recommend the best business structure for your company. The legal structure you use to set up your business – sole proprietorship, partnership, LLC, corporation or co-op – affects your taxes, liability and reporting requirements. It can also be difficult to change later on, possibly requiring you to reapply for licenses, get a new employer identification number, or notify your bank and insurance company.

  • Your accounting practice: A CPA will help you determine whether cash or accrual accounting is the best fit for your business. When you're setting up your accounting software, one of the first questions it asks is which type of accounting you use. Generally, new businesses use cash accounting – as it's simpler – but there are instances when the IRS requires accrual accounting, such as if you sell goods to consumers and maintain an inventory. The alternative is the accrual method – recording income and expenses when they're billed rather than when you receive the money.

2. Tax time

CPAs can prepare tax documents, file tax returns, and strategize ways to minimize your tax liability for the following year. Also, CPAs can represent you if the IRS has questions about your return or if you or your business are audited, which is an important consideration. 

Business taxes are different from personal taxes; even if you've always done your taxes yourself, you may want to hire a CPA if your tax situation is complex. For instance, if you hire employees, or if you sell products to customers in multiple states or countries, hiring a CPA to file your taxes can save you time and heartache.

These are other ways CPAs can assist you with your taxes:

  • Compliance with tax laws: CPAs help you understand and comply with tax changes. When the tax code changes, such as it did with the Tax Cuts and Jobs Act, a CPA can help you understand if and how the changes affect your business.
  • Appropriate deductions: CPAs help you understand which deductions you qualify for. While you want to take as many deductions as you're entitled to, you also don't want to make questionable deductions that may trigger an audit. A CPA can help you decide when you should – or shouldn't – take certain deductions.

These are some instances when you might need a CPA's advice:

  • You're starting a business and need to know which startup costs are deductible.
  • Your business started as a hobby and you want to know how the IRS will classify your company.
  • Your home and small business intermingle, and you're not sure which expenses are deductible. For instance, can you deduct your home office if you also have a desk at another location? If your vehicle is primarily used for work, should you or your business own it? Is your cell phone a business expense? If you take a business trip and extend it for a few vacation days, which expenses can you deduct?

3. Special circumstances

As you run your business, there may be specific instances when you need a CPA's expertise. For example, if you receive a letter from the IRS notifying you that you're being audited, or even if it simply requests additional information about your return, you should hire a CPA to represent you. CPAs have experience dealing with the IRS and can help you respond appropriately, supply the information it needs, and resolve the issue as painlessly as possible.

These are some other situations that may prompt you to hire a CPA:

  • If you're thinking about taking out a small business loan, a CPA can help you decide if financing fits your long-term goals. They can recommend the best type of loan for your business, figure out the size of the loan and how payments will impact your cash flow, and prepare financial statements for your loan applications.

  • When events in your personal life have the potential to affect your business finances or structure, you may need to hire a CPA – such as if a business partner who is also a family member passes away, or if the business is a marital asset and you're getting a divorce. CPAs can advise you on whether the event has tax implications, help calculate the value of the business, or prepare financial statements for a sale.

4. When you acquire, merge, sell or close

When you're facing significant structural or operational changes to your organization – such as purchasing a business, merging with another company, planning to sell or close your business, or deciding whether to take on a new partner or dissolve a partnership – you should consult a CPA about the tax implications for your business and for yourself.

If you're purchasing a business, a CPA can help you analyze its financial records, verify its assets, and perform your due diligence. If you're selling your business, a CPA can give you an idea of the fair market value of your business, and prepare your financial reports and statements.

When you have a serious buyer, they expect you to have perfect accounting records, with an accurate valuation – and you may lose potential buyers or receive a lower offer if you don't meet these expectations.

Key TakeawayKey takeaway: You should plan to meet with a CPA before you start your business, at tax time, when you have complex financial decisions to make, or when you plan to make major changes to the ownership of the business.

What to consider when hiring a CPA

Hiring a qualified CPA can be a lifesaver come tax season, but as you can see, a CPA can help you at every stage of your business. If you're searching for the right person, here are a few things to keep in mind.

1. Look for a CPA who's familiar with your industry.

It's important to find a CPA who's familiar with your industry and the needs of businesses like yours. For instance, if you run an e-commerce business, then your accountant should have experience with serving online companies.

2. Ask for referrals from other business owners.

If you're friendly with other business owners in your area, ask them for recommendations. The best place to start is a local networking group. If you don't have anyone to ask for a referral, you can search the American Institute of CPAs.

3. Make sure they're registered in your state.

Before you hire anyone, use the CPA Verify tool to check that individual's certification status to ensure they are up to date with their requirements.

4. Check their reputation.

Lastly, when considering a CPA, check their online reviews or their Better Business Bureau accreditation. By doing your due diligence, you will have the best chance of hiring a highly qualified CPA.

Lori Fairbanks and Matt D'Angelo contributed to the writing and research in this article.

Image Credit: create jobs 51 / Shutterstock
Jamie Johnson
Jamie Johnson
Business News Daily Contributing Writer
Jamie Johnson is a Kansas City-based freelance writer who writes about finance and business. She has also written for the U.S. Chamber of Commerce, Fox Business and Business Insider. Jamie has written about a variety of B2B topics like finance, business funding options and accounting. She also writes about how businesses can grow through effective social media and email marketing strategies.