Financial Professionals Part 1

This month’s guest blog is actually a two-parter by Rebecca Weingartner. This week, she’s covering the different types of financials professionals that exist, and then next week she’ll delve into how you determine which one is best for your business.

Who Are They? What do they do?

“You don’t know what you don’t know.”  If you are an entrepreneur or small business owner, you likely feel that saying to your core.

When we start on a new venture, I believe our ignorance often times allows us to push our ideas further at the beginning because we aren’t limited by all the rules we are blind to.  However, that ignorance does catch up with us at some point when we realize we’ve been running full steam ahead and not pausing at any point to make sure we are doing things right.

One area I see this in for most small business owners is when it comes to their finances.  Their bookkeeping is a mess or non-existent.  And they haven’t been filing their taxes (sales, payroll, income) or are filing them incorrectly.  And unfortunately, these mistakes are expensive to correct.

As I’ve chatted with more and more entrepreneurs and business owners, I’ve realized that many do not understand the difference between the varies types of financial professionals that are out there or who to use at any given time.  If you find yourself in a similar boat, then that lack of understanding may be hindering you from seeking the right help sooner! So let’s clear some of that up for you.

The Bookkeeper

The bookkeeper is the person that handles tasks related to the daily operations of a business.  It may include tasks like syncing bank accounts with the accounting platform, uploading and categorizing transactions, file management of receipts, accounts payable & accounts receivable, and preparing financial reports for the management team.  Though their role may vary wildly, especially depending on if they are outsourced services or an in-house bookkeeper, they will all perform some form of tasks that helps organize and process the financial data for a business.

On the flip side, the bookkeeper is NOT a tax filer, cannot provide audited or signed financial statements, and is not able to give legal or tax advice.  UNLESS they hold another title in addition to being a bookkeeper.  We’ll touch on that later!

Additionally, bookkeepers are not required to have any licensing, certifications, or formal education.  So when looking for a bookkeeper, it’s best to find one that has experience, and is knowledgeable in the accounting platform that your small business will utilize. 

The Accountant

The accountant is someone that can analyze a company’s finances based on the bookkeeping data available.  They can prepare financial statements as well as provide financial strategies and forecasting.  While the accountant is able to prepare tax returns for a business, they are not able to sign them on behalf of the client, or present that client in front of the IRS.

When it comes to education, accountants are required to be formerly educated, holding a bachelor degree in a field related to finance.  However, they are not required to maintain any additional certifications (though they have the option to do so if they wish) and do not have to keep up with continued education.

From my experience, I have found that many individuals that hold a general accountant title, are either employed as an accountant for a company, or they run their own business and pair their accountant services with bookkeeping.

The CPA (Certified Public Accountant)

The CPA is a special breed of accountant.  They can offer the same services as a general accountant, but due to the extra licensing they went through, they are able to offer far more.  They are able to provide audited financial statements which is necessary for all publicly traded companies, and sometimes businesses looking to obtain certain loans.  The CPA can also sign any tax return they prepare for their clients as well as represent them in front of the IRS.

A quick fun fact about IRS representation, did you know that CPAs are one of only 3 professionals the IRS allows to represent clients even if it’s for tax returns the CPA didn’t prepare?  EAs (which we’ll get to next) and Attorney’s are the only other professionals the IRS allows to do this.  Might be something to consider when looking for a new person to file your taxes!

Now what about education?  CPAs must first possess a bachelor’s degree in accounting or related financial field (aka, become an accountant).  Then, they have additional requirements they must meet according to the American Institute of CPAs in order to become AND maintain their CPA status.  This includes passing a lengthy exam and keeping up with continued education each year.

The EA (Enrolled Agent)

The EA is a professional that most entrepreneurs and small business owners seem to be unfamiliar with, yet it is such an important profession that it wouldn’t be right to exclude them from the list.

This professional is licensed directly through the IRS by taking tax related classes and passing an exam.  In order to maintain their EA status, they must also keep up with the latest tax laws through continued education.  And like the CPA, it’s one of only 3 professionals that’s allowed to represent their clients in front of the IRS for more than just the tax returns they signed and filed.

Unless an EA holds additional titles, they are not trained in accounting or bookkeeping.  So if you use one, it’ll be specifically for tax filing.

Now what?

Tune in next week for how to use these roles in your business!