What we're talking about

A certified accountant – known as a certified public accountant (CPA) in the US – is a qualified professional who's responsible for recording and interpreting financial information. Their job is to help a business manage its money while staying in line with the laws of the land. A good accountant has many skills but, at the most basic level, they make sure that you pay the right amount of tax and keep your accounting records up to date.

As your business grows, your accountant's role will become much more significant. They can help you with complex topics like corporation tax compliance, financial reporting, payroll and financial projections. They can also help you maximize the legal tax deductions that may be available to your business. This is done by formulating a tax plan (known as tax planning), which is the legal process of identifying all of the tax credits and allowable deductions that apply to a business in the state where you operate (if you're based in the US). Accountants must also keep up to date with any new developments in accounting and tax legislation, ensuring that your business' accounts are prepared and presented correctly.

Why it's important

Running out of money (AKA liquidity issues) is frequently listed as one of the most common reasons for businesses failing, but only 30% of US small businesses work with an accountant. Few small businesses invest in accountancy services upfront because of the cost (or perceived high cost). There are plenty of small advisors who can provide basic accounting and tax advice for low fees. Unless your business stays very small, you probably won't be able to handle the accounting requirements by yourself. As a yardstick, if you're spending more than four hours a week managing your accounts, it's probably time you hire an accountant.

Although many small businesses choose to do their own bookkeeping or tax returns, there's an opportunity cost associated with this, both in terms of time and money. Ultimately, missing out on tax deductions or tax credits will probably be more costly than the money saved by not hiring an accountant. So, if you're hoping to scale your businesses quickly, consider having an accountant onboard from the start. Plus, if there's already some financial experience in the founding team, an accountant can simply provide support where needed.

Things to note

Understand the costs. Especially when considering whether to hire in-house or external accountants, it helps to understand the costs involved. The median income of an in-house accountant in the US is $77,250 per year ($37.14 per hour) according to the US Bureau of Labor Statistics. If you work with an external accounting firm or independent accountant, you can expect to pay anywhere between $100 and $275 per hour. Despite this big difference in hourly rates, hiring an external accountant is usually cheaper than bringing someone in-house, because external accountants charge you only for the time spent working on your account. And, as a small business, you'll need the services of an accountant for only a handful of hours each week.

This is a relationship built on trust. Your accountant is going to need to know a lot about you – how much money you make, your social security number, what you're buying, profit and loss – so this relationship needs to be grounded in trust. Set the bar by communicating openly about pricing and deadlines from the very start of any interview process. And be clear on your priorities. For example, if you want someone who can turn work around for you in two to three weeks (and isn't buried in clients), you need to say so.

Find someone who really understands your industry. Every industry has different rules and requirements, particularly when it comes to money matters. If your accountant has already worked in your industry or with businesses like yours, then they'll be able to give you the best advice. You want to have someone in your corner who can help you understand your taxes or accounting records and deal with any issues that may arise.

How to find the right accountant

1. Ask for references. When you're looking for someone to trust with your business' finances, try to minimize risk. So, ask for recommendations from friends, family and any other founders that work in your area. Ask them to qualify why they decided to use this specific accountant and what differentiates them from others they've worked with.

2. Build up a list of candidates. Accountants either work for themselves as sole traders, for small- to medium-sized firms or at larger firms, like one of the ‘big four’ (Deloitte, EY, KPMG, PwC). These larger firms service big businesses and high-net-worth individuals, so considering them will probably be a waste of your time. Instead, look to work with an accountant who frequently works with businesses of a similar size to yours. If you're struggling to differentiate between firms, review sites like Trustpilot can give you some indication of past performance.

3. Prepare your questions. Draw up what you think you need – including services, cost, deadlines and contact hours – and then translate these into questions for the candidates you speak to. For example: what do you charge? How will we keep in touch? Are there any specific considerations for my type of business? How will you make sure that I don't miss deadlines? Ask if your accountant holds a respected accountancy qualification.You should be able to check this with the governing body if necessary.

4. Consider pricing and billing. An accountant's job is ultimately to save you money while protecting you from certain risks. So, you want to find an accountant who's very clear about costs. This is probably the most important factor for a small business. This is why you need to be clear and open about the level of service you require so that they can give you an accurate estimate of costs. Are they charging you on an hourly basis? Will you be billed monthly? Do you need to pay a retainer? The clearer an accountant is at this stage, the more comfortable you'll feel paying for them down the line.

5. Reach out for an interview. You're looking to speak to at least three different companies or individuals.Because of the nature of this relationship, you should invest time into finding the right person. So, depending on your preference, arrange a video interview or a face-to-face meeting with any potential candidates.

6. Draw up an agreement. Once you've decided on the accountant you'd like to work with, they'll prepare an engagement letter outlining all of the T&Cs and payment terms. In essence, this is a contract that outlines what you both expect from each other. Ask for help if you're not happy with anything at this stage before you sign on the dotted line. It's standard for an engagement letter to be revised to factor in changes and updates from the prospective client.

7. Nurture the relationship. Ideally, you shouldn't speak to your accountant only when accounts and tax returns are due. Provide them with regular updates on how your business is doing. A rule of thumb is a quarterly check-in, but speaking at least once a month would be even better. This will help you build trust in the relationship and let your accountant do a better job. It'll also mean that there's a clear line of communication if you need to discuss any sensitive issues like price changes.

Key takeaways

• Beyond overseeing your books, accountants can help you hire your first employee, advise on key financial decisions and create a tax plan to maximize your tax deductions and credits.

• As a small business, it's usually more cost-effective to work with an external accountant than hiring someone in-house.

• Look to hire an accountant who already has experience in your sector with similar-sized businesses.

Level up

Tool. You can use accounting software QuickBooks to compare different accountants in your area. The tool also lays out what services each accountancy firm provides and whether they offer a free consultation.

Example. Sharing your financial position with your team can have a positive impact on engagement. Here's how to adopt open-book management in your business.

Perspective. If you've got a specific question that needs answering, try bookkeeping software Bench's accounting expert Q&A.

A version of this article was published in the Courier Workshop newsletter. For more deep dives into essential business concepts, sign up here.