April 15th will be here before you know it. If the thought of taxes and business finances sends you into a cold sweat, then now’s the perfect time to finally take control of your finances and do yourself a favor by hiring an accountant.
I recently had the opportunity to sit down with Karen Schultz of CKS Accounting Services, LLP. Being that I’m a photographer (and not particularly money-savvy), I had a bazillion questions to ask. For part one of the series, we’ll tackle the basics and what to look for when hiring your own professional accountant.
1. What are the benefits of hiring an accountant versus trying to tackle my own finances?
By hiring an accountant, you have the benefit of their knowledge and experience. They can guide you through the process of registering your business and discuss the structure that would be best for you (Sole Proprietorship, C-Corporation, Sub-S Corporation, or Partnership). Your accountant can help you weigh the pros and cons of each type of entity. An accountant can also figure out your potential tax liability throughout the year. As for doing it on your own, it may end up costing you more in the long run, especially if you’re disorganized.
2. What’s the difference between a Sole Proprietorship, C-Corporation, and Sub-S Corporation?
A Sole Proprietorship is someone who does not file a separate business tax return; they just file a Schedule-C with their personal tax return. All profits and losses for the business are picked up on the personal tax return. If you structure your business as a Sub-S Corporation, you file a 1120-S tax return. A Schedule-K is prepared with this return, reporting your income or losses, which are then used to report the information on your personal tax return. A C-Corporation is usually not advised for a small business, as there can be double taxation issues. The advantage of setting up a Corporation is the protection of your personal assets, whereas with a Sole Proprietorship, you’re liable if anything happens.
3. What’s the difference between a CPA, accountant, and bookkeeper?
The CPA has a degree from a 4-year university and has passed a very comprehensive test to become certified to do any kind of public accounting and tax work. Accountants have more experience than bookkeepers, but aren’t certified like CPAs. They’re able to handle any sort of accounting situation that may arise, whereas a bookkeeper might just handle certain areas, like accounts payable, accounts receivable, or bank reconciliations. The accountant should be able to prepare a financial statement for internal use only and may be qualified to prepare a tax return. CPAs can prepare both financial statements and tax returns. CPAs are typically used by larger businesses and probably would be the most expensive option. Bookkeepers, on the other hand, are going to be the least expensive option.
4. What should I look for when hiring an accountant?
Most accounting firms have an engagement letter, which is a contract. The engagement letter will spell out your responsibilities, their responsibilities, the work to be done, and what it will cost you. Some questions to ask when you’re interviewing an Accountant:
* What types of clients do you have?
* How large or small are your clients’ businesses?
* Do you have any clients in the photography industry?
* Please explain what you envision the accounting process being like for my particular business. (How would you handle it? How often would you need my information? How often would we meet?)
* Will I be working with you or another staff member? (If someone else will be handling your business, it’s best to arrange a meeting or Skype session with them at least once so you have a face to go with the phone calls and emails.)
* What sort of assistance can I expect from you? For instance, if I call you with questions five times a month, is there an additional fee for that?
5. Is it typical to charge for routine phone calls?
CPA firms will usually charge for that. I don’t charge for phone calls or emails, unless it gets out of control (like 10 emails per day), or I have to do research to answer their question. But I have a couple clients who call me at least once a week, and I don’t charge them for that. They’re my client. If I don’t have 3 minutes to spend on the phone with them, then they need to find somebody else.
6. What can I expect to pay my accountant per year?
That’s a tough one because it is all over the board. First of all, it depends on what part of the country you live in. For instance, to hire a Quick Books trainer, you can expect to pay anywhere from $50 to $100 per hour. That’s a wide range. And the same goes for bookkeeping or payroll processing. I would think that a bookkeeper would charge in the range of $35 to $65 per hour. On the other hand, if you hired a CPA to do the same work, the fees may start at $100 per hour. If you’re a small, one-person business with only a couple of bank accounts, who doesn’t need payroll, billing, or invoicing, you could expect your accountant to bill you for about 3 hours of work per month. But obviously, the more transactions you have, the longer it’ll take.
7. Does it make a difference if I’m someone who’s super “on top” of my finances versus someone who just hands you a box of receipts at the end of the year?
Oh, a huge difference. The more organized you are, the more money you’re going to save, because it’s not going to take us as long to sort through things. Some accountants, however, charge a fixed fee instead of hourly rate. So if you’re not very diligent about tracking your finances, you might want to work out some sort of fixed fee rate.
8. Can hiring an accountant help me figure out how much money I spend annually on marketing vs. equipment vs. cost of goods?
Absolutely. The information you give your accountant will be entered into accounting software and categorized accordingly. At the end of the year, they can give you a print out of all income and expenses for the year. They can also help you do a budget for the next year.
What are you wondering about?
Stay tuned for Part 2, where we’ll cover a lot of photography-specific questions like mileage, clothing deductions, and getting paid in cash.
Kelly Benton lives with her husband and two adorable dachshunds in Northeast Indiana, where she works from home as a Wedding Photographer. When she’s not photographing over people’s love, she’s a wannabe-rockstar triathlete with a penchant for funny movies and craft beer. Check out her blog or connect with her on Facebook.