Our Small Business 101 series is for anyone who owns a small business and for anyone who's thinking about starting a small business. It draws from lessons we've learned while working with thousands of Canadian small business entrepreneurs over the years. It's the class we wish we'd taken before starting Origami. And the night class you should be taking right now.
Thanks to Kris Sparrow, CPA, co-founder of Origami, and Partner at Origami Professional Corporation for his input into this post.
Last week, we covered why you need a small business bookkeeper. In this post, we're going to touch on why you need a small business accountant and more specifically a small business CPA. Why choose a CPA over a non-designated accountant? Chartered Professional Accountants have to go through a certification process that enforces a professional standard and screens for competency, and they must adhere to the professional guidelines and standards of their regulatory body in their practice. Accountants without the CPA designation don't have this oversight.
CPAs provide 3 basic and increasingly valuable services to small business owners:
- Competently prepare the corporate tax return and related filings
- Recommend a tax efficient long term personal compensation strategy (known as tax planning)
- Explain the financial results in a manner the small business owner can understand
Let's look at each of these in detail.
Corporate tax returns and related filings
If you haven't incorporated and you're running your business as a sole proprietor, then your business income will appear on your T1 personal tax return (on Schedule T2125). Many self-employed individuals are comfortable filing their returns on their own. That comfort level goes way down when it comes to filing a T2, the tax return for an incorporated business. There are many rules around bookkeeping (cash vs. accrual), eligible expenses, fixed assets and depreciation, compensation to owners — as well as regular changes to the tax code — that the preparer needs to be aware of.
CPAs know the rules. They do a commendable job of preparing corporate tax returns and related filings such as T5s. Without the same knowledge and experience, you can expect to commit a lot of time to get this done, and you still wouldn't be confident that you did it right. You could spend time learning accounting and the tax code, or you could spend it building and growing your business. If the issue is cost, fees vary, so shop around. But don't forget that while a CPA is an accountant, an accountant may not be a CPA.
Earlier this year, I interviewed Kris for an article for the Origami Substack. The article is titled Paying Yourself at Different Stages of Your Small Business, and it deals with what small business owners need to know about compensating themselves as their business gets traction and grows.
In the article, Kris describes how small business owners start out expecting (at least hoping for) a level of compensation that first pays their bills. Then, when their business is doing well, they're looking to fund a lifestyle. All along that journey, they're looking for opportunities to fund their retirement. Each objective involves different tax considerations and strategies. Kris shows the value and insight that a knowledgeable and experienced CPA can add to this type of planning, helping you to build wealth as you build your business. It's a very informative read, and I highly recommend it to all small business owners.
Helping you understand your financial results
Most people aren't comfortable navigating traditional financial statements. Good accountants provide a road map. Great accountants translate them into succinct measures and link them to the small business owner’s goals. Every CPA can competently prepare and file your small business corporate tax return. Efficient tax planning is much more hit and miss. A service that can help you understand your financial results is rare.
This is where the very best CPAs distinguish themselves. In fact, it's very difficult to find anyone capable of cutting through the noise and breaking down financial information into a form that's palatable to the average, busy, small business owner.
What does "palatable to the average, busy, small business owner" look like? How about something like this: Your sales were x last month, if you want to reach your profit goal and keep all your employees, they need to be y. Your wages were m last month, if you want to reach your profit goal and can’t grow sales, they need to be n. Why focus on sales and wages? They're two things that small business owners can immediately influence via their actions.
Anyone who's good at algebra can answer those questions themselves with a spreadsheet (or pen, paper, and calculator if they're old school). As for the people who aren’t good at algebra, definitely look for a CPA willing and able to provide those breakdowns and have those conversations.
Thanks for reading! If you're ready to start building a better business, give us a call at 1-888-745-1315 or get in touch with us by filling out our Get Started form. We're always happy to hear from you and learn about your business. We'd love to see your small business succeed, and we'd be proud to be a part of your success.