Your Start-Up Business Needs A CPA – 6 Reasons Why. Hi, I’m Bette Hochberger, CPA CGMA, and on today’s Business Quickie, we’re going to talk about six reasons why your startup needs a CPA. Now, I can tell you all sorts of horror stories, and I’m sure you find anyone who started a business. They can also probably tell you many horror stories about not having the right professionals on board, not having an attorney, not having a CPA, all these things. So, if you think hiring a CPA is not worth the investment in your business; here are the six reasons why you should.
The number one reason why your start-up needs a CPA is business structure. I cannot tell you how many times I’ve had a conversation with someone who is starting a new business, and they don’t even know what kind of entity they set up and why it matters—understanding your business structure matters because it affects your taxes. Is the company paying taxes? Is the C-corporation? Is it an LLC? Did you make elections on how you want to be taxed? There are so many questions. You have to know your structure, and you have to know what a good structure is for what you want to do regarding your start-up. To decide that, you need to talk to professionals such as your attorney and your accountant/CPA. You need to pick the proper structure for the right business that you’re creating.
A lot of times, that business structure is going to depend on what your end game is. If you’re creating a new technology start-up that you’re hoping gets acquired by a big tech company, that is very different from opening a retail store to sell something. And, both of those are entirely different from setting up a professional service like a new law firm. They’re entirely different goals, different needs, different everything. So, you have to choose the proper business structure for your new business or start-up.
The second reason why your start-up needs a CPA is to help you with, cashflow. Oh my goodness. So many new companies and start-ups! If it’s a new company where the person running it has never run a business before, it is super important to make sure you monitor your cash. Cash is king. Really in the early days, nothing else matters because if you are under-capitalized and can’t operate, it doesn’t matter how great your idea is. If you can’t pay your people, it doesn’t matter how great your idea is. A lot of things don’t matter if you don’t have cash. I hear all the time, people say, oh, my business is going to pay for it. Oh, let’s go to fancy lunch; my business is going to pay for it. Well, guess what? When your business pays for a fancy lunch, it’s either money coming out of your pocket or money that you’re not using on something else to develop your business, like marketing or sales or some other operational things. So monitoring your cash flow, figuring out your burn rate, how fast are you going to burn through the cash you have, figuring out how you’re deploying that cash, which leads us to number three, creating a marketing and business plan.
The third reason why your startup needs a CPA is for creating a marketing and business plan. CPAs, we’re not the most outstanding marketers in the whole world. I know I don’t come up with the marketing theory. I create the content, that part I can do. I can talk about all this accounting stuff all day long. The marketing genius is not me. I’ve got a team behind the scenes doing that, but what is related to the marketing plan and the business plan you have will be your cash flow. It’s going to be budgeting, and that’s where a CPA can step in and say, okay, this is how much you should spend for different categories. This is what you should spend on marketing. This is what you should spend on personnel, whatever it is. It’s going to be different for every business. Not every company is going to be the same. So you want a CPA who understands your industry and what you’re trying to do, and your goals to help you create that business cash flow and marketing. I can help make all those plans for you.
The fourth reason why your start-up needs a CPA is for implementing an accounting system. For the love of God, do not use spreadsheets. I cannot tell you how many consultation calls I have with people that I say, oh, are you using QuickBooks? And they say, no, I have a spreadsheet. No, no, no, no, no, no. You cannot use a spreadsheet. Suppose you’re not serious about your business, if you’re wasting time and you just wanted to create a hobby and track how much money you’re putting into your hobby, okay. In that case, you can use a spreadsheet, but if you’re serious, if you’re taking your business seriously, if you’re trying to get investors, if you’re trying to do anything real, you need a loan, you need financial statements. You cannot use spreadsheets. You need an entire accounting system. Not only do you need a whole accounting system, you need someone to help you set it up correctly and show you how to use it, or take that entirely off your plate so that you can do what you need to do in your business and not worry about accounting.
The fifth reason why your start-up needs a CPA is related to the cash flow, connected to the business structure, related to the accounting system. It is minimizing your tax bill. We’re not talking about tax evasion. That’s bad, but minimizing your tax bill, so you don’t pay more than you need to. Certain tax credits can benefit your start-up if you know what they are; this is where an in-the-know CPA comes in handy. For example, if you’re a technology startup, you might be able to take advantage of research and development tax credits, which will help minimize your tax bills. I need a CPA for that. Love you, TurboTax, not an excellent place for a new business.
The sixth reason why your start-up needs a CPA is because of business succession. I’ve hinted at that early with the business structure. Business succession is what’s going to happen long-term. Are you planning on selling the business? Are you hoping to get acquired? Are you taking it public? What are you going to do with this business? Now, this is not a 100% CPA world. So you’re going to bring in your financial advisors and your lawyers; it’s a team. Business succession planning is a team project. It’s not a one-stop-shop, but you need to consider the tax ramifications for you, for co-owners, for whoever is involved. All the stakeholders need to be brought in on that.
And so, if that hasn’t convinced you that it is worthwhile to have a CPA when you create a start-up, I don’t know what will. You’re going to have to screw it up and see for yourself. There are plenty of people who have done so, trust me, but that’s it—the six reasons why you need a CPA for your start-up business. I hope you enjoy it. Drop a comment down below, and we’ll see you next time.