Scaling a startup involves a never-ending list of financial tasks. From forecasting to auditing to tax compliance, needless to say, you and your team have a lot on your plates.
A certified public accountant (CPA) can be the support you need for your growing startup. They kind of act as both financial assistant and coach. By taking on a wide selection of financial tasks, a CPA lightens the load and frees up your bandwidth so you can focus on your core mission.
In this article, we guide you through CPAs, their services, and the five key criteria to consider when outsourcing one for your startup.
What are CPAs: Understanding Their Services for Startups
A certified public accountant (CPA) is a finance professional licensed by a state board of accountancy. To obtain this license and become CPAs, accounting professionals must demonstrate their knowledge by passing the relevant examinations for their region of practice, such as the Uniform CPA Examination.
Put simply, they’re highly qualified accountants who’ve passed the necessary examinations that allow them to provide accounting services to businesses.
What Are The Benefits of Outsourcing CPA Services for Startups?
Outsourcing a CPA gives you access to expert finance management and advice, and frees up resources you’d otherwise spend on completing financial tasks. For many startups scrambling to meet deadlines and secure funding from investors, this is much-needed help.
Some of the other main benefits include:
- Cost savings: Hiring a full-time accountant is costly. Working with an out-of-house accountant lets you get access to expertise without the overhead costs of salary, benefits, and office space.
- Specialization: These professionals are trained to be highly versed in the core accounting functions that every startup must perform. They have extensive knowledge and experience in tax compliance, financial management, and accounting standards, making them an accessible and secure solution for startups juggling finance issues.
- Adherence to regulations and laws: CPAs are experts in regulatory compliance across various industries. You can rest easy knowing that they'll ensure your startup adheres to regulations like the GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards)
- Better strategic decision-making: With the advice and expertise accounting support offers, startup founders can make data-informed financial decisions regarding budgeting, cash flow management, and long-term goals.
- More focus on core business: Letting a CPA dive into the nitty-gritty details and complexities of finance work means you and your team can focus on your main priorities.
We've found that outsourcing has led to better cash flow management, as our CPA provides us with insights into our financial health. They also identified tax-saving opportunities that we weren't aware of, which really helped our bottom line.
What Do Outsourced CPAs Do For Businesses?
CPAs can handle a variety of important financial tasks crucial for both big businesses and startups alike. Here are some of the main tasks they can help with.
Bookkeeping
Out-of-house accountants can handle your day-to-day bookkeeping and accounting tasks. They ensure all your transactions are properly recorded, organized, and audit-ready while managing your accounts payable, accounts receivable, payroll, and expense tracking. They’re also trained to look for any inefficiencies in your current bookkeeping workflow, and will likely have experience-based solutions to streamline your existing process.
Business Consulting and Advising
With their expertise and specialized training, a CPA can help you plan long-term strategies for growth, identify next steps for a better financial outlook, and advise on important strategic and financial topics, such as:
- Scaling operations
- Optimizing cash flow
- Scaling into new markets
- Mergers and acquisitions
- Cost analysis and reduction
- Entity structure and organization
- Risk management and mitigation
Financial Forecasting
By reading and interpreting your financial reports, these finance professionals can give you insights into your income, expenses, and cash flow management. This is key for startup founders who need financial data to outline growth strategies, secure their next round of funding, or allocate resources.
After analyzing historical data, your out-of-house accountant can also build financial models, including best, worst, and most likely case scenarios to help your startup plan for the future.
Financial Statement Audits, Reviews, and Compilations
A CPA helps you prepare and maintain accurate financial records and statements, which are important for ensuring compliance and gaining trust with shareholders.
These include:
- Audits: This is a thorough examination of your company’s financial records. Certified accountants perform audits by analyzing your startup’s financial data and ensuring all statements align with compliance laws. This ensures your finances are free from mistakes.
- Reviews: This limited assessment determines if your company’s transactions are fair, accurate, and plausible when measured against accounting standards. It involves reviewing financial statements for accuracy, performing ratio analysis, and asking key questions about the business’s financials.
- Compilations: This is a basic service in which CPAs help prepare financial statements without crunching any numbers. Instead, they take the data and details you’ve gathered and organize it in a clear format.
Tax Planning and Preparation
Tax planning and preparation is another key task you can hand over to a CPA. Proper prep helps you stay compliant with federal, state, and local tax laws while minimizing tax liabilities. The right accountant can also identify tax-saving opportunities, such as credit and deductions, as they navigate your finances.
Effective tax planning and prep is a big deal for startups, and ensures your business isn’t hit with hefty, profit-curbing fines as a result of poor accounting practices.
How to Find the Best CPA For Your Startup: 5 Key Criteria
You don’t want to settle for the first CPA you find. Instead, consider these five key criteria when deciding on an accountant.
1. Startup-Specific Experience
While certified accountants know how to effectively conduct financial tasks, not all of them understand the unique challenges of running and growing a startup. That’s why you should look for one who has experience with the regulatory challenges, paperwork, and board reporting requirements that these businesses typically face.
Your chosen CPA should be familiar with calculating important early-stage metrics like burn rates, cash zero dates, and operating expenses. If you plan on using their expertise for tax purposes, they also need to thoroughly understand R&D tax credits and startup tax incentives.
Venture-backed startups will need a CPA with extensive knowledge of fundraising processes and cap table management. Otherwise, they won’t be able to navigate the complexities of funding rounds, SAFEs (Simple Agreement for Future Equity), and ownership structures.
After becoming CPAs, it’s not uncommon for accounting professionals to specialize in a specific niche. Find one that’s chosen to focus on startups and their needs to ensure you’re getting advice and support from someone who’s done it all before.
2. Expertise in Your Industry
Just as you want to find a CPA who specializes in early-stage businesses, you also want to consider their industry focus. Regulations, tax requirements, and financial best practices vary across industries; a CPA with specific experience in your vertical can handle nuances that others won’t pick up on to complete tasks faster and more accurately.
This was a key consideration for Balázs:
We conducted interviews with several candidates, assessing their qualifications, experience, and understanding of the tech industry. We needed to find someone who not only had the technical expertise but also understood the unique challenges we face as a technology company.
Take the SaaS industry as an example. Unlike companies selling physical products, like clothes, software solution accounting must follow the rules of ASC 606 (Revenue from Contracts with Customers) to determine how revenue is recognized for a subscription contract. They’ll need to understand factors like subscription models, deferred revenue, and equity compensation—which isn’t something every CPA will be familiar with.
3. Reputation and References
Before selecting a CPA, make sure to verify their reputation and track record through testimonials, reviews, or any case studies that you can get your hands on. A CPA’s reputation speaks volumes about their reliability, professionalism, and overall expertise. Make sure to consider reviews by other startups or businesses within your industry.
While a single negative review doesn't necessarily mean a CPA is bad, multiple negative reviews are a bad sign. If other clients had issues, chances are you will, too. If you’re struggling to find anything online or from your peers, ask for references from past clients when evaluating if a CPA is a good fit.
Referrals from other founders or investors are a great starting point. This helps you get connected with CPAs who have relevant experience from day one.
4. Communication and Responsiveness
Choosing the right accounting partner for you doesn’t come down to financial expertise alone. Many of your tasks might be time-sensitive, and you need an expert who can respond to your needs promptly, provide regular updates, and address issues proactively.
Keep an eye out for your potential accountant’s communication style from the get-go. Are they clear and transparent? Do they get back to you quickly? “It's essential to feel comfortable with your CPA’s communication style and ensure they align with your company's values,” says Parker from Numeric.
If initial contact raises communication red flags, you’ll likely want to look elsewhere.
It's essential to feel comfortable with your CPA’s communication style and ensure they align with your company's values.
5. Understanding of Your Accounting and Finance Software
Your CPA should have a thorough understanding of the finance and accounting tools you use day-in-day-out. Familiarity with the tools you use for automating accounting processes, invoice processing, expense tracking, and other financial tasks is crucial, as these tools can streamline financial tasks and minimize errors.
Before settling on a CPA, ask them if they have experience using the different accounting tools in your tech stack. Finding an accountant who’s also a NetSuite whiz ensures your new out-of-house accountant can hit the ground running and minimize errors from the get-go.
Complement your Outsourced Accounting With Cledara
For founders and finance professionals, outsourced CPAs give the gift of time.
Along with ensuring your finance operations and bookkeeping are up to scratch, these accounting specialists enable you to focus on other core business tasks—like securing investment, acquiring new clients, and growing your company.
Bringing one in is one of the many ways that early-stage businesses can streamline tedious accounting tasks.
Another way of enhancing your finance operations is to ensure you’ve got the right tools for the job. One such tool is Cledara.
Cledara is a SaaS management solution that helps you stay on top of your SaaS subscriptions. From capturing and matching SaaS invoices to monitoring renewal dates for renegotiation, Cledara puts all your SaaS subscription data in one place. Plus, it seamlessly integrates with popular accounting tools—such as Quickbooks, Xero, and NetSuite—to connect your SaaS management with your entire accounting workflow.
Whether you want to automate accounting and manage software spend, or save time on tax compliance with a certified professional, there are plenty of tools, companies, and professionals for the job.
Streamlining accounting and finance operations involves many moving parts. It’s about combining those parts in a way that works for your business, both now and as you grow.
