Do You Need a CPA, a CFO, or a Bookkeeper? Who To Hire and When!
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As a small business owner, you know there’s a LOT going on around finances: bookkeeping, taxes, cash flow. All. The. Things. It’s easy to get overwhelmed, throw up your hands, and go take a nap. (For the record? I’m ALWAYS in favor of taking a nap, even if you’re not overwhelmed!)
Here’s the good news: you don’t have to wade through all the “money stuff” on your own. There are professionals whose entire job is to help you manage your business finances. But who are they, and when are they a good fit for you? That’s what we’ll be digging into today. Let’s dive in!
CPA: The Tax Specialist
A CPA (Certified Public Accountant) is your go-to for tax expertise. (Which can be a good thing, since here in the States our federal tax code is almost 7,000 pages long!) They file your tax returns, making sure you're staying within the rules of that ridonculously long tax code.
They can also help calculate how much you should be paying in estimated payments throughout the year and file 1099s for contractors. (CPAs do a LOT more in the corporate world, but for small businesses, tax prep is their primary focus.)
But there’s a catch—none of this can happen without accurate bookkeeping. (You know what they say: garbage in, garbage out!) A CPA can’t do their job well if the financial data they’re working with is incomplete or inaccurate. This is why having solid bookkeeping (whether you do it yourself or hire a bookkeeper) is so important. But more on that later!
Tax Prep vs. Tax Planning
It’s important to know the difference between tax prep and tax planning. Tax prep is a once-a-year task where the accountant prepares an accurate tax return (i.e., reporting your income and expenses correctly to the IRS). You hand over your financial data, and they prepare the return. There may be little to no advice on lowering your tax bill unless that’s included in the engagement.
Tax planning, on the other hand, is an ongoing relationship. You work with your CPA year-round, often quarterly, to find strategies to legally lower your tax bill. This may involve discussing the pros and cons of becoming an S Corp, options for retirement plan contributions, or maximizing home office deductions.
One thing to watch out for: Don’t fall into the trap of “lowering taxes at all costs.” No one enjoys paying taxes, but your focus should be on improving your overall financial health. Just because something is a write-off doesn’t mean it’s a smart investment for your business!
When is a CPA helpful for your business?
If you need help filing accurate tax returns.
When you want to ensure your business is compliant with tax laws.
If you want advice on minimizing taxes—just don’t confuse tax prep with tax planning!
Looking to hire a CPA? Here’s a list of 11 questions to ask to make sure they’re a good fit for you!
CFO: The Financial Strategist
A CFO (Chief Financial Officer) is your very own financial strategist. They look at the big picture, helping you understand your business’s financial health so you can make informed decisions. They spend their time tracking cash flow, analyzing your business’s financial strengths and weaknesses, and proposing strategic plans for the future. (For most small businesses, we’re talking about hiring a fractional CFO as a consultant, not a full-time employee.)
For example, a CFO might:
Analyze your pricing to determine if your prices are high enough to cover your business expenses and your desired salary.
Set up a budget to make sure you’re not over (or under!) investing in key areas.
Review your cash flow to help you determine if you can afford to take a month off from client work to go on vacation (even if your "vacation" is simply staying home and NOT WORKING—my kind of vacation!).
In my opinion, one of the most valuable things a CFO brings to the table is emotional detachment. As a business owner, it’s easy to get emotionally tied to your pricing, your expenses, and even how much (or little) you pay yourself. A CFO helps you take a step back, view things objectively, and make decisions taking both the hard data AND your emotions into account.
When is a CFO helpful for your business?
When you need help creating a financial strategy to grow your business.
If you're looking to optimize cash flow, reduce unnecessary expenses, or increase profitability.
When you need an objective, third-party perspective on your finances.
Bookkeeper: The Record Keeper
Your bookkeeper is the backbone of your financial team. They’re responsible for recording and categorizing every financial transaction your business makes. The accuracy of their work is critical because it’s the data your CPA uses to prepare tax returns, and your CFO relies on it to build a solid financial strategy. They take the task of doing your bookkeeping off your plate so you can focus on running your business.
A good bookkeeper should also know the general tax rules for categorizing expenses. For example, they should know when to categorize meals as 100% deductible (like for an employee event) versus 50% deductible (like taking a client to lunch). They don’t need to know every tax rule—that’s the CPA’s job—but they do need to make sure everything is categorized accurately so your tax pro can make the right calls.
When is a bookkeeper helpful for your business?
If you want to ensure your financial transactions are recorded accurately.
When you need help organizing expenses to comply with tax rules.
If you want to free up time to focus on running your business instead of managing day-to-day finances.
Wondering if you’re ready to hire a bookkeeper? Here are 4 signs it’s time!
When to Hire
When (and even if!) you hire for any of these positions depends on your business needs. Some business owners enjoy doing their own bookkeeping, are happy to file their taxes (here’s to you, TurboTax!), and have the financial savvy to wear the CFO hat.
But that’s not everyone! Here’s a quick rundown of when it makes sense to hire help at different stages of your business.
Hiring a Bookkeeper and CPA
A bookkeeper and CPA are usually the first two financial hires for small businesses. If you can afford (and want!) both of them, go for it! You might be surprised at how good it feels to have experts handle these tasks—especially if you’re feeling anxious about the IRS. I wouldn’t suggest going into debt to hire either one, but if your cash flow can handle it, you’ll probably love the peace of mind it brings.
(For reference, my rates for monthly bookkeeping start at $250, and I pay my accountant $1,500 to do my taxes. If my business weren’t an S-Corp, it’d be closer to $500.)
Hiring a CFO
A CFO is usually the last hire you’ll make, simply because their expertise becomes more valuable as your revenue grows. You typically need a decent level of cash flow to make a CFO’s services worth the investment. I’d say at least $100k in revenue, but it’s usually closer to $200k–$250k.
(This isn’t to say you can’t get support before you reach those milestones! You just probably don’t need to hire a full-blown fractional CFO. One-off and mini-packages of sessions might be just the thing for you.)
The Importance of Collaboration
A great financial team will collaborate with each other. As a bookkeeper, I often email back and forth with my clients' CPAs to ensure they have the info they need to file taxes. Similarly, a client’s CPA and CFO should be in communication to make sure their tax strategies and financial plans align. No one likes surprises when it comes to money!
That’s a Wrap!
TLDR: A CPA keeps you compliant and helps with tax planning, a CFO brings strategy and objectivity to your business finances, and your bookkeeper ensures that all the data is accurate so the rest of the team can do their jobs effectively.
Next steps: Take a moment to assess your current financial team, even if you play all the parts! Are there any gaps? Maybe you’re struggling to keep your books in order or wondering if your pricing strategy is sustainable. Depending on your needs, it might be time to schedule a reach out to CPA, CFO, or bookkeeper to get the support you need. You know, to make your life and business easier!
