We’ve said before that knowledge, contingency planning and flexibility are the keys to success in any business. Most business owners try to fly by the seat of their pants for the first year and many fail as a result. Others hang on for a year or two, but their lack of accurate information and their inflexibility ensure failure within 5 years.

That is why it is so important to have a professional Financial Consultant working with you. No matter what size your company is, there are too many economic and tax pitfalls that only a trained, experienced professional can guide you safely around. Although we tend to be a pompous group as a whole, individually, we’re not too bad, and most of us really are interested in your success.

Tax issues are, obviously, one of the more important concerns a business will encounter. As far as the Government is concerned, the burden of proof is on the business owner and ignorance of the rules and regulations is no excuse for doing something wrong. Many a business has gone under because lack of knowledge of tax rules put them in so much debt with the government they couldn’t pay it off. Tax laws are too complicated for any 6-week course to even scratch the surface, let alone cover adequately. A degreed, experienced professional knows, at the very least, where to find the answers to the issues that will come up. They know who to contact to get additional information they may not have at their fingertips. Most have routine issues memorized and keep an adequate library on hand for research.

Another pitfall is understanding your financial data. Having the information is easy in today’s automated market. You can pick up any number of canned bookkeeping packages that will provide you with a sort of financial statement. But, do you know what the information means? Can you analyze it and determine where you are headed? So many businesses have gone bankrupt because they were inventory rich and cash poor or because they sold a lot, but were having trouble collecting what was due. Financial professionals are taught to look at this data not only for what it reports in the way of historical activity, but for what it tells them about the company’s ability to pay its debts, how it is covering its expenses, what products are making the most profit, and where it can cut costs or increase prices safely in order to increase profitability. All of this information can help you better manage your business’s finances and make the most out of your hard-earned dollars.

The word Professional does not necessarily refer only to a CPA (Certified Public Accountant). Besides, most small business cannot afford a CPA’s hourly rates. A CPA is a person who has passed a two-day exam covering a variety of accounting information and become Certified by the State. There are many types of certification to include CIA (Certified Internal Auditor), CMA (Certified Management Accountant), CFP (Certified Financial Planner) and many others. Each type has its own strengths and weaknesses. CPA is simply the most common. Until recently, a degree was not required to take the certification exams so many certified professionals don’t have degrees and few have more than a single tax course. However, nearly all certifications require at least 2 to 4 years of apprenticeship under a certified professional. Therefore Certification, although indicating a degree of expertise and experience, is not necessarily the only thing you should be looking for.

The person or firm you choose should have a solid background in finance and detailed records management and analysis (not just bookkeeping) with a good knowledge of the various tax laws in order to keep you on track. This means at least a bachelor’s degree in accounting and several years of experience. Unfortunately, bookkeeping and records management is one of those areas of study that seem simple in theory, but don’t really make sense until you get out in the real world and start applying it. Texts cannot even begin to cover all the problems and issues a financial analyst sees on a daily basis, so practical knowledge is more important. Therefore, someone with 10 years of experience in actual records management and financial analysis (not merely bookkeeping and data entry) might be better than a person who just got their degree. Weigh all this information when you interview your potential consultant to determine which you prefer and are more comfortable with.

This person or firm, if they are good, will be able to keep your financial records for you and spit out financial statements reasonably quickly for use at banks and in financing endeavors. They will be able to explain to you what the financial statements mean about what your business has done to date and help you plan and project the future of your business. They should be able to make recommendations on cuts and expansions as well as investing any extra funds that may become available. And lastly, they should be able to accurately and timely prepare any federal, state and/or local tax returns and defend their position to the officials involved.

When you look for such a professional, first see if they will let you interview them free of charge for at least 30 minutes. If not, don’t waste your time, they’ll be very expensive to use and you don’t need anyone that highly-priced in your first few years. When you find one who will talk to you initially free of charge, make sure your interview is with the professional, not his/her clerk, and consider asking them the following questions:

What is your background in records management and analysis? In taxation? Would you consider yourself conservative or aggressive as a tax preparer? Are you certified? If so, in what area?

At the very least, they should have a degree in accounting with at least two or more courses in taxation. They should participate in a minimum of 40 annual hours of Continuing Professional Education to keep up their skills. They should have a working knowledge of the Taxpayer’s Bill of Rights and know how to battle the various taxing entities should an examination or error arise. An aggressive preparer will get you every dime of deduction, but may open you up to audits. Such an examination is not a problem, providing they are willing to back up their work and defend it. Find out what their experience has been with tax examinations and their success rate. That will give you an idea of their expertise level and how much you can trust their assertions on your tax return. Whether or not they are certified can provide you with an understanding of how well they know their business. Most certifying exams are at least two days long and cover a lot of history, procedures, regulations and laws. The vast majority of individuals becoming certified have to take the exams more than once. The fewer times the person takes the exam, the better they learned the information. Persons passing “in one sitting” (meaning taking the exam only once before passing it) are a rare and elite group, regardless of the type of certification they have.

How many years have you worked in this business? What is your primary clientele? What is your area of specialty? Who answers your questions?

Any person who holds themselves out to be a professional should have at least 5 years in the profession working with the areas they are going to be providing to you. See that they have experience in your type of business or similar businesses of your size. No one is an expert at everything. See that your chosen specialist understands your business and your needs and can answer your questions. Where they go when they have a problem to get additional information and do research will give you insight to how they see themselves – as infallible, or as a professional with strengths and weaknesses. A good professional will have, at the very least, the Master Tax Guide and at least one current set of Internal Revenue Code books. He/she will not be afraid to say they don’t know everything but are willing to find the answers either from other professionals or through research. The professional is the person you want because they are more realistic and will be straight with you about how you are really doing.

Do you have a list of references? May I contact some of your current clients?

Any professional worth their salt will be more than willing for you to speak with their clients or at least provide a list of people you may call to ask about them.

How do you charge your clients and what are your rates?

Most in this profession charge hourly rates based on the expertise required. These rates range from $20 per hour to $250 per hour. Many firms and individuals have some set rates for Write-up (monthly bookkeeping) and Tax Preparation (usually a charge by form filed) with hourly rates charged for unusual items. However, these standard rates are still based on the estimated hours necessary to complete them charged at a specified hourly rate. A good firm will be willing to give you an estimate in writing of what their services will cost you in an average month. Some will even write up a contract guaranteeing you certain rates for a specified period of time, usually 6 months to a year. Most companies bill either when the service is completed or by the month based on the Client Agreement.

Can I call you to ask questions? Who will I talk to when I do? What will I be charged, if anything?

A professional should be willing to back up their work with explanations or details if the client needs them. As long as the client doesn’t abuse the service, this should be part of a package deal. Additionally, many financial professionals will not speak directly to the client, but refer them to the bookkeeping clerk or another staff member. Find out if this is the standard procedure and then determine if you are willing to accept that. Remember, just because they are clerks, doesn’t mean they aren’t qualified to answer your questions. Most Senior Financial Professionals start out as clerks right out of college and have more than enough education and knowledge to assist you. Further, if the firm charges hourly, the clerk will cost you less.

What will I need to provide you in the way of information and documents and what will I get back? Will you explain to me how I’m doing and make recommendations?

No professional can function without information, whether they be doctors, lawyers or financial examiners. You have to tell them what you did and they, in turn, organize it and record it so it makes sense and complies with current State and Federal regulations. You need to find out how much they will expect you to do and how much they are willing to do. You should also know what you will receive on the other end – a monthly set of financial statements, a complete set of books, just a tax return. If you don’t understand, ask the consultant to explain what they mean and provide examples. Do they want original documents, copies, summarized lists, etc.? When do they need them, and how long will they take to process them? The more organized and easy-to-read your information is, the less time your professional will have to spend. Therefore, the more work you are willing to do up front, the less it will cost you. Be sure they are willing to explain your finances to you and make recommendations for improvements and/or changes to keep you growing.

After the interview is done, ask yourself the following questions:

  Did the consultant speak to me in English or Financeze? Did he/she make sure I understood what was being said?
  Did he/she seem genuinely interested in my business and its potential success? Will he/she treat me and my business as an individual with different needs than other businesses regardless of similarities?
  Did he/she ask me relevant questions about how I operate my business such as: how I pay my staff, how I bank and make deposits, how I pay my taxes, how I purchase inventory, how I track my transactions, and how I pay myself?
  Can I develop a working relationship with this person? Will he/she work with me? Will they return my calls timely.
  Can I afford their services? Will I get value from them for my payments? Were they clear as to exactly what services I will receive and at what cost?
  Did we reach an agreement on services and costs? If so, was it in writing?
  Most importantly ask yourself – Did I feel comfortable with this person? It is critical that you feel safe and comfortable with the individual as well as their level of knowledge and competence.