Accounting and Auditing for Small Businesses
Accounting, auditing, bookkeeping…to a CPA these terms have a clear and distinct meaning. These three words also represent three specific levels of service provided to clients. But, for most small business owners, these words mean the exact same thing. In their minds, these words are interchangeable. And, in many cases, these words are intimidating to the small business client.
CPAs sometimes fall into the “one-size-fits-all” approach to client service. Some firms have checklists, routing sheets and audit programs that are used for all clients, large or small. But within the small business space, providing accounting and auditing services is a true skill. It’s not enough to simply understand debits and credits or be proficient with audit programs. CPAs need to be teachers and problem solvers. Providing service to small business extends beyond analyzing the transactions; it involves serving as a consistent resource for the entity. Consider the following when servicing small business clients.
Understand the Business's Technical Knowledge
With many small businesses, most of the company’s financial knowledge lies with one or two people. In most cases, these individuals do not possess a high level of technical accounting knowledge. This becomes risky, especially with an audit engagement. The external accounting professional has to gain an understanding of their knowledge base. In larger organizations, the accounting function is managed by professionals with four-year degrees and professional designations, but in a smaller organization, the external CPA may be the most advanced professional in the room. The small business staff is unlikely to understand the process and the lingo that CPAs use on a daily basis. Take the time to ensure everyone fully understands the terminology being used, the task at hand, and that everyone truly embraces the importance of the accounting function.
Accept the Role of Teacher
With an audit, CPAs always keep independence in the forefront, but they may find themselves explaining concepts that are critical to the audit engagement. This could include providing guidance on how to organize items that need to be presented to the auditor, explaining internal controls or conveying how to minimize risk. But the ability to teach during an audit engagement can be limited. When working on an accounting engagement, there is much more latitude to teach and be hands on. Be prepared to explain the difference between bookkeeping and accounting. Be patient enough to assist the client with the proper recording of certain transactions. Always offer to assist with the analysis and maintenance of subsidiary ledgers. CPAs often create spreadsheets that allow the client to maintain an ongoing analysis of items such as debt. In these situations, the small business can truly appreciate the CPA’s expertise, and it brings a value-added component to the equation.
Be More Than a CPA — Be a Business Person
CPAs sometimes tend to laser focus on debits and credits and not take a comprehensive look at the entire business. When working with small businesses, it is imperative to look at everything through the lens of a business person. Focus on how the owner can make improvements to the overall business. Provide guidance not only on the manner in which transactions are recorded, but also how proposed financial moves will affect the overall business. If the small business client knows the CPA wants to be a resource on all business fronts, he or she will become the go-to advisor. This creates a stronger business relationship as well as upselling opportunities for the firm.
Working with small businesses is rewarding because CPAs can truly display their depth of knowledge and bring experience and skills that are essential to a business’s success.
This article appeared in the July/August 2019 issue of New Jersey CPA magazine. Read the full issue.