Picking the right accountant for your small business is similar to choosing the right doctor for your health care.  You want someone who is skilled and qualified and with whom you feel comfortable.

When you choose a CPA, you are putting your financial security in the hands of a person who is supposed to be certified and up to date on every rule and regulation that applies to you and your business.

So, how can you choose the right accountant for your business needs?  Let’s take a look at a few items to get you started:

Interview Yourself

You need to find out who you are and what you want. Put yourself in your prospective accountant’s office chair. What will you expect from your accountant? What kind of things will be deal makers and deal breakers? It is a good idea to know who you are and what your expectations are before you begin the next step.

Ask Friends and Family for Recommendations

Friends and family are often a good resource, so why not ask them? Find out if their tax professional is taking any new clients or if they have time to give you advice. Be honest with them.  If Uncle Al says his accountant is still using paper spread sheets, tell Uncle Al you need someone with a computer.  Then move on to the next opinion.  Get at least three good recommendations of accountants to interview.

Don’t just ask friends and family for a recommendation, ask them why with a few specific questions like:

• Why do you like using this accountant?  Be specific.
• What kind of business advice and tax advice have they offered you recently?
• Was their advice helpful in saving money?

Interview the Accountants

Twenty or thirty years ago, accountants were often considered bookkeepers. Today, they are much more involved with business rules and regulations and many have specified training in small business and taxes to help set them apart from other CPA’s. The trick is to figure out exactly what you should look for in an accountant.

What kind of questions should you ask your CPA to keep yourself out of trouble come tax season?

• What kind of creative business advice will you offer me? – Sure they can crunch numbers but can they offer creative ways for you to save money now?
• Is your business tech-savvy? – Staying on the forefront of technology, as a business, is a great indicator of keeping up with the times. As technology is able to produce info faster, your accountant should be the first to know.
• Who are your other clients? – This indicates whether or not your accountant has dealt with businesses like yours and how busy they will be during tax time.
• Are you active in the local business community? – Can your accountant introduce you to people who can help make business changes they suggest?

Make Your Decision

After you have done some soul searching, asked people you trust for recommendations, and interviewed at least three accountants or accounting firms with the questions you needed to ask, it is time to pick your accountant.

Sit down and go over the qualifications of each accountant or team of accountants.  Weigh all the pros and cons and come to a decision on who would be the best accountant to hire.

Don’t forget to write each one you rejected a simple thank you note with one or two reasons why you did no choose their firm. This will show them that, although you appreciated their time, your decision was based on specific facts.  Don’t burn bridges – you never know when you could be back in their office.  Most professionals appreciate honesty, so don’t be afraid to tell an accountant why you didn’t choose their firm.

Now that your accountant has been hired, it’s time to get to know each other.  With the difficult part over, take a few minutes to visit your accountant and find out what he or she will expect over the year, leading up to tax time.  Maintain a close relationship with your accountant and you, and your small business, will benefit nicely for years to come.

In order to have a successful tax season, there must be year round planning to maximize your deductions in direct relation to the size and income of your small business. This means keeping the upcoming tax season in mind at all times, constantly looking for ways to decrease your bottom line while making the company more profitable.

Start-Up Expenses

The most commonly overlooked expense for small businesses to take advantage of during tax season is the one that got them where they are today – the expense of going into business. Capital expenses, the money used to pay for marketing, overhead and other related expenses, must be deducted over the first five years you are in business. One thing to remember is that these write-offs cannot be deducted before your doors are open and cash is beginning to flow through your business.

Continuing Education And Training

Any education related to your current business, can also be deducted. For instance, a veterinarian specializing in equine medicine can deduct the costs of attending a conference on new cancer treatments in horses. Because this course is related to the veterinarian’s field, the seminar is deductible from yearly taxes.  However, if the veterinarian specialized in small and domestic animals, the conference would not be deductible. There are strict rules to follow about which types of classes actually qualify for deductions.

Professional Service Fees

The fees charged by your accountant to do your taxes, are actually tax deductible. The only rule for this deduction is that if the work being done relates to future years, the deduction must be taken over the complete term of the benefit.  An example of this would be hiring an architect to help design a building that will take two years to construct. The fees for the architect must be spread over the two years in which the building is actually being constructed.

Bad Debts

If you are in the business of selling goods, and a customer doesn’t pay you for the goods you sold them, that debt is deductible.  However, businesses that provide services instead of goods cannot take this type of deduction because it would be difficult for the IRS to prove a bill was not “inflated” for services provided in order to claim larger deductions for the bad debts.

Other Deductible Expenses

There may be other expenses that are tax deductible in your business.  You can start by referring to the IRC § 162, which outlines different trade and business expenses. This section of the Internal Revenue Code is the basis for determining whether or not a taxable expense is deductible. If the wording is confusing, take the code to your tax accountant along with the expenses you are questioning. Your tax accountant will be able to point you in the right direction and clear up any confusion.

Don’t guess about your small business deductions.  Ask your tax accountant to be sure you’re handling every deductible properly on your small business tax return.

Imagine having this nightmare:  The IRS suddenly audits you for a mistake you made on your tax return ten years ago. It seems you transposed two numbers and now you owe the federal government because you filled in a box with the number 730 instead of 370.

If this happened to you, what would you need to bring to an audit?  Would you still have your documentation?  How long should you actually keep your tax documents? Good question.

Let’s take a look at a few situations and the suggested length of time to hold onto your documents.

If you have been withholding taxes from your paycheck but find that you still owe additional taxes when you file, the rule of thumb is to keep these records for three years. There is one exception to this rule and that is if you do not report income that should have been reported at the time you filed your tax return. If the additional funds are more than 25% of the gross income you reported when you filed, those records should be kept for six years.

There are times when tax information should be kept indefinitely. This procedure needs to be followed if you file an inaccurate return, fraudulent return, or if there is no tax return filed at all. The reason these files should be kept indefinitely is because you will need to show proof of income when the IRS requests it, which could be at any point in time.

Special consideration is required if you have a small business.  Employment tax records are important documents and require special handling. These records should be saved for at least four years from the date the tax is due, if paid on time. If the payment is late, the records need to be kept for four years after that date in order to verify employee incomes if requested.

Filing tax credits after filing your return can also add additional time to your record retention time. In order to determine how long you should keep the files, choose the latest date between when you filed your original return and when you actually paid the tax and keep the records for three years from whichever date is later.

When you file a claim for a loss from worthless securities or take a deduction for bad debt, you will need to keep the records for seven years. This allows the IRS ample time to investigate your claim. When filing a bad debt deduction, it’s imperative to hold onto the files and have adequate records to prove your bad debt claim.

The general rule of thumb is to keep your tax documents until the period ends when you are able to file a tax credit or refund, or, until the IRS closes your case file. In most cases, retaining records for about 4 years is adequate. There are some cases, however, that require tax documents be kept anywhere from three years to ‘indefinitely’ so check with your tax accountant before you discard any tax files.

The IRS is all about accuracy and proof, so make sure you keep impeccable records and retain all your records for the appropriate time frame. These steps will keep your finances safe and  make tax time go a little more smoothly year after year.

Recently a tax client was upset that their K-1 indicated that they had “Ordinary business income” of $1425, when they didn’t actually receive any cash from the business. This was my explanation..

“The K-1 doesn’t necessarily show money you received. It shows your share of the business’ income for the year. As one of three equal partners/owners, you are entitled claim to 1/3 of any losses the company may experience, but you are also responsible for paying 1/3 of the tax on any gains the company may experience.

“This does not mean that you actually received the money. The cash itself can stay in the business’ checking account. The place where each year’s gain and/or loss shows up is on the balance sheet. Each owner’s share of the gains and losses are reflected in that particular owner’s “Equity” in the company. If you were to take a draw (take money out), it would then reduce your equity in the company.

“So your share of the company’s 2009 gains was added to your equity in the business, on the balance sheet. If you want to take a cash draw, you will need to arrange that with your partners, since the business checking account may not have the funds available at this time.

“The tax on your portion of the earnings of the company needs to be paid whether you received the cash or not. In the future, you will not have to pay tax on any  draws you take, up to the amount of equity you hold in the business. If your withdrawals total more than your equity, then you would pay tax only on the withdrawals over and above the amount of your equity.

“For an LLC, the company’s gains and losses flow through to each owner’s personal tax return at the end of each year. If you want the gains and losses to stay within the business as a separate entity, you would need to convert the business from an LLC to a C-Corporation (the standard corporation type). Then, the gains and losses will stay within the business and be carried forward on the business’ tax return from one year to the next.

“However, keep in mind that if the business were to experience a loss during a particular year, that loss would not be able to be carried over to your personal tax return and you would therefore not be able to take the loss as a write-off on your personal taxes. A C-Corporation’s gains and losses cannot be transferred to the individual owner’s tax returns, until that owner sells or relinquishes their interest in the business, at which time, they may take the gain or loss (whatever the case) on their personal tax return.

“Again, the decision to incorporate is something you would need to discuss with your partners, since it would affect their tax status as well. Generally, it is not advised to incorporate for a business as “small” as yours, but if it really bothers you that the business’ gains and losses are flowing through to your personal tax return, then you may want to explore that option.”

Anyone who’s worked in an office at some point or another has had to “go to accounting.” They’re the people who manage the company’s income and pay the company’s bills that keep the business running. They do a lot more than that, though. Sometimes referred to as “bean counters,” they also keep their eye on profits, costs and losses. Unless you’re running your own business and acting as your own accountant, you’d have no way of knowing just how profitable – or not – your business is without some form of accounting.

No matter what business you’re in, even if all you do is balance a checkbook, that’s still accounting. It’s part of even a kid’s life. Saving an allowance, spending it all at once – these are accounting principles.

It would be hard to find any business where accounting is not a critical centerpiece. For example, even farmers need to follow careful accounting procedures. Many of them run their farms year to year by taking loans to plant the crops. If it’s a good year, a profitable one, then they can pay off their loan; if not, they might have to carry the loan over, and accrue more interest charges.

Every business and every individual needs to have some kind of accounting system in their lives. Otherwise, the finances can get away from them; they don’t know what they’ve spent, or whether they can expect to make or lose money in their business. Staying on top of accounting, whether it’s for a multi-billion dollar corporation or for your own personal checking account, is a necessary activity on a daily basis. Not doing so can mean anything from a bounced check to posting a loss to a company’s shareholders. Both scenarios can be devastating in their own right.

Accounting is basically the keeping of financial information. In a business, this information is published periodically as a profit and loss statement (P&L) and a balance sheet.

You’ve decided to jump in head first and hire a subcontractor. So, you ask a couple of colleagues for recommendations and they suggest Susie Sub. They say Susie is a hard worker and she’ll do a wonderful job for you. She’s very talented.

So you contact Susie Sub and agree upon a rate for your client’s project, sign a contract and you hand over the specifications, expecting Susie to have her work finished by the next week.

The next day, you email Susie for an update, thinking she might have some questions and knowing that you need to be a supportive project manager. By that night though, you have heard nothing back from Susie.

You figure she’s probably working so hard on your project, she’s forgotten all about email. She’ll answer your email the next morning.

Except that’s not what happens. Three days later, you’re frantically trying to contact Susie. You’ve called her, emailed her, done everything short of hop a plane and fly out to her house to make sure she hasn’t been kidnapped.

Another day passes and the client is asking questions, wanting to know how the project is going and asking for a few changes to the original project. You still can’t reach Susie, so you start working on the project yourself. If you work straight through the next day and night, you might be able to meet the deadline.

And then Susie emails. She’s been off at her sister’s house, which has no Internet. She did work on your project though and it’s all complete, right on time. You go through it, and the work is excellent. But you’re so worn out at this point, you almost don’t care.

The moral of this story:
Make sure you give your subcontractor a trial period before you give her any really important client work.

Had you put Susie through her paces first, you’d discovered that she has a habit of not communicating during a project, even though she does the work, does it well, and does it cheerfully.

This situation may or may not be a deal breaker for you – either you can handle Susie’s silence because of her excellent work, or you’re going to be so stressed out by the lack of communication during the project that you can’t possibly work with her.

A trial period can also bring out other issues:

1. Inability to do the requested work.
2. Busting deadlines.
3. Negative attitudes.

Some problems may not arise during the trial, but you can take quick action to address those that do, and possibly save yourself some headaches.

When you do run a trial period, make sure you are paying your subcontractor for her work. You may go ahead and sign a contract, including a provision for the trial period.

You’ll also want to be sure and give your subcontractor constructive feedback after the trial period is over. After all, Susie may have worked for your colleague for years, and the colleague never worries because Susie always comes through. If you ask Susie to be available for communication throughout the project, she may be more than happy to do so.

Hiring subcontractors adds a new dimension to your business. Not only are your clients paying you, but you’re paying your subcontractors. While this does create a bit more work for you – or your bookkeeper – the increase in your productivity will more than pay for the extra work.

In order to make your system to work though, there are a few things you need to keep in mind.

Pay Per Hour or Per Project

First, you need to determine how you’re going to charge for a project. Are you going to charge your client an hourly rate or a per-project rate? You’ll also need to find out if your subcontractor is going to charge you hourly or by the project.

Second, you’ll need to find out how much your subcontractors charge for the work you need them to do. Once you have this information in hand, you can determine how much you charge for the services you provide (project management, client communication, editing). Add these two numbers together, along with any other necessary fees, and you’ll have the amount you need to quote the client (although I recommend adding a small contingency fee as well).

In any case, it’s important that you make sure you charge enough to cover your subcontractor’s fees, the time you have invested in the project and any overhead that might be associated with the project. Once you have your numbers in place, you’ll also need to make sure you sign a contract with the client and with the subcontractor before anyone begins any work. Check with your lawyer to find out what needs to go in the contract.

Sending Payment

Once the project is completed, some subcontractors invoice immediately. Other subcontractors invoice monthly or even weekly. You’ll need to speak with your subcontractor to find out what his/her policies are.

Also, some subcontractors may sell you a set number of hours or tasks per month and you pay a set amount. They work until you have used up your hours. This is a good arrangement if your subcontractor is completing tasks that aren’t directly related to specific clients or projects.

Check with your subcontractor ahead of time about specific payment arrangements. Typically though, with online subcontractors, you’ll be able to pay via Paypal. In some cases, you may be able to pay via credit card, or the subcontractor may accept checks.

With a smaller subcontractor, you will most likely be expected to pay your invoice immediately. Some larger operations though may allow you to pay your invoices 10 to 30 days after receipt. Find out for sure what your subcontractor’s polices are.

What If the Client Doesn’t Pay?

If your subcontractor is charging you for a specific client-related project, and the client doesn’t pay, you may be tempted to ask the subcontractor to wait for her payment.

That said this issue is something that should be covered in your contract with the subcontractor. But even if it’s not, as the project manager, it’s your responsibility to make sure those working under you get paid, even if you don’t. It will also be your responsibility to seek payment from the client.

Take care of your subcontractors, pay them well and make sure you charge your clients enough and your business will be much more successful for it.

A common tip given to service providers who are growing their business is to outsource those things that you don’t like to do – like accounting or cleaning your house.

While that’s good advice, it’s often not going to be what grows your business. Instead, you need to look at hiring people whose skills are the same as yours or complement yours.

Hiring Service Providers Like You

Hiring a bookkeeper will free up your time – but there are still only so many hours in your day and you can only multi-task so much before your work starts to degrade.

Subcontracting out your work to someone who does the same work you do is as close as you’ll get to cloning yourself. You know the work like the back of your hand, so you’ll have a very specific idea of what you want done. This will help with communication and help insure consistent quality for your clients. And it will allow your company to take on more work.

For example, if you are an affiliate manager, you may have enough time to write 3 promotional articles, create two graphics and answer 200 questions in a week. Hire a subcontract who does the same things you do and suddenly, you can write 9 articles, create 6 graphics and assist in answering 20 questions in that week.  At the same time, your subcontractor is answering the rest of the questions and creating articles and graphics as well.

Add another subcontractor to the mix and you can see how much more work you can get done.

Hiring for Complementary Skills

On the other hand, what happens if you hire someone with complementary skills?

For example, if you’re a virtual assistant who specializes in website management, you might hire a subcontractor who is really good at writing. Presto! She writes the content, you add it to the website and your client is tickled pink.

You could even expand your services to email marketing, article marketing and other areas of website management and Internet marketing. Expanding your available skill set allows you to provide more services to your clients, who will then pay more for your work.

Hiring Process

Once you’ve decide what you are looking for in a subcontractor, you’ll need to find the right person. This includes:

1. Asking for recommendations from your colleagues
2. Reviewing portfolios of potential candidates
3. Interviewing subcontractors
4. Asking for and following up with referrals
5. Evaluating how your personality works with the candidate’s
6. Determining the subcontractor’s work ethic

After you’ve decided you want to hire someone, make sure you go through a trial period. Sometimes you don’t know how well someone will work out until you’ve actually worked with them.

Then make sure you both sign a contract. A contract is important because it spells out exactly what is expected from both parties. It also gives a professional and fair way for either party to exit the contract.

You can find several sample contracts online – but always make sure you have an attorney who specializes in contracts review it for you. Following these guidelines will help you make the right choice when hiring a subcontractor.

Communication is the foundation on which any business relationship is built. This is especially true with your subcontractors. Fail to communicate effectively with them and you risk the success of your project, your business and your ability to work with that subcontractor.

More than Just Giving Instructions

Working with subcontractors requires that, not only can you give instructions, but you must also be able to give and take feedback and constructive criticism. It’s the give and take across the spectrum of communication that makes for a successful working relationship.

And that’s not all. As the project manager, you’ll need to be able to communicate with your client as well. You’re the middle man and if you can’t communicate back and forth, then the project is likely to fail.

For example, when you subcontract out a web design project, you will need to make sure you understand your client’s goals and you want to make sure you can communicate this to your subcontractor. In essence, you’ll need to be able to speak your client’s “language” and your subcontractor’s as well.

There are several ways that you can improve your ability to communicate with your subcontractors and your clients.

Clear and Organized

The first thing you want to do is make sure that all communication is clear and organized. While verbal communication may seem easier, written communication is more professional and more easily tracked, especially if you and your subcontractor never meet. Ways to communicate in writing include:

1. Email. While email is the most familiar form of conversing in writing, it’s also one of the most unreliable. If you haven’t already, you’ll realize this the first time a subcontractor fails to complete a project, and states that she couldn’t because you didn’t answer her questions in the email she sent three days ago – but you never received.
2. Project Management Software. One of the best solutions out there is a project management software called Basecamp. This software allows you to brainstorm ideas using an online whiteboard and also allows you to communicate via messages with your subcontractors and your clients. Each party in a particular conversation receives email notifications of updates. Even better, you can login at any time to see if there are updates. And everything is kept on the Basecamp website for you to access anytime, anywhere.

Once you have a system setup for maintaining communication, you’ll need to develop a communication policy for your company.

Staying Professional

When we work closely with people, it’s easy to get frustrated and sometimes even angry. We’re all human and sometimes we don’t think. One way to help you remember what to do in these situations is to have a communications policy. The policy needs to outline appropriate methods of dealing with various situations in which you might be overly emotional.

For example:

• How do you handle a subcontractor disappearing for a few days, right in the middle of a time-sensitive project?

• How do you handle a subcontractor who completely misunderstands the instructions that you gave her, even though they are clearly written in your project management system and she read them and said she understood them?

• How do you handle a subcontractor who wants to talk on the phone, and is very chatty about non-business related topics?

These policies can also apply to how you treat your clients and how you allow your clients and subcontractors to treat you.

Follow Through

Making sure you follow up on your communications is just as important as a batter following through on a swing. If the batter stopped her bat as soon as she hit the ball, the ball would barely pass the batter’s box. (It’s called a bunt!) Likewise, if you don’t follow up on your communications, you often won’t get much effort from your team.

So, give your team instructions and then request feedback. And when your team has followed through on your instructions, give them feedback. If necessary, throw in some constructive criticism. And then follow the process in reverse with your client. Follow through will make or break or relationships and ultimately your business.

You’ve spent your blood, sweat, tears and time growing your fledgling service business into a successful, blossoming company. But you’re at that point where you’re going to have to make a hard decision – either scale back the growth, or bring in more people.

Deciding to go ahead and bring in subcontractors or hanging onto your “baby” for dear life is one of the hardest business decisions you’ll make. After all, you’ve poured yourself into the business and you really don’t want someone else messing it up.

But businesses are like kids. You can’t keep them in high chairs forever. Eventually, they’re going to go to school, get invited over for sleepovers and generally get taken care of by other people.

Likewise, you’ll need to learn to let go and let other people handle some of the tasks in your business, including some of your client work. Of course, that doesn’t mean you just drag over the first subcontractor you see and throw some work at them.

10 Smart Ways to Subcontract

1. Understand that building a subcontractor relationship takes time. You need to get to know your subcontractor and they need to get to know you.Before you even consider hiring someone, ask your colleagues for recommendations.
2. A great recommendation will go a long way towards insuring that you’re hiring someone who is good at what you need them to do.
3. Hire the best subcontractor you can afford, not the cheapest one you can find. You may pay more than you think you can afford, but you’ll bank on a fine reputation instead of throwing money down the drain on a bad situation that could hurt your reputation.
4. Get references. And actually call those references. If the references all give glowing reviews, you’re ready for the next step. If the references are less than glowing, you may want to find out why.
5. Check the potential subcontractor’s portfolio and website. If their own site isn’t up to your standards, chances are, their work won’t be either.
6. Consider a trial project. Contract them to do one small project and see how they handle it. If you ask them to edit a 500 word article that you wrote and they take 3 weeks, you know they’re probably not going to be a good fit. If they return 30 minutes later and have truly made the article better, you’re golden.
7. Make sure you both sign a contract. Include how much they will be paid, allowances for increases in rates later on, a point at which the contract will be re-evaluated and specific instructions on what will happen if either one of you wants out of the contract. You’ll also need to include specific information on what happens if either one of you breaches the contract. You’ll also want to include a confidentiality clause. In any case, make sure you consult an attorney before signing any contract.
8. Communicate effectively. Make sure that you provide clear instructions and that your subcontractor understands what you are wanting. If a mistake does happen or there is a miscommunication, review the situation with your subcontractor so that both of you understand what went wrong.
9. Always review your subcontractor’s work. The only way you’ll be able to ensure your company’s quality is to review the work yourself (unless, of course, you’ve hired someone to serve as a project manager and that person knows exactly what you’re looking for).
10. In the event that a subcontractor doesn’t work out, follow the instructions in the contract for termination. Don’t take it personally, don’t tell them they stink, but do give constructive feedback if they want it. Also, don’t let one bad experience turn you away from subcontracting.

Follow these ten tips and you can grow your business from a solo entrepreneurship to a company run on teamwork that handles several clients and many projects with ease.