How to Choose an Accountant

“In my experience, there are two types of accountants: Those who just do the work specified, and those who are your business partners,” says Gail Lieberman, founder and managing partner of NYC-based Rudder Capital. Finding the right fit for your business depends, of course, on your company’s specific needs. You may already have the services of a bookkeeper, a tax preparer, or a controller. “But preparing tax returns is not the same as tax planning, just as preparing financial statements is not the same as managing with financial insight,” says Lieberman. “So you might want to choose an accounting firm that can help the CEO with forecasts, tax planning, and general business advice.”

The size of your business will likely dictate the size of the firm you choose to work with. “There’s no hard-and-fast rule. It might be best for a smaller firm—under $5 million in revenue—to use a one-man firm because that person can function as an outsourced CFO,” says Lieberman. “On the other hand, if the business is very complex, or international, or if there is a bank requirement for audited financials, a more full-service firm might be called for.”

What to say, what to pay

When you’ve got an idea of your parameters, get recommendations from colleagues, friends, professional acquaintances, and other people in industry organizations to which you belong. “If I’m looking for an accountant, I’d ask everyone I know,” says Jack Killion, a serial entrepreneur and managing general partner at Eagle Rock Diversified Fund LP in Long Valley, NJ. “I ask customers, suppliers… It would take me a day to have the names of 20 good accountants.”

Ask for names of clients you can call for references, and follow up. Killion recommends asking the following three questions to get the scoop.

  1. “How much personal contact do you have with the partners of the firm and with the accountants actually doing your work?”
  2. “Does your accounting firm help your business grow by making appropriate new contacts for you? Give some examples.”
  3. “Do you ever envision a need to change accounting firms? Why or why not?”

To get an accurate fee estimate, be specific about your needs. “Prepare a checklist,” advises Lieberman. “Do you need financial statements, cost accounting, payroll and fixed asset accounting, tax return preparation? Avoid a ‘we charge by the hour arrangement’ if at all possible. Get a fixed price by being clear on what it is you need the accountant to do.”

And be up front about what you can afford, says Killion. “If you don’t have much money, you need to tell the firm you are considering hiring that you need to keep fees down, at least in the early years while you’re getting off the ground. Going easy on fees in the beginning of a new relationship is the way an accounting firm plants its garden, and grows larger, more lucrative clients in the future.”

Another option is to pay more to pick a partner’s brain. It’s understood that junior members will handle the mundane aspects of the work. But you can be sure of getting the benefit of a partner’s business acumen if you propose a deal: “I’d like the partner on the account to be available to me for strategic financial advice. I estimate that would take him no more than an hour and a half per month.” Though the partner may bill out at $400 to $500 an hour, that payment may be a good investment, particularly if your company doesn’t have a CFO, says Lieberman.

Be sure the chemistry is there

If your communication style doesn’t mesh with that of your accountant, the relationship won’t be successful. “The big divide I’ve seen is ‘bottom-up’ vs. ‘top-down’ thinkers,” Lieberman says. “A bottom-up thinker has to have all the blocks filled in, all the information, before he can come to a conclusion. A top-down thinker is ready to talk in general, conceptual terms before digging into the details. Either type can drive the other type crazy.”

To find out which kind of person you’re talking to, Lieberman suggests, ask how he would treat a specific situation relating to, say, inventory. In response, do you get requests for details, indicating a bottom-up thinker? A top-down thinker will say something like, “In inventory, here are three ways you can think about it. We’ll take a look and get back to you.”

“I like someone who thinks fast, who has an entrepreneurial mind, and understands what I’m trying to accomplish as a business owner,” says Ed Solomon, founder and co-president of Net@Work, a national provider of business and technology solutions headquartered in New York. “He also has to give me information straight, whether I want to hear it or not. It’s like the first time you get a bonus and you’re excited, and then you find out that half of it is going for taxes. Your accountant needs to be able to tell you, ‘Hey, at the end of the day, if you don’t want to pay any taxes, don’t make any money.’”

Don’t be afraid to branch out—or move on

No matter how good the fit is with your accountant, success means you will eventually need to seek specialists. “If you have a good relationship with your accountant, he’ll be able to recommend a specialist for what you need,” says Solomon. “My first accountant was someone I’d worked with in a corporate job. We both quit and started our own businesses at the same time, so we were on the same page,” he says. “I still use him for day-to-day and personal stuff, but he’s the first to admit when our needs require more bandwidth than his company can handle. Over time, he’s helped steer me to people with expertise in M&A, in implementing a 401k plan, in getting tax credits in New Jersey, in trust partnership agreements, and so on.”

And if you’re not happy at some point? “Don’t be afraid to make a change,” says Killion. “I’ve seen people stuck because of inertia or reluctance to face up to circumstances. Just do it; with no hard feelings. I’ve fired people and still referred other people to them when I thought there was a good fit.”

How do you know when your company may have out grown your advisor? “When you need to, and can afford to, start hiring specialists, that’s when you know you need more than a mom-and-pop accounting firm,” says Solomon.

For some entrepreneurs, the most important attribute an accountant can have is the ability to help grow the business. “It is hard to imagine any successful business owner who would not value the guidance and input of an accountant who is looking at the business and making his or her own observations,” says Killion. “Having the technical skills and certification are just the opening chips in the poker game. The firm I want to work with is constantly looking for ways to add value to our relationship, such as introducing me to other contacts of the firm.”

“I’m not saying it’s easy to find someone like that, and you may have to kiss a lot of frogs while you’re searching,” says Killion. “But the right partner is out there—and a small business can’t afford to settle for less.”