CPA

Where Are all of the Young CPA’s and Why Should You Care?

I was at another continuing professional education seminar recently, which is very often as CPA’s are required to have 120 hours of continuing education every three years. One of the observations that I make each and every time is that I am one of the youngest CPA’s in the entire room. This is true now and was true 10 plus years ago when I became a CPA. Unfortunately, I have been jumped past the young man status, so it has nothing to do with being a “young” CPA. Why does this matter and why should you care?

Some details: When looking around the room this time and every time, It appears that approximately 5% of the CPA’s are younger than 50 years old, with the majority being older than 60. Could it be that older CPA’s attend the seminars that I happen to attend or is this true throughout the profession. When digging deeper, I found out that according to the AICPA, approximately 75% of CPA’s are expected to retire in the next 15 years, so my observation applies throughout the entire profession, and not just Bergen County.

More accountants, less CPA’s and CPA firms: Studies are showing that although there are more accounting graduates, less are becoming CPA’s. There are numerous reasons why including greater education requirements, time requirements, and the expense of taking and studying for the exam. Also, although I do not have a statistic on the age of CPA’s that own small firms, I do not know, even casually, one CPA firm owner that is younger than me. Just to reiterate, I am not a spring chicken anymore.

Negative impact on clients: CPA’s are the main business and tax advisors to small business owners and many individuals, so who will fill this void? I can only make several guesses to the alternatives, which are not very good for clients. Alternatives include: using non-CPA business advisors and preparers (whom generally lack the education, expertise, and training of CPA’s), using larger firms (along with much higher prices and less attention to the “little” guys), and doing everything yourself (ie. QuickBooks, however you need to be an accountant to actually get the numbers correct, along with not receiving guidance that saves business owners more than they actually pay their CPA). Another negative aspect is that there will be less CPA’s to collaborate with as peers. As a side note, the CPA’s that I know have been the most generous, helpful, and supportive people to me professionally.

General trends: There has been a generally trend for less people to start their own businesses, which has been the case for decades, according to a 2017 report by the Kauffman Foundation, titled, “The Entrepreneurship Deficit.” Several reasons are cited, including demographic changes, technology, and geographic changes. It appears that the CPA profession is not immune to these general trends, and as a result there are less small CPA firm owners.

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Getting More from QuickBooks

The most popular small business accounting software by far is QuickBooks. It can be easy to use, is very affordable, and can help you to run your business better. Unfortunately, QuickBooks is quite often not used to its potential. Here are some things you should be doing with QuickBooks:

Running Financial Reports: To know how your business is performing you can do so by running a profit and loss report to view income and expenses. You can easily compare results from year to year, month to month, or any time frame you wish. The same applies to running a balance sheet, which shows you amounts such as customer receivables, loan balances, cash balances, and equity balances.

Reconciling Your Accounts: QuickBooks makes it easy to reconcile your bank, credit card, and other accounts to your monthly statements. This way you know that your balances are correct and can quickly fix any discrepancies.

Customer & Sales Metrics: It is important to know who your largest customers are and you can figure this out by running a report called “sales by customer.” You can also run reports to see sales by product, service, or item. Additionally, by running accounts receivable reports you will know your customer balances.

Keeping Track of Vendors: While it’s important to know who owes you money, you also want to know who you need to pay and when. Bills can be entered with due dates and amounts so you can better plan your cash flow.

Budgeting: Instead of using Excel to create a budget and manually update it, you can create a budget within QuickBooks. Then you can plan for the future better and compare the budget vs. your actual results.

An alternative to QuickBooks is to go back to using ledger paper, which is shown in the photo above, but let’s not go back in time!

It is important to utilize QuickBooks as much as possible as a tool to help your business prosper.

Before You Buy a Business

Businesses are bought and sold each day and some make better investments than others. Before you buy a business, here are a few things to make sure you make the right move:

Why is the seller selling? There can be many reasons why a business is for sale, and some reasons are better than others. For example, if the business owner is retiring, that is a good reason, but if the owner is selling because they are not making much of a profit, then that is a negative sign.

Do you know the industry? If you worked for years as a general manager of a restaurant, then this would provide you with a good base of knowledge of how to run a restaurant. The same goes for any other industry.

Due diligence: You should not just take the seller’s word that the business is making a certain amount of money, as the seller should be able to substantiate it with information, such as bank statements and tax returns.

Seek the advice of a professional: Seeking legal, business, and tax advice can pay for itself over and over again. A good attorney will help to work out the legal agreements, while a CPA will help to advise on how to maximize the tax effectiveness of buying the business. I have seen business purchases after-the-fact whereas the new owner loses tens of thousands of dollars of deductions because it was not structured correctly. The agreements can be made so that both parties receive the benefits they are looking for.