The decision regarding a tax return preparer for your company hinges on two key factors:
Growth & Complexity
Even two companies in the same industry with the exact same amount of revenue can differ in the amount of tax help they need.
If one company is expanding quickly and looking to sell in five years and another is sticking to their steady growth, one will need a full service CPA firm and the other would probably be all right with an Enrolled Agent or a small CPA.
Here are two examples to help illustrate my point.
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Company A |
Company B |
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| Manufactures widgets | Manufactures widgets | |
| Annual Revenue of $3 million | Annual Revenue of $3 million | |
| Sales in one state | Sales expanding nation-wide | |
| Projected revenue growth is relatively flat | Expanding internationally with 20% growth projected for the next three years | |
| Structure: One owner, One company | Structure: multiple owners, side entity | |
| Owner not looking to sell | Owner wants to groom for exit strategy in 5 – 10 years |
Company A and company B don’t differ much in annual revenue but they greatly differ in what they will need. While a good Enrolled Agent or a small CPA could be adequate for Company A, it would not be for Company B.
Increasing in Complexity
Company B’s growth prospects are high, and they will soon need a CPA firm that can handle that growth and complexity. Growth prospects don’t just mean top line revenue growth. It also means growth in business complexity, such as expansion into other states, countries, products, services, corporate structure, anticipated sale or IPO, and so forth. A good CPA firm will have subject matter experts that an EA or solo CPA won’t have, or won’t have access to.
Evaluating Services Needed
Evaluating your needs as a company means understanding whether you need more than just the basic services of a CPA, such as tax return preparation or bookkeeping assistance.
Here are some questions to help determine what services will be needed.
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Do you have an exit strategy?
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Are you prepared to implement that?
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Has your estate tax plan been updated within the last three years?
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Do you plan to expand into another state or country?
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Do you expect to acquire another business/company in the next few years?
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Do you expect to create a new product or expand product lines?
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Do you expect profitability to grow significantly in the near future?
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Do you feel like you need a complete review of your tax situation?
If you answered no to question 1-3 or yes to question 4-8, you should discuss those topics with a full service CPA firm.
Fee Difference
Growth in size and/or complexity will require a more sophisticated CPA firm. While it may cost more in fees to employ a CPA firm with the capabilities you will need in the near future, it usually costs less to have the job done right the first time. This is the age-old fee vs. value dilemma. We have seen numerous situations that have had to be “unwound” because it was not set up or structured properly in the first place. It costs more to unwind and re-structure correctly than paying for a competent firm to do it properly from the start, anticipating land mines and tripwires that can cause problems with an exit strategy, for example.
So, what type of tax help do you really need? The key point is to know what you need.
If you are a small or medium sized business that is not gearing for big growth or complexity, a good Enrolled Agent or a small CPA may be adequate.
If you are primed for growth, your business situation is fluid, or ownership structure is a little complex, your best value in the short and long run will be with a sophisticated, full service CPA firm.
David Knecht, CPA, CVA, MAcc, is a founding partner of Milam, Knecht & Warner, LLP. He regularly speaks and publishes articles on tax and business valuation.
