Why You Shouldn’t Use a CPA Firm for Your Small Business Tax Needs

I’ve been working as a CPA for over a decade.

I gained my experience working for two mid-sized, local CPA firms.

While I am now self-employed, I still do a lot of my paid work for one of these firms as an independent contractor.

Yet, I am telling you that if you own a small business, you should look elsewhere for your tax and accounting needs.

Keep reading to find out why and what I suggest as an alternative.

What Do I Consider a Small Business?

By many other standards, “small business” is a very broad description.

For purposes of this post (and this website in general), I define a small business as one with no more than a few employees.

Businesses with no employees and self employed individuals also fall under my definition of small business.

So, if you have a dozen employees or do millions of dollars in sales, or have aspirations to grow into a larger business and want an accountant who you can grow with, I am not suggesting you avoid working with a CPA firm.

In fact, if you are larger or have aspirations to grow into a much larger business, I recommend establishing a relationship with a larger firm before you need it because they have more resources.

However, if you are self-employed or your business is smaller and will remain that way, there are better alternatives discussed later in this post.

What Do I Consider a CPA Firm?

For purposes of this post, I define a CPA firm as any accounting practice with more than one or two CPAs in the firm.

Of course, there are exceptions.

There are many firms that have 3, 4 or 5 CPAs on the staff that work great with small businesses and self employed individuals.

However, I gained my professional experience working for a firm that has over a dozen CPAs on staff and, based on my experience, it does not make sense for most small businesses to work with firms that size (or larger).

Why Avoid Them?

Most larger firms have much greater overhead.

Staffing requirements = more expensive.

Office space = more expensive.

They can only afford these larger overhead expenses by working on bigger projects for bigger companies.

Bigger projects + bigger companies = bigger fees!

While there are plenty of these mid-sized firms that will take on smaller business clients, their bread and butter (and attention) is in working for the bigger clients.

So, you are unlikely to get the attention you need and deserve.

Most of these larger firms should politely decline taking on work for smaller businesses, but it is hard for many to say no.

The end result?

Typically, the small business owner ends up with a bill that they think is too high for service they felt was lacking.

The CPA firm often “loses money” on the work because they can’t charge what they charge their larger clients.

Nobody is happy!

What should you, as a small business owner, do instead?

The Alternatives

Let’s be clear.

This post is not intended to bash mid-sized CPA firms.

I owe a lot to the firms I worked for.

However, for smaller business owners and self employed individuals like you, there are better alternatives that make more sense.

The “Side Hustler”

For the last decade, while I progressed in my full-time, 9-5 gig, I also ran a little “side hustle” practice.

It started with just a few family members and close friends, but each year it grew little by little.

From late January to early April, I got a lot less sleep, working 60+ hours for the firm and spending my one day off helping these friends and family members (and eventually their friends and family!).

Throughout the year, I also helped my small business clients with their needs and questions as they came up.

And it was mostly for extra spending cash or money for a vacation for my family, so my rates were reasonable.

My point?

If you can find your own “side hustler”; someone who fits this description and will help you, strongly consider working with them.

They likely won’t charge you as much as a more formal practice owner would and they can be a great resource when you have questions or need help.

Unfortunately, they are hard to come by.

Much like the contractor’s wife who can never get her husband to work on her house, most qualified accountants don’t want to spend their little bit of free time from January to April preparing more tax returns.

So, what do you do if you can’t find a “side hustler”?

CPA Sole Practitioners

I’ve established that you should not work with a mid-sized (or larger) CPA firm, but that does not mean you should avoid working with a CPA.

The best option of all of the alternatives I recommend is to find a CPA that you feel you could connect and work with on a long-term basis.

Just don’t go to the bigger firms searching for one.

Seek out a sole practitioner or a CPA who works for a smaller firm.

Even if your business is really small or you are self-employed and you don’t think you need a CPA now, you never know when having one in your corner may come in handy.

If you are selected for an audit, your business grows or something unexpected happens, it is wise to have a relationship with a knowledgable CPA before this happens.

They are less likely to work with you or make you a priority on these issues if you come to them when one of these issues arises if you don’t already have an established relationship.

Seek them out sooner than later and you should find that they will want to develop and nurture a relationship with you and your business.

If you don’t find this to be the case with the CPA you choose to work with, consider looking further until you find one who you do feel this way about.

Of course, CPAs, including those at smaller firms, do typically command higher fees.

If you are price sensitive but still want to work with someone with credentials, there are other options.

Enrolled Agents

What is an enrolled agent and why should you consider working with one as a small business owner?

They are licensed tax advisors who must pass a thorough, tax-focussed exam and satisfy continuing education requirements.

Additionally, they are able to represent their clients when there are issues with the IRS.

How are they different from CPAs?

A Certified Public Accountant has much more stringent education requirements and must pass a more thorough, broader exam.

So, why consider an enrolled agent?

I can guarantee that there are plenty of EAs throughout the country that know at least as much as I (a CPA) do about the tax law.

I needed to go to school (and rack up more debt!) and pass an exam that tested several subjects that are irrelevant in tax practice, but it does not necessarily make me more qualified to advise a small business owner on tax related issues.

If you can find an enrolled agent that you are comfortable with, you should strongly consider working with them.

Chances are, they will do just as good a job for you and they may charge a little less, as CPAs can typically command higher fees than EAs.

You can search a database of enrolled agents here.

Finally, if your business is very small and you don’t expect much growth, you can consider working with an unlicensed tax advisor.

Experienced, Unlicensed Advisors

Experience trumps credentials in most instances.

For this reason, I do not recommend working with a CPA or EA who has no experience.

If you have the choice between a licensed CPA or EA and an experienced, unlicensed advisor, I suggest you work with the unlicensed advisor.

Again, you can also work with an unlicensed tax advisor if your situation is extremely basic and you don’t anticipate it changing.

You are likely to save on fees by doing this.

However, if you do have issues with the IRS, unlicensed accountants can’t represent you so you would have to seek help elsewhere.

As I said previously, most CPAs and EAs are not thrilled when people come asking for help when these situations arise if there isn’t already a relationship, so it is something you should consider before choosing an unlicensed advisor over an EA or CPA.

What You Should Not Do

After laying out the options I recommend, it is worth noting two things you should avoid.

First, if you have a small business of any substance, don’t do your taxes yourself.

In fact, unless you have a really basic return, you should consider developing a relationship with a CPA or other tax advisor whether you own a business or not.

You may be able to work your way through preparing your return on TurboTax yourself, but if you have a small business and/or a family, you never know when having a tax advisor in your corner will come in handy.

All your advisor often needs to do is find one or two deductions for you that you were unaware of, and their fee is paid for with the tax savings that would otherwise go unrealized.

With that said, my last piece of advice is to avoid the tax preparation chains (H and R Block, etc.) unless you have properly vetted the person who you are working with.

I worked for the biggest big chain (referenced above) my first year as a tax advisor, so I know if you walk into one of these chains without properly preparing, you have no idea who you will be working with.

There are certainly qualified, experienced tax advisors that work for these chains.

You may even be able to find an experienced EA or CPA at one.

Just don’t go in blindly if this is the route you choose.

You could very well end up paying a lot of money to work with someone who is very inexperienced.

You just don’t know.

So, as with all of the classes of advisors I recommend working with above, if you go to a tax prep chain to get your tax return prepared, do your homework.

If you follow this advice, you’ll end up getting the advice and attention you need as a small business owner and you won’t pay an arm and a leg for it.

Next Steps

I hope this insight helps steer you in the right direction if you are looking for a tax advisor or have been working with one that you are unhappy with.

Get more of my small business tax tips and advice here.