Alphabet Soup – How to develop your Financial Team

Cash is “king”, as they say. It is the lifeblood of a business, and to a certain extent, our own lives as individuals. Life can become very difficult when the cash flow stops, or money troubles arise. After all, employees expect to receive their paychecks. Landlords want the rent money. The power company turns off the lights if they don’t get paid.  Properly managing money is a necessity if you are to run a business effectively, at least one that you want to last.

When someone starts a business, or even if  they have been in business for a while, they become acutely aware of that fact very quickly. And when reality finally sets in, they often go in search of people to help them, but don’t really understand the landscape of financial services professionals. So I thought I’d provide you a quick primer to help you find what you really need.

Let’s start with some professional titles:

($ to $$$ representing the range of costs of accounting and tax preparation services)

Bookkeeper ($): This person manages the day-to-day financial administration of the business. They input financial transactions into the accounting software, and help with reconciling the accounting software with bank statements to ensure accuracy. They work closely with the accountant/CPA to provide accurate financial statements.

Accountant ($$):  This is a more general term for someone involved in managing the financial accounts, which may include bookkeeping, preparing financial statements, preparing tax returns, etc.

Tax Preparer ($):  This is the general term for a person permitted by the state and federal government to prepare tax returns for compensation. The term could apply to a CPA, Enrolled Agent, or an unenrolled tax preparer.

Certified Public Accountant (CPA) ($$$):  A person certified by the State Board of Accountancy as meeting the specific requirements to be a CPA. The requirements include a specific level of education, rigorous testing, professional experience, and adherence to ethical standards. CPAs are authorized to represent taxpayers before the IRS regarding tax matters. A CPA is generally considered one of the highest designations available for those performing accounting and tax preparation services.

Enrolled Agent (EA) ($$):  A designation provided by the Internal Revenue Service (IRS) permitting the holder to prepare tax returns and represent taxpayers before the IRS regarding tax matters.

Financial Advisor: This is a general name used by a variety of financial professionals, primarily those involved with the sales or management of financial products and investments. Generally speaking, those offering financial products or advice must pass licensing exams offered by federal agencies (SEC, FINRA) and/or state agencies, including for those selling insurance products.

Certified Financial Planner (CFP®):  This is a designation given by the Certified Financial Planner Board of Standards to those financial professionals meeting their standards of education, work experience, and expertise, including rigorous testing, regarding the development and delivery of personal financial plans.

Fiduciary:  A person who is obligated to act in your best interest, either by law or by agreement.

Insurance Agent:  A person who is licensed by the state to sell insurance products. They will likely be distinguished between whether they offer life insurance products (term, cash value life, or annuities) or property & casualty products (home, auto, flood, business liability, etc.)

Third Party Administrator (TPA):  An agency involved with the administration and management of company benefit plans, such as a 401(k) plan.

There are a variety of financial tasks these professionals may be involved. I’m including the most common financial activities, and who typically performs them.

  • Bookkeeping (Bookkeeper/Accountant)
  • Account reconciliation (Bookkeeper/Accountant)
  • Prepares financial statements (CPA/Accountant)
  • Prepares journal entries (CPA/Accountant)
  • Invoicing (Bookkeeper/Accountant/Administrative staff)
  • Accounts receivable (collects revenue) (Bookkeeper/Accountant/Administrative staff)
  • Accounts payable (pays the bills) (Bookkeeper/Accountant/Administrative staff)
  • Prepares personal tax returns (CPA/EA/Tax preparer)
  • Prepares business tax returns (CPA/EA/Tax preparer)
  • Prepares payroll tax returns (CPA/EA/Tax preparer)
  • Prepares sales tax returns (CPA/EA/Tax preparer)
  • Provides investment advice (Financial Advisor/CFP)
  • Buys & sells investments for a client (licensed Financial Advisor/CFP)
  • Sells insurance products (Insurance agent)
  • Administers retirement plans (Financial Advisor/TPA)

There are so many different designations for financial professionals it can make your head spin. If you are looking for help to fill out your financial team, use this list as a starting point. Start by first specifying what you think you need (i.e. tax help, general bookkeeping, etc.), and then get some referrals from friends or business colleagues who might know of folks that fall into the category you are looking for. Interview a couple of candidates and pick one you have a good connection with, not necessarily the cheapest. Like everything else, you get what you pay for regarding training and experience, so do your homework and shop smart.

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