I loved this April article from the Huffington Post. It highlights some great points about why start ups should consult with an accountant, and might I add, an attorney. It’s even better when you can consult with them both in the same room!
5 Reasons Why Your Start-Up Needs an Accountant
What I would add to this article though, is the emphasis on consulting an accountant at the beginning of your startup process. There is a multitude of options out there when it comes to choosing a legal entity’s structure. Some of this is dependent on state regulations, but in most states, nearly every new business is going to have to decide between a number of different options when it comes to their entity structure. Most new business owners can’t tell you off the top of their head the difference between an S Corp and a LLC taxed as a partnership. And this is perfectly understandable, considering, to the article’s point, you’re going to be busy actually running your business. But it’s critical that a startup take the time to consider all the different legal entity structures available to them, and their tax impact before diving in, this is where an accountant can provide a lot of value.
Things to consider when discussing business formation with your accountant is future growth and investment (see Huffington’s point number four). Tell your accountant in advance how you plan to capitalize your business. Partnership liabilities can vary greatly from shareholder liabilities in a corporation, as can equity structure. When considering investors, what type of ownership do you ideally want them to have in your startup? Does your startup ever plan to sell shares? Go public? Pay dividends? The answer to all of these may dictate the type of entity you initially setup for your startup company.
How do you, as the owner, plan to get paid? What are the tax consequences to you personally? I’ve seen a lot of new business owners fill out the form for their employer identification number with the IRS before ever consulting an accountant, and the entity structure they’ve unknowingly chosen for themselves turns out to be less than ideal. Sometimes this isn’t discovered until the end of their first year of business when they go to file their first tax return and get slapped with some unexpected tax consequences not just for their business, but for themselves. Avoid unpleasant surprises! Sit down with a CPA in advance and talk them through your business plan. Ask them to counsel you on what types of entity structures will work best for you and how the tax impact will vary from each option.
Christine Gervais
Christine Gervais is a licensed CPA, using her skills to help businesses grow and achieve their fullest potential. Christine has a Master’s degree in accounting from Southern New Hampshire University in addition to holding her CPA license for over a decade. Notably, Christine is a nationally recognized speaker providing education to other CPAs on how to best serve clients as well as instruction on a wide variety of topics for business owners on how to maximize success. Christine prides herself on the value she can bring to clients with her extensive tax knowledge and provides strategic, forward-thinking financial strategies to help clients grow. When not behind her desk, you can find Christine spending quality time with her daughter and stepson or tending to the family’s excessively loved farm animals.
