Accounting Matters. The Different Types of Accountants
Every year during tax season I am frequently asked by friends, family, acquaintances and even people I have just met if I can do their personal taxes for them. My standard reply is “I’m not that kind of accountant”. Often, that reply will generate a deer in the headlights look from the person who asked me the question. That look tells me that they are completely unaware that there are different kinds of accountants. The reality is that I can find myself in some serious trouble for doing taxes. That is because I am a management accountant. Specifically, a CPA CMA (Chartered Professional Accountant, Certified Management Accountant).
All business needs accountants. Small business is no exception. The problem is often that the small business owner doesn’t realize the different accounting specialities available, and they will often presume that one accountant is all they need – the one that does their year end financial statements and tax returns. However, ask these same business owners questions about their strategic plans, their working capital situation, or their key performance indicators and many of them will have no idea. What they do not realize is that the services of the right accountant at the right time can be the difference in making or breaking their company. Seriously. I have seen countless businesses that have been near bankruptcy and not even know that they had a problem. Why? Because they only looked at their numbers once a year, had no performance metrics, did not know what working capital was, and had no strategic plan. Ever watch The Profit on TV? Notice how often business owners do not know their numbers and have no idea how serious their issues are? Notice how the lack of understanding of their numbers is impairing their ability to make smart strategic decisions? Yes, this is reality TV. However, this situation is very real in real business. The right accountant can head off a problem before it becomes a problem terminal to the business.
Having the right accountant starts with knowing that there are different types of accountants. All accountants take training in all the core areas – income taxes, financial accounting, managerial accounting, internal and external accounting, as well as business law, organizational behaviour, economics. From there, accountants will become specialized.
Public Practice Accountants. These are the accountants that have taken all the required courses to prepare your financial statements, audit your statements, and prepare your taxes. Smaller firms will often be comprised of accountants that are more generalists. Sometimes these smaller firms will specialize in the type of client – from specializing in agriculture to professional corporations. Some will do auditing, some will not. Some will become tax specialists.
Management Accountants. These are the accountants that work in business and are more focused on management and strategy and less on the fine details of accounting. As defined by CPA Canada “management accounting includes identifying the information needs of management and developing the systems required to meet those needs, such as planning, forecasting, budgeting, cost and revenue management, and performance measurement.”
To get my CMA designation, after first completing the educational requirements, I then passed a 2-day accounting exam to gain entrance into a 30-month Strategic Leadership program. At successful end of the program I earned the CMA designation. There was very little accounting in the post-exam program. It was all about preparing me to be a strategic business leader. I have only ever taken one course in tax and I’m barely able to do my own taxes. I can, however, create an incredibly complex financial model that can be used for strategic business decisions and budgeting. Because my training is not in public accounting and tax, I pay different dues than those who have the training. My insurance does not cover me to do public accounting or taxes. And if I do your taxes for you, I would probably lose the letters I worked so hard to put behind my name.
As a business owner, you most certainly need a public practice accountant to do your year end and tax returns. If you do not know your key performance indicators and results, you need a management accountant. You need to know your metrics at least monthly, and within a few days of your month end. I would argue that even monthly is insufficient for many metrics. You can’t manage what you are not measuring. You can not plan your strategic future if you do not understand your current performance. If you are large enough, you may need a management accountant on staff. You may be small enough to only need a management accountant on contract. In a future blog, I’ll discuss how to find the right accountant for your needs.
Today, I’m hoping you’ve learned that not all accountants are the same. Stay tuned for future blogs on Accounting Matters. If you have any questions on this blog or topics you would like me to write about in future blogs, please drop me a line at email@example.com.