What is an Accounting Firm?

Find out what an accounting firm can offer to your business

When most people think of accounting, they usually think of taxes. While a big percentage of accounting firms can and do prepare taxes, many do much more than that. Accounting is an essential need for businesses of all sizes.

If you struggle with managing the finances of your small business and need help handling the bookkeeping and other financial and reporting tasks, this article will help you find the right accounting firm.

What is an accounting firm?

An accounting firm is a group of accounting professionals that provides clients with financial management services. These services could include auditing, tax preparation and planning, payroll processing, bookkeeping, and advisory services. Some of these accountants could be certified public accountants—CPAs—but not every accountant is a CPA.

An accounting firm's structure often depends on its size. Some accounting firms are run by one person out of their home. Others employ thousands of people in multiple locations across the country or worldwide.

Accounting firms also vary in how they charge their clients. Some may charge by the project, which is often the case when it comes to preparing taxes. Others may charge their clients an hourly rate depending on the service provided. Still others offer flat monthly rates for ongoing services like simple financial reporting. The rate they charge will vary with the size of the firm, the services they provide, and the degrees and certifications of the staff.

If you own a business, chances are that you need accounting services. You may think you only need bookkeeping and tax preparation, but it helps to know what other services accounting firms can provide. There might be some that you haven't thought of in relation to an accounting firm, but that can ultimately help your business.

Accounting firm services

What services do accounting firms offer? It depends. Some do a lot, and some focus on specific services because they have found a niche of expertise. You should investigate the services a firm provides to ensure they provide all you need. Here are some common accounting services.

1. Operational bookkeeping

Bookkeeping is one thing that pops into just about anyone's mind when they think of accounting, and there is a good reason why. Accurate bookkeeping is critical to the success of a business.

Bookkeeping involves recording and reconciling all the transactions that take place within a business. Since a company usually has multiple accounts, part of the process includes determining which account a transaction affects. While many accountants do bookkeeping, not every bookkeeper is necessarily an accountant by profession.

2. Tax planning and preparation

Tax preparation is the process of preparing your tax returns to comply with federal, state, and local tax laws. Every business has to file a tax return, but not every business engages in tax planning. A recent survey by H&R Block showed that 76% of small businesses outsource tax preparation^[1].

An accounting firm can help a business prepare ahead of time for taxes by providing tax planning services. Tax planning is an attempt to optimize your tax situation before it's time to file your taxes.

3. Payroll

Accounting firms often offer payroll services. There are also payroll processing companies that offer only these services. Payroll may seem straightforward, but when you have different types of employees, it can get complex. Some employees may work hourly, while others are paid a salary.

The person in charge of payroll must manage all of this, make sure that all federal, state, and local taxes are withheld accurately, and then pay employees on time through their preferred payment method. An accounting firm can manage all of this for a business.

4. Business development and valuation

When a business needs funding to grow, it may seek investments from private investors or a loan from a bank. Before it can get this funding, the company must prove to the investors or the bank that it will eventually repay that money.

This proof comes in the form of valuation reports and audits. Some accounting firms provide business development and valuation services. The firm will look through the books, use historical data to determine growth patterns, and provide the required reports to financial firms.

5. Advisory services

Advisory services are a relatively new professional role provided by some accounting firms, but they are quickly becoming essential.

When an accounting firm offers advisory services, they work side by side with the business to help it grow. Instead of just balancing the books and providing tax planning, these firms take a proactive role in a client's business and use business intelligence software and their own experience to help the company overcome financial problems and reach its business goals.

6. Outsourced CFO

Another service some accounting firms provide is called "outsourced CFO." Outsourced CFO—chief financial officer—services expand on advisory services. An outsourced CFO provides financial strategy services for small and midsize companies that don't need a full-time CFO or lack the funds to hire one. Sometimes they work on a part-time or project-by-project basis.

Now, let's look at some accounting firm examples to see which types of accounting firms offer which services.

Types of accounting firms

What does an accounting firm do? It depends on the type of accounting firm. Here are the main types of accounting firms.

1. Full-service accounting firms

Full-service accounting firms provide a wide variety of services for their clients, from bookkeeping to tax preparation to advisory services. They also tend to be larger firms with hundreds or thousands of employees, each of whom may specialize in specific industries or disciplines in order to provide all the types of services their clients expect.

2. Tax firms

Tax firms specialize in one thing: taxes. They focus on tax planning, tax preparation, and tax resolution for both businesses and individuals.

But not all tax firms handle all types of taxes. Some specialize even further and only prepare taxes for high-income individuals or only handle real estate taxes, for example.

3. Audit firms

An audit firm is another specialized type of accounting firm. They only perform audits of individuals, small businesses, government entities, and other types of organizations. An audit is used to verify the accuracy of financial statements and can determine if a business is profitable or not.

Auditing often must be done by an outside firm to ensure the auditor has no connection to the business. Audits are a requirement if a business has to deal with banks, financial institutions, or shareholders. Often, auditors are called forensic accountants.

4. Outsourced accounting firms

Outsourced accounting firms provide a full accounting department for businesses for a lot less than the cost of a full internal staff. The services an outsourced accounting firm provides can vary. Some will provide the same services as a full-service firm, while others may provide only a subset of these services.

5. Bookkeeping firms

Bookkeeping firms only provide bookkeeping services and often work with small businesses that don't have the time to manage their own books or the money to hire a larger full-service accounting firm.

6. CPA firms

You may have heard of an accounting firm advertising itself as a CPA firm and wonder what this means. A CPA firm has at least one certified public accountant on staff and, most likely, more.

The process of becoming a CPA is rigorous. They must hold a bachelor's degree in accounting, finance, or business administration and complete an additional 150 hours of professional education. They also must pass the Uniform CPA Exam and have two or more years of experience in public accounting.

Is your small business considering an accounting firm?

While accounting was once mainly tax preparation and bookkeeping, and a big part of it still is, accounting has evolved in recent years, giving accounting firms access to technology that businesses only dreamed of in the past. This has made today's accounting firms more efficient and has allowed them to specialize in new services that firms of the past didn't provide.

If you choose to work with one of these firms, you will also get the full benefit of these cutting-edge technologies, including:

• Automatic reconciliation

• Daily validation of account balances

• A single source of truth of your finances

• Streamlined inventory processes

• Real-time reporting and business insights