Part 5, Key 4.
A Good CPA and Business Attorney
This article was also published at simpleprogrammer.com
If you would like to read the transcript for this video, click here.
This is part 5 of a 6 part series:
Think of your certified public accountant (CPA) as an integral part of your team, even if you’re a team of one. CPAs are licensed by the state or states they do business in and can help you with your local, state, and federal tax issues.
There are a number of things your CPA does or can do for you.
- Will help you select the right corporate designation: limited liability companyLLC, S corporation, C corporation, sole proprietorship—this can change for various reasons over time and your CPA will help if the time comes to change your designation.
- Is a great source of advice when you get started; when you shrink or grow; if you struggle financially; and when you want to borrow money, purchase equipment, or make other financial decisions. Here are some questions I have asked countless times:
- Is “x thing” deductible?
- Should I buy this equipment now or wait until next year?
- Based on my gross income, how much money should I set aside for taxes?
- Based on my income, am I in a good position to hire someone at x rate of pay?
- Should I hire this person as a W2 employee or a 1099 contractor?
- Can support you in an Internal Revenue Service (IRS) audit or in responding to IRS inquiries (or nasty-grams). This is huge. CPAs know how to deal with the IRS in ways that you do not. Do not try to handle the IRS on your own.
- CPAs are generally connected to people in your community who can help you with bookkeeping, banking, credit, payroll and direct deposit, 401(k), and even health care. Your CPA may not do these things themselves, but they will generally know who the right people are for a given discipline.
The time to hire a CPA is when you first start your business. Interview a few local CPAs as you’re getting started. Tell them you’re a new business owner and that they should assume you know nothing about accounting for a small business.
Unless you have an accounting degree or an actual background in accounting, do not assume that your exposure to big-company corporate accounting is going to get you through. Remember, you are a software professional, not an accountant. Don’t devote valuable time to someone else’s expertise.
Your CPA can guide you or direct you to helpful resources that will start you on the right footing from a tax and accounting standpoint and can guide you as you grow. Make sure your potential CPA is easy to access; returns phone calls, texts, and emails promptly; and is someone you like. I cannot overemphasize this point. Over time, your CPA is someone you will have a lot of contact with. If you groan every time they show up on your caller ID, you have the wrong CPA.
A business attorney is a bit more remote but still integral to your team—once more, even if the team is just you to begin with.
As a software development consultant, contractor, or freelancer,—call it what you like— you are self-employed, and as a matter of course you will submit proposals and contracts to clients, potential clients, and vendors, as well as to contract or consultative workers.
Sometimes, your clients will insist that they author the contract. The same thing might be true for your 1099 professionals and vendors. All of that is well and good, but you are not a lawyer and therefore you are not qualified to review the legalese of a contract. Your business lawyer can and should do this for you.
A few common agreements consultants need to produce or agree to:
- NDA – nNondisclosure agreement
- Contractor agreement
- Subcontractor agreement
- Intellectual property rights
In most cases, these agreements will be boilerplate or one-offs from a boilerplate so you don’t have to have these written and rewritten again and again. Having an attorney to quickly review agreements and changes asked for by your clients, vendors, and 1099 professionals is essential to your peace of mind.
To close this section, I want to remind you that you are a software professional. You are not a CPA or an attorney. Spend your time with your customers, your prospects, your software product, your blog, your social media, etc. You have plenty to do already. Leave the accounting and lawyering to the experts while you tend to your own expertise.
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