Your CPA Should Not Be Your Bookkeeper

Your CPA Should Not Be Your Bookkeeper

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Before we raise the pitchforks and storm the castle, we love CPAs. 

CPAs are a massive partner to Decimal and our customers. Our origin story actually starts with Decimal being purchased from a CPA firm, so we understand how they play a vital role in the overall ecosystem surrounding business operations. We partner directly with hundreds of CPAs that support our client's Tax Filings, Audits, Tax Incentives, and Credits. However, we want to explore why an alternative approach to bookkeeping, with a dedicated team focused on the activity, is preferable. 

While they are the ideal choice for tax, audits, and financial advisory services, bookkeeping is not the focus of their business. It’s also not a primary driver of revenue for the company. It is generally seen as an add-on capability because you are already there, and everyone needs bookkeeping to operate a business. 

In this article, we’ll explore the areas a CPA can genuinely add value to your business and why they should not be the ones handling the day-to-day bookkeeping. Building the right ecosystem of financial partners benefits your business, so sending the proper work to the right partners is vital to be charged the least and gain the most. 

What is a CPA?

According to the American Institute of Certified Public Accountants (AICPA), “A CPA, or Certified Public Accountant, is a trusted financial advisor who helps individuals, businesses, and other organizations plan and reach their financial goals.” To become a CPA, you have to pass the Uniform CPA Exam set by the AICPA, which requires learning the nuances of Auditing and Attestation (AUD), Financial Accounting and Reporting (FAR), Regulation (REG), and Business Environment Concepts (BEC). 

The result is someone who understands the nuances of accounting, how it fits into the business environment, and how that should interact with the regulatory bodies of the United States. Not only that, this individual will have spent years of training to get to this level of certification. For example, to become a CPA in Texas, there would be roughly 6-7 years of work leading up to the certification. 

When you consider the undergrad degree, the work experience needed to qualify to be a CPA, and the certification/licensing process, the time and money spent to gain the skillset starts to add up. That time and experience demand a higher rate of pay, which begs the question of why this individual would be working on more simple tasks like bookkeeping instead of the more advanced functions that their skillset can handle. 

What Does a CPA Do?

A CPA can do a tremendous amount for a company’s accounting department, but the real question is, what should the CPA do?

CPA services can include bookkeeping, but it’s like asking a Michelin Starred Chef to prep the potatoes instead of looking at all the ingredients and creating a delicious menu. They will get the job done, and it will be quality work, but most of their skillset isn’t being capitalized. 

Your CPA will provide the most value to your organization when they focus on the more strategic work. To gain the CPA certification, they must study the nuances of tax and finance-related services, which is no small task. Considering the ever-changing complexities of the tax code and how many people need financial services, that is where they will spend their time. 

The main areas a CPA will spend their time are:

1. Tax preparation and planning: CPAs help clients minimize their tax liability by identifying tax deductions, credits, and other strategies to reduce tax burdens. They also prepare and file tax returns on behalf of their clients. 
2. Financial statement preparation and analysis: CPAs prepare and analyze financial statements, including balance sheets, income statements, and cash flow statements, to help clients understand their financial position and make informed business decisions.
3. Audit and assurance services: CPAs perform audits, reviews, and other assurance services to provide clients with an independent assessment of their financial statements and internal controls.
4. Business valuation: CPAs help clients determine the value of their business for purposes such as mergers and acquisitions, shareholder disputes, or ongoing business performance evaluation.
5. Financial planning and analysis: CPAs help clients develop and implement financial plans to meet their long-term goals, such as cutting costs, identifying where to improve margins or investment planning.
6. Risk management: CPAs identify and assess financial risks that may impact a client's business and develop strategies to mitigate those risks.

While bookkeeping could be a function they work on, they are better in a role that allows them to lean on their years of training. 

What Accounting Services Drive a CPA’s Profitability?

Considering the training and range of work that CPAs can tackle, it’s no surprise that they will focus on the highly profitable capabilities that help businesses. After all, there is a decline in the number of people pursuing CPA certifications, as seen by the roughly 50,000 applicants in 2010, dropping to only 32,000 in 2021.     

From the list in the previous section, CPAs will opt to pursue tax services, auditing services, financial consulting, business valuations, and even forensic accounting. These functions require a strong financial background and are generally too costly for their clients to try and chase down independently. 

The more complicated and nuanced the skillset, the more the hourly charge can be for CPAs and the fewer people can take on the work. 

Why Do CPAs Offer Bookkeeping?

It’s clear that this isn’t the area of focus, and it’s also clear that CPAs are not driving profitability with this addition, so why even offer it? 

The same reason a hot dog at Costco is still only around one dollar. Many companies will have a loss-leader offering within their portfolio because it’s one more way to attract clients, and it’s one less competitor in the mix. While the focus for CPAs is driving activity with revenue-driving services, they can offer bookkeeping and coordinate that internally. At the end of the day, it isn’t a CPA handling the bookkeeping tasks. A bookkeeper within or external to the organization will handle all the work. 

At the end of the fiscal year, if the CPA is doing the bookkeeping, it will be much easier for them to position tax services as well as any end-of-year clean up services that might be needed. This creates a compelling argument for why a CPA should continue to focus on strategic initiatives instead of bookkeeping. 

Why Should a CPA Not Work on Bookkeeping

A CPAs time is better spent working on activities other than bookkeeping for a few reasons. Understanding their profitability, their skillset, and how they operate build a strong case for leaning on bookkeeping services outside of CPAs to handle the financial operations. 

Cost

As far as cost structures go, CPAs can charge by the hour and don’t have the incentive in place to improve the way the accounting operations take place. They are encouraged to spend more time and embrace manual processes because they will accrue more billable hours. With their hourly rates as high as $174, a lack of efficiency can add up quickly. 

Focus

CPAs want to hone in on tax, audit services, and consulting because they are the best use of time but also provide the strongest margins for their efforts. With their skillset being unique and limited, there are only a few individuals that can tackle this type of work. Choosing to focus on work that is less competitive works out for CPAs in the long run over choosing to focus on tasks like bookkeeping, which can be learned with much less training. 

Time

As a CPA grows their number of clients, the ability to quickly coordinate the bookkeeping tasks becomes increasingly strained. We often see that companies using CPAs for bookkeeping have delayed financials and don’t have a real-time view of the business performance. Without real-time insight into the business's financial state, companies struggle to make the best strategic decisions. 

Communication

With the CPA coordinating the bookkeeping with another individual, the work is being further and further removed from the business operations and more closely aligns with the needs of the CPA instead of the business. As a result, the CPA can close the books quickly and provide the needed reports, but there might be a few shortcuts or areas where reconciliation isn’t as accurate as it could be. Additionally, there might be delays in responses due to the number of other tasks being balanced. Bookkeeping questions will generally fall to the lowest priority and the answers that are needed might be hard to get. 

Lack of Innovation

With the CPA is in charge of bookkeeping, it is also supposedly their responsibility to look for more efficient ways to handle the process, new technology that cuts down effort, and how to implement it all. The problem is that, as we mentioned earlier, they don’t need to push for process improvements due to the lucrative hourly rates. Even if there was a good reason to deploy process improvements, the skillset to understand new software, implement it, and gain adoption with the company is not their focus. 

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Why Are Modern Companies choosing to work with bookkeeping services?

Many companies are looking for dedicated bookkeeping services to make process improvements, understand the technology of their space, and gain stronger insights into the financials of the business. With better financial reporting driven by quality bookkeeping, companies can get a more accurate read on their business. 

Understanding that bookkeeping isn’t a function that needs to be settled with, companies that look to partner with an extension of their team can gain far more informative insights into their business. When a business can choose the best skillset for each business function, it will perform the strongest. With the ease of finding multiple partners for various needs, the idea of a one-stop shop becomes less relevant to the decision process. 

Why did Decimal Spin-Off from a CPA & Why Was KPMG Spark Sold to Decimal? 

Decimal originated from a regional CPA firm that didn’t see bookkeeping as a core competency. Like most CPAs, it was a loss leader offering while keeping the focus on auditing, tax, and strategic consulting. With that insight, Decimal’s founders saw the opportunity to enable clients with a technology and operations-first approach. Similarly, KPMG, the Big Four Accounting Firm, wanted to pursue its core competencies instead of bookkeeping and chose to sell to Decimal. 

The Decimal team understands that bad communication, inaccurate financials, and lack of process improvements were some of the key pain points needing to be addressed by legacy bookkeeping solutions. This opened up an opportunity to reshape the view of bookkeeping with the help of our team at Decimal. Instead of viewing it as a mandatory task that drives up costs, there is an opportunity for financial operations to become a profit center by delivering financial insights and process improvements that were previously unavailable. 

With that opportunity, it doesn’t make sense to continue partnering with CPAs on bookkeeping and the behind-the-scenes financial operations. It makes a lot more sense to work with people that focus on that element of business and ONLY that. 

Sources: 

1. https://us.aicpa.org/becomeacpa/gettingstarted/frequentlyaskedquestions
2. https://www.superfastcpa.com/texas-cpa-exam-requirements/#How_Long_Does_it_Take_to_Become_a_CPA_in_Texas
3. https://en.wikipedia.org/wiki/Certified_Public_Accountant#CPA_exam
4. https://www.cpajournal.com/2022/11/25/fixing-the-crisis-in-accounting/#:~:text=Although%20there%20were%20almost%2050%2C000,2021%20(AICPA%2C%202021).‍
5. https://www.lendio.com/blog/how-much-does-a-cpa-cost/