Private vs public accounting expertise

The difference between private accounting and public accounting has to do with training. Private accountants know about billing and accounts payable. They are versed in recording business transactions. Their areas of expertise are limited by the specific industry they work in, making them great subject matter experts for small businesses.

Public accountants are more about the analysis of financial statements. They are experts in accounting standards and have the ability to work for a range of clients.

3 types of accounting most small businesses need

Financial accounting

Financial accounting is all about recording, preparing and summarizing financial statements for a specific period, such as yearly or quarterly. Small businesses know more about their assets, liability and equity to arrive at the business’s net income.

This type of accounting requires either or both the accrual and cash methods. Cash accounting means logging revenues when received and when expenses are paid. Accrual accounting means that revenue or expenses are logged when those transactions occur, regardless of whether money was exchanged.

Managerial accounting

Managerial accounting is all about data-based decision making. Accountants go through the process of identifying and analyzing data, and they communicate that information to managers and owners. They focus on making future projections so that businesses can maximize profits and mitigate losses.

Cost accounting

Cost accounting is a subset of managerial accounting, and it’s all about capturing the company’s total production costs, variable and fixed expenses. With this information, businesses can plan future operations more economically.

Public vs private accounting needs

As you navigate the public vs private accounting debate, it’s important to know when you need an expert in either discipline, as it will help you to overcome certain accounting challenges faster by saving you time and money.

When your business needs private accounting

• Dealing with proprietary systems. If your business has an internal system that is completely customized, you need dedicated staff who will take the time to learn it. This is why it makes sense to have a private accountant who can learn how to navigate the system and keep the company compliant with required regulations.
• You have enough work to keep them busy. While your business may be small, your bookkeeping may be complex enough that you would have enough work to keep an in-house accountant busy.
• Projecting business growth. If you plan to keep your business small and your books are simple enough to handle, then you can do all the necessary accounting yourself. However, if you project significant growth, it’s important to have a dedicated private accountant. A qualified professional can handle payroll growth and financial statements, ensuring that your books are pristine and ready.

When it needs public accounting

Public accounting is a broad discipline that covers many areas of business strategy. But there is a special subset of public accounting that is the most sought-after type. There are over 660,000 actively licensed certified public accountants (CPAs) in the U.S. These professionals offer great advice to businesses beyond payroll and bookkeeping. CPAs can do general work or specialize depending on their clientele.

Small businesses need public accounting professionals when:

• Business needs help. As a small business owner, your focus is on your entrepreneurial endeavors, which is why you started the business. But if you don’t have the best relationship with numbers or enough of a grasp of accounting basics, it’s best to outsource your finances and focus on your business.
• You need objectivity. If things aren’t going well, or you need to make a strategic move, you’ll need an objective pair of eyes to tell you whether what you’re planning will work or not and what adjustments you need to make. Even if you do have a private accountant, incorporating a public accounting perspective can provide better direction.
• In-house isn’t feasible. Your budget doesn’t accommodate an in-house professional. A CPA working with other businesses will cost less than a dedicated accountant.

Dealing with the government

As the IRS plans to ramp up small business audits, it’s imperative for businesses to have an accounting professional, private or public, to prepare for the possibility. They’re going to be looking for unusual deductions and compliance issues, both of which can incur penalties at all levels of government.

In these cases, it’s a good idea to have the accountant set up your software so that you can easily retrieve the documents you need with a few clicks. On top of that, scheduling regular “check-ups” makes it less likely that you’ll be overwhelmed should you get the notice for an audit.

Deciding on whether you need private or public accounting depends on your objective and your budget. In many cases, outsourcing your needs to a CPA works for both your budget and peace of mind.

Public vs Private Accounting FAQs

What is GAAP?

GAAP stands for ‘generally accepted accounting principles.’ These are the accounting standards for preparing financial statements set by the Financial Accounting Standards Board (FASB). They’re required for public organizations as well as for nonprofits. While private organizations aren’t required to be GAAP compliant with their financials, it’s a standard that influences all accounting professionals.

What is a Certified Public Bookkeeper?

A Certified Public Bookkeeper (CPB) handles payroll, quarterly tax and year-end tax documentation and statements. They stay current with tax laws and manage business finances.

How do we find a qualified accountant?

The best way to find an accountant is to speak with your local chamber of commerce, your attorney or a fellow business owner.