Questions to Ask a CPA When Starting a Business
These are questions to ask a CPA when starting a small business, written for the first meeting about a new business and the year that follows it. The 59 questions run in the order the conversation usually goes: whether the firm fits and what it charges, entity and setup, books and banking, taxes and deadlines, then hiring and growth. The last group is for anyone opening a franchise, with what to ask the CPA about the disclosure document, the franchise fee and the royalties.
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The questions
Each question, and why to ask it
Fit and fees
How many new businesses did you help set up in the past year, and what did you do for them in the first ninety days?
Why ask it
A startup year is different work from an established client: registrations, opening balances, a first payroll, books with nothing in them yet. A CPA who does this often can list the steps in order without stopping to think.
What kind of businesses do you usually work with, and how many are around my size?
Why ask it
A firm whose clients are mostly far larger may hand a new business to whoever is free, and one that has never worked in your industry will be learning it on your return. Two client examples at about your scale, described without names, tell you more than a yes.
Who will I be dealing with day to day, you or someone on your team?
Why ask it
In many firms a partner takes the first meeting and a staff accountant does the work. That can be perfectly fine, but meet that person and find out how a question gets escalated.
How do you charge: hourly, monthly, or per return? What does that include?
Why ask it
Each model puts the uncertainty somewhere: hourly leaves it with you, a flat fee leaves it with the firm, and a monthly fee pays off only if you use it. Get the list of what sits outside the price, such as a state return, an amended filing or a reply to a notice.
What will my first year with you cost in total, from setup through the first tax return?
Why ask it
Ask for a range that covers the entity advice, the bookkeeping setup, check-ins during the year and every return the business and you will file. One total is the only way to compare two firms that price the pieces differently.
Which quick questions can I send during the year without being billed for each one?
Why ask it
Firms draw this line in different places: some fold short emails into a monthly fee and some bill every call in small increments. Where it sits decides whether you ask before a decision or after it.
How quickly do you answer a client's question, in filing season and the rest of the year?
Why ask it
A new owner's questions tend to arrive with a deadline attached: a lease to sign, an offer to make, a form due on Friday. A number of days, and the name of who answers while they are buried in returns, is worth more than being told they are responsive.
What do you handle yourself, and what would you send to a lawyer, a bookkeeper or a payroll company?
Why ask it
A new owner tends to assume the CPA covers everything with a number in it. Hearing where their work stops tells you which other people to line up, and whether they have names to give you.
Which state issued your CPA license, and can you file in the other states where I expect to do business?
Why ask it
A license comes from a state board of accountancy, and most boards have a public lookup you can check after the meeting. Filing in a second state is a separate matter of experience, so ask how many clients they file there for now.
Where do people in my industry most often get this wrong?
Why ask it
Most trades have their recurring traps: contractor classification, inventory, tips, sales across state lines. A CPA who works in your field answers at once and with specifics, and a pause followed by general advice tells you something too.
Entity and setup
Given what I have told you, which entity structure would you set up and why?
Why ask it
The reasoning is what you are buying, not the answer. A recommendation made without asking about your revenue, partners, state and plans is a template rather than advice.
What would change your recommendation on structure in a year or two?
Why ask it
Good advisers set review triggers: a revenue threshold, taking on a partner, hiring, raising money. Someone who treats the structure as permanent does not intend to revisit it with you.
What would an S corporation election actually get me, and when is it too early?
Why ask it
In the United States this election is a source of both real savings and expensive mistakes. Listen for whether they tie it to your profit level and a salary they could defend, not present it as free money.
Is there any reason to form the company in another state, like Delaware, instead of the one I work in?
Why ask it
A company formed in one state and run from another can end up registered, and paying annual fees, in both. Outside investors are the reason most often given for doing it, so a useful answer starts with whether you expect any.
What does each structure cost to form and to keep going every year in this state?
Why ask it
Formation fees, annual reports, minimum or franchise taxes and an extra return to prepare all differ by state and by entity. A structure that saves tax on paper can cost more than it saves at a first-year profit, so ask for both sides of the sum.
Which registrations do I need before my first sale, and which of them will you file for me?
Why ask it
The usual list has a federal tax ID, a state tax account, a sales tax permit if you sell taxable goods, and a city or county license, but it depends on where you are and what you sell. Leave knowing which ones are yours to do and how long each takes to come through.
I have a business partner. What should the two of us settle about money before anything is filed?
Why ask it
The list is short and uncomfortable: who puts in what, how profit and losses are split, what each of you can draw, and what happens if one leaves. The CPA can show what each choice does to your tax; the agreement itself belongs with an attorney.
I have already spent money getting ready to open. How are costs from before the first sale treated?
Why ask it
Spending before a business is open is often handled differently from spending once it is trading, and the date the business counts as started matters. Bring every receipt from the planning months, including the ones paid from a personal card.
How do I take money out of the business, and what does that do to my tax bill?
Why ask it
Draws, salary and distributions are treated differently, and which of them is open to you follows from the structure. The useful answer is mechanical: which account, how often, what gets set aside, and how the payment is recorded in the books.
If I put my own savings into the business, should it go in as a loan or as an owner contribution?
Why ask it
The two are recorded differently and come back out differently, and a transfer nobody labeled is hard to explain a year later. Decide with the CPA when the money moves and keep a one-line note of what it was.
Books and banking
How do you want me to separate business and personal money from day one?
Why ask it
Mixed accounts are a familiar first-year mess, and untangling them usually costs more than a separate account would have. Find out what they want in place before your first transaction, including which card to use for a purchase that is partly personal.
Which bookkeeping setup do you want me on, and will you work in it with me?
Why ask it
You want a system they can see into, because a CPA reconstructing a year from bank statements is the most expensive way to buy accounting. Settle in the same breath whether their time inside your books is billed.
At my size, can I do the monthly bookkeeping myself, and what would you check behind me?
Why ask it
Plenty of first-year owners keep their own books, and it works when someone reviews them before errors pile up. Ask how often they would look, what a review costs, and the point at which they would tell you to hand it over.
Will my books run on the cash method or the accrual method, and is that my choice?
Why ask it
Cash records a sale when the money lands and accrual when the invoice goes out, so one year can show two different profits. Whether you may choose can depend on size and on carrying inventory, so settle it before the first return and ask what a later switch would involve.
Can you set up my expense categories so they line up with the tax return?
Why ask it
Accounting software arrives with a default list of categories that may not match how your return is laid out. One short session on this before the first month of transactions saves recoding a year of them in the spring.
How should I take payments and send invoices so the deposits are easy to match?
Why ask it
Card processors and marketplaces pay out net of their fees, so the deposit in the bank is not the sale. Ask how they want those fees recorded, and whether a payment app registered in your personal name will cause trouble.
Which expenses do you expect me to document more carefully than I probably will?
Why ask it
This gets you the practical list, usually mileage, meals, home office and anything with a personal element. Far better to hear it in month one than to reconstruct it later under examination.
What records do I need to keep, in what form, and for how long?
Why ask it
How long to keep something varies by the kind of document and by where you file, so get their list, not a single number. Settle the format too: whether a phone photo of a receipt is enough for them, and where the files should live.
Which report should I read every month, and which numbers on it matter most in year one?
Why ask it
Profit and cash are different things in a new business: the statement can show a profit while the account is short for rent because customers have not paid yet. Have them mark the two or three lines they would look at first.
What do you need from me each month or quarter to do your job properly?
Why ask it
The answer shows whether the arrangement is built to work during the year or only at the end of it. A CPA who needs nothing from you until filing season finds out what happened when it is too late to change any of it.
Taxes and deadlines
What is the calendar of filings and payments I am now responsible for?
Why ask it
You are asking for a dated list, not a description. If you leave without actual deadlines written down, you will meet them by accident or not at all.
How do we work out my estimated payments in a first year with no history?
Why ask it
First year estimates are genuinely uncertain, and a useful answer explains the method and any safe harbor available to you. Anyone quoting a confident figure without your projections is guessing.
What should I set aside for tax out of every dollar that comes in?
Why ask it
A working rule of thumb you can apply weekly beats a precise annual number you will forget. Ask what assumptions it rests on, so you know when revenue changes enough to revisit it.
I am keeping my job while I start this. What does the business change on my personal return?
Why ask it
Wages have tax withheld and business profit does not, so a good first year can leave a bill your paycheck never covered. One thing to raise is whether extra withholding at your job could stand in for some of the estimated payments.
Do I have a sales tax obligation, and does that change if I sell into other states?
Why ask it
Sales tax turns on where your customers are and what you sell, and the answer is often more involved than expected. If they wave it away without asking what you sell, ask again.
Besides income tax, which state and local taxes or fees does this business owe?
Why ask it
Depending on the place, there can be a gross receipts tax, an annual report fee, a property tax return on equipment, or a city license to renew. None of them arrives with the federal return, which is how they get missed in a first year.
If I buy equipment or a vehicle this year, how is it written off, and does the timing matter?
Why ask it
Whether a purchase is deducted at once or spread over several years, and what buying it late in the year does, can move the bill, and vehicles often have rules of their own. A CPA who only says to send the receipt has skipped the planning.
Can I claim part of my home and my car for the business, and what log would you want to see?
Why ask it
Both claims rest on records made at the time: a space used only for work, a mileage log with dates and purposes. Start the log the week you start the business, because one rebuilt from memory at filing time is weak support.
A loss looks likely in my first year. How does it show up on my own return?
Why ask it
What a loss can be set against depends on how the business is taxed and how much you have put in, and those limits have changed over the years. Ask for the treatment in the year you will file, and what a second losing year would change.
How should I handle health insurance and retirement saving now that no employer does it for me?
Why ask it
What an owner can deduct or contribute depends on the structure and on whether there are employees. Ask which plans suit a first-year income that is hard to predict, and the date by which one has to be opened to count for this year.
What should we review together before the year ends, and can we book that meeting now?
Why ask it
Once the year closes, most of what could have been changed is fixed: the timing of a purchase, an invoice, a contribution. A date in the autumn, sitting in both calendars, is the difference between planning and reporting.
If I get a notice from the tax authority, what do I do and what do you do?
Why ask it
Many notices are routine: a figure that does not match, a missing form, a payment applied to the wrong period. What you want is a named process, meaning how fast to send it over, who writes the reply, and whether replying for you is billed extra.
Hiring and growth
Would the first person I pay be an employee or a contractor, and what decides it?
Why ask it
The label follows from the facts of the work, such as who controls the hours and the method, and a state can apply a stricter test than the federal one. A careful answer about control and independence is a better sign than an assurance that everyone in your field uses contractors.
What has to be in place before the first paycheck goes out?
Why ask it
Usually state withholding and unemployment accounts, a payroll schedule and forms from the new hire, and some of those registrations take weeks. Ask what the order is in your state, so the start date you offer is one you can meet.
Do you run payroll yourself, or is there a payroll service you want me on?
Why ask it
Whoever runs it, find out who files the quarterly forms, who confirms each tax deposit went through, and what it costs per person paid. Withheld tax is money you are holding for the government, so this is the one task not to leave vague.
What do I collect from a contractor before paying them, and what do I file at year end?
Why ask it
In the United States that means a W-9 up front and a 1099 after the year closes for anyone paid over the reporting threshold. The threshold and the deadline move, so get the current ones, and collect the form before the first payment, when asking is easy.
Can I pay my spouse or my teenager for helping out, and what makes that hold up?
Why ask it
The general expectation is real work, a wage that fits the work, and payment through the same process as anyone else. The rules for family members vary with the structure and the state, so ask what paperwork they would want on file.
If I need a loan or a line of credit, what will a lender want from my books?
Why ask it
A new business has no tax returns to show, so lenders often look at projections, the owner's personal returns and an opening balance sheet. Ask whether the CPA prepares those, what it costs, and how much notice they need during filing season.
Which decisions do you want a call about before I make them?
Why ask it
Signing a lease, taking on a partner, selling in a new state, a large purchase, a first hire. A short list written down in the first meeting is what turns a tax preparer into an adviser you reach in time.
Franchise
Will you read the franchise disclosure document with me before I sign, and which items do you turn to first?
Why ask it
In the United States the document sets out the fees, the estimated initial investment, any financial performance figures and the franchisor's audited statements. A CPA reads those numbers and a franchise attorney reads the contract terms, so find out whether this CPA has reviewed one before.
Does the franchisor's estimate of my initial investment look complete for my location?
Why ask it
The estimate is a range for a typical unit, not for yours. Have the CPA replace it with your own rent, your build-out quotes and enough operating cash for the opening months, then see where you land in the range.
What do the franchisor's own financial statements say about its health?
Why ask it
You would be tying your business to theirs for the length of the agreement. A CPA can tell you whether the company earns mostly from royalties on working units or from selling new franchises, and how much debt it carries.
How do I build a first-year projection when the franchisor gives few earnings figures?
Why ask it
Some franchisors publish performance figures and some publish none. Work from what current owners tell you about sales and costs, plus local rent and wages, and ask the CPA to find the monthly sales at which the unit breaks even.
How are the initial franchise fee and the build-out treated on my tax return?
Why ask it
Neither is usually handled like a day-to-day expense, and whether a cost is written off at once or spread over years changes what the first return shows. Ask for the treatment in writing before you set a budget around a deduction.
If royalties and the ad fund are charged on gross sales, what does that do to my cash each month?
Why ask it
A fee charged on sales is due whether or not the month made a profit, unlike a cost that follows what you earn. Have the CPA put the percentages into a month-by-month cash forecast next to rent and loan payments.
Which entity should sign the franchise agreement, and what would a personal guarantee put at risk?
Why ask it
Franchisors often ask the owner to stand behind the agreement personally even when a company signs it. The CPA can show what that does to your own finances and borrowing, and the wording is for your attorney. Settle the entity before signing, since moving the agreement later may need the franchisor's consent.
Does the franchisor require its own software, chart of accounts or reports, and can you work with them?
Why ask it
Many franchise systems want sales and financial reports in a set format on a set schedule. Your CPA either works inside that setup or beside it, so ask which, and whether the franchisor's preferred bookkeeping vendor is optional.
I am thinking of using my retirement savings to fund the franchise. What should I understand before I do?
Why ask it
Arrangements that let retirement money buy into your own business are tightly regulated and can be costly if they are set up wrong. They are sometimes pitched by the companies that set them up, so hear the risks from a CPA who earns nothing from the arrangement.
If I hope to open a second unit, what should we set up differently now?
Why ask it
One company per location or one for all of them, how shared costs are split, and what the franchise agreement allows. These are cheaper to decide before the first unit opens than to unwind after the second.
Working with a CPA in Year One
Practical guidance for the conversation itself
Go to the first meeting with numbers
A CPA can only give specific advice if you bring specifics. Arrive with your expected revenue for the next twelve months, your major planned costs, whether anyone else owns part of the business, which states you will sell into, and whether you expect to hire. Without those, anything you hear about entity structure or estimated tax is a general description of the options rather than advice about your situation.
Questions they should be asking you
- What the business actually does, and how it makes money.
- Expected revenue and profit for the first year or two.
- Whether there are other owners, and on what terms.
- Where you are located and where your customers are.
- Whether you plan to hire, and roughly when.
- Whether you intend to raise outside money or sell the business eventually.
- If a structure is recommended without most of these being asked, you are getting a default rather than a recommendation.
Set the relationship up properly
- 1Get the engagement letter in writing, including what is in scope, what is billed separately and how often you will speak.
- 2Agree the bookkeeping arrangement before you start trading, including who does the monthly reconciliation.
- 3Open a separate business bank account and route everything through it from the first transaction.
- 4Put every filing date they give you into a calendar with a reminder two weeks ahead.
- 5Schedule a mid year check in rather than meeting only at filing time, since very little can be fixed in the spring.
What a CPA is not
- Not a lawyer. Formation documents, partnership agreements and liability questions belong with an attorney, even where the CPA has a view.
- Not a substitute for bookkeeping. Many firms will do it, often at a higher rate than a bookkeeper, and reconstruction after the fact costs the most of all.
- Not protection against an audit. Ask what representation costs if one happens rather than assuming it is included.
- Not a source of certainty in every state. If you will operate across state lines, ask directly whether they handle that or refer it out.
Before you sign
- Verify the license with your state board of accountancy. A paid tax preparer is not necessarily a CPA.
- Ask how many clients they take on and what their response time looks like during filing season.
- Ask what happens if you leave: who holds the working papers, and how your records transfer.
- Ask for a fixed quote covering the first year of compliance work, so you can compare firms on the same basis.
If the new business is a franchise
Get the disclosure document to the CPA early
In the United States a franchisor has to give you its disclosure document some time before you sign or pay anything. Use that window: send the CPA the whole document, not a summary from the sales team, and book the review before the franchisor's timetable starts to feel like yours.
Split the reading between the CPA and a franchise attorney
The CPA takes the money sections: the fees, the initial investment table, any performance figures and the franchisor's financial statements. The attorney takes the term, the territory, renewal, transfer and the ways the agreement can end. Asking one of them to do both jobs tends to leave half the document lightly read.
Make the projection your own
Start from your own lease quote, local wages and loan terms, add the royalty and ad fund percentages, and ask the CPA for three versions: sales as hoped, sales well below that, and an opening that runs a couple of months late. The version you could survive is the one to decide on.
Take the CPA's open questions to current owners
The disclosure document lists existing franchisees and those who have left. After the review, ask the CPA which figures they could not find, such as real labor cost or how long a unit took to cover its costs, and put exactly those to the owners you call.