Frequently Asked Questions

How long do I need to keep financial records?

The IRS rules vary, but 7 years covers you in pretty much all scenarios. However, we highly recommend maintaining electronic copies for security and peace of mind. Prax is 90% paper-free these days, and we love to wean clients off reliance on paper records.

What do I do if I can’t pay my taxes?

Tax agencies know everyone hits tough times, but no one likes getting their love letters (aka levy letters). They’re somewhat forgiving provided you keep up with your reporting requirements. That’s not to say they’ll waive your tax bill, but a little negotiating can buy you a payment plan that will ease the financial burden while also getting you off their frequent mailer list. However, it’s a good idea to discuss your specific situation with a CPA who specializes in tax debt resolution – there’s plenty of potential to work out additional benefits that the IRS won’t volunteer on their own.

Can business owners do the accounting themselves?

Absolutely! In fact, if your annual gross revenues are under $500k, we may recommend training you to maintain your own bookkeeping and meet quarterly with us to review your work.

We have trained many clients to maintain their own books, and we find that quarterly checks are a great way to catch mistakes somewhat early while still keeping your costs as low as we can.

What accounting system do you use?

We use Quickbooks (both online and desktop) for 90% of our clients. The remaining 10% are other cloud-based programs like Xero and Freshbooks or industry-specific programs like Deltek and Yardi.

What does the monthly accounting process entail?

Your bookkeeper posts all transaction data to your system 1-3 times per week (depending on volume of activity). They notify you if we have questions and keep you updated on action items that are holding us up. Your controller checks the bookkeeper’s work once a week, then hosts a virtual monthly meeting with you, the bookkeeper, and the CPA to close your books, go over your financials, resolve any outstanding issues, discuss any new tax-related developments or opportunities, and establish specific goals and action items for the team.

What do clients need to provide?

Your firstborn! Just kidding, please don’t send your kid, we’re probably out of snacks.

Generally, we’ll always need the following:
1) access to your existing accounting and payroll systems
2) the last few years’ tax returns
3) business formation documents
4) and reports-only user access to bank accounts and loan/credit card accounts.

Why is Prax different/better?

We are not passive accountants that are comfortable posting historical data and having a 20-minute check-in with you before continuing business as usual. We bring out-of-the box thinking and we’re highly motivated to help your financial health improve every single month. We want you to feel we have your back every step of the way and that we are a vital partner and contributor to your ongoing success. Our team’s goal is to bring you more value than we cost you, every single month!

How much does monthly maintenance cost?

New clients are charged hourly for the first 90 days, which gives us enough time to finish any cleanup work and determine ongoing support needs. After 90 days, we can either keep you on hourly or negotiate a fixed flat rate, which starts at $750/mo. Most of our clients prefer flat rate since it allows control of cash-flow fluctuations and avoids a surprise bill.

What is a Profit and Loss report?

In layman’s terms, it’s a list of all your income and expenses for a specific period and calculates the net of those income and expenses. It also shows you trends and is a critical report used to determine if you’re profitable.

What is a Balance Sheet?

In layman’s terms, it’s a snapshot of all your account balances on a given day. This includes bank accounts, credit cards, loans, what’s due to tax agencies, your equity, and a few other nuggets. This is the first report we review to look for red flags – all the balances on your Balance Sheet should make sense to you and jive with what you know is true.

How can I make my business financially successful?

Bring in more money than you shell out. Sounds simple, but cash really is king. If you’re constantly running out of money or your balances are dwindling away, your business is on the road to insolvency. Prax can help you turn that around and we’ll celebrate your success alongside you – your success boosts our bragging rights!

What are the best ways to separate business and personal finances?

If you’re running a business, you need business bank accounts and business credit cards. Use a sharpie to write ‘business’ on the cards if you have to. Swipe personal cards for personal purchases and swipe business cards for business purchases…simple in theory, not so simple in practice. However, once you start mixing these, it’s tough to un-mix them. Your bookkeeper can handle it, but the more mixing you have and the longer you’ve been doing it, the tougher it is to untangle. This is where clean-ups can be very useful, but you’ll also have to commit to changing behavior in the long run. 

What is the deal with all the titles? Accountant, bookkeeper, controller, CFO, CPA? Help!

Everyone gets confused by this, so let’s break it down!

  • Using the title ‘Accountant’ depends on where you’re located since some of the rules are state-specific. However, in Maryland (where Prax operates), ‘accountant’ is a general and catch-all title for anyone who provides professional accounting-related services. This could include anything from data entry to tax work. It’s kind of like the title ‘teacher’, which doesn’t differentiate between the subjects in which they have expertise but still tells you what they do. Same deal with accountants. We can specialize in specific areas but ultimately we’re still performing work related to accounting.
  • Bookkeeping is a specific area of work that includes most data entry tasks. The bookkeeper posts income, expenses, keeps track of your customer or vendor balances, reconciles your accounts, makes deposit runs, processes payroll, and more. Think of the bookkeeper as the elementary school teacher – they’re handling all the basics and you won’t get far without it. A good bookkeeper is generally the first and most critical accounting team member in a business. 
  • A controller takes the bookkeeper’s data and makes sense out of it. Imagine us as the high-school English teacher who helps you understand what the heck Shakespeare is saying. Your controller will explain your financial position in layman’s terms and help troubleshoot problems, such as payroll liability balances that seem off or a growing balance in undeposited funds. Sometimes the controller and bookkeeper are the same person, but as your business grows, you’ll want that second pair of specialized eyes looking at your financials.
  • The CFO (Chief Financial Officer) plays the role of psychic guide. No pressure, right? It’s our job to figure out what’s coming down the pipeline that will impact your business and how to turn that into smart and strategic business decisions. These are the guidance counselors in our ongoing and brilliant analogy. They keep up with industry developments, create cash forecasts, help identify opportunities and risks, develop a plan of action, identify benchmarks, key performance indicators (KPIs), and much more. This is a specialized area of accounting that focuses heavily on the future of your business.
  • The CPA (Certified Public Accountant) is an accountant that has pursued additional education and licensing related to tax preparation and public accounting rules. In 99% of small businesses, the only time you truly need a CPA is for tax prep or tax planning. Think of the CPA as the college professor teaching 3rd year Arabic – highly specialized in what they do – it’s overkill to have them work on bookkeeping tasks.  

Why monthly maintenance and not just annual?

The last thing you want is to get to the end of the year and discover you’ve done things wrong that can’t be corrected now. We’ve personally seen clients who’ve lost tens of thousands of dollars in tax savings alone because of this, plus penalties and interest. And that’s just one example – imagine getting to the end of the year and having your accountant find evidence of theft that’s been happening for months? Or what about finding out you’ve been double charged for a software program every month? Or that you have active lines on your business wireless phone plan that were from employees who left a year ago? Monthly maintenance would have caught all of these.

Why do I need monthly maintenance?

If the routine data entry to your accounting system isn’t happening or the data in the system is wrong, those are big red flags that you need monthly bookkeeping. Monthly maintenance gives you real-time insight into your numbers and allows you to use that insight now instead of months or years after the fact. Monthly maintenance also gives you a safety net to catch mistakes early.

Why use an accounting firm?

The short answer?

Because we’ll save you time, money, and headaches!

The long answer?

A good accounting firm (as opposed to a lousy one) is an invaluable partner in running your business. We care about your business as much as you do! Sure, that’s easy to say, but we are very aware of the reality: that your success dictates our success. We have a vested interest in your business performing well, which means we don’t take a passive approach – we try to predict problems before they happen. When problems happen, we take care of it as soon as possible. If we make a mistake, we own it and fix it. And we never push due dates unless there’s no other alternative, including tax deadlines.