Privately Owned Companies & Accounting FAQs

The Whitlock Co. is a full-service accounting firm that handles the full scope of your business accounting year-round, including taxes, planning, and outsourced accounting needs.

Today, our experts answer several frequently asked questions about privately owned companies and accounting.

Are privately held companies held to the same accounting standards as public ones?

Not necessarily. Privately held companies are not required by law to follow generally accepted accounting principles (GAAP), but your company can face hurdles if you do not.

In the United States, this means following generally accepted accounting principles as set forth by the Financial Accounting Standards Board (FASB).

Why should my privately owned company follow standard accounting principles?

Your firm should follow generally accepted accounting principles (GAAP) for several reasons, including:

1. The IRS uses these standards when performing an audit. In case the agency decides to audit your firm, you will need to follow the same standards as the federal government. If not, the IRS may find anomalies in your tax filings.
2. Investors, creditors, and banks follow GAAP when deciding who to lend to. If your company decides to expand in the future and you require a loan or investment capital, someone will review your finances before deciding whether or not to invest money in your company. Your firm should follow the same accounting principles as your investors for accuracy as you try to secure funding for growth.
3. Outlining GAAP in a comprehensive business plan for startups shows business lenders that your firm will follow the same standards as the creditor, therefore giving you an advantage in your initial lending process.
4. Accuracy in your own bookkeeping. Your firm must accurately track financial data so you can stay on top of trends and make the right decisions for your privately owned company.
5. More accurate reporting to investors. GAAP allows your privately owned company to more accurately report financial information to investors.
6. Better planning. Is your company in a growth pattern? Should you hire more staff? Are you able to pay all of your expenses in any given month? What does your cash flow look like? What about your company’s overall financial health? Following GAAP allows you to make strategic business decisions based on your financial accounting records, which are easily comparable using accounting standards.
7. More reliable financial forecasting. Do you have enough cash on hand to weather any business slow-downs? Do you have enough profits to invest in new tools, equipment, property, or software? You can see various trends in your finances when your privately owned company uses the same accounting standards as everyone else.
8. Computer software becomes standardized. Chances are good your privately owned company uses some kind of accounting software. That software probably follows GAAP throughout its programming to deliver accurate numbers. Understanding how the software works lets you make decisions and conclusions based on what the numbers tell you.
9. Accurate third-party evaluations. Let’s say you have investors who receive regular updates about your company’s financial performance. You need to follow the same standards as your investors for monthly, quarterly, and yearly reporting to make sure they understand the same data you do. Any discrepancies or anomalies may trigger an audit by your investors where you must detail why your financial statements look different compared to their numbers.

Do privately owned companies have to prepare and file financial statements?

Legally, no. Privately owned companies in the United States are not required to file periodic financial statements like publicly traded companies or nonprofit agencies. The only filings your company is required to make happen with your annual tax return.

How does my privately owned company follow accounting standards?

Start by talking to financial accounting professionals and experts. The Financial Accounting Standards Board (FASB) delineates the accounting standards for privately owned companies to follow if you want to maintain the same principles as banks and investors. However, you may need assistance with interpreting the standards. An accountant gives you relevant information on how best to perform essential accounting and bookkeeping functions.

Computer software offers another great resource for your company’s financials. Even if you rely on the best accounting software available on the market, a certified public accountant (CPA) can recommend the best one for you. The Whitlock Co. recommends QuickBooks for Small Business for simple income and expense tracking.

Why should my privately owned company hire an accounting firm to help me?

Your privately owned company may have several reasons to hire an accounting firm, such as:

1. No time for accounting, business planning, and filing taxes. Your best efforts should go towards your core business model. You may not have time to keep up with accounting and finances as you run the day-to-day operations of your business.
2. Assistance with reporting financials to investors. Is your business growing? Are you seeking a loan from investors? An accounting firm on your side can help bring accurate financial data and reporting to the table as you seek new sources of funding.
3. Help with internal business planning. Do you want to plan for the future? An accounting firm for your privately owned business can help.
4. Preparing annual tax returns. Businesses have special tax concerns and considerations every year, particularly if tax laws change from previous years. An accounting firm can gather your financial information, prepare tax returns, and file them on your behalf.
5. Assist you with financial analysis. Did your business have unprecedented growth or a financial hiccup for a month or two? An accountant can identify a problem before it gets out of hand.
6. Succession planning. You’re ready to sell your business, either due to retirement or as a merger/acquisition. An accountant helps you outline your financial goals before you exit your business.
7. Expert witness during legal proceedings. Called forensic accounting, a firm can perform a deep dive into your finances and then testify as an expert witness if your privately owned company ever faces a lawsuit.
8. Help with mergers and acquisitions. Are you selling to another company? Are you acquiring a competitor? No matter what side you’re on during a merger and acquisition, an accounting firm gives your privately owned company an advantage when you want the process to go smoothly. We can identify strengths, weaknesses, problems and opportunities as you negotiate a merger or acquisition that you might not otherwise think of.

Who can I contact for accounting for my privately owned company?

The experienced team at The Whitlock Co. offers full accounting services for your privately owned company, including tax preparation and planning, outsourced accounting, business planning, employee benefit plan audits, and more. Contact us to request a consultation, and we’ll start the conversation.