Not taking full advantage of their accountant’s skills is a critical error many new entrepreneurs make. I listed before some of the things your accountant can do for you, but now I will tell you how to get the most out of the relationship.
Minimum services, taxes and a compilation
There are two absolute minimum services most businesses need from their accountants, tax planning and preparation and a compilation.
“Tyler,” you say, “I already drop my taxes off to my accountant every year, you don’t need to tell me about that.” And that may be so, but in my experience many entrepreneurs confuse tax preparation with tax planning. When you proudly drop off your shoebox of receipts or your Quickbooks generated financial statements that don’t balance each March you’re reducing your tax preparer to a mere lackey that keys in numbers, pulls out some non-deductible items, adjust sales to factor in the journal entries that you didn’t understand how to make last year, puts together some entries that she knows you won’t make this year, and then pushes it out the door as fast as possible in order to get on to the next. Usually you just get it in the mail, sign where you’re supposed to, squeeze out a little blood to be able to pay the IRS, and you’re done for the year.
The problem with this system is that by the time your accountant sees your numbers its too late to do anything about them. Now imagine this scenario, you send your accountant some year-to-date preliminary numbers in October or November that both balance and include the prior years adjusting entries. You give them a call or meet with them to discuss the numbers, the year you are having to date, get an idea of the amount of tax you might owe at year-end, and tell them about your plans. At this point any accountant worth working with will start asking you questions and discuss different planning strategies that could help you save some of your hard earned cash. And not only then, before you make any major business decisions like buying or selling critical assets, adding a partner, changing your corporate structure, and buying or selling a business you need to discuss the potential tax implications with your accountant.
The Compilation
The compilation is when your accountant takes your accounting records and puts them together in the form of formal financial statements. Unlike in an audit or a review, the accountant is not examining your work or expressing any kind of approval of the statements. Usually compilations are not required by banks or any other agency. So why bother to do them?
- To establish a financial record for the day that your little start-up takes on wings and grows. You’re going to start talking to banks, investors, potential partners and perhaps even vendors that are going to want to see your history in financial statements so that they can evaluate your business.
- Unlike when they do a tax return, your accountant will generally sit with you and learn about your business. This gives you a great chance to ask questions and to get feedback about operational aspects of the business that go beyond taxes.
- To learn how much money your really making and what is bringing in the dough. The fact is most entrepreneurs have a basic understanding of accounting and may or may not do their own bookkeeping. Let’s face it, running a business is complicated and you are focusing on building up sales and other operational aspects. Having an accountant look over the numbers can help your see if you’re doing things correctly, as far as your accounting is concerned, and to let you know if you are on the right track, as far as your business is concerned.
- To ask questions of and get feedback from your accountant. You are not going to get much attention from your accountant during tax season when every second is precious. By getting a compilation you should be getting, at the minimum, a conversation with your accountant at the onset to plan the compilation and a discussion with her at the end to discuss the numbers. This necessitates a conversation between the entrepreneur and their accountant and gives you the chance to get some questions asked and answered. See some of my previous posts to get an idea of the questions you may have.
If you have gotten anything out of this post it should be that you as an entrepreneur should have an open relationship with your accountant and that you should should be working with them throughout the year for both tax planning and accounting issues. “Now,” you will ask, “won’t they charge me for this?” The answer is a resounding “Of course!” It is up to you to determine the value you get from your accountant and to plan appropriately. If your business consists of doing a little consulting on the side, you might find this unnecessary. However, if you have serious time and capital invested in your business and you are planning on growing it and taking it to another level, I believe that almost always a good accountant is indispensable. Full disclosure, I am an accountant, as well as being a small business owner along with my wife, and so I may be somewhat inclined to be pro-accountant. So ask around, get other opinions, and see how others in your industry do things.
