5 Things to Talk to Your Accountant About
to Save Taxes, improve cash flow, asset protection, financing via debt or equity, and inventory turn over.
It’s probably a good idea for most small business
owners to focus on the core of their business, such as selling fishing lures or designing websites, and use experts to help them in financial matters. According to the IRS, more than 90% of small businesses use accountants
to prepare their returns, something you may be acutely aware of during tax season
. But tax return preparation isn’t the only reason to use an accountant.
Here are 5 Things to Talk to Your Accountant About.
Cash flow, which is the cycle of money in and out of your business, is the lifeblood of any company. If you fail to monitor cash flow carefully, you may run short and, in the worst case, be forced out of business. You can learn what cash flow is and how to manage it from your Accountant
. Unfortunately, many small business owners don’t understand the importance of cash flow or how to monitor it. There are some online options, such as MyBizHomepage.com (it’s free), that help you track your cash flow easily. However, it’s a good idea to work closely with your accountant and add this to the 5 Things to Talk to Your Accountant About, to find sound ways to improve cash flow and address problems that you detect. Your accountant can:
- Review your budget and suggest items that can be trimmed and other ways to reduce overhead; the less you spend, the better it is for cash flow.
- Help you with collection policies so you’ll get your money from sales faster and easier.
- Review your pricing policies; you may be undercharging and missing an opportunity to boost your cash flow, and consequently, your profits.
According to the Annual Report to the Nation by the Association of Certified Fraud Examiners
, the median loss by fraud in small businesses (fewer than 100 employees) is $200,000. The most-named reason for these losses is fraudulent billing schemes. The best way to detect this and other problems early or avoid them entirely is to have adequate internal controls in place, and the best way to do this is to work with an accountant.
As a privately-held business, you don’t need to have annual audited financial statements prepared by an accountant. You do need to have a professional review your numbers regularly as well as suggest ways to safeguard your financial information and your money as theft protection measures. Safeguards can include simple steps such as better password protection or controls over access to the company’s financial data; you may also want to use more sophisticated monitoring.
- You may want or need to raise additional funds to grow your business or undertake a specific purchase or project. An accountant can:
- Discuss whether you’ll want to seek equity financing (where you bring in a new investor) or debt financing (where you borrow from a bank, a vendor, or another source).
- Refer you to possible lenders and investors. Accountants often have a network of people that they can approach and who may be in a position to help you find capital.
- Help you in the loan application process. If you decide to look for a commercial loan such as one backed by the SBA, you’ll usually need a business plan with a number of financial statements, such as a balance sheet and a profit and loss statement. Even if you don’t need a business plan, financial statements are required. An accountant can help you review the numbers and prepare any necessary statements.
Taxes are a complex and costly concern for most businesses. Some self-employed owners like to handle tax return preparation themselves using tax software, such as TurboTax and TaxCut. However, most business owners prefer to let experts do this for them; when there are multiple owners, complex transactions, and multiple states involved, things can be very confusing. Using an accountant for this purpose can ensure that you:
Inventory Turn Over
- Take advantage of new law opportunities. These come fast and furious and can easily be missed without an expert pointing them out and suggesting action you’ll need to take in order to enjoy new law benefits.
- Maximize write-offs. There are many tax elections available and it may require expert advice to make the right choices for your situation.
- Issue required statements, such as W-2s to employees and 1099s to independent contractors. Failure to issue this information returns in a timely manner can trigger unnecessary penalties.
- Avoid missteps that can “red flag” returns for audit. Failing to make certain disclosures or include certain information can cause a return to get special attention from the IRS; you don’t want to draw this type of attention.
- Taxes aren’t just about reporting income and claiming deductions and credits. It also involves considerable planning. For example, an accountant can help you understand the implications of hiring an employee versus using an independent contractor, or buying versus leasing a business vehicle. Your accountant can also help you choose the best type of qualified retirement plan for your business and make other tax-savvy decisions.
If your business involves inventory, you’ll want to stay on top of your merchandise and find new or better ways to handle your inventory. You can, of course, do things yourself using various software and other tools. But an accountant can offer guidance on:
Reporting inventory. There are choices on how to value inventory for tax purposes that can affect your after-tax earnings (or losses).
- Warehousing. Where you store your inventory can impact state taxes.
- How and when to take inventory. You’ll want to do a physical count of your merchandise on a regular basis—as suggested by your accountant.
- Re-stocking. Determining when and how much to order can impact cash flow and profitability.
5 Things to Talk to Your Accountant About can help you grow your business and avoid problems. If you have an accountant, review these areas with him or her. If you don’t have an accountant, consider engaging one. You can find an accountant by a referral from someone in business you know and trust, or through your state accounting society. As well, to be well informed so you can ask your accountant better questions, find extensive tax information here.