Whether you’re working with an in-house accounting team, a consultant, or a qualified CPA, you’re bound to get a good amount of advice. Like any other business owner, some of that advice you will take to heart, and some you will probably decide doesn’t apply.
But, there are a few points of advice from your accountant that you absolutely shouldn’t ignore. Let’s dive into those points.
Don’t Miscategorize Your Expenses
This is the #1 piece of advice most accountants have to give their clients at some point. Not only is appropriately categorizing your expenses important for taxes, but it’s absolutely critical for these categories to be correct if and when you seek out funding, the sale of your business, or any acquisition or merger.
Most business owners think of expenses in terms of how they will impact the overall tax burden, but having miscategorized expenses can screw up your chart of accounts, ultimately leading to incorrect numbers and HUGE financial errors across all of your reports.
In short, don’t miscategorize your expenses. It doesn’t just put your business at risk for audit, it puts the very accuracy of your numbers at risk.
Don’t Skip Reconciliation
Similarly, skipping reconciliation means you could have errors in your reports that you don’t even know about. Double-charges for expenses, invoices paid inaccurately or multiple times, accounts receivable issues. Every account and statement should be reconciled religiously.
Why? This is you #1 defense against fraud, underpayment, overpayment, and catching embezzlement.
Every Business, Regardless of Size and Revenue, Needs a Budget
Even if you’re a single owner business, you may have cut through the first 1-3 years without a budget, but eventually, your business is going to need one.
Your budget outlines what you need to spend over the next month, quarter, and year, but a good budget also accounts for where you want to be in the next 5 or 10. If you’ve made it through the first few years of business, that’s a great sign that it’s time to start thinking longterm. Hoping to eventually sell your business to retire? A budget can be a roadmap for how to make that happen. Need new equipment to expand your services? A strategic accountant can help you budget and make that expenses in a way that benefits your business most and costs your business the least.
Whether you’re managing a multi-million dollar budget or a sub-$100,000 budget, you’ll be grateful to have an understanding of where your investment is going, what you are working toward, and how you will get there.
Similarly, You Should Have a Forecast
Many businesses learned the hard way in the last five years that a forecast is critical if you want to survive turbulent ups and downs, a shaky and inconsistent economy, and find staying power.
How your forecast looks depends on your business, but for many it includes contingency plans, growth paths, and a framework to begin with when things need to change.
Getting in the habit of forecasting encourages you to make more strategic business decisions driven by a steady hand rather than emotions, and it helps you adapt more quickly when things need to change. Most businesses start building forecasts at the 2 or 3-year in business mark, meaning they’re established enough to know their market and business well and be able to think more strategically about the longterm.
Know Your Long-Term Business Goals
Your long-term business goals will inform many of the choices you make throughout business ownership. You may be looking to build a business you can pass on to your children, sell so that you can retire, or as a starting point for running multiple businesses at a high level.
Whatever your goal is, it should impact the choices you make along the way. Everything from who and how you hire to how you fund your business and your growth plan will be impacted. For example, if your goal is to sell your business eventually, building a business around a service built around your own skillset could make it more challenging to successfully sell or pass on. If, for example, you want to build a software company with the goal of selling, you’ll likely need to invest more money in protecting IP and development.
If your accountant is asking about your long-term business goals, it’s usually because the answer to that question will change what the best option will be to benefit your business.
Change Your Business Structure
If your accountant is recommending you change your business structure, you are likely missing up on valuable tax breaks or protections. Some accounting firms, like ourselves, offer expertise in structuring and umbrellas for specific types of businesses like real estate and construction, and can offer proof positive that these changes will benefit your business.
If this suggestion comes up, don’t brush it off just because it can be a pain to change your entity structure. Ask questions and be open to why your accountant thinks this is the best choice.
Engage in Thoughtful Tax Planning
Thoughtful tax planning means knowing cutoffs for tax brackets and making strategic expenses to lower your income, applying for any tax incentives your state provides, and making adjustments as the IRS releases new regulations and changes.
Thoughtful tax planning can be done with the help of an accountant. Generic information and advice isn’t a good option when it comes to this note. It’s in your absolute best interest to work with a certified public accountant who can take a close look at your books and previous tax filings.
Plug Potential Leaks and Cracks
A point from your accountant never to be ignored—plug potential leaks and cracks. There’s no denying that the financial aspects of a business are complicated, but any unchecked processes or duplicate work creates room for error, theft, and fraud (both intentional and unintentional). If your accountant notes that you have an issue that needs to be shored up in your financial department, it’s always best to heed that warning, implement checks and balances, and do a full audit of your processes.
Conclusion
There are many pieces of advice an accountant might give you. What’s important to keep in mind is that a good CPA will work tirelessly to ensure your books are clean, up to date, and accurate so that all of your reports and activities can be better supported.
