America is definitely feeling the impact from The Tax Cuts and Jobs Act (TCJA) . So far, data from the IRS has shown that the average tax refund is around 8% smaller this tax season and some taxpayers who are used to refunds are even getting bills! Working with the best CPA in Charlotte, NC can help keep that from happening! Even though the data is gloomy thus far, it’s not all because of the TCJA.
Are you thinking about writing off a new car purchase for your business? Have you done your homework? Does it meet the obscure Section 179 requirements to be fully deductible on your tax return? Maybe it only qualifies for a certain deduction percentage or is limited to how much can be deducted because of the type of vehicle.
the survival of your business depends on having a solid financial plan, which means streamlined record-keeping, consistent financial analysis and, perhaps most importantly, cash flow management. The problem I typically see in small businesses is lack of knowledge about the most efficient and effective way to handle the accounting side of things
Since starting my firm almost a year ago I have had the opportunity to meet and work with so many amazing small business owners. Helping people achieve their goals and live out their dreams is one of the best parts about what I do. To help me help others I have created a routine series of questions I ask new small business clients when interviewing them. Among my questionnaire I specifically ask what they like and dislike about their current accountant (if they have one) or what they hope to achieve by hiring an accountant to help them on a monthly basis. For the purposes of this article, I’m going to use the term accountant in reference to a bookkeeper, degreed accountant, tax preparer, or CPA. Although the term is used interchangeably among most people in business, it’s important to note that each title brings a different level of experience and caliber of service to the table. In my opinion, all accountants should be versed in everything from taxes to bookkeeping, and be able to provide general advice on these subjects or point people in the right direction. Unfortunately, that’s not always the case. Below are the top 6 things your accountant should be doing to help you to grow your small business.
#1 Connecting Throughout the Year
This is the top complaint I hear from new clients. “My accountant never calls me” or “I only hear from my accountant once per year”. For all my peers in the industry, this just simply won’t do anymore. Clients deserve and expect to hear from their accountant more than one time per year. If you have retained an individual or firm to work with you throughout the year, they should be reaching out to you regularly to check in and see how business is going and offering to help however they can. They should also encourage an “open door” policy where you can reach out with “quick questions” without fear of being billed for a 10 minute conversation or simple e-mail reply. Be mindful not to overstep your contractual terms with whoever you work with and expect to be billed for additional services that may fall outside of what you are paying for. If you are unsure if what you need will be additional then try reading through your contract or asking your accountant if what you need is already billed in your current service plan.
#2 Asking Questions
It may seem silly but your accountant should be asking questions of you each time you interact. The questions should be probing for information so that your accountant may advise you to better operate your business. If all they are doing is putting your books together each month and collecting a fee then you need to seriously consider if you are working with the best person for the job. A strong partner will comment on results and ask clients their motivations behind decisions as well as challenge them to set goals to hold them accountable for results. Even having the ability to reach out to your accountant from time to time (see #1 above) is helpful to keep you on track and your accountant in the know for big decisions.
#3 Proper Accounting
Small business owners typically hire an accountant because they don’t trust themselves to keep up with their books or don’t want to do the books themselves anymore. Most business owners interview a few candidates and assume that because they have a degree or license they know exactly what they are doing. Based on some of the work I have seen from other “professionals”, I can personally attest that not everyone may know what they are doing. Despite hiring someone to do the books, business owners need to remain actively engaged in reviewing their financial information each month and asking for clarification when and where necessary. Some key indicators that business owners should review in their accounting software include:
- Excessive non-accrual adjusting entries – this can be an indicator of poor training or misunderstanding of accounting principles or accounting software platforms
- Unreconciled accounts – this can lead to incorrect information in the general ledger causing inaccurate accounting information and ultimately inaccurate tax reporting
- Negative general ledger account balances – this is usually indicative of an inaccurate account balance and can be caused by a poor understanding of accounting principles, and again, result in inaccurate tax and accounting reporting
If you find that even one of these key indicators are triggered consistently without a reasonable explanation from your accountant then you should be concerned. I would recommend you have your accountant review your books and make necessary corrections or start searching for a replacement ASAP!
#4 Educating You (the Client)
Educating clients is by far the one thing I enjoy most about what I do. It allows me to strengthen the trust clients have in me while also helping them understand the “why” behind the decisions they are encouraged to make. There is nothing more rewarding than when a client has that light bulb moment of clarity and it all just clicks for them. Many accountants are trained with a “one size fits all” mentality but just because something works for the majority of clients that doesn’t mean it is the best decision for you. Your accountant should be taking time to walk you through the “why” behind their recommendations. If yours is not willing to give you that courtesy then you should evaluate how solid your relationship is and consider moving on to someone who is more patient, able, and willing to help you.
#5 Understanding of Tax
Did you know that not all accountants prepare tax returns? In fact, many prefer not to. That doesn’t absolve them from understanding the tax implications of making certain decisions. If you have a bookkeeper who does your books and a CPA that prepares your taxes then your bookkeeper should be able to follow your CPA’s recommendations. Both parties should work directly with one another to ensure the books are prepared correctly. If your bookkeeper falls short of understanding even the most basic tax elections and strategies (including certain safe-harbor elections) then you may want to ask them if they plan to learn tax rules or simply find a more informed bookkeeper. You might find that you can get your books and tax work done for the same the same or less fees if you’re diligent in recruiting the right firm.
#6 Keeping up with Current Trends & Technologies
Technology is revolutionizing the accounting industry from top to bottom. Your accountant should be keeping up with current trends and new technologies that they can learn and recommend to make your life easier and ultimately more profitable. If your accountant is constantly focused on “paper-based” strategies or defaults to the SALY “same-as-last-year” mentality then it may be worth interviewing someone new. Progressive accountants are willing to coach clients into adopting new technologies and turn them on to leading trends relevant to their industry. Automation and mechanization will become paramount to success in the future and you want to be on the front of the wave rather than playing catch-up after they become necessary tools in business ownership.
In a world of options you no longer need to settle for the same rinse and repeat mentality that so many accountants love. You’re likely paying a considerable fee to have your accounting work done and nothing drives me crazier than when a new client comes along and I have to fix years of poor work for high fees. If, however, you find that you love your accountant and you have an amazing relationship with them, then there is no need to change that. Ideally you will develop a longer lasting relationship rather than changing firms every so often just to freshen things up.
Feel free to comment below or reach out directly to me via e-mail at email@example.com. You can also follow the firm on social media for future posts like this one!
In today’s connected world it’s easier than ever to learn how to do almost anything or “do-it-yourself” (DIY). Sometimes it can be fun and exciting to challenge yourself to do something you couldn't previously do and it is oftentimes quite rewarding when you are successful. But there are things that, despite having a basic or conceptual understanding of, should be left to the professionals. This week I’m writing about why sometimes it makes sense to not DIY. To keep it relevant for readers, I’ll tie my advice back into accounting related areas.
Opportunity cost is best defined by Investopedia as a benefit that a person could have received, but gave up, to take another course of action. For example, if you chose to spend your time doing bookkeeping for your small business then you might find you’re giving up the opportunity to pursue new sales prospects or allow yourself some much needed downtime to recharge. Yes, anyone can teach themselves how to do almost anything, but is your time really worth spent doing everything yourself? Not to mention that we as human beings cannot really master everything and will inevitably encounter something we can’t handle, or will unknowingly do something wrong. In short, is your time really worth doing things you can hire others to do the right way the first time? Sometimes hiring a professional first may be a better use of time in the long-run.
How Much Could It Possibly Save?
Above I mentioned you’ll spend your time in lieu of paying someone to do something for you. But consider this, how much could you possibly save for a certain task? Think of your taxes, if you do them yourself you still have to buy software and then you have to enter the info and follow directions. The Q&A style software packages that are available are not designed to “think” but instead guide you to a reasonable answer. It might tell you that rental property is depreciable and guide you to receive the appropriate deductions, but does it also tell you that by itemizing each rental property asset you can receive a greater tax deduction? Do you see the difference here? In addition, you are the one preparing your taxes which likely takes even the most prepared person a couple of hours. So now not only have you paid for a program to guide you (at best), but you also just spent a couple of hours of your life all to save yourself a couple hundred bucks from a tax preparer. I can promise you this, the best professionals, no matter what you need done, will save you time and money, and will deliver a quality product that a non-professional can't even get close to.
Jack of all Trades, Master of None
You simply cannot be a master of everything in life. Our brains are not wired to retain that much information and I have to imagine someone who is a “know-it-all” probably does not lead a very exciting life and is probably not fun to be around. I have always followed the guidance to do what you love. Pick a few things that really interest you and hone those skills. Get well-trained in them, I mean ridiculously trained, and then help others using those skills. If you have a genuine interest in something, you’re far more likely to excel at it than if you’re learning something out of necessity. For things that you find less interesting, find someone who performs amazingly well at them and bring them on your team to help out. You’ll be happier if you only ever have to do the things you love rather than the things you need to do.
Knowledge, Training, and Experience
Finally, we arrive at the defining trait; experience. Anyone can gain the knowledge of how to do something. Most can even receive some sort of training (formal or informal). But nothing will ever substitute experience. I don’t care if you know exactly how to do your books down to the penny and you’ve seen a hundred Balance Sheets & P&Ls in your time, if you’ve never prepared one or handled a general ledger system, you will mess it up. Even if you ran one successful business 10 years ago your thinking may be so outdated and irrelevant at this point that it doesn’t matter. If you truly want to DIY, consider shadowing a true professional in what it is you want to learn. Offer your time for free for a while in exchange to learn a skill. Most professionals would likely welcome the free labor and be happy to teach someone with a genuine interest to learn what they know. By learning from a master, you will not only save yourself endless hours of learning things the hard way, but you will have less errors in your work, dramatically improving the quality.
I hear it over and over again from my clients that they’ll take care of certain things themselves only to get the unfortunate news from me that things have been prepared or performed incorrectly, or worse, that they’re out of compliance on items. It’s usually only after it’s too late that my clients approach me to clean things up and do the work going forward. My challenge to anyone reading this is to consider that path from day one rather than as a backup plan. Don't leave it to chance that things will be okay. Instead, ensure that you’re receiving the best service and quality of product you can instead of burning yourself out trying to learn something simply to save a few bucks. In the world of business, it only takes one error to set you back all the money you "saved".
I’ll leave you with one final example. This is a real life example of a conversation I had with a client. My client approached me for a tax consult early one year after he received his 1099-MISC from one of his largest clients and explained that he had an LLC setup to be taxed as an S Corporation but the 1099-MISC was written to him personally (it had his name and SSN on it). I explained that since he had personally received payment all year, and the 1099-MISC was addressed to him, that it would unfortunately have to be reported on his personal tax return. I further explained that if he had been set up with his client for them to write checks and issue tax documents to his LLC, that he could have potentially saved thousands of dollars under certain allowable corporate tax deductions. Although we agreed that it would be time-consuming and costly to try to amend and correct everything that had happened, he was able to apply this newly found knowledge to future years. My point here is that if had obtained a tax consult from the beginning, he could have saved himself thousands of dollars from day one.
Any interesting DIY stories or mishaps in your past? Any questions? Comment below and let us know!
Are you on the fence about hiring an accountant? Do you think accountants are only necessary during tax season? Well I’m writing this week to let you know that accountants can do more than you think. Below are seven myths that I’m debunking regarding accounting and accountants to help you make the best decision for your business and personal need.
#1 My accountant needs to be in the same state as me
Although some people may prefer face to face interaction, your accountant does not need to be located in the same state as you! With the increased use of secure technology to get work done, there are now endless ways for accountants to collaborate with their clients regardless of geography. Documents and information can easily be shared using cloud computing and financial accounting standards follow a uniform code recognized all over the US making the perfect storm for clients and accountants to work together all over the country. Even tax preparation and strategy has relatively few barriers since federal tax forms are the same for all US taxpayers and a strong accountant will be able to learn and help you navigate state specific tax rules to reap the best benefit. Your goal when searching for an accountant is to find someone who you are comfortable with and who you can trust with your financial information. Perform due diligence checks on professionals by ensuring the business is appropriately registered and licensed in the state they hail from. Licensed CPAs should be able to provide their license # upon request.
#2 Accountants only prepare taxes
Do you really think we only work one season per year? I wish! Outside of tax season accountants are heavily involved with their clients’ individual and business needs. This can include routine operational accounting functions such as bookkeeping and payroll services to higher caliber services like CFO or advisory services. Outside of routine accounting, financial auditors make up the vast majority of those employed in the public accounting field. Retaining an accountant year-round can help you save money by making recommendations on ways to decrease costs and increase income. Financial management and advice to individuals and corporations is a huge part of an accountant's job and is most effective when performed throughout the year.
#3 Accounting isn't important or necessary
Hiring an accountant can save you stress and money over time. Many people view accountants as a cost, but really, we’re an investment. An accountant will help you organize your finances and with the right fine tuning will be empowered to help you thrive financially. That means you will have more time to spend doing what you want to do. The best trained accountants will bring signs of trouble to your attention far before things go downhill. We also follow your finances over the course of the year and come tax time assembling your return(s) is much less painful.
In addition to tax preparation, your accountant can also give your business monthly financial reports to help you stay on track or improve in various areas. They can tell you if your prices are where they need to be in comparison to the market and your expenses. Just because your business is busy doesn't mean that you're doing well. Hiring a trained professional to analyze the numbers can have a significant pay-off down the road.
#4 All accountants are boring
Remember Milton from Office Space? Wait, you’ve never seen Office Space?!?!?! Okay, finish reading this blog and then seriously go watch that movie. For those of you that have, all accountants don’t present like Milton. Many people view the job of an accountant as boring. Why? Because there may be boring aspects to our work? Name one job that doesn't include some less than exciting parts of doing it. You can't, can you? The fact that a job has some boring parts to it isn’t a strong argument to say that a group of people is boring.
Here are some examples of a few famous, not-so-boring, individuals. Mixed martial artist Chuck Liddell received a BA in Business and Accounting during his college years and a few other notable celebrities who studied accounting or were accountants include musicians Kenny G and Mick Jagger. I won’t even delve into the shenanigans that go on at the annual conferences of the globally recognized public accounting firms. Me personally, I enjoy competing in triathlons and am an avid homebrewer. I have more fun than that but those are a couple of my stress relievers that help me refresh. Yes, accountants of the past may have been boring but the rising talent of the field is much more than just a number cruncher.
#5 I can't afford an accountant
Yes, there are accountants that will cost you an arm and a leg, but that is true for any professional service. Have you had your hair done by a decent stylist lately? Last I checked they weren’t cheap. But you like to look good and you find value in the service so you’re willing to pay top dollar for the best pro in town. The key is to find the right firm or individual for you, who will provide the services you need within the budget that you can afford. We’re not magicians but any good accountant will work hard to at least find cost-savings equal to (more often greater than) their professional fee. It might not happen on day one but it usually happens in time. Working with a diligent accountant that will help you avoid making just one mistake can be worth thousands of dollars.
#6 Accounting is easy, I can do this myself, I have QuickBooks
So many people think that QuickBooks is a replacement for hiring an accountant. Although some people have the knowledge and expertise to use and understand the program, it doesn’t replace the fact that you need to understand accounting. You can’t expect a software package to condense four/five years of study into a tight little package. Sorry folks but we just we aren’t there yet. More often than not, individuals open it up and become overwhelmed and confused fast. Hiring an accountant can be beneficial in that they can help you setup the software and educate you on how you can and should use it. They can check-in and make sure that everything is in order and fix problem areas that arise. QuickBooks may be able to help you keep information organized and make business decisions, but if the information is wrong what good is it? Familiar with the term “garbage-in, garbage, out”? Respect your own limitations and avoid doing it yourself when you know you should hire a professional. The benefits of having it done right the first time (even it does cost you) will far outweigh the cost of having someone fix mistakes down the road.
#7 All accountants work for the IRS
You’d be surprised how many people think that all accountants work for the IRS. While this isn’t exactly a myth, because there are accountants employed by the IRS, your tax preparer is not one of them. Accountants that are hired to prepare tax returns are usually well-versed in the tax code and can act as a liaison between a taxpayer and the IRS, but in no way, shape, or form do they work for the IRS. The accountants that work for the IRS are completely separate from the equation. So when I have to deliver the unfortunate news that a client owes on their taxes, that client is not paying me the tax due. We are simply the messengers. The best accountants deliver news and offer recommendations on how handle the situation rather than turn the client loose to pick up the pieces on their own. Even better, if you have someone working with you all along you can avoid getting into most messes with a simple conversation from time-to-time.
I hope that you learned something reading about these common myths. The accounting profession receives a lot of heat and criticism but at the end of the day our services are valuable and necessary. There is so much more bad press out there that I could have covered but I wanted to stick with the most common myths that I come across. Think you know of a myth related to accounting? Feel free to comment below.
Thanks for reading!
I have a client I met about 5 years ago, and at that time she was broke. Worse then that, she was in a bad relationship, and without her other half she would not have been able to pay her bills.
The first thing I noticed when we met to talk about her finances, aside from her lack of funds, was that she had no budget or system to create one. So we put one together.
The budget was simple. We started by setting up a spreadsheet (think Google Sheets) using her weekly paycheck amount and her average weekly grocery and gas bill. Then came her average monthly expenses: cellphone, TV & Internet, mortgage payment (which included escrowed expenses for property taxes and insurance), car insurance, and utility bills. She went through her bank statements to get actual amounts so we knew we had real information to work with. What good is a budget if the amounts aren’t accurate?
It turns out she was earning barely enough to cover her necessary expenses.
Then we covered the less critical expenses such as dining out, movies, clothes (for her and her two school-aged children), and pet expenses for her dog. Forget vacations, she hadn't traveled in years and knew it wasn't in the cards. But she did admit to buying herself new clothes about once a month (the kids more so when they needed them). She also had a relatively healthy dog that only needed an annual visit to the vet so his expense was minimal (aside from food which was also negligible).
Once we added her wants and needs into her budget, it was clear she could not afford everything on her own. However, with the extra support of her not-so-great boyfriend, she could more than afford her current lifestyle.
But she wanted out of the relationship.
After we put it all together, I was able to step in and do what I do best; analyze. The first thing to go was her monthly habit of clothes shopping. We agreed she would need new clothes from time to time, but not every month. By cutting this monthly habit she was able to save money and also became more aware of seasonal sales to get really good deals (Black Friday anyone?).
Dining out and going to the movies were also off the table. For the cost of taking her kids to the movies every month, she could sign up for Hulu and Netflix and have endless content choices for less. She also cut her TV package down to internet-only because she now had Hulu and Netflix for TV & movies. Some might argue the lack of content choices so we added a few bucks per month for a weekly visit to her nearby Redbox.
Big Ticket Items
Despite these cutbacks, we still hadn't made the progress she needed. So next, we reviewed her insurance policies. Guess what? She hadn't thought to combine her home & auto policy. As soon as she did (and changed insurers) she started seeing big savings.
Where it gets better is on the mortgage. She had been paying pre-recession interest rates (think 6.5%) but during our meeting (circa 2011), rates were at about 3%. We worked with a local bank to refinance her mortgage and dropped her payment hundreds per month. We even cut the mortgage from a 30-year term to 15-year term and the payment was still less with the added benefit that her house would be paid-off much faster.
Make It Happen
Not soon after her mortgage was refinanced she was able to give Mr. Not-so-Wonderful the boot. Even without him she was able to pay her bills and save a little for emergencies. The greatest part of this experience was that she was able to declare her personal and financial independence by changing some of her habits implementing a budget. Today she is doing very well; she has established college funds for both of her children and has built up a nice emergency fund. She has even been able to re-introduce some of her wants back into her lifestyle and is less stressed out about finances because she now uses a budget to plan.
What are some methods you use to budget and stay in the habit of budgeting? Add them in the comments section.