5 Things Your Accountant Might Not Tell You
by Margot Carmichael Lester, Staples® Contributing Writer
Your accountant is a key member of your extended business team, offering valuable bookkeeping and finance management advice for your small business. Here are five important things you might not hear from your accountant, which could impact what you pay in fees and taxes.
1. You can make financial projections, but let me look at what you come up with.
You can reduce the amount you spend with your accountant if you take on some of the work, like making projections for financial statements. Start with fixed costs (if you dont know what those are, email your accountant now), using historical data or your best estimate. Then repeat for other costs. Since these projections form the basis of your budget and other financial documents, check them with your accountant. I doubt that a professional (accountant) would be able to do a great job without the entrepreneurs input, but I also think that the business owner would benefit from having the objectivity of a professional to question the data, says Lisa Drake, a small business CPA and accounting professor at Foothill College in Los Altos, CA.
Small Business Accounting Tip: Begin with the income statement, and then you can back into the balance sheet, Drake says. Be realistic and err on the side of conservatism. Clearly stating the assumptions on which you base your projections helps you and your accountant understand the rationale for each figure. These are your best educated guesses at the beginning stage about various items what you think your sales will be, how much your utility costs or warehouse rent will be, what interest rate will you be borrowing at and what the competition in your particular field will be.
2. You can create your own cash flow projections.
Another way to lower your accounting costs is to do your own cash flow projections, and then review them with your accountant. The cash flow projection essentially follows this formula:
Cash In Cash Out = Available Cash
Cash here includes credit cards, wire transfers and anything that can make your bank account go higher or lower, explains Calvin Harris, a CPA and president of Harvin Consulting in Columbia, MD.
Small Business Accounting Tip: List all payment amounts (cash out), especially big ones like office space and payroll, and the date they need to be paid. Do the same for money you expect to receive (cash in). If you arent sure of the exact amount, its OK to guess, Harris says. For most people, the first cash projection is the least accurate. But thats OK you often have to make guesses in the beginning, and the process gets much easier over time. The biggest thing is to at least start the process.
3. Dont fear the home office tax deduction, so long as youre legally entitled to it.
Theres a misperception that taking the home office tax deduction will trigger an audit, says Gail Rosen, a CPA in Martinsville, NJ. But if youre eligible (check with your accountant), it can reduce your tax bill. Starting in 2013, the IRS offers a new simplified method for computing your home office deduction at $5 per square foot up to a maximum of 300 square feet, Rosen explains. Remember, though, that you cant take it if it creates a net tax loss for your business.
Small Business Accounting Tip: Try the actual method as well [as the simple one] to see which brings you the largest tax deduction, Rosen says. Then run your numbers by your accountant for verification.
4. Try calculating auto expenses both ways.
You save a lot of money if one method is better than another, Rosen says, so try them both. But remember there are restrictions on switching between methods when you have the same car for business. (Read up on the Business Use of Car at the IRS Web site.) Home-based business owners have an advantage since the minute they walk out of their homes, the miles are deductible business miles. If you have an office, the commute is not deductible.
Small Business Accounting Tips: Start with the standard method (56.5 cents per business mile plus tolls and parking), and then try the actual method:
Actual Automobile Expenses x (Annual Business Miles ÷ Annual Total Miles)
Confirm your findings with your accounting professional.
5. I may not be the right accountant for you.
Beyond the right credentials and client list, you want an accountant you can work with over the long haul, so your business plan and that of your accountant need to be on a similar trajectory. (Learn more about how to choose an accountant)
Small Business Accounting Tip: Ask your CPA about their business, suggests Jim Metzler, vice president, small firms for the American Institute of Certified Public Accountants. For instance, if youre a growing business, you want somebody who has the capacity to grow with you, a small firm thats also growing. Learn more about their plans to see if they align with yours.
Next time you meet with your accounting professional, ask about these insights. Taking on a little more of your small business bookkeeping and asking the right questions can save you time and money on your business expenses and taxes.