If you own a business and your CPA isn’t an actual profit center for you, you might need to find a new CPA. The best tax professionals in the business will save you at least three to five times their annual fee. They will save you this money in one of two ways, or both if you get a really good one: tax savings and coaching you on making your business more profitable.
CPA Profit Center #1: Year-End Tax Planning
The most profitable time of the year for any business owner in regards to their CPA relationship is in the few months leading up to their fiscal year-end; for most people, that is November and December. At a bare minimum, every business owner should have a 30 minute phone call with their CPA to review their income situation and get a list of three to four action items they can take before year-end to reduce their tax bill.
A better practice is to have them run an actual income forecasts, calculate the estimated taxes owed, and give you a detailed list of action items plus the effect those items will have on your tax bill. This does require you to keep an accurate set of books up to date, but will give you the most effective bang for your accounting fee buck and will maximize your tax savings.
The key here is to meet before year-end; most people don’t meet with their CPA until February or March (or worse, August) when they bring in their tax documents to begrudgingly discover how much of their hard-earned dollars are going to Uncle Sam. This is a mistake. At that point, your accountant is just a historian and can’t actually affect what you owe, positively or negatively. Once the clock strikes midnight on New Year’s Eve and the ball drops in Times Square, Tax Planning Season is over and your CPA can’t do much for.
Another tip around tax planning: the more rapidly your business is growing, the more often you should be planning. If your business is growing more than twenty-five percent per year, consider meeting your with your CPA quarterly to update and run numbers.
CPA Profit Center #2: Making Your Business More Profitable
The second way your CPA should make you a profit on the fees you pay them is through help with improve the profitability and effectiveness of your business. One of the best methods for improving profitability is through a benchmark analysis, where they pull industry averages for companies that are your size and compare how you perform against those averages. Are you spending enough in marketing? Is your payroll burden higher than your competitor? Are you investing enough (or too much) in technology?
An example looks something like this: A boutique retail clothing store is showing lower than average profits, and after industry benchmark analysis it turns out they are spending 30% more on inventory than their typical competitor. After reviewing those results, the owner looks closer at what items are getting discounted regularly, then puts together a buying strategy to eliminate those purchases and buy more items that sell at regular price. Doing this reduces cash outlay (because they’re not buying as much inventory), and improves profits as well!
By running these numbers and coaching you through the results, your CPA can assist you with making key decisions in your business to “trim the fat” where there is any or to make additional investments in your company’s growth if you are not investing enough.
Running a business is expensive, and if you aren’t watching where your dollars are going it will be hard to stay in business long. Any time you can hire a vendor that actually makes you money, it is a good idea to do so. CPAs are a key relationship in any successful business owner’s portfolio, and the best ones will not cost you fees but will instead become a valuable profit center for your business. Where else can you get more than a 300% return on your investment?