Your Accountant's Weird Habits - Explained
If you have a pet in your family, maybe you've seen those articles purporting to explain why your dog spins in a circle before lying down, or why your cat would rather drink from the faucet than a water dish. To many people, there is a creature even more alien and perplexing than any animal: the finance professional.
Your bookkeeper or tax professional might say or do things that don't make a lot of sense to you. Some of their actions might seem flat-out contradictory. But, as with any exotic species, there is a reason behind all of it.
I want to break down a few of the most commonly complained-about behaviors, along with the explanations behind them (with the assistance of cat pictures).
First annoying habit: My accountant keeps nagging me to get organized.
Your bookkeeper wants you to have a system for tracking open customer balances, or wants you to keep all your expense reports in one place. It's frustrating, because the whole reason you're paying them is for them to "keep up with that stuff".
So why do they do it?
For starters, good bookkeeping relies on complete information. (A balance sheet showing $1M in the bank doesn't mean much if there's a $995K liability that got left off.) Unless you have an in-house accounting staff, your bookkeeper is relying on you to get that information to them. A good organizational system ensures that all of the information is getting to who needs it.
Furthermore, most accountants charge based on time expended, and though good accounting can be had at a good value, it's still not cheap. Paying your accounting service to dig through files and hunt down info is a waste of their time and your money.
Speaking of "time", my accountant freaks out if I don't get certain information to them right away. What's the rush?
Certain items, particularly related to tax filings, can incur massive penalties if late. Your accountant needs the information in advance of those deadlines, to record it and check for accuracy. (Inaccurate filings can also, of course, result in penalties.)
If your accountant is pestering you to get information to them quickly, it's because they are trying to keep you out of trouble and save you money.
Since we're already talking about taxes...Why does my accountant try to make me spend money I don't want to spend? For instance, why do I have to treat certain workers as W-2 employees, instead of paying them as contractors?
Because worker classification is a big deal. Not paying employees correctly can result in audits, fines, and even lawsuits. Your accountant is being a stickler about the rules because they don't want you to get sued.
Still talking taxes...Why does my accountant say I can't take this cool deduction I found? I saw online that I can expense my home office/car payment/pet kinkajou/etc.
Present blog excluded, internet advice is no substitute for real, professional guidance. Though you'll seeing many articles claiming that you can write off an entire car payment, or take a "home office" deduction, the actual guidelines surrounding those items have specific criteria which must be met. Unfortunately, small businesses, particularly those which are sole proprietorships, are frequent targets for audits. Taking excessive, unqualified deductions puts you at an even greater risk. If you trust your tax professional, trust that they will advise you of deductions for which you do qualify. (If you are not happy with your current tax professional, we can recommend some.)
So I have to spend extra on employees, but can't take any of the fun deductions. And now I'm being told that I need to watch my spending on meals, and look at ROI for things like advertising. Is my bookkeeper just a kill-joy?
No, they just don't want you to go broke. Going bankrupt isn't just bad for you; it also means you can't pay your vendors (like your bookkeeper). So they have a vested interest in keeping you solvent.
Because, no matter what your business, one thing we all have in common is that we like to get paid.
How You Use ROI Every Day
For those who don't know, ROI stands for "return on investment". Colloquially, you might think of it as "bang for your buck". Though it's frequently used to describe investment decisions, ROI is something you use in your daily life. You go to the gym because the payoff of improved health has greater value than the time you put into it. You're getting a good return on that time invested.
You might even use ROI to compare two options. Let's say your goal is to lose fat, and there are two classes open when you go to the gym. You could go to an hour-long spin class, or an hour-long yoga class. Doing your research, you find that spin class burns 50% more calories, so you choose to go to that one, as it offers a better ROI.
Looking at it from a financial perspective, there's a very simple formula to calculate ROI.
Return on Investment = (Gain from Investment - Cost of Investment) / Cost of Investment
Now, when it comes to ROI in small business, people tend to think of it primarily in terms of sales and marketing. Before you run an ad or hire a marketing firm, you should be looking at whether the income you're likely to gain outweighs the amount you're about to spend. (For a more in-depth look at mistakes owners make in their marketing budget, see our prior article, Living a Lie: The mistakes that make entrepreneurs go broke.) If you are paying a marketing firm $10,000 a year and your sales only increase by $3,000, you're not making a good return on your investment. Likewise, if you hire a salesperson at base $45K + commission, and he only makes $15,000 in sales, he's probably not in the right position at your company. These are the sorts of obvious examples people think of when it comes to ROI in their business.
However, any business decision really comes down to a matter of ROI, and that is true for hiring an accountant, as well. We're constantly fighting the stereotype of accounting as a necessary evil, and one way to do that is to look at all the benefits that come with good bookkeeping and CFO.
First, of course, are the tax savings. Accurate books not only help you avoid an audit and costly penalties, but also aid you in tracking and recording every deduction for which you're eligible.
Second is saving on expenses. A good CFO service should be locating areas of overspending and helping you restructure to lower or even eliminate certain costs. (Actually, we tend to recommend you eliminate those expenses which don't produce a good ROI. See? It really does all come back to that.)
Third, we like investigate means of increasing revenue. This could be by introducing a new product or service line, acquiring another business, re-examining current pricing strategies, or even by locating and collecting on aged receivables.
To look at how The Bookkeeper does this from an ROI perspective, we save or earn our average client enough in our first year with them to pay our fees for 23 months. That's an almost 100% return on investment.
Finally, there are the benefits which are harder to quantify, primarily opportunity costs. What do you save in energy and stress by hiring someone to take over certain tasks for you?
This week, I challenge you to take a close look at your business, find what's paying off, find what's not, and do something about it.