Aug 06, 20215 Questions Business Owners Should Ask Their Accountants
When business owners work with an accountant, they may encounter certain financial topics that are obvious to their accountant but less familiar to them. This article broadly covers key questions that business owners can ask their accountants to make more informed financial decisions.
- How can our business maximize tax savings?
All businesses should ask their accountant how they can save more money. Since accountants have access to a company’s financial records, they can provide individualized advice on how to maximize savings. Some general tips include:
- Using the Qualified Business Income deduction
- Setting up a retirement plan
- Taking tax credits
- Taking tax write-offs for large purchases
Since these are generalized tips, business owners should consult their accountants to receive tailored advice specific to their business. (For more tips, see “5 Ways for Small Business Owners to Reduce Taxable Income” and “7 Small Business Tax Savings Strategies.”)
- Which accounting method should our company use—cash or accrual?
Accrual accounting involves recording revenue and expenses as they occur, which can allow for a more accurate understanding of a company’s finances. Cash basis accounting, on the other hand, does not record these items until the cash transfer is complete, whether it is revenue received or expenses paid. Both methods have their benefits, but business owners should consult their accountants on which method would be most appropriate for their company. (For more information, see “Accrual Accounting vs. Cash Basis Accounting: What’s the Difference?”)
- Where is our business most exposed from a regulatory standpoint?
The government has imposed certain regulations on businesses to keep companies in compliance with federal and state laws. Many of these regulations deal with taxes, including sales, income, and payroll taxes. For businesses to avoid government penalties, business owners are responsible for understanding and meeting these regulations. Accountants can help them assess their company’s compliance with tax regulations. (For more information on these taxes, see “Business Taxes.”)
- What are the best practices for managing accounts receivable (AR), accounts payable (AP), and inventory processes?
There are many general best practices that businesses can use to optimize their account management, but a business owner who consults their own accountant will receive the most tailored advice for their company. While accountants don't always have discretion over these areas, they can recommend the best practices due to their training, experience, and familiarity with the company’s finances.
- How do we make our financials ready for investors and banks?
Businesses need to demonstrate their financial health to make advantageous financial moves involving external entities. Since accountants work with the financial statements that summarize and report a company’s financial health, they can advise business owners on how to properly manage, record, and report finances. In this way, accountants can help businesses put their best foot forward when seeking investors or bank loans. (For more information on preparing financial statements, see “Financial Statements 101.”)
An Accountant’s Role
Since accountants handle crucial financial documents, business owners should employ not only a qualified accountant but an individual they can trust. Business owners and accountants should establish expectations and goals from the beginning of their working relationship, and an accountant should indicate which financial documents they will need to perform their job. These documents can include the following:
- Basic Personal Information
- Previous Year’s Tax Return
- Financial Business Reports
- Tax Forms
- Asset Information
- Loan Information
- Income Records
- Expense Records
- Deductible Expense Information
- Payroll Data
- Inventory Total
- Stocks & Bonds Information
(For more detailed information regarding these documents, see “Small Business Taxes: What Information Does My Accountant Need To Prepare My Tax Return?”)
To ensure the confidentiality of personal and financial information, business owners should transfer these documents to their accountants securely, especially if they are transferring this information over the internet. (For tips on secure document transfers, see “A Lesson in Document Security for Accounting Professionals.”)
Business owners should keep in mind that their accountants can only work with the information they have been given. If they feel uncomfortable with the information their accountant is requesting, or they don’t agree with their accountant’s methods, they should consider working with a more trusted individual. (For additional tips on working with an accountant, see “8 Ways to Work Effectively With Your Accountant.”)