Four Questions to Ask your Tax Attorney

Lisa Kirby-GibbsTips

According to the old adage, there are only two certainties in life; death and taxes. It’s probably safe to say that the vast majority of us aren’t exactly looking forward to dealing with either one. Some say death is actually preferable because it only happens once, while your taxes must be paid every year.

So, here we go again… Yippee! It’s tax season! It’s that wonderful time of year where we are all scrambling to make sure our records are in order and that our returns get filed on time. We all know how cranky the IRS can get if we don’t! This pressure makes it stressful for everyone, but especially so for small business owners.

It doesn’t really matter if your taxes are prepared internally by a professional on staff or if you outsource that chore to an outside agency, the accountants who prepare your tax returns should be one of the most trusted and valued members of your team. They can help guide your financial decisions and make suggestions when your spreadsheet indicates you are wandering off the path of profitability.

Your accountant is not just someone with a calculator and an understanding of tax tables whose name you can barely remember most of the year. This person should be much more than a safety net should the IRS comes knocking demanding to audit your return. Your accountant should have an in-depth understanding of your business and how it works. They should understand the minutia of your world well enough to dispense expert advice about your business’ long term financial stability, provide guidance on matters like loans and large expenditures, and make absolutely sure you are always in compliance with the most current tax regulations.

With this in mind, you should be using an accountant who can expertly answer the following questions:

How do we compare to our competitors?
Perhaps the most critical element to ensuring the success of any small business is a thorough understanding of the competitive landscape. The best way of understanding how well your business is doing compared to the industry average so known as “benchmarking.” Knowing where you stand vis-a-vis your competition allows you to take measures to improve your comparative rankings.

An accountant with an in-depth understanding of your industry will prove invaluable when defining these benchmarks. If they are in a position to be able to compare your balance sheet against those of your competitors, you could likely identify strategic opportunities to increase your market share. Are your margins too low, are employee salaries too high, or are you carrying too much inventory? Understanding your competition’s mistakes may help you avoid similar troubles.

What is our break-even point?
It is crucial to understand your business’ break-even point. Simply stated, the break-even point is the number that you need to surpass before you realize a profit. Take your overhead and cost-of-goods divided by gross margin percentage and you can determine what you need to sell before you actually start making money. Your accountant will be able to advise where this point is, and whether or not the business is running efficiently enough to maximize potential profits.

The calculation can certainly be much more complicated than mentioned above. Your accountant will take into account many other factors and variables to determine your business’ most accurate break-even point. Once established, reaching your break-even point as early in the financial year will become your number one priority – since every dollar earned afterwards will contribute to your businesses profitability.

What are the biggest mistakes to avoid?
When you are a small business owner, even the smallest mistake can result in tax ramifications. Your accountant will need to offer advice on how any given decision will affect the bottom line. Whether it is choosing between hiring an employee or an independent contractor, every decision will have a benefits and consequences.

What can we expect for next year?
Even though tax professionals put a lot of time into your return, it isn’t guaranteed that they will offer advice on how you can improve the following year based on your return. This is another area that having a dedicated, full-time accountant on staff may be beneficial. If your accountant fully understands your business and where it’s heading, they will be able to assess the overall financial health to offer predictions and advice for the future.