What If You Never Had To “Chase” Money Again?
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How To Get The Best From Your Accountant
It’s always been my experience that the accountants I’ve met genuinely want the best for their clients and their businesses. Equally I’ve met a lot of people who do get great advice from their accountant but I probably meet more people who are in some way disappointed with their accountant. If you fall into the later then lets first look at what an accountant does.
To answer this question you first need to understand that there are two types of accountants or more to the point two types of accounting degrees offered by Universities around the world. The first is called financial accounting and the other management accounting.
Without getting too technical financial accounting is accounting that focuses on providing historical information to people outside of the business such as government agencies and your bank manager while management accounting provides real time information to people inside the business like yourself, the business owner who is acting as the general manager. This information is there to help you make informed decisions about the future strategies that you may decide on for the future success of your business.
So, getting back to the question of “what does my accountant do?” well firstly your if your accountant is in private practice then they most likely have a degree in financial accounting rather than management accounting, and they are mainly responsible for producing annual financial statements for your business to present to the government agency who wants to collect your taxes.
If you are relying solely on these annual financial statements to see how your business is performing and make decisions based on the past for the sake of your future then you could be in for a whole world of trouble. By the time your annual accounts are prepared they will be so horribly out of date that they will of little to no help to you in making any major decisions which will be of benefit to your business. In fact statistics that I have seen, show that business owners who rely only on these annual reports to make financial and strategic decisions about their business have just a 36.0% chance of survival.
Now, please don’t think that what I’ve said should be a negative slur on your accountant’s participation in advising you about your business. Remember it is your responsibility to press into building a great relationship with them and their advice and service is of great importance to you and your business. But what is equally important is that you must learn to understand how to read the reports that relate to financial accounting as well as the reports that you must develop inside your business that relate to management accounting and that in order for you to increase your chances of success you must read these reports at least monthly instead of annually. Your accountant is the one person who can teach you the most about your businesses financials and how to successfully interpret what the numbers can tell you.
To get the best out of your accountant you should arrange to have regular contact with them, and be organised because accounts sell time so the more organised you are the less you’ll pay. Think through in advance what you need to discuss and achieve in your meeting. In this case communication is king so send them an agenda and ask them what information they are going to need you to provide and make sure you have it ready in advance.
Here are some things you should ask your accountant:
- How does my business compare with my competition and do you have any bench marking information to support this?
- Is my gross profit margin reasonable for my type of business and how can I improve it?
- Which of my products or services are making me the most profit?
- How can I reduce my expenses without compromising my quality or service?
- What can I do to improve my cash-flow?
You’ll notice in these questions I never once asked how to reduce my tax bill, all too often I find that’s the biggest question people ask their accountants and in my view it’s the WRONG question (don’t worry I’ve made the same mistake too).
A better question is to ask for assistance with budgeting and conserving cash so you can pay you tax bill, remember if you’re paying tax then you’re making money.
If your focus is constantly on how to reduce costs and save tax you’ll never crack a profit line of any real significance. Focus instead on increasing your profit margins and you will get the results you want.