If you’re an entrepreneur, it’s likely you’re working with a CPA. Some small business owners work with a CPA only for tax purposes, while others rely on them to help balance their books, conduct payroll, and handle other business finances. There are several common mistakes that entrepreneurs make in their first five years of business and many of them revolve around choosing the wrong professionals to work with. If your CPA is doing anything of the following, it’s time for a talk—or to consider working with a different one.
1. Understating your business expenses and missing out on valid deductions
Deducting business expenses is one of the best ways to save on taxes each year and reduce your expenses. If your CPA is not helping you grab every single valid deduction you qualify for, they’re costing you big money. Bad debt, entertaining clients, startup costs, and education/training are just a few of the commonly missed deductions for entrepreneurs and can add up to thousands of dollars in missed savings. Though a CPA should never advise you to take deductions that could get you into trouble, they should be encouraging you to dig deep and find every deduction you’re allowed.
2. Assuming you’ve covered all your bases as a small business owner
While your CPA may not be able to help you with investments or sell you life insurance, they should be asking questions about all parts of your financial well-being and offering recommendations for other professionals to work with. If your CPA hasn’t asked what you’re doing (or who you’re working with) for your retirement needs or what type of accounting software you’re using, they’re not acting as your business partner. Getting a full picture of your financial health is part of their job and they should be dedicated to finding ways to save you time and money.
3. Not helping you understand cashflow vs. profit/loss
To be a successful business owner, you need to know the difference between revenue and profit, but you also need to know the difference between cashflow and profit/loss. Your CPA should be going over your books with you to make sure you understand how your business is operating and how to determine if you’re on the right track. As an entrepreneur, the bulk of your time and energy needs to be spent on building your business, not on tasks that are better left to other professionals. You need to understand what the numbers mean, though, and learning from your CPA is the best way.
4. Not telling you how hiring your spouse and children can help your bottom line
I’m sure you’ve heard that working with those you love and are related to is a mistake. While this might hold true in some circumstances, the exact opposite is true when it comes to finances. If you hire one of your kids who is under 18, he or she can earn up to the standard deduction amount without having to pay taxes on what’s earned. You can also contribute additional tax dollars to your retirement plan tax-free if you have a dependent child working for your business. When it comes to your spouse, a wife or husband can contribute toward your employer-sponsored retirement plan and could double your allowable contributions. Your spouse could also take advantage of a health savings plan, something a sole proprietor cannot do. Of course, there are many more factors that go into the decision of hiring a family member, but knowing the financial benefits is something your CPA should make sure you’re aware of.
Now is the perfect time to get your business finances in order and really grow your company. To do that, you need to think of every person who helps you in your business as your business partner. Make sure you work with a CPA who is helping you take full advantage of tax planning to help you grow a sustainable business and keep more of what you make. Want to learn more about mastering finances as an entrepreneur? Check out our free Money Mastery training!