When you're busy with the business of launching a business, it's easy to think you can do it all. After all, it's your vision, your dream—and there's not a single successful entrepreneur out there who will tell you that saving money isn't a necessity for emerging, growing businesses. So naturally, that means you should try to handle your business finances yourself instead of working with tax professionals, right? Every penny helps.
The answer is different for every business owner, but there may come a time when you can't do it all on your own—whether you're looking to save time or money. I spoke with Bryan Clayton of GreenPal out of Nashville, Tennessee, and Kathryn Kaufman at FGMK, an assurance, tax, and advisory firm out of Chicago.
Clayton has been in the landscaping business since 1998; he's owned GreenPal—essentially, Uber for lawn care—since 2014. As a seasoned professional in founding and running growing businesses, he's shared his tips as someone who previously thought he didn't need financial professionals to reign in his business finances. Kaufman weighs in from the tax professional side with additional insights for business owners to consider.
Should Business Owners Be Their Own Tax Professionals?
How many years did you prepare your own financials?
Clayton: In my first company, I prepared my own financials with my own accounting software for the first five years. Now in my current company I work in partnership with a CPA to handle monthly P&Ls (profit and loss statements).
Why did you decide to prepare your own financials instead of working with tax professionals?
Clayton: When I was first getting started, I was self-funding the growth of my company and it was strictly a cost-savings issue. Starting your own business from scratch, you look to save money at every possible opportunity. Keeping our bookkeeping, tax preparation and financials in-house made sense when our revenue was below $2 million per year.
—Brian Clayon, owner, GreenPal
What made you seek help from tax professionals?
Clayton: Eventually, I began receiving nasty late notices from multiple tax authorities that I was letting slip through the cracks. I had to reconcile that I was paying more in late fees and penalties than what I was saving by doing all of the financials and bookkeeping myself.
It quickly became evident that partnering with a tax professional could actually save me money and the headaches. Whether it was a county business property tax, a state sales tax, federal income tax, state franchise and excise tax, or city income tax, as my business grew, these taxing authorities became a swarm of bees that were constantly stinging me because I had no game plan in place to stay out in front of the filing dates each of them had.
What advice would you give other emerging business owners who want to maintain control of their own financials until they're a larger company?
Clayton: Realize that you can only wear so many hats, and that it's best to be the best in your market at your core competency. If your core competency isn't business financials, don't feel like it has to be. The cost of handling your own financials could very well be higher when you choose to handle these things yourself, when you take into consideration penalties, your knowledge gap and the time it takes away from actually making the money you're desperately trying to track.
What have been the three biggest benefits of hiring professionals to help you with your company financials?
- Peace of mind of knowing that I was not committing some catastrophic financial error.
- Actually saving me money through better capturing of depreciation and other deductions I was unaware that I could be taking.
- Setting my business up with an exit plan to place the business in proper financial health to be acquired by a national organization.
What advice would you give other business owners about the process of hiring—and maintaining relationships with—the financial professionals you hire?
Clayton: Make sure the folks you hire to handle your finances are not too small and not too big.
I've been in both situations. Starting off, I worked [with] a one-man band who attempted to help me with my financials and as my company scaled into the multi-millions of revenue. We simply outgrew his bandwidth and it was a painful process of undoing that relationship.
Conversely, I have taken my business to a larger firm with hundreds of people and I was just lost in the shuffle. Nobody really cared about the health of our business and our long-term financial plans.
After weeks of interviewing other financial firms, I found the sweet spot was a 10- to 15-person organization with an owner-operator CPA principal at the helm that I could meet with at anytime.
The Benefits of Working With Tax Professionals
Now, given everything Clayton's shared about his experience, let's see what Kaufman has to say about business owners who are trying to decide between a DIY approach and working with tax professionals:
What are some of the biggest mistakes you see smart, seasoned businesspeople making when they try to do their own taxes?
Kaufman: The most common mistakes I see when business owners prepare their federal tax returns without consulting a tax professional are missing a fair number of deductions and tax credits. Also, they concentrate so much on the federal tax return that they miss out on state tax credits.
What are some good indicators that businesses have outgrown self-tax preparation and should consult tax professionals?
Kaufman: Every business should consult a tax professional. As soon as someone starts a business or is looking to start a business, they should consult a tax professional, especially if they are doing business in multiple states. Businesses trying to do it on their own can miss out on many tax deductions and credits, as well as not properly classifying income and expenses. Also, I have seen businesses incorrectly file or completely miss filing in states that require filing. The result are penalties that are costly and completely avoidable.
How can tax professionals help growing, mid-sized businesses year-round and not just at tax time?
Kaufman: You learn more about a client year-round than just meeting once a year. Businesses should take advantage of their tax professional for everything from consulting about cash-flow strategies and savings to assistance with financing and debt covenants.
Tax professionals can also help businesses review and negotiate agreements, analyze business trends and [offer] year-round tax planning. An ongoing relationship with a tax and advisory professional can help prevent year-end surprises. Those are the kinds of surprises no business owner ever wants.
Making the Next Move
So, smart and growing business owner: Where are you at on the "need a financial professional" spectrum? While year one might not be the right time to hand everything over to a financial pro, Clayton's experience can help guide your thought process and Kaufman's insights can help you ask better questions when you do opt to engage with a tax professional.
Are there things I'm missing? Am I getting all of the deductions available? Am I properly depreciating my assets? While there are a ton more questions business owners may have, it's handy to have someone to ask. Know when to ask for help, keep those nasty notices at bay and don't be afraid to build a solid, long-lasting relationship with a financial professional who is just as invested in the success of your business as you are.
Read more articles on tax preparation.
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