PART 1. YOU CAN AFFORD AN ACCOUNTANT!
If you have been following Mentor Mama over the last few weeks, you know that she got a rude wake up call from a bunch of goats. Chasing goats around as an amateur was a complete debacle. When the goat herder arrived, this professional handled the situation in minutes, returning the goats to the field. No fuss, no muss!
This adventure reminded Mentor Mama that trying to run her business without a team of professionals, like an accountant, an attorney , an insurance agent and a banker, is like chasing goats. My sister and I were chasing the goats, trying to save her flower garden. In the process, we could have been severely injured by the buck, who is inclined to charge people with his horns. Or the goats might have been hit by a car as they ran towards the highway. . . . This could have killed the goats and injured an innocent driver.
I knew that we were silly, even then, but in hindsight, I realized that the consequences could have been serious, both physically and financially. We should have just let the goats eat the bushes, until the professional goat herder arrived. Replacing some bushes would have been less costly than the potential consequences. In our enthusiasm and anxiety, we rushed headlong into the fray without thinking it all through. Or maybe, we just didn’t have enough information to recognize the dangers that lurked ahead.
WE WERE BEING PENNY WISE AND POUND FOOLISH.
In an effort to set a good example, Mentor Mama invited a professional, my friend and colleague, Deborah Stevens, MBA, CPA**, to be the guest blogger for this post. Deborah is the owner of Lynn Allen Consulting, a tax, accounting and business consulting firm, headquartered in Missouri, and serving businesses all across the United States.
This savvy CPA, with 10 years of public accounting experience and 6 years in private industry, has taken time from her busy schedule to help us understand why it makes financial sense to consult an accountant BEFORE you set up your home based business. You will SAVE MONEY by heeding her recommendations!
SO, here we go, the professional goat herder has arrived! (Love ya Deb!)
Running your own business presents a lot of unique situations that can have a significant impact on your taxes. Being self-employed also opens the door for a new world of deductions, credits, and retirement account planning that you may not be used to. This information may be found online, but having a CPA who does this for a living, will save you time and money.
While a CPA will help you find all the available deductions and assist you in paying the IRS as little as possible, she will also be tremendously helpful in working with you to structure your business as advantageously as possible. She will put together a plan for the future to help you maximize tax breaks in the coming years as well as being there for you if you encounter problems down the road.
A business owner who prepares his own books and taxes may be unaware of the many tax strategies that are offered. A CPA can ensure that your bookkeeping is set up the right way, legally and practically. This has many advantages:
• Saves you time which allows you to concentrate on what you does best: making money;
• Assists in providing accurate information for outside users such as a banker, which can facilitate you in obtaining a line of credit;
•Ensures that accounting information is comprehensive, which will allow maximization of expenses at tax time;
• Helps you discover potential problems;
• Provides a second set of eyes to eliminate math mistakes, which is much more common than you might think;
• Gives you pertinent advice customized to your specific situation;
• Frees up your time so that you can focus on tasks that are more central to the core of your business.
The following examples are true stories about typical small business owners who would have saved money, had they consulted a professional before taking action.
Accounting Software Nightmares: Accounting Software can be a big savings, if you get help setting up your accounting software correctly from the beginning. I recently helped someone set up a simple new business for about $500. In the past, I have had clients who brought in their information at tax time on their brand new software, stating that it should be much easier now that everything was in the computer.
These words strike terror in my heart. Because, I know that when I look at their information, things are going to be a mess. I have had clients:
1. Have no sales showing;
2. Have large unexplained amounts in their equity accounts from not properly reconciling their bank accounts;
3. Have their sales tax liability accounts out of whack because they weren’t taking their payments against the liability. Instead, they showed them as a deduction on their software.
4. Have little or no income showing up on their books. They relied on this information and did not pay their estimates, which cost them over $800 in interest and penalties to the IRS.
The time it takes to clean up the books can cost from $1,500 to $3,000.
Small Business, Big Headaches: This true story is very typical of the results that occur when people decide to save money in the wrong areas. The small business owner begins without conferring with either an attorney or a CPA. He assumes that the best business entity for him is a sole proprietorship, mostly because it is the simplest business form and has the least amount of paperwork involved. (Mentor Mama says, “OY VEY!”)
As the business grows, he decides to register as a limited liability company and receives an employer identification number (EIN) from the IRS. Again, he makes this move without consulting an attorney or a CPA. As a single-owner LLC, nothing changes on his tax return. He is still filing as a sole proprietor.
A few years later, he finally gets around to finding a CPA. During the consultation, the CPA recommends that he file as an S-Corporation rather than a sole proprietor in order to save on payroll taxes. By reclassifying his business as an S-Corporation for the current year, he will now save $10,000 in federal and state taxes. Unfortunately, he can not go back and make the change for prior years, which cost him approximately $18,000 in taxes.
In looking over the prior year’s tax return, the CPA is able to amend the return and make business-related expense deductions that were overlooked by the business owner and he is able to get a $5,000 refund for the prior year as well.
–Deborah Stevens, MBA, CPA*
Wow, Deborah, thank you so much for agreeing to be a guest blogger on www.ishouldhave listenedtomymother.com. ”Herding goats” is definitely harder than it looks! Next time, I know who to call!
My friends, Mentor Mama cannot tell a lie. Your CPA is your friend. Your online business is no different than a brick and mortar business when it comes to using a CPA: you need one! I hope that these examples showed you that trying to cut corners in your accounting, tax, and business planning is just Penny Wise and Pound Foolish!
**If you have a question about this article, feel free to post it below or contact Deborah Stevens, MBA, CPA, directly, by clicking on the link.
*Disclaimer: This article is meant for information and discussion purposes only. It is not intended to be comprehensive. Further, this article is not intended in any way to be construed as legal, accounting, or other professional advice. For decisive information about any of these topics, seek out the appropriate professional, who can represent your specific needs.
May 11th, 2010 at 6:58 pm
This is so key Nancy. I have observed time and again how all truly successful entrepreneurs have a board of advisers in place to take them to the next level. If you have good people they are worth the price because they will actually save you money. Thanks for this important reminder!
Gabriel Gannam´s last blog ..Success…Do You Feel You Deserve It?
[Reply]
May 11th, 2010 at 8:07 pm
Nancy, this is great info. I have a question, but I am not sure if I should post it here or ask Debbie on her blog. My dilemma is how to find a good accountant. I have been burned and would love to hear how to go about finding a good one (of course without spending a fortune).
karin´s last blog ..Getting your site and your posts indexed within 24 hours.
[Reply]
May 12th, 2010 at 9:27 am
Thanks for this important reminder. Online sites offer inexpensive legal services but there is no advice. Better to spend more money upfront and get accurate information that can avoid pitfalls and problems later on. As a therapist working with individuals and couples, I can attest to the fact that for those couples who seek professional advice early on in their relationships, they can avoid so many of the miscommunications and other problems that inevitably occur as two people spend more time together. A few sessions of heart to heart talk with an experienced professional can save them years of heartache and lead to years of pleasurable companionship.
[Reply]
May 12th, 2010 at 9:45 am
Awesome info Nancy,
Great to hear from someone who understands all the angles of a home based business. Wonderful tips here.
Thanks for sharing this timely info with us. The time to think about taxes is now, not next April 15!
Val
Val Wilcox´s last blog ..Along The Path of Self Discovery…
[Reply]
May 12th, 2010 at 7:02 pm
Hi Everyone!
Didn’t Deborah do a fabulous job on this???? How do we even consider a home business without consulting a pro? SOOOO important and we save money! Thank you all for stopping by!
Mentor Mama
[Reply]
May 13th, 2010 at 6:03 pm
Great job girls!
I am in total agreement with you on this and it is just simple common sense. You need to surround yourself with people who are better than you are at understanding things along these lines like TAXES and the LAW!
That is exactly what I have done as well. It kind of helps when you marry a CPA like Dawn. Also, when it comes to the internet people are running businesses and they have no clue for the most part whether they are within legal parameters or are sometimes stepping over the edge. Another very important thing to consider when you are running a business.
Needless to say, both of you understand these things and that is why Dawn and I like having you within our mastermind group! Excellent collaboration and I look forward to seeing more great things from both of you!
Dave and (Dawn)
P.S. Knowing how to run a business properly can save you tons of money. Plus knowing tax laws can save you even more. We paid our fair taxes of “ZERO” last year and I won’t even tell you what we got back!
Shhhh! The IRS might be listening. But the FUNNY thing is, I Don’t Care! I’m covered either way. lol
[Reply]
May 13th, 2010 at 7:34 pm
Nancy,
It is just thinking ahead and getting ready to take your business to the next level. Debbie is an awesome Goat Herder with savvy advice. I’ve had the privilege (choke, choke) of cleaning up some messy bookkeeping errors before. It takes 4 – 5 times the amount of time to unwind mistakes as it does to input the information accurately from the get go. A word to the wise …
Love you both:)
Darlene Davis´s last blog ..Letter to Mother
[Reply]
May 13th, 2010 at 8:45 pm
Massive thanks on this.
My dad always said… and I do take this advice to heart:
If you don’t have time to do it right the first time – you sure won’t have time to do it over.
Paul Klaszus´s last blog ..Memory Loss from Stress?
[Reply]
May 13th, 2010 at 10:29 pm
This is a great post. Following up from your previous one Nancy on letting us know that if we are going to have a serious business then we need to get the right people in place to make it happen. Thanks for continuing to bring great experts like Debbie Stevens to share with us all here. I hear that she is Queen of the Universe and now Goat Herder too! She’s got both ends of the spectrum taken care of that’s for sure.
Thanks again.
Make it a great day!
God Bless,
-ed
[Reply]
May 14th, 2010 at 2:41 pm
Nancy…thanks for sharing this with us. I know and respect Deb very much. She has some great insights into the lesser known areas of setting up your business and although I am always for go get your business going…there does need to be some sense in how you set it up.
Thanks so much for sharing the valuable information.
[Reply]
May 18th, 2010 at 11:54 am
Hi Nancy,
Dawn commenting this week. Great post! So very informative on a subject that most people know very little about..taxes. What a cool idea to add a guest blogger and especially one who is an expert on taxes! Deb did a super job of laying out some great examples that give an idea to how relevant and helpful a tax expert can be.
Keep the excellent content coming!
Dawn
[Reply]
May 18th, 2010 at 4:46 pm
Another great post – even I, who attempts to do everything myself, can see from this article why I must have an accountant. Coming from a J.O.B., I never had the need before, but soon recognized that it is more effective to pay someone who knows what they are doing to get me started than to create problems for later by muddling through! And then, of course, get them to keep me on track.
Yes, software helps, but if I put bad data in or put good data in the wrong place, the software just hides the problems I create!
Thanks for sharing and for allowing an expert in the field to add to your wisdom.
Alan (Retired goat-herder!)
[Reply]
May 18th, 2010 at 6:51 pm
Thank you Nancy for having Deb on as a guest blogger ~ this information is incredibly valuable! I couldn’t agree more ~ there are so many ins and outs to taxes that I know I don’t know, and am glad to have an accountant who does! It definitely leaves me to do what I do best, just as you said in this post. Having a team of professionals to outsource the work that you can not do as efficiently or just because you know it’s not productive towards your goals is a huge key to success!
Thanks so much for sharing your expertise ~ both Nancy & Deb!
Beth Allen´s last blog ..Networking Superstars & TSA Merge and Create Powerful Free Traffic for YOU!
[Reply]
May 19th, 2010 at 3:09 pm
Pretty interesting post.
I have had questions on this and it seems of course you have to keep very accurate records or else you’ll lose something. An expert is needed in this area
Andrew Gallagher´s last blog ..New Technologies Hindering Economic Progess in 2010?
[Reply]
July 28th, 2010 at 11:10 pm
Hi Nancy,
You made great points about why investing in professional accounting services pays off, especially when it frees up time and provides a second pair of eyes.
Thank you.
To your success,
Yorinda
Yorinda´s last blog ..Joy is the Goal
[Reply]
August 12th, 2010 at 1:41 am
These are all great tips here thank you. I live in Canada too and most of my income comes in the form of US dollars. I just convert it into Canadian dollars on my income statement, I hope I am doing that right? Thanks again for sharing.
[Reply]