Anyone who's following posts and articles and emails will know that they are mostly about the planning and preparation required for accessing grants and investment.
While this is an important and significant element of the work I do with businesses, I was reminded of the 'other' part of my role as a business adviser, as I was staring into the blaring sun while at the ancient Incan circles of Moray, in the Sacred Valley of Peru.
All the success that I have had with assisting businesses to prepare for and access funding & investment has come, fundamentally, from my background as a compliance accountant.
Every decision that is made in business should be made using accurate data. As an accountant for the past 15 years, I have seen the financial records of thousands of businesses. The saddest part of what I do is seeing financial reports, or access a business' Xero file, that have been prepared by an accountant with very clear, basic errors or mistakes.
As a public practice accountant (the type that sit in a big office & 'punch out tax returns' all year), the most common thing that I did for about a decade was review a MYOB or XERO file that had been processed by the business owner all year long and 'delivered' to the the Firm at the end of the year for the tax work to be completed and it was an absolute mess. Unfortunately, that was pretty much all we ever did - spend sometimes up to 3-5 DAYS reviewing, adjusting and correcting the work done, then preparing a set of financials based off our corrections, but NOT, generally, updating the actual data file, so the business owner STILL didn't actually have an accurate, up to date record of their financial position at any point during the year until they had their file reviewed and their tax return completed.
Anybody wondering where their $4000-$8000 annual accounting bill came from - THAT is why. Then, they needed to pay that AS WELL as any actual tax bill to the ATO, and within 30 days, please!!! It's not hard to see that this is NOT the best use of the time and abilities of an accountant. It is NOT how a business accesses the support they need to understand and grow their business.
However, imagine the benefit that you could get from splitting up that SAME amount into monthly amounts during the year & having an adviser review your file MONTHLY and give you feedback & reports & support & even take calls & answer email enquiries WITHOUT charging extra every time you reach out for help. It IS possible & that's EXACTLY what I do with EVERY business I work with.
I can't count the number of times I have heard "My accountant isn't really helping me", "I don't really understand what an accountant does", or "I want to change accountants, but I don't know how or when - should I let them finish off last year's tax first??". So the answer to the last question is ALWAYS NO. If you are thinking about not being happy with your accountant & you get them to do the tax work & then get someone else to have a look at it, you'll effectively be paying for the work to be done twice - once by the previous accountant & then amendments by the new one & that's just bad economics (not to mention frustrating for the new accountant).
The very first thing I do when I pick up a new consulting client to assist them with accessing funding is to allocate about 3-5 hours to review their financial data (in Xero, etc) and I genuinely can not remember the last time I saw a file that didn't have VERY clear and easily identifyable issues. The only thing more common than what I have outlined below is hearing "I have sorted out everything in my Xero file & it's all correct. My accountant's looked at it.":
Common Processing Errors
There are a number of things that are almost always present in financial files that I review that can make a big difference to what the profit looks like before as opposed to after these are corrected;
Wages & Super payments being allocated to the P&L, effectively duplicating these costs
Payments to loans allocated to P&L accounts
Purchase of assets allocated to "Equipment Expense" or "Office Expenses" on the P&L
Loan payments not allocated correctly, or allocated to "Interest" on P&L
GST being incorrectly claimed on non-GST expenses, eg: Stamp Duty on insurance
GST being claimed for payments to contractors that aren't registered for GST
Employees being classified as contractors
Your financial reports need to be prepared for two main reasons:
Compliance purposes - tax returns, BAS returns, payroll & Super purposes
Management purposes - THIS is the important one, because it is important that YOU understand the reports so that YOU can make decisions.
If you don't know how to run reports whenever you need them & actually understand where your income is coming from & how much it is costing & what is left over after overheads are paid, this is something your accountant should definitely be discussing with you.
Also, I always review each of the monthly figures for the current year to date and the YTD figures with last year at the same point in the year to see if there are any significant differences in these amounts. There are a number of reasons why there would be, especially if the business is growing, but it is important to be able to do 'the eye test' where you can run your eye over the figures & they 'make sense' easily.
Development & Purchase of Assets
If you're developing assets or potentially doing something that you may be entitled to receive funding or rebates for, you need to make sure that this is adequately reflected on your Balance Sheet, rather than necessarily writing all of these amounts off as expenses.
It can make a MASSIVE difference if the cost for developing IP or an asset are allocated to the P&L, especially if you are looking for investment or funding to help in the process.
Think about it - would YOU invest in a business that has massive losses & no assets??
Some legal fees, protection of IP, Trademarks & a variety of other payments MUST be shown on the Balance Sheet & aren't deductible. What needs to be shown where can be confusing.
Loans & Investments
There are a number of common things that 'aren't quite right' on financial reports for loans;
In most businesses, the owners deposit funds & take money out separate to 'wages'. These are treated as loans & are treated differently depending on the type of entity. If a "Director Loan" is showing that the owner has taken more money out of a company than they have put into the company, this can have SEVERE tax consequences.
Loan repayments for the purchase of equipment, or even insurance, have interest on them & most are not connected to 'bank feeds', so the interest has to be picked up for the profit position to be accurate.
Some companies don't have their "Share Capital" accurately reflected on the Balance Sheet
Inter-entity loans - if you have more than one business & you transfer money between them, then the balance of the amount owed between them should be the SAME on both sets of reports. This is very frequently NOT the case.
Accessing Grants & Investment
Almost all grant programs require up to date finances to be uploaded as part of the application. The people reviewing these applications KNOW how to read financial statements & they WILL know if something 'doesn't look right'.
In fact, many grants are predicated on what is actually shown directly in the reports, which is why I always set up the financial statements with separate sections for each type of funding, with subtotals & Year To Date totals, as well as calculations for what is remaining of funding received, or estimated rebates for incentive programs.
It is also important when developing cashflows & projections & budgets that the figures are correct that these estimates are based on. If the foundations are 'off', the calculations & projections will be 'less accurate'.
Instead of a 'transaction' once a year where you go into your accountant's office, they hand you a stack of paper & you hand them a massive cheque, it is FAR more productive to connect on a monthly (or at least quarterly) basis.
For some businesses I do processing within the Xero files, but I have found that most businesses benefit from me showing THEM how to get the most out of efficiencies and processes in their data file & then review it for them at the end of the month.
One business owner was referred through to me to assist with applying for a grant & I had to basically reconfigure his entire accounting system after he had paid $4000 for his accountant to lodge an incorrect tax return. He had been in business for 3 years & didn't know how to run a P&L & Balance Sheet because nobody had ever showed him - he just figured he must have made a profit if there's money in the bank account, right??
After working together for 3 months, we were on a catch up video call & he said "Thank you for showing me how to do all this stuff properly. I can now run the reports whenever & want & I can see when something 'doesn't look right'. I know what I'm looking at. I know how much GST I have to put aside & when to pay Super. I even know how to figure out how much profit I'm making".
All of this stuff seems basic, but over 80% of files I look at have a combination of a range of these issues, and usually they have been in place for a period of time.
I have developed a quick 'test' to determine how likely it is that your business could benefit from a 'more engaged & supportive' relationship with an accountant - CLICK HERE to see how many of these questions you can answer YES to!!
I always make sure that the fundamentals & foundations are right so that you can build a strong, creative, exciting and high value business. I help with ongoing financial processing & tax compliance requirements, as well as accessing funding & helping you understand your financials better so that you can create the business you know you can.
If you feel like your accountant is just 'going through the motions', and you KNOW that you could benefit from someone who 'gets you' as well as your business, reach out for a chat & let's look at how to make sure you aren't 'going around in circles' - troyschoenfisch.com/meet.