4 Questions to Ask Your CPA This Tax Season

The tax season is stressful for everyone, but especially so for small business owners.  Whether you have an internal tax professional on staff or outsource that function to an external agency, an accountant may be one of the most important positions in your organization.  This trusted advisor will be your guide on your financial journey and suggest detours when the numbers show that you are straying from profitability.

An experienced accountant is not simply a number cruncher during tax season or your safety net during an IRS audit.  They should comprehend the inner workings of your business well enough to make recommendations for your business’s long term financial health, proved advice on loans or large purchases, and ensure you maintain compliance with ever-changing tax regulations.

According the 2016 State of Small Business Accounting Report, 44 percent of SMBs routinely outsource their tax preparation, which means asking the following four key questions your accountant this tax season more important than ever:

How do I compare to my competitors?

Understanding the competitive landscape is essential for small business owners.  “Benchmarking” is the best way of understanding how well your business is doing compared to the industry average.  Bert Markgraf writes in a Small Business Chronicle article that once you’ve establish a benchmark for your business “you can then examine why your performance is not as good and take measures to improve it.”

An accountant familiar with your specific industry will prove invaluable when you are setting benchmarks.  If they are able to compare your balance sheet against your competitors, you may be able to identify strategic opportunities to increase market share.  Are your margins too low, are employee salaries too high, or are you carrying too much inventory?  Understanding your competition’s mistakes may help you avoid similar troubles.

What is my break-even point?

As a business owner, it is crucial to understand your business’ break-even point.  Simply stated, the break-even point is the number that you need to surpass before you realize a profit.  Take your overhead and cost-of-goods divided by gross margin percentage and you can determine what you need to sell before you actually start making money.  Your accountant will be able to advise where this point is, and whether or not the business is running efficiently enough to maximize potential profits.

The calculation can certainly be much more complicated than mentioned above.  Your accountant will take into account many other factors and variables to determine your business’ most accurate break-even point.  Once established, reaching your break-even point as early in the financial year will become your number one priority – since every dollar earned afterwards will contribute to your businesses profitability.

What are the biggest mistakes to avoid?

When you are a small business owner, even the smallest mistake can result in tax ramifications.  Your accountant will need to offer advice on how any given decision will affect the bottom line.  Whether it is choosing between hiring an employee or an independent contractor, every decision will have a benefits and consequences.  There are a number of tax mistakes that a trusted accountant can help small business owners avoid.

What can I expect for next year?

According to Financial Methods, even though tax professionals put a lot of time into your return, it isn’t guaranteed that they will offer advice on how you can improve the following year based on your return.  This is another area that having a dedicated, full-time accountant on staff may be beneficial.  If your accountant understands the ins-and-outs of your business and where it’s heading, they will be able to assess the overall financial health to offer suggestions, predictions and advice for the future.

These are just four questions that you might want to consider discussing with your tax professional.  The list could have just as easily been 104 questions since the tax landscape is so diverse, but a knowledgeable accountant should be able to answer all of them for you.