Questions you should be asking your accountant

Many business owners rely on advice from friends or family and avoid using the services of a professional accountant whenever possible. This can be a costly mistake that entrepreneurs make all too often – make sure you’re not one of them! Your accountant can tip you off to potentially irreversible financial missteps and tax savings opportunities that you might not know exist. It’s highly unlikely that friends or family who are not closely involved in the day to day financials of your business could bring red flags like these to your attention as effectively as your accountant can. Whenever I’m with potential clients I ask them how often they phone up their accountants to ask questions and involve them in their decision making, the results may surprise you. Some say they speak with their accountant several times a week while others, perhaps once a month. Surprisingly there are some who admit to never calling their accountant, usually because they’re worried they might get a bill for their call. It is critically important to keep the lines of communication open so that you as a business owner, can unlock the potential added value of professional financial insight to your business.

When you invest in the services of a reputable accountant, it’s important to know what to ask and when – not only to be sure you’re getting your money’s worth, but also to ensure he or she helps you do what’s best for your business and your bottom line. Here are some important questions that we think you should be asking your accountant:

What is my business’s breakeven point?

This refers to the level of sales required to fully cover general business overheads, and it is the point where you start to move into profit. Depending on your business, you might break this down to a monthly, weekly or a daily breakeven point. Some of our clients have more detailed breakeven point calculations for different departments and product ranges. Whilst breakeven calculations may seem obvious to some, it can sometimes turn out to be more complex than you think. Some costs vary with sales volume, whereas others are fixed. Depending on your business, if your average transaction value is predictable, you will even be able to break this down further into units required to be sold. Knowing these numbers and regularly updating them with your accountant is crucial to determining your business’s pricing structure and profitability. Once you know your breakeven point you should have a strong estimate of how many products or hours of service you have to sell to cover your costs.

What drives my revenue?

If your accountant ever suggests to you that you need to increase your business’s sales, do you know where to start? What are the key drivers of your revenue? In many businesses, revenue can be broken down to this formula:

Number of Customers x Number of Transactions x Average Rand Sale = Revenue

It may or may not be this same formula for your particular business, you can ask your accountant where you should focus. Your accountant might tell you to concentrate on one or more of the following areas:

  • Generating new leads and enquiries
  • Converting leads into new customers
  • Retaining existing customers
  • Encourage existing customers to buy from you more frequently
  • Analysing your business’s pricing strategy
  • Look at ways of upselling

Knowing your business’s revenue drivers is crucial to help you focus your time and energy in the right areas to maximise your results. Sometimes it can be something as simple as a price increase to improve your margins or the launch of a new marketing campaign for a new product line.

Are my financial results good, bad or indifferent?

Your accountant will be able to take you through an analysis of your financial performance each year, pointing out key ratios such as gross profit percentage, days locked up in receivables and inventory. Provided there are good historical records of your data, you’ll be able to identify trends and assess which important indicators are stable, increasing or declining. Your accountant should also be able to provide insight as to why these trends might be happening in comparison to the ‘norm.’

You can then have a quality discussion with your accountant about what actions you might take to fix your weaknesses and, more importantly, build on your strengths.

How can you help me prepare for this year’s tax season?

The amount of time and level of expertise required for tax prep is often the number-one reason small businesses hire an accountant in the first place. You should ask your accountant at the beginning of each financial year which tax credits and deductions you should claim, whether there are any new tax laws you should take advantage of to maximize write-offs and whether your personal salary structure is tax efficient. You should also speak to your accountant about the upcoming tax season to ensure you have enough time to avoid the mad rush gathering your outstanding tax information. Clients who are well prepared for tax season significantly reduce the chances of unforeseen mishaps leading to under provision of tax penalties or late submission of returns.

Can you provide me with a fixed monthly fee which includes all the work you’ll do for us?

Almost always, the clients who speak to their accountant several times a week have a fixed monthly fee arrangement in place. When the barrier of ‘what might this cost’ is taken away, you are much more likely to call and talk with your accountant before you make an important decision. The vast majority of surveys confirm that business owners who regularly communicate with their accountants tend to be more successful. Having a fixed monthly fee also evens out the expense of annual accounting and tax fees having to be paid in two months of the year to twelve months, giving you more predictability for your cash flow.

At Dümmer and Neal Accountants we aim to add value to all of our clients through regular communication and genuine interest in the financial health of your business. If you’re not currently getting the advice your business needs, speak to one of our team to setup an obligation free consultation so we might change your mind about accounting.

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