Most small business owners work with tax accountants who simply file their tax returns each year. Chances are good that you use an accountant who you see once a year.
Perhaps this is all you want, but it’s certainly not all of the support you need.
Just ask the owner who, by all accounts, was organized, kept her checkbook up to date and was running a profitable insurance business. Despite these qualities, she suffered from the lack of year-round accounting, tax and financial advice that would have helped her steer clear of her issues.
In fact, when she finally partnered with a local tax and small business advisor, she quickly started reaping the benefits of his support and advice.
Pained By Surprising Problems
Despite her organization and attentiveness to maintaining records, tax season was always a surprise. She never knew how much she might owe the IRS, and she didn’t have a plan to pay her tax bill. Only after her tax accountant completed his work each April did she know how much she needed to pay.
The only reason this wasn’t an issue some years was because, as a franchise, she received a bonus from corporate depending on her performance. That bonus would cover her tax expenses some years. Other years, it wouldn’t.
In addition, her business was set up as a sole proprietor, which meant she was only required to pay her self-employment taxes quarterly, while paying income taxes in April alone. This was a big reason why she had little insight into what she would owe at the end of the year.
A New Partnership; A New Mentality
With a partner who meets with her on a monthly basis, the business owner began discussing how to make adjustments to avoid tax surprises. Her advisor also looked into her financials to uncover other issues that she could address to improve her profitability.
First and foremost, her partner recommended incorporating her business with a lawyer so she could add herself to her business’s payroll and start paying taxes more regularly. While this had some small benefits from a tax-savings standpoint, the great benefit was eliminating her yearly tax surprise and giving her an even greater reason to stay on top of her taxes throughout the year.
To stay on top of incomes taxes, the tax advisor created a plan for her to set aside her estimated tax debt each payday. In addition, he helped her set aside money for sales tax.
Diving Deeper Into Issues Impacting Her Profitability
Thanks to the owner’s organization, her partner was more easily able to identify some other issues and address them more quickly. Her cash flow was hampered because she used lines of credits and credit cards for many expenses. Until her advisor discussed the problem, she didn’t recognize how this impacted her bottom line.
Because of the nature of the insurance business, the company’s income fluctuated from month to month and year to year. Analyzing her expenses would potentially help her better handle these fluctuations. Her partner wondered whether her payroll and marketing expenses were worth what she was spending. In their discussions, they determined the best uses of her funds.
Having worked with her business advisor on a monthly basis for nearly six years now, the owner no longer has to rely so heavily on credit, and it has improved her profitability.
But perhaps most importantly, she no longer has any tax surprises. She doesn’t have to worry about her ability to pay her taxes year after year.