Tip 5 of 10: Don't Assume
In the words of Bon Jovi, We're halfway there, folks! (You’re singing it now, aren’t you?!?!) Welcome to the fifth installment of the Top 10 Tips for Financial Success blog series, where we hit the books to better manage your books!
Whether you're a small business or a solopreneur, these 10 tips are vital to your bottom line!
Tip 5: Don't assume that your tax accountant is handling your bookkeeping.
We all know what happens when we assume, right?
Aside from the tired trope "you make an ASS of U and ME" you simply leave yourself open to risk. And what does risk usually do? Yep, it costs you money.
So don't assume that your tax accountant and your bookkeeper are the same person.
What's the difference between a tax accountant and a bookkeeper? Generally, a bookkeeper’s primary task is to record transactions and keep you financially organized, while accountants provide consultation, analysis, and are qualified to advise on tax matters. Where it gets confusing is that bookkeepers and accountants sometimes do the same work. Sometimes a tax accountant can also be a bookkeeper, or they can have a department within their company that does bookkeeping. Now you might have a tax accountant and you might have a bookkeeper, or you might have one or the other but not both. What's most important is that you understand what each of them does and doesn't do. The best analogy I can draw is to think of it like building a house. You need to have a carpenter and you need to have an architect. You can't build a house with just a carpenter because he wouldn't know what to do, and an architect on her own wouldn't have anyone to actually build the house.
Same thing goes for your books. You need a bookkeeper to tackle the books, and an accountant to handle the taxes and ongoing strategy. You may be able to find someone who can do both bookkeeping and tax accounting, but that’s a rare scenario. Always clarify whether the person you’ve hired will do bookkeeping or tax accounting/strategy right up front. No assumptions!
What's the worst that can happen? Can't I just deal with it at tax time?
Remember back when we talked about how procrastination can cost you money? Well assuming + procrastinating will cost you even more moola. Here's an example:
A client hired me to look at his books and get them cleaned up and ready for end of the year 2019. He told me that his accountant had been handing everything, but that she had been really busy the last few months. He told me the final quarter was all that needed to be cleaned up in prep for his tax return.
The books told a different story. In short, no one had touched those books for the months and months. As in, all of 2019 had gone unchecked and unbalanced. Confused, I asked the client, "What's going on, didn't you tell me your accountant was doing your bookkeeping"? He said "Oh yeah, she handles all of that, but she just hasn't in a couple months." So I reached out to the accountant thinking maybe I had missed something or maybe there were some Quickbooks files that the client didn't forward or maybe she had them. Turns out, as she told me verbatim, "I was only engaged to do the taxes, so that is what I did." Two levels of assumption took place here: the accountant assumed the books she was given were checked, and plopped the numbers into the return without questioning them. Also, the client didn't read the contract, and assumed tax accounting and bookkeeping were the same thing. Let me tell you, the client paid us A LOT OF MONEY to get his books for all of 2019 in order, to say nothing of the deductions he couldn't take because he didn't keep good records, good chart of accounts, good record of expenses, all of it. I recently read a contract from a tax agency to a client of mine. It states: “We will not audit or verify the data you submit.” !!!!
You know the drill by now. All of this pain and trouble could have been avoided had the client read and understood the original accountant's contract. And imagine the money he could have saved! The Bottom Line The key here is clarity. When hiring a tax accountant, know exactly what you are hiring them for: tax accounting, bookkeeping, or both? A little clarity now will save you a lot of money later. About Us At Beth Blaney & Associates, we help clients create new and better financial habits that support their business and their lives. Connect with us at email@example.com to schedule a "Bookkeeping Clean Up and Evaluation" today! We look at your books in their current state and offer suggestions to build a stronger financial foundation for your business.