I ’d rather know that I’m losing money, and why, than merely speculate. Thankfully, I’ve always had a good accountant to dependably provide sound advice, increase my company’s value and profits, and look out for my best interests. I didn’t lose money as a remodeler, but I didn’t lose sleep wondering about it, either. As the business owner, it is your responsibility to define and qualify what you want in a business partner — accountant or other — before you commit to the relationship.
Rearview Mirror
You may be familiar with what I call “rearview mirror” accounting. This person takes your financial and tax information after your fiscal reporting year is over and tells you what happened. He or she has little or no interaction with you or your business during the course of the year. Unless you collect, track, and review your financials yourself, you essentially hear the good or bad tax news in April, when it’s too late to do anything about it.
You can’t blame this person. If you chose an accountant who is essentially a historian, is your bad news his fault?
Some accountants function more as business guidance counselors. Most remodelers’ charts of accounts are a mess, usually because the owner and/or the bookkeeper created them without the help of a specialized financial professional. What should go above the line or below the line? What markup is necessary? What are employees’ true burdened labor costs? How do job cost reports parallel estimates? Are you making or losing money?
A good accountant will help you answer these questions.
Balancing Act
You may have recently discovered this thing called a balance sheet — probably when your cash flow slowed down to the point that you couldn’t meet your payables.
The balance sheet shows what you owe and what is owed to you. Your business is in balance when you bring in enough money to cover the amount going out. If you once treated borrowed money like revenue, it wasn’t until you couldn’t pay your bills that you realized you were actually losing money, even though your P&L showed a profit.
Is your balance sheet accurate and up to date? Do you pay attention to your net worth from year to year? Can you? I’ve found that most balance sheets are incorrect or have little value because accountants adjust them only once a year — around tax time. It’s an incredible tool if used throughout the year.
Who Likes Paying Taxes?
Actually, I like to pay taxes. My first accountant once said: “Don’t try to reduce the amount of taxes you pay. Instead, build your businesses and increase profits so you pay more in taxes this year than you earned the year before.”
This sound advice caused a major shift in the way I looked at my business. I changed its legal status from sole proprietor to an S-corporation. I learned the difference between tax liabilities on my wages and the dividends my business paid me, and the benefits of accrual accounting.
All this happened because my second accountant was a proactive partner who explained these considerations to me in a way that I understood, and who helped (and helps) me manage my tax liabilities by meeting with me throughout the year.
He also understands the interdependence of all my financial endeavors. When I asked him if I should buy or lease vans for my remodeling business, he asked about my plans and profitability expectations for my consulting business and my income properties. Like a good general contractor, a good accountant digs deeper before offering advice.
Want to repair your chart of accounts once a year? Or double your volume in the year after the economy turns around?
It’s your business. Choose your partners wisely.
—Shawn McCadden founded, operated, and sold a successful design/build remodeling business. A co-founder of the Residential Design/Build Institute and former director of education for a national K&B remodeling franchise, he frequently speaks at industry events and consults with remodeling companies. [email protected].
