What if consistent communication with your external accountant could improve business operations and give you the management information you crave? Seventy five percent of accountants say that having a real-time view into their client’s finances would enable them to provide better financial advice, according to a recent survey by Xero, a small business accounting software developer. Xero surveyed a group of accountants to find the most common mistakes business owners make when it comes to their finances. Results showed that the most common mistake was talking with their accountants only during tax time. Other most common mistakes included:
1. Not fully understanding their tax obligations
2. Not having real-time insight into their finances (i.e., not keeping financial records up to date)
3. Neglecting to set up a cash flow forecast
4. Not linking their financials to business goals
Using cloud-based accounting systems that offer a real-time view into the financial health of an organization, CPAs and accountants are able to offer critical information and guidance for businesses to grow their businesses more profitably. Only 5 percent of accountants said that 100 percent of their clients are using online accounting services, while 20 percent said that between 75 and 99 percent of their clients are using such services, and 24 percent said that between 50 and 74 percent of their clients are using online accounting services.
Online, on-demand financial reporting facilitates the availability of up-to-date critical information. This technology also allows the integration of software, such as web-based time tracking, bill payment, job costing, billing and collections. In addition, automation allows for faster and cheaper data input.
These management accounting systems allow organizations to maintain constructive communication with their accountants year-round as they manage their tax liability, optimize deductions, maximize tax planning and help strategize for growth. According to 44 percent of the accountants polled, small business owners should be in touch with their financial adviser at least once a month, while 21 percent of the survey respondents indicated it should be once a week.
Jamie Sutherland, president of Xero U.S., said that another significant finding was how small businesses can work with their accountant to avoid some of the pitfalls around deductions. He added that 75 percent of the survey respondents indicated that faulty deductions are causing audits, so ”working with an accountant to make sure you’re taking correct deductions from your financials will alleviate the possibility of an audit.”
The most common mistakes businesses make that could trigger an audit by the IRS include excessive deductions to income, misclassifying their workforce (as in employee vs. independent contractor), home office deductions and mixing business and personal expenses in deductions.
“The thing that comes up frequently is around mixing personal and business deductions,” Sutherland said. “There’s a gray line there. If you’re going on vacation and some of your expenses are for business and some are personal, you need to be clear about exactly what is business related.”
Meanwhile, small businesses often overlook some deductions, including out-of-pocket expenses, depreciation, automobile expenses (such as gas, parking and tolls), expenses associated with hiring new employees and office improvements.
Small businesses and service businesses, in particular, have a lot to gain by employing cloud-based management accounting intelligence tools and working consistently with their CPA or accountant in order to grow their organizations. Outsourcing these accounting services is a cost-effective strategy benefiting businesses of all sizes.
Do you know what critical financial information you need on a daily basis? Do you understand how to use it to grow your business?