What Your Accountant Wishes You Knew

You've probably had the experience of finding something out about your own business and thinking, why didn’t someone tell me this sooner?

Maybe it was a deduction you could have taken. Maybe the decision you made in June drove your tax bill in April. Either way, the information existed. It just never reached you.

We've been doing accounting for small business owners for over 20 years, and the same handful of things keep coming up. Nobody sits down to explain how it all connects, so owners find out late.

Here’s the list, from our side of the desk.

The Short Version:  
Most of what costs business owners money is something nobody ever told them. Your financial statements are a decision tool, not paperwork for the IRS. A deduction saves you only a fraction of what you spend, so buying something for the write-off still leaves you with less cash than you started with. We can't fix in April a decision you made in June. Profit and cash are different numbers, which is why a profitable business can still run short. And the question you think is too basic is usually the one worth asking.

What Your Financial Statements Are Actually For

Most owners treat bookkeeping as something you do for the IRS. You keep records, file a return, and everyone moves on.

But a profit and loss statement (P&L) is a list of decisions you already made, and a balance sheet tells you whether the business can survive the next six months. When used the right way, your financial statements change what you do next. Filed away, they’re just paper.

The owners who get the most out of us open their monthly statements and ask what a number means. If no one has ever walked you through your own P&L and balance sheet, here’s what each statement tells you.

Most of What Changes Your Tax Bill Happens Before December

By the time we're preparing your return, the decisions that would have changed it have already been made. The equipment you bought, how you paid yourself, when you sent invoices, whether you elected S-Corp. All of that is settled by filing season.

That's why a tax preparer and a tax planner aren't the same thing. A preparer reports what happened. A planner is in the conversation while you can still do something about it.

It's also why we ask for documents earlier than you'd expect. The day you send something isn't the day we work on it. We build the schedule weeks ahead so your return gets the time it needs.

A Deduction Doesn’t Save You What You Spend

This one costs people real money, and it comes up every December.

A deduction reduces your taxable income. It doesn’t reduce your tax bill dollar for dollar. If you spend $60,000 on a truck to save $15,000 in taxes, you’re still out $45,000 in cash.

Buying something the business needs, in a year when the timing works, is smart. Buying something you don’t need because someone said you could write it off just means you have less money than you started with.

Let the tax savings be the bonus rather than the reason. If you want to know what actually qualifies, we put together a guide to the deductions small businesses use most.

Your Books Being a Mess Is Normal

About 99% of the clients who come to us arrive with what we’d politely call crappy books. That’s the normal starting point.

We say that because embarrassment over messy books can sometimes keep people from calling or taking action. Owners put it off for a year, sometimes three, because they don’t want anyone to see the mess. Meanwhile, the cleanup gets bigger, and the decisions keep getting made without good numbers.

There’s no version of this where we’re surprised. If your books are behind right now, that’s something we see every week.

Ask the Question You Think Is Too Basic

We don’t know what you’ve already been told, or what no one has gotten around to explaining. That causes more problems than almost anything else.

If you don’t know what a debit is, that’s fine. If you don’t know why one purchase shows up as an expense and another one doesn’t, that’s fine. And if you don’t understand what a number on page two is doing to your profit, that’s fine too. That’s why you hire an accountant.

And if the answers you get back don’t make sense, say so. Sometimes, we explain things in accountant language instead of plain English.

What gets lost between you and your accountant often shows up later as money.

Profit and Cash Are Not the Same Number

A profitable business can run out of money. It happens often, and owners usually don’t see it coming because their P&L looks fine.

Profit is what you earned. Cash is what you have. Inventory, equipment purchases, loan principal, and slow-paying customers all sit between the two.

If your P&L says you had a good month and your bank account disagrees, your cash flow statement explains the gap. And it happens to be the statement a lot of owners never look at. 

Sometimes We Tell You Not to Buy It

We had an optometrist client who wanted to buy a new piece of equipment. We ran the numbers: the depreciation, what he could charge, how many patients he could see with it. It would pay for itself in six months, so we told him to buy it.

He came back later wanting to purchase a different piece of equipment. We ran the same exercise, but gave him a different answer. That one would have taken decades to break even, so we told him not to buy it.

We’re not here to just approve purchases. We’re here to tell you what the numbers say, and sometimes they say no. That conversation is worth having before you buy, not after.

What Your Accountant Wants You to Do Next

If any of these sounds vaguely familiar, that’s why we’re sharing them with you. These aren't complicated ideas. If you don’t know about them, it’s usually because no one has ever brought them up.

The expensive problems in a small business usually come down to a gap in what has and hasn’t been communicated to you. It may even be a result of how something was communicated. That's true whether you've had the same accountant for 15 years or you're still doing the books yourself.

At Patrick Accounting, we work with small business owners across the country from our office in Memphis, Tennessee. We work hard to close that gap, so clients have every opportunity to thrive.

Start with your own numbers. Open last month's statements and find one line you can't explain, then ask whoever handles your books to walk you through it. How they answer tells you as much as the answer does.

If you'd rather have someone walk through them with you, let's talk!