Look for an agency that has produced satisfactory results for other business owners you know. Ask them if they have been able to collect on accounts that they had given up on—the ability to squeeze blood from a stone is a valuable one. They should also work on a 17 to 25 percent fee basis.
51 There’s No Accounting for Waste
over. They will tell you how they used the same accounting fi rm for years, the accounting fi rm was perfectly competent and well respected (and may well have been one of the large fi rms in the area), and then one day they decided to try a new fi rm. Within the year, they realized savings that they had only dreamed about before. They kicked themselves for waiting so long to fi nd a new fi rm, adding up in their minds how much money they might have saved if they had made the change fi ve or ten years earlier.
Don’t get me wrong. I’m not suggesting you should continu- ously switch fi rms or do so just because you want to see how much more another fi rm might save you. It’s just that some small com- panies settle into comfortable relationships with their accoun- tants and assume that they are asking for trouble by switching fi rms. They fi gure that it will be a huge hassle to explain their business to a new fi rm, to provide them with all of the necessary fi nancials they need, and to form new professional relationships.
Thus, even if they suspect that they might be missing out on cer- tain tax-saving strategies or that their fi rm is overly conservative, they refuse to look elsewhere.
The best way to evaluate your fi rm is by talking with other small business owners about their fi rms. Do they have a fi rm that they feel is creative and aggressive? How much did their new fi rm save them over the old one? Do they suggest certain strategies or tactics that seem as if they would make sense for your business?
When evaluating your fi rm, ask: Do they provide the same sug- gestions and tax strategies year in and year out without any signifi cant changes? Are they overly conservative? Have they regularly helped you take advantage of changes in tax laws or suggested innovative ways to reduce your tax obligation? Do they provide the personal- ized service that helps them craft strategies geared toward your par- ticular tax situation (or do they have a cookie-cutter approach)?
Over the years, I’ve found that a sizable percentage of small business owners are extremely wary of both aggressive tax strate- gies and smaller accounting fi rms. They believe that if they pursue
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any strategy that is different or creative, they will immediately become audit targets. Similarly, they place great faith in the larg- est accounting fi rms because of their size; they don’t see the irony in small companies preferring large accounting fi rms.
It may well be, however, that a smaller, aggressive fi rm is better able to save you money. It may take a more fl exible approach and be willing to explore options that a bigger fi rm, set in its account- ing ways, refuses to explore. In addition, a smaller tax fi rm may charge you less than its larger counterpart.
One of the companies I interviewed offered a great suggestion for companies that are reluctant to leave a long-term relationship with an accounting fi rm because of loyalty and comfort factors.
Rather than take the radical step of looking for a new fi rm, ask a new fi rm to look at your books for the past two years. Pay them a small consulting fee for their work and hold out the possibility that they may have a larger role in the future. The person who recommended this strategy followed his own advice, and the new fi rm offered suggestions that eventually saved the company
$75,000 in taxes for that year; they also recommended he refi le for the previous two years, and this ended up netting the company an additional $15,000.
Recognize that you may not reap such large savings immedi- ately, but the exercise can help you assess whether your current accounting fi rm is doing a good job. To a certain extent, you need to rely on your business judgment. Don’t be tempted by a new fi rm that promises the moon and stars but can’t provide a concrete strategy to reach them. Don’t expect that the new fi rm will identify clear evidence of incompetence on the part of your current fi rm. Most of the time, the problems have to do not with incompetence but with a current fi rm’s unwillingness or inability to disturb the status quo. They’ve been doing things one way for a long time; why try something new?
Restructuring the fi nancials is often the recommendation of a new fi rm, and it makes sense, since some small companies have
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53 There’s No Accounting for Waste
fi nancial structures that have been in place for generations and are ill-suited to current tax laws. You may also fi nd that the new fi rm wants to meet with you more often and know more about your business than the old fi rm. While this may require a bit more of your time and require you to disclose more private information than you’re used to, it can benefi t you in a number of ways. Meet- ing with your accountant on at least a quarterly basis can prevent you from making hasty, last-minute decisions right before you fi le, giving you more fl exibility to adjust your tax strategy as events unfold during the year. Providing additional information about your business helps your accountant understand your business at a level so as to tailor strategies to fi t with the particular character- istics of your company and industry.
If you decide to look for a new fi rm, however, be aware of the following potentially costly mistakes that small companies some- times make during the search and interview process.
Hiring fi rms because they tell you that their clients have never been audited. This is a sales gimmick and nothing else, suggesting that they are only interested on preying on your fears. Instead, tell them that you assume that over the years some of their clients have been audited. Ask them why they were audited, how the fi rm helped with the audit, and what the outcome was. This can tell you a lot more about the fi rm’s capabilities than many other pieces of information.
Hiring the fi rst fi rm you fi nd acceptable. Many small business owners are impatient; they don’t want to waste time and energy on a process that is tangential to their core business. As a result, they hire the fi rst fi rm they talk to or pick a fi rm after searching through the phone book. It’s much more benefi cial to network with other business owners and interview anywhere from fi ve to ten fi rms before making a decision. A hasty, poorly thought-out
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decision can cost you a lot of money, especially if you hire a dis- reputable or incompetent accounting fi rm.
Deciding to use an in-house accounting person to do your business’ taxes. I realize how tempting this is, since you fi gure this individual knows your business better than anyone and can save you the money you’d pay an outside fi rm. This person may possess great general accounting skills but not be a great tax accountant. More importantly, your in-house person can’t exam- ine your books with a dispassionate eye. An employee probably is too close to the business to take a step back and consider all of the tax options available to you. The employee also lacks the mandate to object to practices or inconsistencies that may cause trouble with the IRS.