But just because we seek out financial facts doesn’t necessarily mean that we are without sin, honest to a fault, fully and fairly disclosing all to our clients. Unlike opinion dictates, we do care: our clients are our bread and butter, and—though we demand facts and wish to know all—on occasion out of concern for self-preservation, some of us do not always willingly and fully disclose all of the “facts”, in turn, to our clients.
For instance, here are 10 things we fail to tell our clients. The list is obviously not all inclusive, since decorum necessitates keeping our catalogue clean:
1. "I don't need a certificate to set up shop."
As you search for an accountant to sort through your capital gains or make the most of your itemized deductions, you'll find no shortage of candidates. The Bureau of Labor Statistics reports that there are over 900,000 accountants, auditors and tax preparers in the U.S. But according to the American Institute of Certified Public Accountants (AICPA), only 450,000 are CPAs, who must pass state exams and, in some states, meet continuing-education requirements.
While some of the rest hold IRS certification or trade association membership, many are merrily filing Form 1040s free of any oversight whatsoever. You don't necessarily need a CPA to file a simple tax return, but some level of credentials -- whether it's an Enrolled Agent certification or at least registration with a state agency -- is a must.
2. " You are pricing yourself incorrectly”
Too many small businesses have thinner profit margins than larger companies because they tend to underprice their products or services. Pricing is critical to the success of any business. If you sell a product for too little, your business may not be able to cover all its costs or you might be leaving potential profits “on the table.” If the price is too high, there may not be any sales or enough sales to cover the business’ overhead costs. I believe the accountant should play a role with the pricing strategy of his small business client. The success of a small business is directly correlated to the prices/fees charged by the business. So it is critical that the business implement a pricing strategy. The accountant should be involved in that process to make sure you are pricing for profitability. When our firm is hired to help a small business owner with the accounting needs of his or her business, one of the first things that we consider is the businesses’ pricing structure. Often, we find a hidden goldmine resulting in a surge of new cash flow and profits.
3. "You don’t need to surrender the financial responsibility of your business to me”
Sure, we love that you put your utmost trust in us and give everything (even originals) to us but never forget, this is your business, you have created this and we are here only to help you succeed. Maintain interest in your financials by comparing actual results to budget. Every month compare your income and expenses to your budget. It’s a great way to learn what’s working and what’s not working with your business. Another great way to stay involved is to look at canceled checks. Don’t just forward them onto your accountant, conduct a thorough review of your bank statements, making sure to flip through the canceled checks. Ensure that all signatures are yours, and that you recognize the vendors. Scan the endorsements on the back. Review statements from vendors. Every now and then (maybe 3-4 times per year) take the time to open the mail and look at statements from vendors. (Many vendors don’t send statements, but do send late notices). Here you want to make sure that your business is in good standing with vendors. Long overdue invoices might be an indication that a check you thought was going to a vendor actually went in someone else’s pocket or that an invoice has been overlooked. Remember to review your Accounts Receivable and aging. Check for “slow paying” customers, and make sure customer payments are being correctly applied. These are the things you can do yourself without having to wait for information from your accountant who obviously has no other clients and can be at your beck and call constantly!
4. "I play fast and loose with the tax code..."
Most people who hire an accountant to do their taxes are motivated in part by a mortal fear of coming face-to-face with an IRS auditor. But they might be better off on their own. Ironically, some accountants are just glorified tax protesters whose methods all but guarantee the unwanted attention of the IRS. To help ensure your accountant isn't a criminal prosecution waiting to happen, avoid preparers who guarantee refunds or base fees on a piece of the refund. Their motives might be somewhat muddy.
5. "...or just make the same goofs that you would yourself."
A missing Social Security number. An incorrect credit claim. A little bad subtraction in determining a refund. The IRS says these are the most common errors made by regular folks doing their own taxes. Turns out those are the same mistakes made by the pros, too.
Granted, a missing Social Security number isn't a huge deal, but some basic errors are costlier. And some accountants simply don't specialize in tax services. A good safeguard: Hire an Enrolled Agent (EA). These preparers specialize in taxation and achieve their certification by either working at the IRS or passing a thorough exam. (A CPA may or may not specialize in taxation, and will probably charge more than an Enrolled Agent.) See www.naea.org to locate an EA in your area.
6. "I don't have time for you."
More than 78 million people hired paid preparers to file their federal returns in 2016, according to the IRS -- that's 77 returns for each accountant in the U.S. Since not all accountants offer tax services, the workload for the average preparer is likely even higher. Still, that doesn't mean your accountant has chained himself to his desk to get your return done. A 2016 survey found that only 60% of hours worked at accounting firms were "billed" hours, or time spent working for clients. The rest, are "administrative hours," which often means "drumming up new business." So how do you secure your accountant's attention? You get a clearly articulated engagement letter spelling out all services, fees and deadlines so you both are aware of what needs the business will have and how much attention you will need.
7. "I'll hold your records hostage."
Several states list retention of records as a top consumer complaint about accountants. And if your accountant kidnaps a year's worth of business receipts, you'll be hard pressed to document your deductions for the IRS. While accountants have the ability to withhold (work) for payment, their ethics rules (say) they can't retain original documentation. Again, a clear engagement letter will help avoid a tug of war over financial documents, but we must stress this: Always keep a copy of everything you give to a CPA!
8. "Good luck pursuing a complaint against me."
If you suspect your accountant of fuzzy math, you might settle the matter with a quick call to your state accountancy board. But don't hold your breath.
The New Mexico accountancy board received approximately 140 complaints in 2016, many relating to improper filing or sloppy audits, says the board's lead investigator. But in a typical year, only a few complaints resulted in formal discipline, such as license revocation or an order to attend an ethics class.
If your state accountancy board can't or won't handle your complaint, file a grievance with the Better Business Bureau and hire a lawyer. If your conflict involves a tax preparer, contact your local IRS office. The IRS investigates and prosecutes abusive tax preparers.
9. "I hustle software on the side."
Your CPA should offer sound advice, not push products. There has been numerous time product services ranging from time tracking software to website platforms notify me that if I send referrals, I will get my product for free. That’s not what we do at Business Solutions by Design. We will never promote a product if we get a promotion for it. If your accountant suddenly decides that a state-of-the-art e-mail system is a must for your small business, ask how he discovered the product and why he thinks it's right for you. Then do some comparison shopping to be sure you're getting a fair deal.
10. "Welcome to financial planning amateur hour."
Hoping to provide one-stop shopping for financial services, the AICPA has created a "personal financial specialist" (PFS) designation for CPAs who want to enter the lucrative planning field. To qualify, AICPA members must pass an exam and meet continuing-education requirements. The idea is catching on fast: The AICPA reports that about a third of the group's members offer financial-planning services.
But all too often accountants give out investment advice without training or...(knowing) whether the investments are appropriate. Plus, accountants who offer financial-planning services receive a kickback of their planning revenue from product commissions, offering them a strong incentive to sell you certain investment products. In short, walk away. The best way to sidestep possible conflicts of interest is to hire a true financial planner, and one who isn't commission-driven. Check out the National Association of Personal Financial Advisors' directory of fee-only planners at www.napfa.org.
I hope the information in this special report was useful. The most important thing to recognize is that all Accountants and CPAs are NOT the same. Most take reactive approaches when advising their clients.
If you’re a tax preparer, accountant, CPA or bookkeeper and you don’t hate me for blabbing… and you have one or two to add to the list, I’m curious. Add them in the comments!