As we approach tax time each year, our thoughts grudgingly turn to the chore of filing tax returns. This is when we fall back on our personal motto, "Never put off 'till tomorrow that can't be put off 'till the day after tomorrow."
TAX ADVICE If you work in a large company, you would be able to use the services or get recommendations from the Chief Financial Officer to help prepare your tax returns and answer financial questions. In small businesses such as ours, we normally would go to a qualified accountant such as a Certified Public Accountant.
CPAs are normally thought of as people whom you visit only at tax time. You hand over a fifty pound box overflowing with receipts, wish him luck then disappear. Your hope is that the CPA's magic will keep your tax liability to a minimum. You'll probably see him twice during tax season. Once to drop off the paperwork then once more to go over the finalized tax returns. During your second visit, you'll either sit down and cry or bounce around his office doing the "No Taxes Owed This Year Dance."
BUT WAIT, THERE'S MORE! A CPA can be much more than the person who prepares your taxes. They can be, as my CPA always reminds me, "Your Certified Professional Advisor."
He's absolutely right! My CPA is an integral part of everything I do regarding money matters. Whether it's investments, large purchases or office expansion, my CPA is an important financial resource. If you don't have a strong financial advisor, you need one. A CPA can be one of your strongest financial resources.
SO HOW DO YOU CHOOSE A CPA? Normally, when I make serious operational mistakes, I try not repeating them, however, in the case of choosing a CPA, I outdid myself in the "I Messed Up Department".
I made two serious mistakes until I finally wised up and developed a few guidelines. By using my new guidelines, I found the CPA of my financial dreams. I can call him anytime except on Fridays when he plays morning golf. Even though we have been long gone from California, I've called him from anywhere in the country asking his help. He's been my advisor and tax guru for over 12 years...much to my advantage.
Over a lifetime of being in business, I've had a dozen financial advisors. Before changing careers, all my financial advisers were obtained through my employer's corporate connections. Most were well suited for my needs. However, when I opened my chiropractic practices all that changed.
As a new small business owner, I needed a CPA qualified to handle the financial matters of a growing chiropractic practice. My new CPA also would have to deal with a new chiropractor (Me!) that had a truckload of financial questions.
To start this story out, I'm going to share my two major CPA mistakes with you. Then, I'll outline what I've learned and the steps you can take to get it right the first time.
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MISTAKE NUMBER ONE-WILD BILL My first CPA was recommended by a local businessman who later disappeared from our town. Rumor has it that the IRS agents were looking for him…but that's another story.
When I first walked into Bill's office, I knew I might be heading for problems. His filing system consisted of piles of files spread out all over his office floor. When I asked him how he handled that mess, his answer was, "Not to worry...I remember everything in every file."
Over a period of time, I discovered that he DID have a photographic memory. However, when he prepared my tax returns, I discovered he had taken the interpretation of tax law into a new dimension. I was becoming concerned that he was pushing me to the edge of a tax liability cliff!
I soon realized that a photographic memory had no relevance to an ethical accounting practice. I checked with a friend in the IRS to see if he knew Wild Bill. He certainly did and advised me that Bill had made the IRS' "We're Watching You List." My IRS friend also advised me to pull my affairs away from Bill's influence as soon as possible because, "The IRS Trouble Trolley was heading our way."
Somewhere around six months later, Bill disappeared. I heard that he was heading in the general direction of Alaska.
My mistake? I should have checked Bill's reputation with the other business people in town. Had I done that, I would have been warned away from using Bill.
MISTAKE NUMBER TWO-MR MAGNIFICENT
For my next CPA, I decided to go for the best. I checked out a well-known accounting firm located in a high-rent district. This time I got references from my stockbroker (I should have known better) and several successful business acquaintances that all used Mr. Magnificent. I was told he was both a CPA and noted Tax Attorney.
His reception room seemed to have been designed by the same person who did the dining area for Hearst Castle. After being served coffee and a snack by his assistant, I was ushered into Mr. Magnificent's inner office. What an impressive room!
There was wall-to-wall clacking equipment; three phones ringing on a desk that looked like half of an entire Redwood tree. In the middle of all this mayhem, sat Mr. Magnificent talking on two phones at the same time. I thought, "Hey! This could be The Man!"
With a wave of his right hand, he acknowledged my presence. With a wave of his left, all the machinery instantly stopped and the phones immediately stopped ringing. We spent the next 30 minutes discussing my financial matters. I was obviously impressed and I decided to use him.
A week later, I received a stiff invoice for that 30-minute consultation. That should have been my first clue.
As the year progressed, every time I called for advice, I'd soon receive a bill for his time. Mr. Magnificent was becoming very costly.
After he had prepared my tax returns, we had a meeting to discuss the results. I choked on my snack and almost went into cardiac arrest when I saw the amount of taxes I would have to pay. We had more than a few words and I was very upset when I left his office. I decided to get a second opinion for Mr. Magnificent's tax paperwork.
I went to a local CPA, let's call him Solid Steve, I knew Steve took care of several healthcare providers in town along with a number of successful small businesses. After he audited my returns, Steve pointed out several missed areas which had they been addressed, my tax liability would have totally turned around. He re-filed my tax return and I actually received a refund based upon the excessive taxes I had made in quarterly payments under Mr. Magnificent's direction!
Further, Steve said that with proper planning for the next year, my tax liability should be a wash. I threw away Mr. Magnificent's year-end returns and started with Solid Steve. I have been using his services since.
My mistakes in choosing Mr. Magnificent? I made three major errors...
Having now learned from the above experiences, I've compiled some information starting with...
MY FOUR CRITERIA FOR CHOOSING A CPA
My CPA must be:
1...More than a preparer of taxes; he must be experienced in the financial functions of a small business.
2...Readily available most of the time. Steve became my CPA while I was on the West Coast. I have since moved closer to the East Coast. The distance posed no problem since by then we had established a good working relationship.
We communicate by e-mail, phone and FAX with no problems. (Early on, Steve let me know that Friday is his golf day but in emergencies, his cell phone contact was available) There were only two or three times I've had to call Steve on a Friday. Each time he answered and solved my problem. I just hope he wasn't in the middle of a crucial putt when I called.
3...Prepared to answer questions, during the year, without charging me every time I say hello.
4...Ready to push the envelope of the tax code without triggering an audit or causing me jail time.
QUESTIONS TO ASK YOUR PROSPECTIVE CPA Once you have the right person, you might want to add more to the above list. However, these three should be considered the minimum standard.
When you're interviewing candidates to handle your tax and related matters, here are 7 suggested questions you might want to consider asking...
1...How long have you been doing this work in this area? Make sure you emphasize, "In this area" He may have been doing accounting work while in federal prison.
2...How many clients do you have in occupations similar to mine?
3...Who will be doing the work? Steve has one of his employees crunch most of the raw data. He then he double-checks their work and personally prepares the returns using the information we've discussed all year. He charges less for the bookkeeper's time than his own.
4...Can I call you, during the year, without incurring charges? I would imagine that if I called Steve on a daily basis, he's start to charge for his time. He told me that occasional calls are fine, just not every day unless there's a crisis in progress.
5...Now that you've looked at my last years tax returns, what are your comments?
6...What successes or failures have you experienced and what were their causes and outcomes?
7...Do you have any conflict of interests that would preclude our relationship?
DON'T FORGET THE OTHERS Of course, there are other accounting entities besides a CPA. There are Enrolled Agents who are certified to represent you at IRS hearings. I've heard of Accounting Practitioners who are terrific. Also, don't discount the services of any wise and experienced accountant.
While you're considering all these financial Yodas, just remember to look out for the Wild Bills and Mr. Magnificents. Then, check their references and ask lots of questions before you let someone into your financial party.
Dr Delman has dual degrees in business and chiropractic working 40 years in both areas before retiring to travel and write.
He is the author of "The Business of Chiropractic---How to Prosper AFTER Startup" (1st and 2nd Editions), "111 Tips for Managing a Profitable Chiropractic Practice" plus numerous articles for national chiropractic magazines, state association magazines plus student and society newsletters.
Additional articles can be found on his website…http://www.BusinessofChiropractic.com
The Business of Chiropractic: How to Prosper After Startup (2nd Edition): Ivan Delman; Paperback