Nearly half of small businesses don’t survive more than five years, data from the U.S. Small Business Administration shows. And while the reasons for shuttering are varied, many have to do with poor financial management. After all, a business can only run out of cash once.
Our research suggests that forming strong relationships with a professional financial advisor is beneficial to the longevity of the business. For those owners who collaborate with an accountant or bookkeeper, 42% of survivors describe that relationship as “excellent,” compared to 27% of those whose company failed. More than 65% of failed business owners blame financial mismanagement for their downfall.
One way to avoid becoming a statistic is by teaming up with an accounting professional to ensure your financial data is clean, up-to-date and well, correct.
Why risk your entire business by taking a shortcut at tax time?
There’s a bit of talk going around at the moment that it doesn’t take a genius to file your taxes. Here’s why, at Xero, we think using a professional to advise, prepare or simply file your yearly return makes you a genius.
1. The tax code is more complicated than it may appear
Tax law is convoluted, complicated and changes regularly. It’s almost a full-time job just trying to stay up to speed with how it’s interpreted and what it means for small businesses. Small business owners are busy enough without adding “read the tax code” to their to-do lists. That’s why accountants and bookkeepers exist. One wrong move and you could owe the IRS a significant sum of money, something you haven’t budgeted for. It can also work the other way, you could be missing out of returns.
“I had a client that came to us with two corporations. She thought she could file her personal returns on a Schedule C, thinking she was solely filing her business return. Come April, she came in to have her personal return completed, when we discovered that she had already filed with her business one. As a result, we had to re-file her business returns, which were now late. She had then overpaid on the personal return. The whole mess took close to nine months to finally clean up,” David Emmerman, Partner at Emmerman, Boyle & Associates, LLC.
2. Earnings aren’t always as they seem
If you buy or sell stock, have stock options, restricted stock units or employee stock plans, or you just purchased a house or condo, your taxes just became tricky. Capital gains can be a nightmare to calculate. If you get it wrong, you can end up paying way too much, or even worse, not enough. This can land you with a hefty tax bill down the track.
3. Everyone likes a deduction
When it comes to tax time, many small business owners are frantically trying to figure out what counts as a deduction and what doesn’t. Thinking back a week ago can be hard, but trying to remember what you spent over an entire year, forget about it! Working closely with an accounting genius can ensure you don’t have that deduction headache. They can also help you avoid overpaying taxes by identifying the tax credits you’re eligible for. A tax professional can guide you through what counts, what doesn’t, and help you file the best darn tax return, ever. What’s more, the tax preparation fee may also count as a deduction. Bonus!
4. Many people no longer just have a job, they have jobs
The on-demand economy is driving significant change in America’s labor market. With millions of people taking on side-gigs or freelancing, tax returns are no longer straightforward. And they will take a lot more time. It’s not as simple as ticking a box if you’ve bought a house or a car this year. Managing multiple 1099s and deductions requires support.
“Once schedule C filer I worked with got too overwhelmed trying to organize their consulting expenses and trying to file, so just didn’t. Finally, they engaged us and got everything loaded up into Xero so we were able to file. This individual hadn’t filed in three years. His books and records were so bad they came back asking for $13,000 in taxes, interest and penalties,” said Laura Ring, Director of Tax Services at HPC.
5. Taxes aren’t the place to take risk
While technology may be making it easier for individuals to file their own tax returns, it’s risky business. Especially when you don’t have a trained pro guiding you through the jungle that is tax code. One tiny mistake can land you in a world of trouble. And it could end up costing you more time and money than hiring a professional in the first place. We’re all for taking a few risks, but when it comes to taxes, it’s better to get it right the first time. After all, you didn’t get into business to do your taxes (unless you’re an accountant).
Hiring a professional to help you file your tax return, and deciding not to go it alone, could be the best business decision you make for your business’ financial health and wellbeing.
Here at Xero, we know that accounting professionals do invaluable work, day in day out, to ensure the success of their small business clients. Be a genius. Hire a professional to help your business thrive.