Current EAB Charles Daniels offers pointers on how to prepare for a tax audit.
It is that time of year again: Tis’ the season of the inevitable meetings with your accountant! I am always surprised to hear that some people view this experience in the same vein as a trip to the dentist. While I can see drawing a comparison between a root canal and an audit, preparation is definitely the key to making sure both of these meetings are pleasant.
Unfortunately, most of these meetings revolve around historical performance in the previous tax year. While this is obviously an important topic, most of the meeting should be centered around current and future years. Here are four questions to ask during this year’s meeting:
1. Am I getting the most out of my financial software, or am I currently using the best software for my company?
Many of us don’t get nearly as much value out of our accounting software as we should. It would be similar to getting the best and newest smartphone only so you can calculate tips accurately at your favorite restaurant. First, ensure that whatever you are using is as sophisticated as you need it to be. Next, have your accountant walk you through all of the features, reports and tools that you might not be using. If you look at it as an operating tool, not just a necessary evil, you can gain incredible insight into your business.
2. What ratios should I be looking at throughout the year?
We all have metrics that we monitor. You should make sure that you share these with the financial professionals that you work with. You should also explain why they are important to you because there may be things that you are ignoring or better measurements that you should be using. Ask your accountant how to calculate different ratios, how often to review the numbers, what comparisons to make and how to analyze changes.
In the spirit of planning, it is important to stay in touch with your accountant throughout the year.
3. Can you help me create a cash forecast?
If 2020 reminded us of one thing, it is definitely the maxim “Cash Is King.” Discuss the best way to forecast cash, how to identify target thresholds, and ways to be proactive in managing cash flow.
4. Can we get a meeting on the books for July?
In the spirit of planning, it is important to stay in touch with your accountant throughout the year. After the second quarter is a good time to reflect on the first half of the year to see how things are working. You will also have more clarity on forecasts for the remainder of the year. This will allow you plenty of time to make any adjustments to your original plan.
Happy accounting, everyone!
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