Advice from your CPA is not advice about how you should run your business.
Your CPA’s advice has to do with your tax return, a once-a-year exercise your CPA has to perform for you – it is purely compliance work.
Whatever your tax accountant or CPA tells you shouldn’t be construed as good business operations practice, and you shouldn’t be running your business operations in order to achieve outcomes on a tax return.
5 COMMON THINGS CPAS TELL BUSINESS OWNERS
Here are 5 common things CPAs tell business owners, and why they’re actually really crappy advice for operating your company:
1. Buy a vehicle to get the depreciation deduction. Buying a vehicle if you need one isn’t a bad thing to do. On the other hand, buying a vehicle just to get the depreciation deduction on your return is, one of the stupidest things you can do. It’s a major waste of cash, which is a scarce resource unless you happen to have a money tree out back. When there’s a limited supply of cash in your business, you want to spend it on things when you need them to operate your business.
2. Buy a lot of equipment right before the end of the year to save on taxes. This is a dumb idea for the same reason. If you have income, you’re going to pay taxes. That’s not a bad thing — to pay zero taxes, you need to have zero income. But let’s be realistic and rational about the things we’re going to utilize our scarce resources for to power the business forward. Just because a CPA wants to get you a tax deduction doesn’t mean you need to spend frivolously or spend in the ways they want to see you spend. After all, it’s your money, not theirs.
3. You should own your own building for your business. Owning a building isn’t always the right thing to do. Maybe your team is mostly work-from-home, maybe renting is a better option for you than being a landlord, or maybe you can’t find the right piece of real estate in the right location. That doesn’t mean you should just go buy any property and plop down in any space, especially if you’re a business, like retail, where location is everything.
You’ll also want to understand the real estate market to know if buying is a good idea. Don’t let your CPA tell you that you should own a building when they don’t know the operations of your business and the current commercial real estate market in your industry and area!
4. You need to make less money to pay lower taxes. This is wrong at so many levels! As business owners, we want to have an abundance mindset where we know the more money we make, the more wealth we create in the economy. Making less money to pay less tax is a scarcity mindset and taken to its crazy extreme means you shouldn’t sell anything so you won’t have to pay any taxes. It’s downright stupid. As business owners, we’re all about creating jobs and creating wealth not only for ourselves but for the people around us (our team members, their families, our community). The more we make, the more we can spread it around!
5. You need more write-offs so let’s go find some. This is the advice I most frequently see thrown out there. I think most people take that advice and run with it with the mindset of I need to go spend willy-nilly. It’s bad advice. We have precious resources within our business. We’ve worked hard to create wealth, generate cash flow within our business, and grow the business — and now we have a CPA telling us to find more ways to spend money irresponsibly.
Why wouldn’t you invest in your business in a responsible manner regardless of the write-off? When you spend responsibly, you may or may not get a write-off but you can foster additional growth in your business. For example, you might buy new equipment, invest in your people, invest in additional cost-saving opportunities, or look for lower prices from suppliers because that generates more profit for your business.
THE BOTTOM LINE
The bottom line is: look for good business decisions and don’t get swept away by your CPA’s crappy advice about running your business. They know taxes, not your business operations. The benefits of making informed, educated business decisions that are appropriate for your business will far outweigh the tax dollars associated with any of this bad advice your CPA wants you to force fit onto your business. The goal is always to focus on what’s right for your business.
I’ve seen bad things happen when you don’t. In my parent’s business, they bought a new car on their CPA’s recommendation and what followed was a recession in the early 1980s. From a cash flow standpoint when business slowed down, they couldn’t afford the car payments and had to file for bankruptcy to protect their business and personal assets. I saw how much pain that one bad piece of advice caused them and our family.
That advice wasn’t isolated just to my parent’s business. It’s repeated day-in and day-out in the world we live in. We had no idea COVID would cause everything to shut down and the wheels to fall off the economy, so knowing that nothing is guaranteed, why would you waste your cash?
My question to CPAs is always this: would you do this with your own money? That’s how I check to see if we’re talking insanity or if it’s something they would actually do themselves.
Looking for a business growth partner who can help you create manageable, sustainable, profitable growth? TurboExecs can get you back in the driver’s seat with a solid foundation underneath you, sans crappy advice. Reach out here and let’s chat about how we can help!