Whether on the Cash Flows Statement of a large corporation or on your personal budget, stakeholders are always looking to increase profits. By definition, this can be achieved by either increasing revenues or by decreasing expenses. So when does it become advisable to increase expenses?
As any accountant could tell you, employees are shown on a company’s Balance Sheet as a liability. To judge whether or not the liability is worthwhile, the company must decide if the liability produces enough profit to be worth the risk. The assessment is much easier for positions such as sales, where profit is very easily seen. But how does one value the services of an accountant? A skilled accountant can offer very measurable value in most situations.
With their extensive familiarity with federal and state tax law, a tax accountant can help a company or individual determine the most efficient and proper method to recognize incomes, take full advantage of tax deductions for expenses, and when to pursue new investments as tax shelters. Even forgoing these economic boons, the peace of mind and freedom from legal scrutiny that comes with having an experienced tax professional is well worth the salary of an on-staff accountant or the minor retainer fees of a personal accountant.
So a tax accountant can help save a company money on its taxes, but what about an individual taxpayer? For the average tech-savvy American taxpayer, new solutions for tax reporting have been popping up on every side to make income reporting faster, easier, and more efficient. Why hire a tax accountant if one can use online software for free or for a low fee? First of all, tax preparation software is not nearly as capable of helping a taxpayer plan for the coming tax years. Software can paint a broad picture of what kinds of decisions a taxpayer should be making, but only a skilled tax professional can help a client plan the best way to invest and plan for retirement while taking into account the current market situation, the ever-changing federal tax code, and local market pressures. Secondly, tax preparation software can be difficult to understand. The U.S. tax code has been developed by thousands of people over the decades, and few people know everything there is to know about the laws in place. It is difficult for software to explain this complicated and nuanced field to the average taxpayer in an easy to understand manner. Finally, there is something to be said about the personal touch of a tax professional. You can’t shake hands with software, nor can you call it if you have any questions. A tax professional is just like a medical professional in that if you have a good one, your tax problems are their tax problems.
What is legally required for large companies can also be very helpful for small ones. An important job an experienced accountant can handle is operating controls within a company. Separating duties, establishing protocols, and organizing can help to prevent fraud and theft, inconsistencies, and reduce errors. All a business owner needs to do is calculate how much money they lose annually to these pitfalls, and the exact value of their accounting staff can be found.
On this topic, accountants can also use financial ratios, calculations, and established formulas that they have learned in school and in practice within the field to help an owner evaluate past business performance, review current business practices and investments, and determine the economic merit of different future decisions. While taking risks and “flying by ear” might be how an entrepreneur got their business to its current level of success, careful planning and cautiousness is how an owner transforms their small business into something sustainable.