Accountants and accounting firms are there to help businesses with their finances, predictions, taxes, and in some circumstances help them grow. They can make recommendations on people to talk with to help get you out of financial difficulty. They make recommendations on the types of people you should talk to when you want to invest your money. They can even help you by offering ideas of services you should ship out to others so you can concentrate on your business and career.
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With that said, as is pretty much true with almost everything else, an accountant’s effectiveness is only as strong as the information they get from their clients. What we’re talking about is being as honest as you can about what’s going on with your business and your finances.
It’s not that accountants are nosy and want to know everything that’s going on in your personal life. It’s that there are lots of things businesses do that accountants might not know about that can affect the work they’re trying to do for you. When you short change the information you give them, it’s hard to blame them on the back end if something goes wrong.
An example of something like this is if you’re paying someone under the table for work they’re doing for you on a consistent basis. If you’re paying them less than minimum wage, everyone knows that’s illegal. It could also be costing you because it’s possible that by putting them on the payroll your business could qualify for tax breaks that could save you some money on the back end.
Another example would be if you’re earning significant income for work you’re doing off the books. Helping someone out and getting a couple hundred dollars isn’t a big deal; earning thousands off someone else without claiming it as income is definitely problematic. You not only put yourself in danger of criminal prosecution, but your accountant’s reputation on the line if it’s discovered that the work they did on your behalf was faulty… even if it’s not their fault.
Years ago, a client of ours worked at a company where the chief financial officer kept fighting with the company’s accountants. After a few years, it was discovered that the CFO had been going into the system and arbitrarily changing numbers she believed they should be rather than what they were.
The accountant’s kept having problems balancing the books and were on the cusp of being fired until the accounting director at the company met secretly with a few members of the board and alerted them on what had been going on. The company went from reporting a profit of $2.9 million to an announcement of a $975,000 loss. Both the CEO and the CFO were terminated, and the accounting firm was able to offer guidance to get the company heading back in the right direction.
These types of things happen to companies big and small, and it all comes down to trying to hide the truth instead of owning up to their responsibilities. Being honest and up front with your accountants may not always be a pleasant experience, but in the long run it’s better all around to confront one’s realities than trying to keep things hidden.