Recently, I began talking about the importance of business owners having a support team. Although I gave an overview of what the business owner’s support team lineup should look like, I want to provide a little more detail for some of the All-Star players. In today’s blog, we will discuss the first baseman and clean-up hitter in our baseball analogy, the rockstar CPA. Join me as I explain why the forward-thinking CPA is a must on a business owner’s support team.
Follow Along with The Financially Simple Bizcast!
Of all of the positions on a baseball team, you might be wondering why the forward-thinking CPA is the first baseman. Many times, the first baseman is a power hitter and gets placed in the clean-up position of the batting order. However, it’s important to note that I am assigning this position not just to a CPA, but to a forward-thinking CPA. There is a major distinction here.
By definition, a CPA should be good at defense. They should have such an understanding of the Internal Revenue Code (IRC) and our individual finances that they can find ways to minimize our yearly tax liabilities. On the other hand, a CPA that is forward-thinking is also good on offense. Hence, batting clean-up in our batting order. The forward-thinking CPA develops plans and strategies to lessen tax liabilities and building wealth.
First, I should state that not all CPAs are created equal. Passing the CPA exam simply means that they are licensed. However, there are many different fields that CPAs can specialize in, and depending on your individual needs, one specialization may suit you better than another. With that said, tax minimization is an obvious trait of a good CPA. In that regard, ethical standards are a must! We want a CPA that can help us to avoid taxes, not evade them.
Almost all CPAs are going to be good at the preparation side. So what truly makes a CPA stand out among the crowd? In my mind, it’s the ones that work to mitigate our tax exposure for the remainder of our lives. They are thinking about the future even while preparing our current taxes. That’s what I mean when I say that the best CPA is the forward-thinking CPA.
I mentioned this analogy in the last blog but, using a CPA that doesn’t think about ways to shield you from future taxes is a lot like driving while looking in the rear-view mirror. It’s okay to check behind you from time to time, but if that’s your entire focus, you’re bound to hit the wall that’s in front of you.
Whenever I am taking on a new business client, I often require them to have a CPA. Most of them use one that is good at compliance and nothing else. But when I have them move from a basic compliance CPA to a forward-thinking one, I usually hear something along the lines of, “Justin, they want to charge me…!” Well, my friends, you get what you pay for. It might seem like the basic compliance CPA is the less expensive option, but the truth is the most expensive CPA is a cheap CPA.
You see, you might only be paying that CPA a few hundred dollars per quarter, but if they aren’t looking ahead and finding every possible way for you to legally avoid paying taxes, then their true cost could be thousands of dollars. The forward-thinking CPA might cost you a little more upfront, but they will save you far more than what you’re paying them. Don’t skimp when it comes to building your support team.
I recently spoke to a business owner who had been using a basic, compliance—or preparation focused—CPA. He was making $700,000 in profits and owed nearly $200,000 in federal taxes. That’s not including state and local taxes. Nearly $200,000 in federal taxes. Out of curiosity, he went to a forward-thinking, planning focused CPA. After reviewing this business owner’s information, the forward-thinking CPA told him that over the next couple of years, barring any major changes to the IRC, they could bring his federal tax bill down from $200,000 to $60,000.
He was shocked. But friends, this type of story isn’t uncommon. A planning focused CPA has many tools in their arsenals that are designed to do this very thing. The forward-thinking CPA looks through your information and develops a plan and a strategy that is uniquely tailored to you and your business. The best part? It is absolutely positively 100% legal. That’s why I say that the forward-thinking CPA is the power hitter on the business owner’s support team. They know the IRC inside and out and they make it work for their clients.
So, now that we understand the value of the forward-thinking CPA, how do business owners find that “best in class” type of CPA? I would start by asking your CFP®, CVGA, or CEPA to recommend one. Chances are, they have already identified the All-Star forward-thinking CPAs in your region. They work with clients on a daily basis, who need this kind of service. So, it is highly likely that they would already have their fingers on the pulse, so to speak.
The next thing I would suggest is to just have a very candid conversation with your CPA. You should be able to gauge exactly what type of CPA that they are by the questions they ask. If they’re asking questions like, “Show me your receipts from last year.” instead of, “Tell me where you’re trying to go with your business.” that’s a pretty good indicator of their mindset. I have worked with a forward-thinking CPA who said, “When’s the last time your CPA brought you tax saving advice before you every even filed with them?” That’s the CPA that you want to add to your support team.
Another great resource that business owners have is other business owners. Ask your peers if they have a recommendation, and if so, would they be willing to make an introduction? But as important as it is for your CPA to be forward-thinking, it’s also important that they are receptive to outside ideas. I worked with a client that we identified some tax-saving strategies for. Since we don’t give tax advice, I suggested that he speak with his CPA about them. As a professional courtesy, I spoke with this client’s CPA beforehand and this gentleman folded his arms and said, “That’s interesting. But I’m not going to suggest it because I didn’t think of it.” Folks, he knew it would benefit his client but refused to give the advice because he didn’t think of it first. Don’t hitch your wagon to that type of horse. They must be forward-thinking and open to outside ideas.
A great CPA is excellent at defending your money when filing last year’s taxes. But they’re also excellent when it comes to preventing your future earnings from being lost to Uncle Sam. Additionally, they aren’t ego-driven and are willing to work with a support team for the benefit of you, the business owner. The forward-thinking CPA is your power hitter because they understand the IRC better than most and they can devise some grand slam strategies that protect you from tax exposure, ultimately allowing you to build greater wealth.
Folks, life is hard. Running a business can be complicated, but choosing the right CPA doesn’t have to be. Speaking with your CFP®, CVGA, CEPA, your current CPA, and your peers can make finding the All-Star CPA at least financially simple. Hey, let’s go out and make it a great day!
Are you building your own support team? Do you need help filling out your All-Star lineup? Contact us! The team at Financially Simple is ready to help.