Every business decision carries financial and tax implications, especially when it comes to the strategies, practices, and processes that contribute to long-term objectives and financial health. That is why business owners need to know how to make critical business decisions and who to consult.
Today, I will touch on the business decisions that I consider critical—decisions that carry significant financial and tax implications and present unique risks and opportunities. Each decision is connected to tax and finance; for each, you need to consult a CPA.
1. Changing financial strategy during rapid growth.
It goes without saying that financing decisions—loans, equity investments, or other forms of capital—will significantly impact your business’s future. I can help you assess the tax implications of different financing options, create financial reports, and guide you toward making more tax-efficient financial choices for your business.
2. Electing to be taxed as a different entity.
As a CPA, I cannot change your legal entity structure. For that, you’ll need a tax lawyer. What I can do is review your financials and provide solid advice on the tax advantages that may come with changing entity structure or electing to be taxed as a specific entity. The most common change is a Limited Liability Company (LLC) that’s taxed as a partnership and elects to be taxed as an S-corporation.
Typically, moving to an S-Corp carries tax advantages for LLC members once they’ve reached a certain yearly income. However, there are significant administrative costs associated with S-Corps. How do we justify the cost? Members will no longer be subject to self-employment taxes, which significantly reduces tax liability. The question is about when to make the move.
The details are essential, so speak to a CPA before making the switch.
3. Creating financial forecasts.
If you want to make critical business decisions, familiarize yourself with financial forecasting. It’s an ongoing project that aligns operations and finance in order to reach a shared goal within a given period of time. Is a goal attainable? You won’t know for sure until you have strong forecasting.
Forecasts require multiple data sets and must be modeled in the context of your business’s current financial performance; this is not a software task. It takes both data and experience.
Consult a CPA with experience in business advisory or CFO services to help you build a forecasting model for your business or troubleshoot an existing forecasting method. The goal is to get on a predictable growth trajectory. The details, again, are the challenge.
4. Budgeting for growth and hiring.
Budgeting for expansion and new hires is always a fresh challenge for growth-stage businesses. Why? Because the complexity of financial management deepens as your business grows. It’s a fairly straightforward business problem that comes with a lot of layers.
Consult a CPA before major shifts in hiring and in cases of rapid revenue expansion. It’s not a question of hiring the right candidates or examining the operational and sales methods you used to increase your revenue. It’s about updating your bookkeeping, accounting, and tax processes to maximize tax savings.
5. Responding to tax audits.
Audits happen to the best of us, and the Internal Revenue Service (IRS) can be a major, and sometimes fatal, disruption to your business. The fact is, a CPA is one of the few professionals who can legally represent your business in dealings with the IRS.
6. Preparing for retirement.
Selling your business is among the most complex challenges you will face, and there is a lot of money on the line. Now, ideally, you’ve been working with a CPA for quite a while, and a tax-efficient retirement strategy is an existing component of your tax plan.
If that’s not the case, it’s not too late, but you need to start today. Consulting a CPA could mean the difference between keeping and growing your wealth or giving it to the government.
Need help? Give me a call.
Any CPA is better than no CPA, but if you need a CPA with experience in tax planning and business advisory services—well, that’s what I’ve been doing for fifteen years. Schedule a discovery call, and let’s come up with solutions.
Talk soon,
Jeremy A. Johnson, CPA