Editor Note 1: I recently came across an article in The Age by Max Newnham published on 20 October 2004 regarding small businesses and their accountants. The article was very interesting to me because it articulated many of my own sentiments, and the contents of the article are still relevant today. I have taken the liberty of including the more relevant sections of the article for your consideration.
“Running a small business gets harder every year. Not only do owners have to try and grow their business, they also have to cope with an increasing amount of tax laws and other regulations. In addition to income tax, they must deal with GST, superannuation guarantee, FBT, and WorkCover issues on a regular basis.
The primary sources of assistance for business owners trying to navigate their way through the various regulations and laws should be their accountant. An Small Business Accountants’ training and experience make them well suited to helping business owners with compliance matters, and a potential coach and mentor to help them grow the business. The fact is they are often used only to lodge tax returns and little else.
One reason accountants are not consulted more is because they are regarded as a necessary evil to help keep the tax man at bay. Business owners with this mind set tend to concentrate more on the cost of things, instead of weighing up business decisions in terms of their cost and benefit. When it comes to the cost of accounting services, it is important to understand how accountants calculate fees.
Most accountants charge for their services on a time basis. This means the size of the fee depends on the time taken to do the job and the hourly rate of the person doing the work. The hourly rate charged will differ within an accounting practice, depending on who is doing the work, and will differ between accounting practices.
Within accounting firms, the hourly rate charged depends on the level of qualification and the years of experience of the person doing the work. For example, an accountant with over 20 years experience might charge at least twice as much as an accountant with 5 years experience.
Fee levels between accounting firms will also differ depending on the location of the practice. For example, an accounting firm with beautiful offices in the city will in most cases charge their staff out at higher rates than a firm operating from a modest office in the outer suburbs. If the accountant has the right experience, the level of service is often the same. The only difference is the fee charged.
Small business owners who recognise the longer an accounting job takes the more it costs will provide all of the information required to do the job. Not only do they supply all the financial information, but they include copies of supporting documentation such as bank statements, loan statements and completed BAS’s. The more an accountant has to chase a client for information, the more the final fee will be.
Small business owners who focus on the cost of their accountant, and not on the benefits of advice, tend to make decisions by themselves rather than phoning for advice. This can be a false economy, as the benefit gained from the advice will often outweigh the cost.
An example of this is a business owner who didn’t telephone the accountant when buying a new vehicle, because the call would cost between $50 and $100.
The business used the cash method of accounting for GST reporting. They financed the car with a hire-purchase contract, so their GST claim was $500 a quarter over a three-year term. If they had asked for advice, they would have been told to use a chattel mortgage, resulting in a GST claim of $3000 in the quarter the car was purchased.”
Editor Note 2: I have often been amazed at the $000’s of dollars clients have been prepared to lose so as not to call me first. Often this has been because clients believe that my cost will far out way their potential savings. The example of the hire-purchase versus chattel mortgage is a common example which many clients have needed to consider in the past. Unfortunately, for each client who has gone to the trouble to phone me and seek the advice before proceeding, there have been many more clients who have gone down the path of not phoning me first, only to find when they come in for their annual tax return that they could have done it better.
As the above article surmises, many small businesses only use an accountant at tax time, which is a waste of their primary source of financial guidance.
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Paul Baggetta is the Founder & Principal of Baggetta & Co. Paul Baggetta has been a Taxation Accountant since 1981, a Financial Planner since 1998, and in 1993 qualified as a Real Estate Licensee, holding a Triennial Certificate (currently not trading) and operated his own Real Estate business for property investment clients for over 5 years as a second business.
Financial planning services are provided by Paul Baggetta as an Authorised Representative (No. 261469) of Capstone Financial Planning Pty Ltd. ABN 24 093 733 969. Australian Financial Services License No. 223135.
Taxation & Accounting services are provided by Paul Baggetta as a Registered Tax Agent (No.61487008) and is a Member of SMSF Association, FIPA & NTAA.