It’s your company’s year end, you’ve submitted everything to the accountant and they’ve done all the work to prepare your financial statements and tax returns for the year. You sit down for a meeting and they’ve run through the numbers with you, sometimes they give you some small advice and sometimes they give you tax suggestions but you really don’t know what you should be asking them at this meeting. This sit down meeting should be one of the most productive tools you as a client have with your accountant.
I’m an accountant operating out of Calgary and here are some questions to ask your accountant…
What do you think my business is worth?
This is an excellent question. For many Canadians operating a small business, the value of what they get on a sale event is going to form a part of their retirement. Depending on your industry and type of business you operate, there is going to be different measurement on how to value your business. While your accountant may not be an expert at selling businesses they probably know the measurement that will be used to define your business’ value. We’ve seen different business sale transactions for different types of business and we’re going to be able to advice you on what applies to your particular business.
If you know precisely the measurements you’re going to be measured against then it would be a good idea every year to ask your accountant this question after your financial statements are done to get a rough idea of what your business is worth so you can either work on these metrics in the next year(s) or better yet, come to the conclusion that you can in fact retire.
The latest set of financial statements which the accountant just prepared will be all your accountant needs to give this assessment. Take this rough estimate with a grain of salt because accountants are not professional valuators but at least you have an idea of what metrics to work on.
How well are others in my industry performing?
Accountants typically have multiple clients in the same industry. For example they may have several doctors, several dentists, several restaurant franchises, several construction companies. As a result they have a really good idea of how your competitors are doing. While for confidentiality reasons they won’t talk about individual company performance, but it would be very normal to have the discussion about how well your industry is doing as a whole.
This is important to know especially for those of you in Calgary because you’re probably wondering whether we’re out of a recessions yet or not. The Calgary recession is going to hit different industries in different ways and hence is going to have a different timing of when things will get better. For example in our practice we’ve noticed those in development projects in Oil & Gas are still struggling while those who are land owners with royalty rights are generally doing okay again.
While generalizing the industry isn’t definitive metrics but the accountant can at least give you a gauge on where you’re at compared to others. Or even showing you how you’re going to achieve the next level based on replicating the performance of leaders in your industry.
How are others dealing with my specific industry problem?
Similar to the same line of thought as the last question, you may have a specific industry problem and your accountant having spoken to all their clients is going to be able to tell you how to deal with your industry problem or at least tell you what others are doing.
Common industry problems may include…
- Changes in labour rates in your industry – restaurant owners are always facing this when the minimum wage increases.
- Requiring investment into your company – you may find your bank isn’t serving you anymore, your accountant may have a better lead on where financing is available.
- Business risk in your industry – Not only can your accountant recommend a specific lawyer for your industry, they can also tell you in general how your industry is combating your primary business risk.
This is just a general list but the biggest takeaway is your accountant has probably seen how others in your industry is tackling your problem, you just need to ask them how.
I’m going to sell my business or add more shareholders what do you think?
Not the same thing as the first question about what your business is worth. You’ve probably advanced to the point where you’ve got a good idea how much the business is worth or you may even be selling a part of your business to new partners. You’re probably to the point of discussions with your prospective buyer and you either have a rough price in mind or you know firmly what the price is. This is the perfect time to talk to your accountant even if its not your year end meeting.
The objective of this question is two folds…
- The accountant is going to be able to tell you how to structure the deal effectively for tax purposes, and even give you a rough idea of how much taxes you might pay in this transaction.
- A discussion of how to avoid the business traps and pitfalls in any sale event. We’ve seen every transaction and every horror story when a person sells. Good time to talk about these before you sell.
I often get the client coming to us as an after fact to the sale, this is a bad idea, talk to the accountant before you ink the deal.
How much taxes did I effectively pay system wide?
This is not an easy question to answer and you’ll be putting your accountant on the spot a little bit. I rarely get asked this question myself but I have find it to be probably the most important question one should ask when they sit down for the year end meeting with the accountant.
This is a complex question because you pay taxes at the corporate level, then based on what you withdrew from the company and depending on how you withdrew this income you will further pay taxes at the personal level. Adding another wrench to the complexity, perhaps you want to ask your accountant what your effective tax rate was in the last year.
Knowing the answer to this question is going to allow you to optimize your taxes between the Company and your Family.
The most common situation we see is a client isn’t having these above discussions with their accountant. I often find that I’m forcing myself to ask the client these questions, and sometimes the client thinks we’re just doing it for small talk.
Perhaps next time you meet with your accountant you can have this highly productive discussion, or if you feel the need to, you may contact us for a complimentary consultation and have that discussion with us instead.