If you’re running a business, your accountant should be your friend, and your advisor — but not on every topic. While I was growing my business from zero to multimillions I got good advice from our CPA and I’m grateful.
However, as I deal with people working on business planning, it seems there are some questions you don’t ask an accountant. And some right and wrong ways to involve your accountant in your business plan. Below is a list of several things not to ask your accountant about your business plan. Actually, it’s really five pieces of advice, but you get the idea.
Call It Budgeting
Accountants live and breathe budgeting. They believe in it. They actually believe in business planning too — most of them. But in theory, not so much in practice.
The word “budgeting” separates the accountants from things that have to be absolutely positively true and provable, like financial statements. And everybody understands budgeting as your problem, not theirs.
Try to understand your accountant. Talk of projections and forecasts and especially anything that involves the word “guessing” — even educated guessing — smacks of legal liabilities and potential errors and lawsuits.
Accountants get sued for errors in financial statements. In their world, everything that looks like a financial statement is a report, done by a computer accurate to the last decimal and beyond, of a collection of actual transactions in a database of transactions. Sales in any given month is never a guess, never rounded, and never approximate. It’s the sum of all the records of transactions of sales. But sales next month, or next year, is not a database report on real transactions. It’s a guess.
Do you know what SWAG stands for? Scientific Wild-Ass Guess. Accountants don’t do SWAG.
Ask Your Accountant to Look in the Past for Clues About the Future
A smart well-trained accountant can give you lots of good information about your business results. Ratios, like quick and current, give an instant view of financial health. Changes in ratios over time give you trends.
Ask a good accountant to look in actual results, real numbers, for trends and areas of improvement. You’ll get a lot of information useful for planning the future. That way you’re not asking about future guesses, so everybody’s okay.
Don’t Ask For or About Projections or Forecasts
Don’t ever show an accountant a forecast or projection and ask for comments. They know all too well that all forecasts will be wrong. So they don’t want to get caught saying it looks reasonable. They’re trained not to. They’re also caught in the general idea that an expert finds fault, so asking them about a forecast is like asking an attorney to read a contract. They will find something wrong. Don’t think ill of them. They can’t help it.
Don’t document. Call it something else. Set up the encounter to be about spotting trends, for example, or budgeting, as in point #1.
Don’t Leave Any Homework
Give the accountant a break. Don’t leave anything behind for review. Keep it all to one meeting. Keep everything about the future verbal for them, not written. But do accept prepared reports and analysis related to past actual results, ratios, and analysis … many accountants do that extremely well.
So, in conclusion, don’t get fooled by how much the projected (also called “pro-forma”) financials in a business plan look like the financial statements accountants produce from past results. They are in entirely different dimensions.
Accounting is about yesterday and into the past in excruciating detail. Planning is about tomorrow and into the future in ever-increasing uncertainty. Accountants hate uncertainty.