Accounting with a cadence: Why a proactive year-end approach is essential for businesses

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Every year I speak with CPAs who bemoan the chaos and rush to file taxes for many of their business clients.

While these professionals get the job done for their clients, it often takes more time (and increased cost) with a less than ideal product. The CPAs I speak with would prefer to have more clients with efficient tax preparation, even if that means lower total billing per client. The reasons proffered include reduced stress and pressure, but more importantly, they include real benefits for the clients themselves. CPAs with clients who plan for year-end well ahead of time are much more likely to file accurate taxes (time to make sure nothing is missed), avoid fees and penalties, and have accurate revenue and profit projections for the new year. Also, their tax preparation costs are lower, which increases client retention. The key is organization and planning.

Seems simple and straightforward, right?

Well, the fact remains that a large percentage of businesses still face late payment fees. According to a recent article from the U.S. Tax Center at www.irs.com, 5.5 million businesses file for tax extensions each year — presumably because they have not had time to get everything in order to get their return filed by the regular due date. In contrast, where we handle the accounting for clients throughout the year, over 90 percent are able to file their taxes on time each year through their CPA firm. This is a direct result of a systematic, ongoing, and timely approach to the year-end close.

As a CPA, what can you do to help your business clients appreciate and implement a proactive year-end strategy? First, take stock of their current situation. Here are some tried-and-true ways to tell if an organization has an efficient approach to their year-end close. Not surprisingly, they come down to being proactive, being timely, and minimizing unnecessary costs.

  • Is the organization consistently filing its taxes on time?
  • Does the organization take the time to determine the "best" filing strategy for their needs?
  • Are they deadline-driven as opposed to proactively organized?
  • Does an organization’s inadequate planning result in higher year-end preparation costs due to extra work required by their CPA?
  • Is the organization planning for the annual close or just "checking the box" to get the filing process complete?

Once you’ve assessed an organization’s existing situation with regard to their year-end approach and culture, the timing is ideal to educate them on the immense value (more than just peace of mind!) that comes with planning ahead versus scrambling to the finish.

  • Cost savings: What business doesn’t like to save money? Planning ahead saves on CPA fees and ensures the organization is paying the most accurate taxes for their situation and not paying more than it needs to due to lack of time to weigh all of the filing options and scenarios. And don’t forget the savings from avoiding penalties and fees!
  • No costly refiling: Proactive planning reduces the potential for errors on tax filings by allowing CPAs time to both coordinate questions with the business and perform more thorough quality reviews. As we all know, the risk of errors always increases with rushed work.
  • Positive impacts on business credit: Tax returns are an essential credit-scoring component, which is central to fueling long-term growth. Failing to plan ahead raises the chances of inaccuracies and errors on tax returns, which can result in negative marks on an organization’s credit-worthiness and stifle future growth potential!

Identifying inefficient clients is the easy part; helping them change their perspective and culture isn’t. Here are some best practices I’ve gleaned from my own experience that can help organizations you serve transition smoothly to a timely year-end filing mentality:

  • Close the books regularly — ideally on a monthly cadence. This is our number one recommendation. For chronically late filers, the cadence is usually annual. For decent filers, it’s at least quarterly. For efficient filers, it is usually monthly. Entering transactions throughout the year and closing monthly (completing reconciliations and accruing costs) helps to evenly distribute the workload over time, incrementally, to avoid the stress and mistakes that often result from trying to take on all of the information at once at tax time. Our experience is this monthly cadence almost always is a lower-cost approach to accounting. Encourage your clients to close their books more frequently, and ideally monthly.
  • Review the numbers and project — at least quarterly. A key purpose of accounting is to provide historical information for the business to use as the basis for planning ahead. That means the accounting is more than just numbers and charts on a page. Having regular internal financial discussions about history, targets and projections is how businesses grow with purpose. Being disciplined and planning ahead can make the difference between getting where you want to go instead of just ending up where you are. CPAs don’t need to be in these meetings, but encouraging your clients to have these reviews will help them get ahead of their numbers. It will help your clients start looking forward.
  • Reflect upon and forecast where an organization will end the year. Remember that a proactive year-end approach requires leveraging a business’s team to their fullest — and everyone has an important role to play. Management or owners should meet at least twice a year with the accounting team and the CPA firm who file the taxes. Ideally these meetings happen at the beginning of the third and fourth quarters. If the accountants know what the CPAs need, they’ll have it ready before filing deadlines. And if the CPAs know generally what the company results will be, they can offer suggestions (with time for implementation) for legally minimizing their tax obligations.
  • Make a year-end checklist. Check it not just twice, but multiple times. Avoid surprises at the last minute and be sure the client has a plan to execute year-end responsibilities smoothly and accurately. A checklist is the greatest quality assurance tool in the world; get your clients to use one. (In fact, give them one to start from.)

The bottom line is that planning and operating proactively for year-end is a best-practice approach for success. Doing so leads to many benefits, including timely and accurate filings, lower filing costs, the elimination of penalties and fees, and better overall business planning. Looking forward, and not just backward, is a key factor for robust company growth. Importantly, if you can help a client change their culture in this way, they will continue to see your CPA firm as a valuable partner as opposed to a necessary expense.

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Tax season Tax planning Small business Tax practice