On this episode, I chat with Keila Hill-Trawick, owner of Little Fish Accounting, about how to own the CFO role in your business by planning for taxes year-round.
This episode is sponsored by my FREE training: 3 legal & tax mistakes made by creative entrepreneurs & how you can avoid them. Sign up for this free Masterclass here, and get ready to unf*ck your biz.
Accountants look at historical data. Are your financial statements accurate, organized, and set up for success for tax prep or applying for grants? A CFO (Chief Financial Officer) should take this information a step further into the future to make financial decisions for the business and reviewing payroll, bill payment, receivables, budgets, forecasting, and the overall financial picture for the business.
It's important to find someone who meets your needs - are you just looking for tax prep? Looking for someone to walk you through your finances and explain why it is they're asking you to save? What is it that you're looking to know (tax advice, accounting advice, both, etc.) and let that dictate your decision up front as to what professional you hire.
Tax prep is a year-long project. When you go for tax prep in January or February it is too late to correct any behaviors for the year, the tax preparer can only make recommendations on what to do for the upcoming year. Having an advisory component will help you to avoid mistakes leading up to tax time on topics ranging from paying yourself or employees to deductions and everything in-between. It's important to remember that the person that prepares your tax return is not responsible for your tax return, at the end of the day you are the one who signs it. This makes is important to understand your numbers throughout the year.
You do NOT need to be making $50,000 a year to form an LLC. A LLC is not a tax designation, it's legal coverage. The IRS does not recognize it, they will treat you based on your tax structure (sole proprietorship, partnership, etc.). Because an LLC doesn't change your taxes, it doesn't matter how much money you make. Deciding to make an LLC is based on what your liability is and how much you want to protect your personal assets. Work with an attorney to set up your LLC. An attorney will know the rules as they apply to your state. Ideally every small or micro business should have an attorney and an accountant if they can afford it.
An S-Corp is a tax designation, not a type of entity. You want to file an S-Corp in the beginning of the year. Filing at the end of the end of the year means you need to retroactively ask for permission because you have not been doing all the things you needed to do throughout the year. Waiting until the end of the year can also cause confusion as it takes the IRS a significant amount of time to approve your S-Corp which can lead to you operating under procedures you think are accurate but are not sure until you get your stamped paperwork back. Filing an S-Corp is not something you want to rush into.
Another important task for owning the CFO role in your business is forecasting and cash flow analysis. Think of your forecast as a budget that has some real data in it. Your forecast is more flexible than a budget and is based on previous months' data. Forecasting is important for growth.
Knowledge is power and that informs your lifestyle. Knowing where your business stands, how much you make, how much it costs to run your business and how much time you need to put in to see those results will help you make decisions. For example, if I raise my price I will be able to make this much more money and have the time and income to take weekends off. This will also help you discover what you are spending time on as it relates to the income it is generating. Is something you're spending 50% of your time on only generating 10% of your revenue? It's time to cut that and readjust.
If you are seeking tax filing services, it is advised to reach out to your accountant the sooner the better. Starting in December is helpful to start the onboarding process with your tax preparer to start getting your information together.
Get in touch with our guest
Keila Hill-Trawick, founder of Little Fish Accounting
Check out Little Fish Accounting's website and schedule a consultation call
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You'll learn: what the three mistakes are; how to fix them; and also how to work with me to get your legal & tax shit legit.