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Distinguishing Accountants and Financial Advisors

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It’s no secret that shop owners must manage their businesses by the numbers—starting with the financial data. But do you have the right people in your business to help you understand that data? An accountant and a financial advisor are two important partners who can help manage your shop’s financial future.

Ed Cushman, owner of C&H Foreign Auto in Spokane, Wash., has worked with a financial advisor and an accountant for more than a decade. Cushman attributes working with them as key to increasing savings, financing a renovation and increasing revenue in his shop. Cushman explains the importance of working with both an accountant and financial advisor on your business.

A lot of people think that if you already have a bookkeeper and a management system, you’re set when it comes to handling your finances or taxes. And while those are both helpful tools, we found that it didn’t help us when it came to long-term planning.

We’re in the process of doing a pretty major facelift on the exterior of our building. We don’t want to take out a loan to do the renovation, so we needed a financial planner to help us save, budget, and invest those funds, and structure the financing, if need be. If you’re looking to not only understand, but also take control of both your taxes and finances, an accountant and a financial advisor are both helpful resources.

I think it’s really important to understand the difference between an accountant and a financial planner. The accountant should be working toward helping the business minimize their tax liabilities. From strategizing to sheltering to budgeting and tax preparation, this is the accountant’s main focus. Even if your business is small, an accountant will have a deep knowledge of identifying big-picture opportunities and strategies that will help you get ahead. Using an accountant can help ensure the accuracy of your tax returns and reduce the likelihood of an audit.

What I’ve found is that while most accountants are great at figuring out how to minimize tax liability and ensure you have accurate numbers, they don’t always understand how you operate or where your percentages need to be. It’s not their everyday practice.

The purpose of an accountant is not to advise you on how you’re doing financially or if you’re making money. That person should be the financial advisor; they will help you plan your future and understand what you’re going to do with your business in the long term. For example, how can I ensure this business has enough value so it’s marketable to sell? The financial advisor will help you find ways to be in the position to do that. They are also instrumental in protecting your investments, capital reserve, 401K and retirement planning.

Finding the right people to work with is always the trick. In my search for a financial advisor, I started with the International Financial Planners Association. It wasn’t an overnight success. We went through a couple before finding the advisors we were most comfortable with. Ask for referrals from people you know or have a preliminary meeting to find out if your core values match up. Having both of these positions in our company has given us a lot of peace of mind, which really helps when you’re running a small business.

We meet with our CPA and our financial advisor on a quarterly basis.  We start with the CPA and then meet separately with the financial advisor. With the CPA, we go over our taxes, our returns and our tax liabilities. That’s about it. Then, we meet with the financial advisor. His role is to look at the money we’ve made after the accountant is done with it. In those meetings, we look at revenue from the previous quarter, the results from where we intended to be, cash reserve, and capital improvement accounts.

We also have a small real estate holding company, and the financial advisor helps us look at where to put some of those profits for long-term passive income.

Since working with our financial advisor, we have increased our business savings substantially. For example, for years we always said we need a 90-day emergency fund. To our surprise, our financial advisor told us we needed a year’s worth of emergency operating capital. We do roughly $2 million in sales a year, so he advised us to count on an overall 75 percent gross profit, and helped us put aside $250,000 in an emergency reserve account. Our business now has stability and is prepared for whatever the future brings.  

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