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Should Accountants be required to be certified financial planners?

Accountants often fall into the activity of giving business owners advice on how to report their financial statements.   In many instances,  Accountants automatically will try to report the financial statements for their clients with as little net income as possible.    However, is there a case to be made that Accountants be required to be certified financial planners?

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There are reasons Accountants should have knowledge of both financial planning and business credit to assist them in their conversations with clients.    Accountants may automatically take as many deductions for their clients as possible and show the clients net income as low as possible, sometimes close to $0.   This may happen without having conversations with their clients about whether this is in the best interest of the client in the short and medium term.

Accountants and many of their business clients may think the Accountant is doing the best job possible if the Accountant shows the net income of the business as close to $0 as possible.  This type of reporting may occur for several years without any substantive conversation between the Accountant and the business owner.

In many cases, the Accountant is not considering whether their business clients will have financing needs in the following two to three years.   If the business will have financing needs, it is important for the Accountant to be aware of this and discuss with the owner of the business the importance in the credit review process of showing a healthy net income.   In many cases, the business owner will not be aware themselves of this issue, especially the owners of newer businesses.

Financial statements can be reported differently by Accountants in many cases by reporting officer’s salaries, amortization and depreciation differently.   There are also other items that can be carried over into future reporting years.  Different figures will result in a different net income reporting.  Accountants should have a strong or almost expert knowledge of the credit issues already, since they likely will have done the financials of many businesses.    The onus should really be on the Accountant to advise, or at least make their business clients aware of the significant drawbacks credit wise, if the reported figures for net income is too low.

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How to make sure the lender will like your financial statements

As a small business owner,  you or your accountant are completing your financial statements which includes your tax returns.  Make sure some basic numbers are correct to look attractive to potential lenders and investors.

Showing net income on your financial Statements

Showing a net profit is important. Many lenders will decline your business loan request if you do not show a net income? Why? You do not have enough business income to make the payment on any new loan.

Proof of income

Having financial statements with net income also serves evidence of income. Other items that show as proof of income include:

  1. Business Tax Returns
  2. W-2 Statements or employment pay stubs
  3. Business bank statements
  4. Balance sheets, profit and loss statements and financial statements

Gross income and net income are not totally in your immediate control.   An increasing gross receipts figure is a major number lenders look at .    Are sales increasing?    Increasing sales are extremely appealing to potential lenders and investors.   The business is heading in the right direction.

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Net income and taxable income: closely looked at figures

Is the business profitable?    The lender will look closer when gross income is increasing but net income is still low. Sometimes amortization and depreciation are handled differently from one year to the next.

Officer salaries may have increased on the corporate return for accounting reasons which lowers the net income figure.    However, if expense figures are handled the same from one year to the next, the lender will expect net income figures to at least remain the same or increase.

Many lenders will not intensely scrutinize requests under $100,000.  other figures, such as retained earnings, cash on hand, or request a personal financial statement to review listed stock, stated value of business, real estate holdings, and other assets, nor itemization of debt that appear on a personal financial statement.