The Benefits of a Proactive CPA

What separates a mediocre CPA from an excellent one is whether they’re proactive or reactive about communication and financial strategy. It’s far too common for CPAs to provide minimum support, usually during tax season, and then miss crucial financial opportunities for your agency that happen throughout the year.

No matter what size agency you own, how long you’ve been in business, or your adjusted gross income (AGI), every agency owner can benefit from working with a proactive CPA.

To better serve agencies, we recently conducted an attitudinal research study to find out how confident agency owners are with their financial skills, what they think about their CPAs, and how they can have a better relationship with them.

In this blog, we’ll explore the many benefits of having a proactive CPA.

The More Proactive, the More Goals Are Reached

We found that only 27 percent of agency owners have an established financial strategy, and only one in two have that strategy documented. Your financial strategy should address short-term and long-term goals, and most agency owners are missing a framework to help them meet those goals.

If you’re planning for retirement in the next 5-10 years, you need a designated financial strategy to do it successfully on your timeline. Succession planning should start years in advance for agency owners looking to exit their businesses. Even saving money on your taxes requires thinking ahead, and there are many opportunities to do so throughout the year.

Bare minimum, your financial strategy should look a year ahead with monthly check-ins with your CPA to review metrics like AGI growth, AGI/FTE, cost/employee, payroll vs. AGI, overhead vs. AGI, and net profit vs. AGI. Effective strategies come from past analysis and future forecasting, which your CPA should do for you. Any CPA worth their weight will also use these regular communication touchpoints to hold you accountable.

We uncovered three unique attitudinal segments of agency owners: Discouraged & Dismissive, Responsible & Ready, and Supported & Satisfied. One in three agency owners has been in business for 15 years or more, with Responsible & Ready respondents significantly more likely to have industry longevity. Sustaining a business this long demands a level of business acumen. We’ve found that owners in this category are quite competent, and they also realize they don’t know what they don’t know. Their goals may differ, including retirement, legacy-building, succession planning, or selling the business outright.

A CPA that can communicate effectively, answer complex questions, and be proactive will help you reach your long-term goals. Without a CPA that takes the initiative, these long-term goals will become almost impossible to reach.

To meet your short-term financial goals, your CPA needs to establish better metric tracking and KPIs. We create something we like to call the “Magic spreadsheet.” This tracks important metrics and makes sure the agency is operating within the 55-25-20 rule that helps agencies weather financial disruptions that Drew McLellan and Agency Management Institute implement and teach.

To meet your long-term goals, your CPA needs to help you focus on growing personal wealth and creating an exit plan. This offers personal freedom and financial stability for you and your family. Exit planning creates an easy transition from one owner to the next and ensures that your staff and the next owner are taken care of. A more profitable agency is also easier to sell because there’s less risk and less debt.

Different Segments, Different Levels of Financial Confidence

Two in three respondents in our survey say they feel knowledgeable about managing cash flow and calculating key metrics (revenue, cost of goods sold, and operating income). However, many agency owners are less confident about tax planning, acquiring capital, identifying tax credits, and securing buy-in from investors.

Responsible & Ready respondents are significantly less likely to have these financial skills. On the other hand, Discouraged & Dismissive respondents are significantly more likely to say they have these skills, which makes sense since they believe financially knowledgeable agency owners do not need to work with a CPA.

No matter how knowledgeable you are on various aspects of your agency’s business, a proactive CPA can fill in the gaps, especially in tax planning. They have to communicate often because tax planning is a year-round exercise. A tax planning roadmap optimizes and enhances profitability and allows you to be proactive with spending habits and cash flow management. Your CPA should be updating and guiding you along the roadmap year-round, helping you navigate risks and opportunities.

Managing Owner’s Draw and Distributions

About half of our respondents have taken an owner’s draw or distribution in the last year. Responsible & Ready respondents, who are open about their need for additional financial education, are statistically more likely to have done so.

Only 33 percent of respondents who have taken an owner’s draw or distribution understand how it affects basis. Understanding basis is no easy feat because many owners take too little or too much out of their business. Both have downsides, with the latter becoming a taxable event and the former putting agency owners at risk of losing wealth-building opportunities.

A well-versed CPA can help you navigate owner’s draw and distributions to make sure you’re taking out an appropriate amount. They should stay up-to-date on this strategy and your business to stay proactive on wealth-building opportunities. They should also hold you accountable on a regular basis to make sure you are executing the plan in the best ways possible.

It takes work growing your business and building personal wealth. The more planning you do, the less taxes you have to pay and the more income you have for college education, personal vacations, investment opportunities, retirement, and more.

Closing Thoughts

Most agency owners want to work with a reliable and communicative CPA. Ask yourself: Is your CPA meeting this criteria? A CPA must demonstrate expertise and results over time to be reliable. If you’re underwhelmed by the support you’re receiving, it could be time for a switch.

To learn more about each segment’s behaviors and the opportunities they present, check out our entire executive summary. And to explore the data yourself, check it out here.


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