Account with more than numbers

Most of us don’t want to self-identify as being ill-informed let alone stupid.  I didn’t want to sound stupid in meetings with my accountant.  I was also working on five continents, up to 150 days per year and billing accordingly.  I didn’t have an appetite for long, unproductive meetings.

My outside accountant was from a Big Four accounting firm who’d gone out on his own.  My internal accountant had a professional designation.  We sat down for one of our first annual meetings:

I asked.  “I’m just off a plane.  What is our purpose in this meeting?”

Outside Accountant: “To make sure you’re comfortable.”

“Comfortable with what?”  I retorted.

“Categories and allocations” I was told.

This went on for a bit.  In my memory it was for three or four years.  Finally, one year I got up on my hind legs and asked:

“What categories and allocations?” I demanded.

“You know…[no I didn’t]…advertising, promotion, travel, and so on” accountants said.

 Now I was in sort of a TV game show, guessing what he the outside accountant was talking about.  I wouldn’t win anything but just rack up more billable hours for him.

Finally, I guessed right.

“Do you mean categories such as travel, advertising/promotion, meals, and so on?  And by allocations do you mean whether you should put a meal I eat on the road with a client in one of those three categories, or perhaps another?”  I asked.

I’d guessed right.  I remembered a bookkeeper who’d used QuickBooks to produce pie charts, bar graphs and such to convey much the same thing.  I’d not asked for this analysis, didn’t use it, tried to forbid the work, but with no result.  I was going to get these visual aids on billable time regardless. 

Now it was a bona fide accountant with a version of the same analysis.  I’d caught on.

I found out there were dozens of categories the accountant could use. I quickly imagined him pondering whether a doughnut I’d bought should be a small meal, whether I’d shared it with a client, or had bought it for a reporter doing a promotional story on me. 

I probed one more time for ammunition. Will the donut or other expense be deductible regardless of the category?  Does the government care which category the expense is in?

I found out all legitimate expenses were obviously deductible.  I think I found out that the government doesn’t care too much, or at all about categories, although I had a previous accountant who was sure that percentage allocations as a function of gross income could trigger audits.  I’ve not been audited since I began my consultancy decades ago, so this was moot. 

I decided I had to put a stop to these allocations and diagrams.  I continued probing.

“What is the purpose of these categories and allocations?” I innocently asked.

“Management information” was the response.

“OK.  I think I’ve got it now.  By management information I think you mean data that will help me run the company.  If that’s the case, please stop generating that data.  This is not the Ford Motor Company where in quarterly management sessions we decide to up advertising in the Midwest by one per cent and lower travel costs on the west coast by two per cent.  Most of my travel and expenses are paid by the client.  When I eat more than the daily government allowance, I absorb the overage and write it off.  I have such healthy income that meals, promotion, and such that are not part of a business trip are still legitimate write-offs which pale in comparison to income.”

Most of the big accounting firms are also trying to position themselves as management consultants.  I’d suggest that this function must start with questioning the client, such as:

1. How do you obtain clients?
2. How much repeat business do you have?
3. How hands-on a manager are you?
4. What’s the best use of your time?

After these and other questions, I’d brief the client on minimum reporting requirements to the government, compliance issues such as progress tax payments, deductions which cross the ethical and legal line, tax planning issues such as employing family members, home office, and so on. 

Surely my accountant didn’t want to build his reputation on holding 3-4 meetings without my understanding the purpose or obtaining any obvious benefit.

Allan Bonner, DBA is a Canadian-based author, keynote speaker, and crisis management consultant.