January 1 always seems to creep up on us. Whether you're an independent fitness trainer, a small business entrepreneur or president of a large national franchise, the first of January is one of the most important dates on any professional's calendar.
How your business fares next year relies in large part on how well you prepare by January 1. Regardless of your current income or status, if you are not yet working with a qualified accountant or professional consultant to help you with your business and tax planning, I encourage you to seriously consider the costs of not working with someone who understands business planning and can interpret state and federal tax codes as they apply specifically to your business.
Since this can often be a "sore topic" for many fitness professionals, I decided to ask a business and tax planning expert to give me the top five key discussions as a fitness professional you should be having with your accountant and take into careful consideration before January 1.
1. Business Entity Evaluation
If you are a sole proprietor, the first of the year is the perfect time to consider the benefits of changing your status to a business entity (i.e. LLC, C-Corp, Subchapter S-Corp, etc.). Ask your accountant about the costs and benefits of each type of entity based on your current business structure. Simply changing your business entity could save you money and offer other significant benefits.
2. Tax planning and projections
With the tax code ever-changing on both the state and federal level, it is important to ask your accountant about tax changes or pending legislation that will take effect in 2012 that will affect your business. Even the smallest changes can have a significant impact on your business, your tax liability and ultimately your profitability.
3. Cost-accounting
If you have multiple revenue streams, for example if you sell personal training, online training, t-shirts and fitness equipment, you will want to have your accountant analyze the profitability of each profit center individually. Though your business may seem profitable overall, there may be one or two profit centers that are actually costing you more than you’re making. You will want to evaluate how to fix any inefficiencies or consider eliminating the profit center all together.
4. Understand your financial reports
It is critical that you know what type of reporting you need for your business and more importantly, that you understand how to read the reports. Your accountant should be able to help you determine which reports are most illustrative of your business' financial standing (i.e. Profit and Loss (P&L), balance sheet, cost-accounting, etc.) and he should also walk through each report to be sure you understand the context of the numbers.
5. Assess your accountant
It may not be easy, especially if you have had a relationship with your accountant for several years or if they are a personal friend, but it is critical that you periodically assess your accountant and ensure that you feel entirely confident with the relationship. Do you receive your accounting on a timely basis? Do they respond in a timely manner? Do you feel as though they adequately explain your financials or advise you appropriately, or are they simply processing your numbers? Are they organized and thorough?
If you have any doubt, do not hesitate to change accountants, the first of the year is an ideal time to make the switch. You can receive consultations from a few other accountants to give you some perspective. Think of your accountant as your business partner; they are a critical lifeline of your business.
