Owning a business is the quintessential American Dream. 

Pulling up your bootstraps and making the dream a reality is one of the highest cultural goals of our society which is why we are such an entrepreneurial mecca for the rest of the world.  

However, the fact that so many businesses fail in the first five years speaks to the slope of the learning curve of entrepreneurship.  I often refer to managing a business by separating all business activities into three categories or legs of a stool: operations, marketing and finance.  The prevalence of the COO, CEO, and CFO in so many corporations as head of their various disciplines speaks to the importance of these three disciplines.


And in a smaller organization, the owner or president needs to wear all the ‘hats’.  Inevitably there are some ‘hats’ that fit better than others. So when you sit down to talk finance, two of the most trusted advisors in this arena are your banker and your accountant.  

Both your banker and accountant represent the leg of the stool which is finance, both talk about tax returns and both depend on your business to be successful for them to get paid.  So it may come as a surprise to hear that they have different objectives for you making money. 

Your banker and your accountant have different objectives for the finances of your company.

A banker wants an extremely profitable business that still needs the bank’s money to grow.

By nature, (commercial) bankers lend to capital intensive businesses requiring significant debt to finance the operations and growth plans.  As an investor, a banker wants your business to show a profit.  There are multiple reasons for this but the most obvious is if you invest money into a business you want to see it do well.  

And more than do well for just the first year, if the business wants more money to continue to grow, the banker will first review prior financial statements.  The expression “show me the money” is applicable to banking. Showing more profit to your banker allows the bank to lend more money to the business. They’ll first check to see if the prior earnings justify the expected coverage ratio once the new debt is issued.  

Your ability to receive more funds from the bank depends on higher income in your business.  

This sometimes shocks business owners seeking funding.  They approach a commercial bank as if the bank has an obligation to lend its money to the borrower.  Despite years of losses and poor ratios, some borrowers are positively offended when banks are not interested in lending to/investing in their business.

I like to frame the situation in the context of the stock market.  When you are looking for good stocks to purchase on the stock market you want a stable company with growth prospects and cash flow.  Unless you are speculating, you’re not interested in hot stocks that lose money every year

In banking, you have to show income to get money.

Your accountant’s goal is to save you money on taxes.

In contrast to your banker, your (tax) accountant’s primary objective is for you to pay as little in taxes as possible.

Generally, the largest tax the business will pay is income tax. The banker, as evidence the investment is making money, desires the business to earn money (thereby paying income tax) while the accountant wants to minimize this number. 

Accountants plan and strategize to reduce income in a good year.  Delayed invoices, equipment purchases, prepaid expenses are just a few of the tricks to keep income, and therefore, income taxes lower.  Code sections, sleight of hand elections (in or out who knows?), bonus depreciation, expensing rather than capitalizing, you just hope the person putting your return together knows their stuff so you can keep your income low.

To say a low tax bill isn’t important to your accountant is outrageous.  CPAs attend days of long and tedious conferences aimed at minimizing taxes for their clients.  They spend thousands of dollars attending seminars hoping to glean another strategy they can implement for their clients.  All with the hope that you pay less in taxes.  

They know this is what you want from them.

And you know when you sit down with your accountant your emotions run wild with the thought of an unexpected tax bill.  You grimace and wince as your accountant squeezes every last ounce of savings from your bill while you pray there is another trick that can keep your tax bill low.  In that one annual moment, you would do almost anything to not pay more tax.

The tax office is the only place people want to make less money.  

After all, that’s what you’re paying them for right?  If you want to pay more in taxes you can always do the return yourself.  There needs to be a return on your investment in the fees you pay to have the work done, and that return manifests itself in a lower tax bill.

Strategizing with your accountant to manage your tax bill has implications well beyond your current tax bill. 

There are many entrepreneurs who have successfully minimized their tax bill only to hear the banker tell them they can’t afford to repay the loan size they need.  

There are still more businesses who have no idea what the accountant did with their return and can’t explain to the bank how they made money. 

If you can’t show the money, you can’t get more money.

Starving the tax beast may starve your future funding.

So how is a thoughtful entrepreneur to proceed?  

Know where you are in your growth cycle.  

Are you planning to expand in the near future and looking for funding?  If so, manage your income so you can easily show the money. Don’t overmanage your taxes to the point of jeopardizing your funding.  Be as simple and straightforward with your year-end planning so you can show and explain profit. Recognize income taxes for what they are; proof your company is generating income.  

Are you in the “cash cow” years of your business and don’t need financing?  Milk your tax savings for all they’re worth, proactively manage your taxes to reduce your bill as much as possible, but remember you won’t always be in this phase.

Are you looking to exit your business?  More important than taxes to a buyer is the cash flow of the business.  A buyer will be supremely interested to count the cash income to the business.  Show income again and profitability. Showing profits here will maximize the sales price, which is the goal at this stage.

But if sending a check to Uncle Sam is intolerable and you will do anything to limit the size of this check, recognize you may be limiting your future growth.  

Before you file your tax return, write down the stage of growth your business is in.  Write your five-year goals and ask yourself if the way you manage your taxes lines up with your goals.  If not, make hard decisions and make adjustments.  Don’t let the tax tail wag the dog.