For many business owners, tax season is a dreaded time of year. Unless you have an accounting degree, the process of getting your financials in order is complicated, and even downright scary. That’s why it’s important to keep a constant record of your funeral home’s financial portfolio.
Tax return accuracy can optimize the performance of your funeral home, ensuring it’s ideally positioned for expansion, sale, and — of course — any inquiries from the IRS. Here are the main reasons to get up to speed on the financial health of your funeral home.
To Avoid Getting Audited
When the IRS suspects inaccuracies in your tax returns, they’re likely to conduct an audit. While there’s nothing malicious behind these audits, they can take up a lot of your time, and you might end up with a higher tax bill than you otherwise would have.
Essentially, an IRS audit is a thorough examination of your business’s financial information and accounts. The goal of an audit is to ensure that you’re reporting accurate numbers and abiding by tax laws. Generally, the IRS will conduct an audit if you’ve made erroneous statements on your tax returns, failed to report income, claimed too many deductions, or reported too many losses.
Audits can take a few different forms. Sometimes, the IRS will simply send you a letter requesting information to support a deduction or other aspect of your return. An office audit consists of an in-person interview regarding your return, and a field audit involves an IRS agent coming to your funeral home for an interview. In all of these cases, you’ll need to provide accurate records that support any deductions, losses, or other statements made on your tax return. Failure to do so will result in penalties.
To Plan for the Future
Many funeral home owners are unable to say how profitable their businesses are. Sure, they know that people are booking services, and their employees are getting paid; however, it’s important to keep track of the financial health of your business to ensure its longevity.
If you’re beginning to plan for your exit from your funeral home, knowing exactly where your business stands financially can help you plan for your own financial future. Having accurate tax returns will give you a thorough understanding of your profits and losses, allowing you to conduct business more effectively and correct your course, if necessary.
For example, you may realize that the margins on the caskets you sell are extremely slim. This gives you the opportunity to seek out other vendors and improve your revenue.
Whether you want to sell your business or expand it — however far in the future — having an accurate picture will help you prepare.
To Prepare to Sell
If you plan to sell your funeral home, you’ll need to provide potential buyers with years of financial information, including tax returns. Generally, buyers will want to see:
- Profit and loss statements for the current and past 3 years
- Current balance sheets
- Cash flow statements
- Business tax returns for the past 2-3 years
- Lists of assets
You’ll also want to conduct a third-party evaluation of your business, something that can only be done with accurate and up-to-date financial records. If you haven’t been keeping accurate financial data, then the time to start is now.
To Prepare to Expand
Rather than selling, you might be thinking about expanding. Whether you want to expand your funeral home to multiple locations or offer more services like cremation, you’ll need solid financial books to get the financing.
Similar to how a potential buyer will require extensive and up-to-date financial documents, so will a lender. For example, to qualify for an SBA loan, a common source for small businesses, you’ll need to provide the following:
- A business credit report
- Personal tax returns
- Balance sheets
- Profit and loss statements
- Tax returns and bank statements
- A business plan including financial projections, cash flow, and profit margins.
This is meant to show lenders, much like investors or buyers, an accurate financial picture of your business, making it all the more important to keep accurate financial records.
Knowing the Ins and Outs
The key to a successful funeral business is knowing where you stand financially. Whether you want to sell your business, attract investors, or appeal to lenders, you’ll need to be in good standing with the IRS. One of the best ways to ensure you’re abiding by IRS regulations is through the help of funeral industry accountants. That’s where Johnson Consulting Group comes in.
The team at Johnson Consulting Group can help you keep track of your profits, losses, and other financial benchmarks. As experts in the funeral profession, their accountants understand the nuances of death care accounting practices. Not only can they provide detailed reports on the state of your business, but they’ll also even be able to help you set budgets to plan for any future endeavors.CORRECT YOUR FUNERAL HOME FINANCES