"But my tax accountant said it was fine..." Words in a trial balance that logistics business owners should not trust

"I had my tax accountant look at the trial balance, and they said it was fine."

I often hear this from business owners who come to me for financial advice. And in many cases, when I check the actual financial situation, it becomes clear that it is "not fine."

This is not because the tax accountant is bad. The meaning of the word "fine" is different from what the business owner thinks.

Do you know the "actual job" of a tax accountant?

Tax accountants have only three exclusive duties

Tax accountants have exclusive duties defined by law. These are "tax agency," "preparation of tax documents," and "tax consultation."

In other words, filing tax returns accurately is the tax accountant's primary business. When they check the monthly trial balance and say it is "fine," it almost always means "there are no problems with the tax filing at the moment."

Financial management advice is a "different job"

How the cash flow will look in a few months, whether there is borrowing capacity with the bank, which clients are generating losses—these are in the realm of "financial management," and require expertise separate from tax matters.

Some tax accountants are strong in financial management, but that is the added value of the individual tax accountant, not something guaranteed by the tax accountant qualification. The premise that "if you leave it entirely to the tax accountant, your finances will be fine" is dangerous to begin with.

The "four words" in a trial balance you should not trust

1. "Fine"—What exactly is fine?

"Fine" is the most ambiguous word. The meaning changes completely depending on whether it refers to tax filing issues, cash flow safety, or bank evaluation.

When you hear this word, please be sure to specifically confirm "what is fine."

2. "In the black"—A company can go bankrupt even when in the black

The trucking industry is particularly prone to the risk of "bankruptcy while in the black." As sales increase, you must pay for fuel, driver wages, and vehicle expenses in advance. However, payments from shippers are often made at the end of the following month or the month after that.

Even if the profit and loss statement is in the black, the cash on hand can run out—this is the structure of bankruptcy while in the black. If you only look at the "black ink" on the trial balance, you will not notice this trap.

In fact, I once had a trucking company president consult me who said, "Sales are up and things are going well, and my tax accountant says we are in the black," while the company was in a state where next month's payments were in jeopardy. The black ink on a trial balance and the cash on hand are completely different stories.

3. "No problem"—No problem for whom?

The phrase "no problem" also requires caution. Even if there is no problem with the tax filing, if the ratio of debt to monthly sales has ballooned to four months or more, from the bank's perspective, it is a "company to which additional financing is difficult."

The standard gross profit margin for a trucking company is considered to be approximately 20%. Many companies fall below this figure, and behind the words "no problem," the cost structure may be deteriorating.

4. "It doesn't matter right now"—There is no financial information that is irrelevant to the present

"We can talk about depreciation later," "The details of the loans can wait until next time"—Financial information postponed in this way can suddenly emerge as a problem a few months later. There is no such thing as financial information that "doesn't matter right now."

Three points that business owners should check themselves

1. Cash flow—Will the cash on hand last until next month?

Along with the monthly trial balance, it is essential to create a cash flow statement to understand the flow of cash for the next three months at a minimum.

Companies that say, "I look at the trial balance, but I don't have a cash flow statement," are in a state where they cannot notice the risk of bankruptcy despite being profitable. You can ask your tax accountant to prepare a cash flow statement, or you can create a simple one in Excel. Just by writing down in numbers "how much money you have at the end of this month, and what is coming in and going out next month," what you see will change significantly.

2. Gross profit margin—Check if the gross profit is appropriate

Check every month whether the gross profit margin, which is sales minus transportation costs, is maintaining the industry standard of 20%. If this figure continues to decline, improving the cost structure is an urgent task.

3. Debt-to-monthly-sales ratio—Whether the loan is repayable

If the "debt-to-monthly-sales ratio," calculated by dividing total debt by monthly sales, is within 2 months, it is healthy; if it is 4 months or more, the bank's evaluation will drop. Business owners who cannot calculate this figure themselves will always be at a disadvantage when negotiating with banks.

Summary

Tax accountants are professionals in tax affairs. However, their role is fundamentally different from that of a management financial advisor.

• "It's fine," "profitable," and "no problem" are terms used for tax filing—they do not mean financial safety for management

• Bankruptcy while profitable is particularly common in the trucking industry—it is dangerous to look only at the profit in the trial balance

• Business owners themselves should have the habit of checking cash flow, gross profit margin, and the debt-to-monthly-sales ratio every month

You cannot leave finances to others. Start by having a monthly cash flow statement on hand.