Talking to Your Tax Advisor and Bank as an Equal

Why many owners are at a disadvantage when discussing their own numbers

Once a year, an owner goes through the annual financial statements with his tax advisor. She explains why profit has fallen; he nods and asks about the tax payment. Three months later, the bank asks about his debt service capacity, and he refers them to the firm. Both conversations are friendly. In neither is he the one explaining his business.

That is understandable, since bookkeeping and taxes are specialist fields one hands over for good reasons. But it has consequences. The article bank lending shows that banks under uncertainty prefer to decline rather than raise the interest rate and that voluntarily shared information improves their picture of the entrepreneur's competence. This guide therefore asks: Which numbers must an owner know himself to talk to his tax advisor and bank as an equal, and how does he prepare these conversations?

To answer it, I first present signaling theory as a thinking model, then clarify eight metrics, weigh two views on the role of the tax advisor, and describe a rhythm of meetings over the year. In Germany, the tax advisor (Steuerberater) usually also does the bookkeeping and financial statements for small businesses. This article is not tax or financial advice.

The thinking model: signals according to Spence

In 1973, the economist Michael Spence described how people deal with information asymmetry, a situation in which one side knows more than the other. On the labor market, the applicant knows more about his abilities than the employer. Spence showed that a signal can close this gap if it meets two conditions: it must be verifiable, and it must be harder to produce for someone with worse qualities. A degree is such a signal; a mere claim is not.

Toward the bank, the situation is the same. The owner knows more about his business than the loan officer, as the article on bank lending describes with Stiglitz and Weiss's model. Toward the tax advisor, it is reversed: the firm often knows the numbers better than the owner himself. In both cases, whoever knows his own numbers and can explain and justify them sends a credible signal. It can be checked, because the bank has the documents. And it is hard to fake, because whoever does not understand his business cannot explain it fluently.

An everyday analogy: whoever brings his readings from the last months to the doctor and says when the symptoms began gets a different conversation from someone who only says he is not feeling well. The doctor remains the expert. But he is talking to a patient who thinks along.

Whoever explains his numbers himself gets advice. Whoever has them explained gets a verdict.

Eight numbers the owner should know himself

The following eight numbers answer the questions tax advisors and banks ask most often. The terms are defined as in the other articles of this series; the thresholds for equity ratio and debt repayment period come from Kralicek's quick test, presented in the article reading a customer's balance sheet. Thresholds are rules of thumb, not legal requirements, and differ by industry.

Three terms need explaining. The BWA (betriebswirtschaftliche Auswertung) is a management report from the current bookkeeping that many German accounting firms prepare monthly. Its standard form shows revenue, costs, and profit for the month and the year to date. Liquidity is the ability to make payments due on time. It is not the same as profit, as the article growth costs liquidity shows. And the contribution margin is revenue minus the costs caused directly by the order. It usually does not appear per order in the BWA but must come from post-calculation, as contribution margin per order describes.

What studies show about advice from the accountant

For small businesses, the accounting firm is often the most important external adviser, not only for taxes. Carey (2015) surveyed 380 small and medium-sized businesses in Australia with 5 to 200 employees. Businesses that voluntarily bought business advice from their external accountant performed better. This relationship applied to small businesses with 5 to 49 employees, but not to medium-sized ones. The author explains this by smaller businesses having fewer in-house experts and therefore benefiting more from external knowledge.

When owners seek advice was studied by Jibril, Wishart, and Roper (2023). They surveyed 2,089 small businesses with 3 to 99 employees in London, Paris, Frankfurt, and Madrid. Around 45 percent had sought external advice in the preceding twelve months. Of the businesses that had experienced a survival-threatening crisis, around 61 percent sought advice to overcome it. A crisis led businesses to seek advice more often for up to five years afterward, especially if they had already been advised during the crisis.

The findings have limits. Carey measures relationships, not causes: perhaps more successful businesses are more likely to buy advice. The study by Jibril and colleagues comes from large cities with deliberately selected districts. The direction of both findings is the same, however: advice is often sought only in need, although it benefits small businesses in particular at other times too. For the conversation with the bank, the article on bank lending shows with Moro, Fink, and Kautonen (2014) that voluntarily provided information improves the picture of the entrepreneur's competence and can lower the interest rate.

Two views: hand over the numbers or master them?

The first view says: numbers are a matter for experts. An owner earns his money with customers and orders, not with bookkeeping. Whoever buries himself in metrics loses time for sales. That is what he pays an accounting firm for, and the division of labor is sensible.

The second view says: whoever does not know his numbers cannot run his business. The firm sees the past; the owner must decide about the future. And toward the bank, nobody can take over the role of explaining one's own business.

I consider the division of labor right, but at a different point than usual. Producing the numbers belongs to the firm, understanding them to the owner. He does not need to post entries or write a tax return. But he must know eight numbers, be able to explain why they have changed, and know what he concludes from them. That costs less time than many fear, about an hour a month. Carey's findings also suggest actively asking the firm for advice rather than only taking its mandatory services.

The meeting rhythm over the year

From the model and the findings I derive a fixed rhythm. It turns mandatory appointments into conversations that the owner leads.

1. Monthly, 30 minutes alone

   Read the BWA, compare three marked numbers with the previous month and year, update the cash flow plan for the next eight weeks, check open receivables. How this can be shown on one page is described in a one-page KPI dashboard.

2. Quarterly, one hour with the firm

   Not about receipts but about questions: where does the year deviate from plan, which tax payments are coming, which decisions are pending? Bring a list of three questions.

3. Every six months, one page to the bank

   Send current figures and the most important developments without being asked. The article on bank lending recommends this because it builds exactly the soft information that counts in an emergency.

4. Annually, financial statements meeting and bank meeting

   Go through the statements with the firm and discuss planning for the next year. Explain the figures to the bank before they are asked about, including the outliers.

5. Before every major decision

   Investment, hiring, loan: calculate debt service and liquidity for a normal and a weak year yourself and check them with the firm.

Whoever knows the numbers can also answer other questions better: how payment terms and dunning improve liquidity is described in late payment and receivables management, and which financing routes besides a loan come into question in financing growth.

What you can put into practice right away

• Write down the eight numbers from the table and note which ones you know today without looking.
• Ask the firm for the BWA by the 15th of each month and for a one-hour quarterly meeting.
• Calculate the equity ratio and debt repayment period from the last statements and compare them with the thresholds.
• Prepare a page of current figures for your bank, even if you do not need a loan right now.

Conclusion: Which numbers does an owner need to talk as an equal?

We began by asking
numbers an owner must know himself to talk to his tax advisor and bank as an equal, and how he prepares these conversations. The answer is eight numbers: revenue and contribution margin, profit, liquidity, days sales outstanding, equity ratio, cash flow, debt repayment period, and debt service. Added to this is a fixed rhythm of a monthly look, a quarterly meeting with the firm, a page to the bank every six months, and an annual meeting.

Signaling theory explains why this works: one's own, explained numbers are a credible sign of an owner who understands his business. The studies show that small businesses in particular benefit from actively requested advice and that they often seek it only in a crisis. Equal footing thus does not arise from the owner knowing as much as his advisers, but from his knowing what to ask.