Books, payroll and the year

What planning actually costs, and what it should return

You are deciding whether to pay for this at all. Somebody has described a service, it sounds sensible, and it costs more than a return does. So the question is whether it is worth it.

That is exactly the right question, and it deserves arithmetic rather than reassurance. Here is the arithmetic, including the cases where the answer is that you should not buy it.

The misconception

That planning is an upgraded version of preparation, priced higher for a better service on the same work.

It is a different piece of work with a different output. Preparation produces a return. Planning produces a set of decisions, most of which have to be implemented by you, some of which cost money to put in place, and all of which have to be lived with during the year.

The honest arithmetic

Three numbers decide it. The fee. The saving identified, at your own combined rate. And the cost of implementing what is identified, which people consistently forget.

If the identified saving does not clear the fee and the cost of implementing it, the honest answer is not to buy it.

The third number is the one that turns good advice into a poor decision. A strategy that saves a meaningful amount, and requires a plan administrator, an annual valuation, a separate return and a payroll change, has an ongoing cost attached. The comparison is the saving against the fee plus that cost, every year, not against the fee alone.

There is also a durability question. A one off saving in a single year is worth less than a structural change that repeats, even where the first year figure looks similar. A planning fee is usually paid once for something that pays every year, which is what makes it work when it works.

The number

As a range, planning fees in this market run from a few hundred for a single narrow question to several thousand for a full review with implementation support. The saving identified ranges from nothing at all, in a business that is already well arranged, to a multiple of the fee where something structural was wrong.

The largest single driver is profit. The same review, performed on a business making a modest profit and on one making a substantial one, identifies the same opportunities and produces very different numbers, because the value of any deduction or deferral is the amount multiplied by your rate.

The second driver is how much has been done already. A business that has never had planning has more available than one reviewed annually, so the first year is usually the largest and later years are maintenance.

Anybody who gives you a saving figure before looking at your numbers is quoting a brochure. The figure depends on facts they do not yet have.

What this requires

• A scope that says what you get, in writing, including whether implementation is inside the fee or outside it.
• The saving identified in the written plan, with its conditions, rather than described in a meeting.
• A view of the ongoing cost of anything recommended, quoted before you commit to it.
• Your willingness to implement, because an unimplemented plan returns nothing at all.

That last item is the most common reason planning fails to pay. The work was done, the report was sound, the payroll was never changed and the documents were never signed. The fee was spent and the saving stayed on paper.

Who this is not for

Businesses below a profit level where the fee cannot be justified, and this needs saying directly rather than gently.

If your business profit is modest, your income is straightforward, and your structure already suits what you do, a planning engagement will identify little and cost what it costs. The arithmetic does not work and no amount of enthusiasm makes it work. Buy an accurate return from a competent preparer, run clean books, and revisit this when the profit is larger. That advice costs you nothing and it is the correct advice for a great many businesses.

It is also not for anyone who will not implement. If the recommendations will sit unread because the year is too busy, the fee buys a document. Be honest about capacity before spending money on advice you know you will not act on.

And it is not for a business in real cash difficulty. Stabilising the operation comes first. Tax planning for a business that may not be here is the wrong order of work.

When this happens

Early in the year, or at least by the middle of it. Planning bought in the last quarter can only reach what is left, and planning bought during filing season cannot reach the year at all.

The point

Judge it on the arithmetic. Fee, saving at your rate, implementation cost, and whether it repeats. If it does not clear, do not buy it, and expect an advisor to tell you so.

Where it does clear, the reason is that it happens during the year rather than after it. Your Charter team sets out the numbers before you commit, including when the answer is that the numbers do not support the work.

This is general information, not advice on your own situation. Whether any of it applies to you depends on facts this article does not know.