Category: Business Finances

CPA Advice on How to Grow a Business of Any Kind

Rick_E_Norris_An_Accountancy_Corporation_CPA_Advice_on_How_to_Grow_A_Business_of_Any_kindI grew up in a family of entrepreneurs.  Most of my uncles were some form of contractor: General, electrical, and plumbing.  Prior to becoming a CPA, I learned a little about these trades from them which helped me when I built my own house.  They were (and are) masters at their trades and deserve the greatest of respect.

Yet, as a CPA, I have learned that a great tradesman does not necessarily translate into a successful entrepreneur.  In fact, they can be completely opposite.  A tradesman may focus on detail and create a great product, where an entrepreneur would focus on the vision and produce products to fulfill it.  I always joke that a small business person usually wants to know two things: 1) What are my sales? and 2) Do I have enough cash to make payroll?

CPAs run into this issue, too.  Many of us tend to focus on the minutia of getting a job done and not on the big picture of running the business towards its long-term vision.

If this sounds familiar to you, here are some pointers and sources:

  1. Be a hedgehog. The hedgehog is not as cunning as the fox, but does something that makes it the world’s best defender against the fox.  It rolls up into a little ball and sticks out its spikes.  According to Jim Collins in Good to Great, you can be a hedgehog if you do three things: 1) Be deeply passionate about what you are doing, 2) Do something that makes money, and 3) Be the world’s best at what you do.  The intersection of these three requirements will brand you into a specialized business in which others will struggle to compete.
  2. Focus on your customer needs, not the industry.   The Blue Ocean Strategy by Kim and Maugorgne shows you how to extrapolate unnecessary services that the industry provides, but the customer doesn’t need. The strategy book also describes companies that have transformed their businesses to a level to make competition irrelevant.
  3. Manage the business, don’t let the business manage you.  Michael Gerber’s E Myth describes entrepreneurs that let their businesses run them into the ground, and destroy their quality of life.  This is the most common problem with trades people.
  4. Know where in the cycle your business is at all times.Les McKeown’s Predictable Success discusses the cycles as: Early struggle, fun, whitewater, predictable success(balance), treadmill, the big rut, and death rattle.  Predictable success stage has the right amount of systems and processes to tame a company.

Though we are CPAs, we look at out client’s businesses through the lenses of strategy and planning.  Small business entrepreneurs must be measuring their businesses in light of their visions and short-term objectives in order to accomplish their goals and desires.

The First Two Strategy Sessions of the Association for Strategic Planning (Los Angeles Chapter)

Rick_E_Norris_An_Accountancy_Corporation_The First_Two_Strategy_Sessions_Of_the_Association_for_Strategic_Planning_Los_Angeles_ChapterI was adrift in a sea of strategists.  Recently I conducted two strategy morning  sessions for the Association for Strategic Planning, Los Angeles Chapter.  Of the fourteen strategists in the room, we  produced fifteen opinions.  What a blast to be in a room with so many bright and creative people.  We were able to hammer out a vision and mission with components of who were the customers (members) and what benefits we could offer them.

It wasn’t until tonight that I realized that we operated our session EXACTLY the way Barry MacKechnie suggested in Achieving Strategic Alignment. Barry wrote that there were six critical elements of a successful strategic planning session:

  1. Define your expected outcome: Our academic compass Daniel Degravel from Cal State Northridge specialized in strategy and established a map that we were to follow.
  2. Pre-planning session meeting with your executive team:  There was a four person executive team: Daniel, Erik Bleitz, Rodney Stone, and myself that discussed the course we were to take during the broader strategy session.  The phone calls were a logical step to the map laid out by Daniel.
  3. Create an agenda: The agenda was created, but the timetable was left open.  As the facilitator, I had to keep the process going or risk it running aground.  The attendees made this easy for me since so many were focused.  We knew we could not get this done in one three hour session.  It looks like it may last three-three hour sessions.
  4. Mandate participation:This step was also easy for me because nobody was required to attend.  The attendees were both members and non-members who wanted to be a part of the Los Angeles Chapter’s future.  As Barry stated in his book, “A great strategy planning session requires an atmosphere of open dialogue with a free exchange of ideas within an environment of creativity and common goal setting.”
  5. Set expectations for clearly defined results: As stated, we knew where we were going but were not unrealistic on how long it will take us to get there.  I estimate two more sessions should result not only in the plan, but the goals, assignments, and desired outcome.  Barry set the timeline in his book at two full days.  We may beat that estimate a little, but aim to implement the strategy with confidence.

The Strategy of Living a Balanced (Business) Life

Rick_E_Norris_An_Accountancy_Corporation_The_Strategy_of_Living_a_balanced_Business_LifeOne of my kids, (honorable number one son), is a poet; a comedic poet. He is in graduate school at UC Davis in the creative writing department. He is the first to say that he is disorganized.

Even though he is an artist, that skill does not give him a license to be disorganized.  As an entertainment CPA business manager, I have heard that excuse many times from  clients.  Sadly, what I have found are those who are disorganized in business tend to live an unbalanced life full of stress and “emergencies.”

Whether it is your business life or your personal life, in order to fulfill your potential, you need an organization strategy.  May I suggest the following:

  1. Vision: If you have read my previous articles , you will find that I always ask persons to start with a “vision.”  This is as true in your business life as it is in your personal life.  A vision goes out ten to twenty years.   A good start may be Jim Collin’s hedgehog concept in his book Good to Great.  Read up on his three concentric circles on how a business (and arguably an individual) can become great.
  2. S.W.O.T: Understand your Strengths, Weaknesses, Opportunities, and Threats are to accomplishing your business or personal vision.  Make the difficult decisions to eliminate the weaknesses and threats.
  3. Craft a Strategy to your Vison: This strategy should be a result of working backwards to long-term objectives, or milestones.
  4. Create a System: Every  business and life needs to be organized if they are to accomplish its vision.  In other words, a system.  It may be as simple as doing specific tasks each day or a task on the same day of the week.
  5. Evaluate with metrics: You must know where you are in relation to your vision with some type of measures.  Businesses can have a whole host of measures.  A personal life have on like spending time with your kids all day Saturday or Sunday.  Or maybe, coach a Little League team.

As far as business, there are a couple of books that can help, The E-Myth by Michael Gerber and Predictable Success by Les McKeown.  You may find in going through these steps that you need to adjust your business or personal vision.  That’s OK.  The sooner the better.  If you let your business or your life “run itself,” you are setting yourself up for a disappointment(or maybe midlife crises).

If you visions are limited, e.g., spending a lot of time playing fantasy football, then you don’t have a vision; you have a pass-time.  It “passes time.”  Time is your biggest enemy and ally in a strategy depending how the strategy is implemented.  A balanced business leads to a balanced life.  A balanced life leads to a quality life.

Innovation:There is More to Emulating Than Playing Air-Guitar

Rick_E_Norris_An_Accountancy_Corporation_Innovation_There_is_more_to_emulating_than_playing_air-guitarWhen I started playing guitar  in the early 1960s, nobody played “air guitar.” Those who didn’t want to play, didn’t, and those who wanted to play guitar copied Jimmy Hendricks, Chuck Berry, and many others in the entertainment industry.

Anita Campbell’s article Finding Innovation Through Emulation discusses innovation using this method in the business world.  She recommends picking a company you admire, copying it, and reinventing it.

This approach is fine, but limited both inside and outside the entertainment industry.  Ted Whetstone’s chapter in The Book of Business from A to Z (The 260 most important answers you need to know) takes a more holistic view.  He discusses the many types of innovation:

Disruption innovation: New technology, process, etc. that gives your company an advantage.

Product innovation: The product development cycle of concept, prototype, testing, etc.

Process innovation: Changing the production or process of delivery method.

Marketing innovation: Positioning yourself and product differently in market segments.

These points are just a thumbnail sketch but  could be a daunting task to a novice at strategic planning.  So, the place for businesses and those in the entertainment industry to start is VISION.  A business owner or an artist must establish a vision that sets them apart from the rest of the world.  By vision, we are not discussing a five year plan.  No, we are challenging the business owner and artist to look at the next twenty years and answer how they will change the way things are done in the world.

But why emulate other artists or companies when establishing a vision that will change the world?

Let’s take the Beatles for example:They were influenced by  early Motown music.  In fact, you may recall that one of their earlier albums covered three songs by Motown: Wait Mr. Postman, Money, and You’ve Really Got  a Hold on Me.  Sure, they performed their version of these songs, thus improving on them, but these songs did not limit their visions.  Instead, they acted as stepping stones to a style that the Beatles were to be known for.

In strategizing, a business owner (and artist) must stay the course of their vision, though they are emulating others.  This process infuses tactics in achieving the ultimate vision.

Small Business Fraud: We Have A Situation Here

Rick_E_Norris_An_Accountancy_Corporation_Small_Business_fraud_We_Have_A_Situation_HereOver the last 30 years I have  investigated a few situations  where fraud was suspected.  However, my favorite story actually happened well before my CPA career.  I worked for a person who  verbally abused everyone around him, not the least of that, his wife.  She handled the books of his company.  Unbeknownst to him, she skimmed a little cash each month for many years.  One day, she took the kids, the money and disappeared.

Another situation occurred when I was speaking to a friend who owned a bakery.  Her bookkeeper worked there for fifteen years and never took a vacation or got sick.  She was also the only person that knew the accounts receivable.  I responded, “Sounds like a text-book example for fraud.”  My friend laughed.

One day the  bookkeeper abruptly quit leaving the accounts receivable ledgers in disarray.  The bookkeeper had been using funds from one customer to pay other customer’s balance because she had been embezzling funds for quite a long time.

I always have recommended that small business owners run their businesses instead of the other way around.  The risk in making this transition is that in relinquishing many aspects of the business like accounts receivable, inventory, accounts payable, and inventory control, may lead the owner to delegate control.

That is not the way to delegate.  Nobody should be given a task that does not have internal controls regardless if they are friends, family, or experts.  You should review your controls with a professional, however, here is a sample of a few areas:

  1. Generally:
    1. Create an accounting procedures manual
    2. Used pre-numbered forms
    3. Limit access to certain areas
    4. Require vacations
    5. Separate record keeping
  2. Cash on hand
    1. Have custodian responsibilities
    2. Require backup for any checks or cash spent
    3. The custodian should not have access to accounting records
  3. Cash Receipts
    1. Have your bank call your cell phone anytime a check is to be cashed.
    2. Reconcile cash daily
    3. Separate cashier and accounting duties
  4. Accounts Receivables
    1. Require all credit approvals
    2. Reconcile sales to inventory
    3. Separate sales, AR, recipts, billing, and shipping

This just scratches the surface.  There are many other areas that need controls, but this should give you an idea of how detailed your controls should be.  The survival of your business may depend on it someday.

 

 

 

Rock Band Business Mentality: Band Together, or Risk Rocking the Boat

Rick_E_Norris_An_Accountancy_Corporation_Rock_Band_Business_Mentality_Band_Together_or_risk_Rocking_the_BoatJame’s Obrien’s article, What your small business can learn from a rock bank caught my attention for a short while.  I thought he would report more then some basic business legal advice.  So, playing in rock bands my whole life, and practicing as a CPA business consultant, I will take a shot at it.

  1. Your business partnership and rock bands are marriages: Like in any marriage, don’t focus on what the other person can’t (or won’t) do for you.  Instead, focus on the things that compliment you.  It is not important that one person is successful, only the sum of the parties.
  2. Don’t be afraid to use the standard SWOT analysis for each partner: Strengths, Weaknesses, Opportunities, and Threats of each partner can bolster a strategy when confronted up front.  Each person realizing their limitations will help other partners to fill in the gaps.
  3. Find the business ‘s rhythm: My jazz piano son and I agree, people who clap their hands on the 1st and 3rd beats of a song are annoying.  Clapping on the 2nd and 4th count drives the song.  Likewise, every business has its rhythm, and every partner has to stay in sync.
  4. Everyone should agree when the song will end: I remember watching an opening act for Boston in the 1980s.  It took me two songs to figure out that the musicians did not know when the song was end until the lead singer-guitarist jumped up in the air coming down on the last beat of the song.  In partnerships, there should always be a documented plan of what will happen to the business if certain events happen–like a partner dying.
  5. A new instrument will not necessarily make you play better, if you haven’t mastered the old one: Too many businesses capitalize with unnecessary assets.  Look critically at everything from office space to equipment, to insurance.

As as CPA business consultant, I have seen many partnerships fail in theory before they get started.  Like  a marriage or rock band, some of the best music is made years after the beginning.

What Are You Worth? Or, Are you a Guppy in a Red Ocean, or A Whale in a Blue Ocean?

Rick_E_Norris_An_Accountancy_Corporation_What_are_you_worth_or_are_you_A_Guppy_in_a_red_ocean_or_a_whale_in_A_blue_oceanTwo respected strategist friends and I had lunch discussing new service businesses.  Erik asked how much a person should charge when creating a newer field.  Robert responded that there is no magic “price,” but that you should base it on the value you are creating (or saving) the client.  In other words, if your services are saving the client $1 million dollars, a fee of $50,000 is not unreasonable, especially if nobody else has your skill set.

Being a CPA/Strategist, The Blue Ocean Strategy popped into my mind.  In a blue ocean, you are selling a unique product or service in an “ocean” that was not previously inhabited.  If your product or service is offered by others, you are swimming in a red ocean where sharks are eating each other to lower their value and personal worth.  These concepts are outside the normal business mentality usually used by CPAs.

In other words, when you swim in a red ocean where you compete by price, you have reduced yourself to the level of a commodity.  When that happens, it is time to change your product or service.  Even though you might rely on your CPA (as your business consultant) to tell this, he/she probably won’t be able to because they deal in historical financial statements.

Very few people look at their careers in such a light.  Their strategy, if they even have one, is sometimes to do what someone else has done, but cheaper.  Sure, you can say they want to perform “better service,” but even that has limitations.  As a CPA, I have seen companies wither away because they cannot get out of this commodity rut.  Eventually they lower their prices so much, they lose sustainability.

So in this economy when everyone is changing so quickly, what can a person do in business?  One way is to follow Jim Collin’s business suggestion, The Three Circles of the Hedgehog Concept.  One circle is “What you are deeply passionate about,” the second, ” What drives your economic engine,” and third, ” What you can be the best in the world at.”

Consulting as a CPA, I have found these circles to work with personal careers, not just businesses.  Where the “hedgehog” part comes in is the hedgehog outsmarts the fox by just doing one thing: rolling up in a ball.   The fox is very intelligent and tries many things, but the hedgehog just does one and survives.

But what is the intersection of the three circles?  Jim Collins could say that it is the Big Hairy Audatious Goal mentioned in his Built to Last book.

I am not saying that the metrics that you CPA provides to your company are not valuable.  But, these are indicators of whether you are following your vision.  You need the vision, the strategy, the tactics, and then the benchmark metrics.  To do otherwise is running your business blindly.

As a CPA, I tell young business and individuals, that you must find your Blue Ocean before waisting money on a business plan.  To dive into  a Red Ocean is an hour glass for failure.  Once you find your Blue Ocean, you can measure your value to the client and adjust your fee accordingly.

Solving Tax Issues: Another Avenue

Rick_E_Norris_An_Accountancy_Corporation_Solving_Tax_issues_Another_AvenueProbably every year new clients appear who have tax issues from various tax agencies.  We usually acquire a power of attorney and step into the shoes of the taxpayer. There is a non-conventional way that taxpayers may get relief.  The Taxpayer advocate service or (TAS).  Here is what the IRS says about using that service:

1. The Taxpayer Advocate Service is your voice at the IRS.

2. TAS assistance is free and tailored to meet your needs.

3. You may be eligible for TAS help if you’ve tried to resolve your tax
problem through normal IRS channels and have gotten nowhere, or if you are
facing (or your business is facing) an immediate action from the IRS that will
adversely affect you.

4. The worst thing you can do is nothing at all!

5. TAS helps individual and business taxpayers whose tax problems are
causing financial difficulty, which could include the cost of hiring
professional representation, such as a tax attorney.

6. If you qualify for TAS help, you’ll be assigned one advocate who
will do everything possible to get your problem resolved.

7. There is at least one local Taxpayer Advocate office in every state,
the District of Columbia, and Puerto Rico. You can obtain the number of your
local Taxpayer Advocate from your local phone book, in Pub. 1546, Taxpayer
Advocate Service – Your Voice at the IRS and on the IRS website at
IRS.gov/advocate. You can also call TAS toll-free at 1-877-777-4778.

8. As a taxpayer, you have rights that the IRS must abide by when
working with you. Our tax toolkit website at www.TaxpayerAdvocate.irs.gov
can help you understand these rights.

9. TAS also handles tax problems that may have a broad impact on more
than just one taxpayer. You can report these “systemic” issues to TAS
through the Systemic Advocacy Management System at IRS.gov/advocate.

10. You can get updates on hot tax topics
by visiting the TAS YouTube channel at www.youtube.com/TASNTA
and the TAS Facebook page at www.facebook.com/YourVoiceAtIRS,
or by following TAS tweets at www.twitter.com/YourVoiceatIRS

Tax problems always create some level of anxiety.  It’s good to know that you have another arrow in your quill.

Source: IRS

Strategic Leading, A Task Not for the Timid

Rick_E_Norris_An_Accountancy_Corporation_Strategic_leading_A_Task_Not_for_the_timidRecently I led a strategy meeting for the Association for Strategic Planning, Los Angeles Chapter (ASP).  What made this exercise unusual is that even though was the Chapter President, I was not the only strategist in the room.  In fact, there were several proven strategists who had more experience in me in the area of strategic planning.  Moreover, I am a CPA, a profession that usually doesn’t embrace strategy and deals in the past of historical financial statements.  So, what is a Strategic Leader?

Cynthia Montgomery’s article How Strategists Lead in the McKinsey Quarterly addresses this question. She offers a few points on what makes a strategic leader:

  1. Meaning Maker: “It is the leader–the strategists as meaning maker–who must make the vital choices that determine a company’s very identity…” There is more to this than strategy charts.  The leader has to tap on the personal gifts of key people to implement the vision.
  2. Voice of Reason: “A leader must serve as a voice of reason when a bold strategy to reshape an industry’s forces reflects indifference to them.”  At the ASP meeting, we chose not to “check the box” strategy style.  We asked the hard questions to arrive at our vision.
  3. An Operator: “A great strategy, in short, is not a dream or a lofty idea, but rather the bridge between the economics of a market, the ideas at the core of a business, and action.” Inadequate implementation is the single biggest failure of strategic plans.  The blame would seem to fall on the leader, but leaders, too, sometimes have limited power in corporate culture.
  4. Consistency and Follow-thru: “…facing an overhaul can be wrenching, particularly if a company has a set of complex businesses that need to be taken apart or a purpose that has run its course.”  I recall so many “systems” of implementation that are just a regurgitation of the same cyclical analysis.  You think, plan, act, re-assess, think, plan, act, reassess, etc.

All of this is fine, but what really makes an effective leader?  Jim Collin’s book, Built to Last answers that in five steps:

  1. Level 1: Highly capable individual
  2. Level 2: Contributing team manager
  3. Level 3: Competent manager
  4. Level 4: Effective leader
  5. Level 5: Executive

It seems Ms. Montgomery’s article stops at Level 4 which Mr. Collins defines as a person who “catalyzes commitment to and vigorous pursuit of a clear and compelling vision, stimulating higher performance standards.”  Mr Collins goes a level higher which defines Executive as a person “who builds enduring greatness through a paradoxical blend of personal humility and professional will.”

Mr Collins seems to go beyond the function of an individual and focuses on his or her attitude.  A lot of his book dealt with those leaders who humbled themselves to lead by serving.  Any small business leader should keep this in mind.  As Mr. Collins puts it, ” Level 5 leaders channel their ego needs away from themselves and into the larger goal of building a great company.”  In other words, their ambition is for the company, not for themselves.

 

Internet Content Generation: Is Your Business More Exciting than Accounting? I Doubt It?

Rick_E_Norris_An_Accountancy_Corporation_Internet_Content_Generation_Is_Your_Business_More_Exciting_than_accounting_I_Doubt_itOne day I was having lunch with one of my entertainment clients.  As we spoke of relationships she said, “My biggest fear is marrying someone like an accountant.”  She then realized who she was speaking to and partially retracted the statement.  Too late.

I write about 1-2 articles every week.  People ask, “What do your write about in accounting?  It is so boring!”

Well, anything can be boring, but Ekaterina Walter’s article, Content Generation for Small Businesses gives some good pointers on how you can promote your business through submitting meaningful content.  She interviewed Ricardo Bueno and Lisa Horn, experts in this area.

  1. Content as Customer Education: She quotes Ricardo that you must educate your audience.  That is true, but you must be careful of the level of education.  In my case, to quote tax code sections will lose my audience, so I display my expertise in common terms and analogies.  Your audience can grasp your message if it taps into an experience that are familiar with.  As seen above, I displayed points with anecdotes, little stories that illustrate my point.
  2. Don’t Sell: Your web page should display your products, and your blog should display your expertise.  Don’t be afraid to offer some tips in your industry.
  3. Engage, entertain, and build a community:  I agree with her point, but many might find it hard to entertain.  The first step is to not take yourself so seriously.  Poke fun at yourself by writing about  awkward experiences, if it supports your theme.
  4. Be consistent, and feed the monster: This is my suggestion.  You must be disciplined.  Once you established yourself as a noteworthy source for information, your followers will desire you to write consistently.

Any industry can benefit from content. Any business can benefit from content.  The real question is whether you have what it takes to compete on this level in the 21st century.