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A CPA/Planner Tip on How to Survive in the New Business Economy

I worked with a plumber, Dan, when I was 15 years old. I learned some plumbing, but mostly I ran to his truck for tools and dug ditches…lots of ditches. Dan told me that I was good, but I wasn’t as good as “Speedy” from Big Springs, Texas. Speedy earned this ditch-digging title over all of the other plumber helpers.

One day, the boss bought a mechanical trencher. A trencher required one operator to walk behind it and guide it. Everybody wagered bets. Some on Speedy and the others on the trencher. Speedy was amazing digging a ditch along side the machine who worked at a steady pace. Speedy actually pulled a little ahead, until he had reached about twenty feet. Speedy started to lose steam, and slowly dropped farther and farther behind until the machine had reached the forty foot finish line, first.

This story parallels many situations in our new business economy. Of course, as a CPA/Planner I have seen this scenario in the world of business and in history, e.g., the steam locomotive, blacksmith, and prop-driven passenger aircraft. However, today’s new business economy has injected this phenonemon with steroids. Not only do you have to be ahead of your competition, you have to be ahead of your industry and any verticle industry that may steal your market share.

Take Apple for example. Twenty years ago when they were pushing the Macintosh, who would have guessed that they would now dominate not only the personal computer world with their ipad, but the music delivery system, itunes?

John Mariotti’s article, What’s Your Impossible Dream? tries to inspire business people to think big in whatever they do. He encourages people to do what they are good at, and what they love to do.

CPA/Planners take issue with motivational speakers. They seem to push people downhill but really give no guidance to where they are to go, and how they are to get there. That just won’t work in the new business economy because jobs are increasingly driven overseas, the wealth has been sucked into the top 5% of our population, and governments are being increasingly squeezed and cannot create jobs.

Looking at it from a planning perspective, I recommend Jim Collin’s books, Good to Great and Built to Last. Jim speaks of the three circles: Passion, economic denominator, and best in the world. In other words, do what you are passionate about, do something that can make money, and do something that you can be the best in the world at. The intersection of these circles should be your BHAG (“Big Hairy Audacious Goal”). In addition, keep your plan simple. Jim called it the “hedge hog” concept because the hedgehog was the best of doing just one thing to outsmart a fox.

Of course, as a CPA, I would suggest you quatify the economic aspect of this application.

The new business economy will require you to choose your path very carefully, but with all the elements above. To take the safe road may reduce you to the masses and risk whatever potential you have.

“Far better to date mighty things, to win glorious triumps, even though checkered by failure, than to take rank with those poor spirits who neither enjoy much nor suffer much, because they live in the gray twilight that knows not victory, not defeat. –Theodore Roosevelt, 1899

Financial Independence: Does That Define Your Small Business?

I grew up in a family of small business people. It started with my grandparents who opened an Italian restaurant in 1949 with their four high school children. At that point, my grandfather would arrive at the restaurant at 4 am and make the pizza dough that would raise by 9 AM. However, at 6 AM he was at Terminal Island in Los Angeles building navy ships as an electrician. Several years later, he achieved financial independence in which he could retire from shipbuilding and work full time at the restaurant. The restaurant supported, in part, five more of his children, and a couple of dozen grandchildren who worked such jobs as pizza makers, waitresses, dishwashers, and parking lot attendants.

This memory of small business financial independence came to me when I read Nell Merlino’s article, Building a plan to achieve financial independence with your small business. Nell lists three good points: Recognize your worth, get a mentor or coach, and don’t fear math. But even with these, you will not achieve the small business financial independence if you are unable to delegate to others. The end result is that you will end up working 80 hours a week in a business that you cannot sell and dies when you die.

The book, The E Myth Revisited by Michael E Gerber will help you understand your “worth” by leveraging your talents in supervising others. Most small businesses cannot achieve financial independence if the owners perform all of the main functions themselves. It is very hard to grow your business in a predictable and productive way, if you are so concerned with the nuts and bolts of the operation. You must step back and train others. He states that you must transform your thinking from a technician’s perspective to an entrepreneurial perspective. For example, Michael distinguishes these views as, “The entrepreneurial perspective asks the question: ‘How must the business work?’ The technician’s perspective asks: ‘What work has to be done?'”

In most cases, if you choose a technician’s perspective, you will not achieve financial independence because you will have to solve every problem yourself. In addition, you will not be able to enjoy (or even go on) a vacation because you will be on the phone every day putting out fires from your vacation spot.

The most important goal this year should be your financial independence. Identify where you are in your business, where you want to be, and how will you get there.

Is Music and Small Business Creativity Leaving Us?

Have you heard? We’re still in a major recession. Well, not according to our government.

However, according to Paul Resnikoff’s article, What is the Economy Doing to Creativity , our current economic disaster may quiet musicians because of their prolonged economic struggle.

I think Paul is on the wrong side of history. Artistic and business creators could not have a better feeding ground than our current economic condition:

Slave Music:Prior to 1865, slaves obviously were in a hopeless situation. Yet, while coping in their economic, social, and political dungeons, they created some of the timeless music. Starting with their African spirituals, they created Gospel music which is still popular 150 years later.
Jazz:Moving to the early 1900s, struggling musicians were blending art in New Orleans. Folk, blues, marching band, spiritual, and ragtime were just some of the music that fused into jazz. The micro-economic environment of jazz musicians percolated creativity from some of the most legendary composers of the last 100 years.
Rhythm and Blues: Toward the end of the Great Depression and during World War II, music creativity morphed again into R&B. Though many were just coming off of food lines and battlegrounds, creativity shined through the smoke. R& B moved into rockabilly and rock and roll.
1960-70s Counter Culture Music:This was the era where I learned to be a musician. In spite of the Cold and Vietnam wars, the musicians came out in droves spreading their music and lyrics into the halls of our government. Dylan claimed that he did not create the movement, but just reflected it.

The stars shine the brightest in the darkest part of the night. If artists were to stop creating, it would not be because of lack of finances, but because they lack the desire to create.

This can be translated into business, also. Small business owners become more creative when their backs are against the wall. They question assumptions, rehash markets, and listen more to their customers.

Today is the time to stroke your creativity. Small businesses and musicians, like never before, can reach thousands of people with little investment via the Internet. A small business that sings the same song has a much bigger chance of failure than one who creatively changes (or leads) the industry.

So, how do you it? I have written a number of articles, here, that sets out different strategies on achieving business success in this environment. But, one thing I cannot teach is creativity. That must come from your passion, or the passion of a person that you partner with.

CPA Economic Depression Thinking: Buy Your House and Pay it off…Good Idea? Maybe.

As a CPA, I have categorized home-owner’s financial strategy into two categories over the last 32 years: One, the Depression Victim, and Two, the Leverage Junkie. The Depression Victim’s financial strategy is a person who has lived or heard about people living during the Great Depression of the 1930s. My mother is like that. The philosophy goes like this. You buy a house, and you pay it off, period…Sure, you can buy rental real estate, but don’t use your house as a piggy bank.

The other financial strategy extreme is the leverage junkie. Looking at them through my CPA glasses, I see that a person who holds that philosophy will buy a house, and then when it goes up in value, borrow against it to buy an other.

As you probably guessed, many people that lived by the second philosophy felt our latest economic downturn. Conversely, those that stuck by the first philosophy fared better.

But what if you take a middle road? You refinance a current mortgage? Jilian Mincer’s article, When Refinancing Doesn’t Make Sense looks at this financial strategy. CPA’s normally look at these topics from a very narrow point of view, but I act more as a financial strategist than a CPA to my clients, at times. For example, the authors state that to refinance at a low rate and accelerate your payments may be wrong, because you can earn 7% with the same money that you are saving 4.5% in mortgage payments. Really? In today’s volatile economy where States are going broke and the feds can’t control income, where are you going to find a stable 7% return with very little risk? My CPA clients that have this financial strategy mindset will not risk their money to that extent.

Now there is an exception to this point of view. I always suggest that my CPA clients save a few of months of liquid assets. It could be in savings, bonds, even precious metals, but something that you can tap into in an emergency. Why is this important? If you contact a serious illness, suffer an injury, or get laid off, you have a cushion to make a few months of rent or mortgage payments while you decide your next move.

I find that my position as a CPA gives me a very good view point at business and personal finances. The best advice I can give is to balance your thinking and prepare for economic downturns.

DeBabbitting the Business Strategy Process: Can Creative People Be Developed?

My grandfather left quite a legacy. He came from Italy as a boy to start a new life. He acted in and scripted silent movies, fought in WWI, tightrope walked between two eight story buildings (without a net) over a busy Chicago street, helped build navy ships as an electrician during WWII, and founded a successful restaurant with his wife and nine kids.

His success in the variety of endevours is grounded in one quality: creativity. Creativity is a right-brain function, natural to some and alien to others. Should all brain-storming teams have a business strategist who has this trait?

Coyne and Coyne’s article, Seven Steps to Better Brainstorming, tries to quantify this concept with a set of rules that can build business strategists within a group. Their article states that brain-storming sessions should proceed in seven steps:

Know your organization’s decision-making criteria
Ask the right questions
Choose the right people
Divide and conquer
On your mark, get set, and go!
Wrap it up
Follow up quickly

At first, I thought that maybe step 3 would meet the need for a creative strategist. But, to my disappointment, they only categorized the “right” person as one who knows answers to questions that are asked about the operations.

Still, any strategy that quantifies brainstorming raises an eyebrow. You cannot quantify creativity, and thus create a business strategist. However, the article intriged me because it referred to another article, Sparking creativity in teams: An executive guide. Ahh, I said, here is a place where the authors are referencing the important creative person, maybe the business strategist. Then I read the first sentence:

“Although creativity is often considered a trait of the privileged few, any individual or team can become more creative—better able to generate the breakthroughs that stimulate growth and performance.”

This opening sentence conjured up a new term in my head, Debabbitting. Debabbitting is any company process that aims to enhance creativity by forcing people into uncomfortable situations. But, in a business strategy session, people are most comfortable with what they know, and their usual approach to problems. In the classic Sinclair Lewis’s book Babbitt, George F. Babbitt, a mid-level company man, grew very uncomfortable when he tried to change his mundane outlook and style of life.

Now, don’t get me wrong, everyone has their special gifts. Most people are creative in certain circumstances. But, not anyone is creative in all circumstances. Take for example, a friend of mine who is a mechanical engineer. His forte is finding solutions to problems. He regularly uses creativity to find solutions to fix the problems. Yet, if you were to ask him to brainstorm outside of his element, he would struggle.

Les McKeown, author of Predictable Success, hit this point in his presentation at an Association for Strategic Planning–Los Angeles event. He spoke of his forth coming book, The Strategist–Leading Your Team to Predictable Success. At the meeting, Les described the different personalities in a business: The Operationalist (“O”), The Visionary (“V”), and the Processor (“P”). “O” is the person who solves problems, “P” does not solve problems, but will write a manual about it, and “V” is our creative person who doesn’t solve problems, and many times creates them. Though all of these roles are necessary, they conflict with each other. Therefore, Les introduced the “S”, the Synergist. The Synergist is the glue that brings all of the others together to arrive at solutions. I have find Les’s book more plausible then trying to conjeur people’s creativity. In fact, I would venture to rename the “S” as the Strategist, (the Business Strategist) because that person must strategize on how to bring all of the players together.

At first glance, you may argue that the business strategist is Les’s “visionary.” However, when you work in complimenting (and conflicting teams), you are creating a business strategist’s network, not individual. I believe Les said the roles are not cut and dry, but it seems to me that once you identify the gifts and each person’s own brand of creativity, the brainstorming session can evolve naturally.

So, how do you resist the temptation to Debabbit? First of all, you have to know your players, and their abilities. And second, you must use each person in such a way in which the process maximizes each person’s strengths. And finally, you must lead from the front by example to show the team how it can (and will) work towards a common goal.

Did You Hear About the Guy Who Tried to Swindle IRS Agents?

There is a fine line between guts and stupidity. Stupidity is much more entertaining.

Thanh Viet Jeremy Cao of Rancho Santa Margarita, Calif. pleaded guilty of filing 22 false claims against a number of harmless people. Among these harmless victims were: SEC attorneys, U.S. District Court Judges, U.S. District Court Magistrate Judges, the U.S. Attorney for the Southern District of California, Assistant U.S. Attorneys, U.S. Secret Service special agents and special agents of the IRS. Each lien alleged that the lien victims were “debtors” of Cao for hundreds of millions of dollars.

Why didn’t he just file some against professional assassins? He would have gotten more attention.

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Antiquing: How My Wife Convinced Me, and The Impact on Business Strategy

It started with Chumlee. I walked through the living room to my computer and stopped to watch Rick and Chumlee on Pawn Stars discuss the historical significance of something like a musket rifle. This intrigued me, but what really got me interested in their antiques was “value.” No, I don’t mean some 1920 decorative egg, I mean something that won’t break down within two years like my microwave.

Eight years ago, we purchased moderately expensive sconces. We didn’t realized that they would only last about five years. They developed an electrical short, and succumbed to the outside elements.

Inspired by the Pawn Star’s antiques, I bought four 1929 sconces at an estate sale that I will recondition. I believe these will be a better value than going to a lamp store to pay $200 per sconce. These antiques have lasted over 80 years, and are pretty cool to look at. I believe they will be a good value.

Then I came across a Strategy+Business Magazine article, Power of the Post-Recession Consumer by Gerzema and D’ Antonio. The article stated that we are part of a post recession trend of people looking for more than purchases that show status. [People are into]” a lifestyle more focused on community, connection, quality, and creativity.” In other words, when a consumer is deciding what to purchase, that consumer is considering which vendor using these four pillars. These exact points have been the foundation for some of my prior postings:

Community: Community Business Strategy: Love Your Neighbor as Yourself, and Maybe Even Turn a Profit

Connectivity: Mobile Payment Strategy: Is Your Small Business Developing One?

Creativity: Making a Living as a Musician: Do You Have the Right Frame of Mind to Break New Ground?

Quality (in tactics): Starbucks: The Moby Dick of Beans, and this article.

Of course, if this is the current reality, what are you the business owner, doing to capitalize on the trend? Are you changing your strategy to meet the consumer movement, or are you just doing business as usual? Businesses, small, medium, and large are moving at “warp speed.”

Business Strategy and Tactics: What We Can Learn From How We Raise our Kids

Our kids hate us…when we don’t give them money. Oh sure, we pay of their schooling, sports, and other school-related activities, but we are determined to require them to work for their recreation money. All three of my boys have worked for me from time to time.

So, when I came across Barbara Haislip’s article, How to Raise en Entrepreneur, it rang true with lessons with business strategy and tactics:

Encourage your kid to start a home spun business: For those of us that are fed up working for some else, why not think about starting a new business? Go through the steps and take a calculated risk. You may never be happy if you don’t try. Develop your business strategy, and then the tactics that you will need to achieve your goals. See https://www.ricknorriscpa.com/blog/business-finances/buiness-plans-and-strategy-living-on-a-hope-and-a-dream/
Don’t let kids get too comfortable: As a business person, if you are not growing, you are dying. Without a business strategy, you are going nowhere real fast. Likewise, without business tactics, you may know where you want to go, but may be “doing donuts” instead of getting there.
Help kid’s recognize the world is full of buisness opportunities: In your business, think creatively about your industry. Opportunities show themselves at some of the mots unusual places. The most basic business strategy has a SWOT analysis. Opportunities is the “O.”
Teach your kids in their sports to be a leader and team player: As an business leader, you must learn how to lead and encourage without intimidation. Good to Great by Jim Collins shows us that a screaming ego maniac CEO may create a successful company, but it does not usually survives the CEO’s departure because underlings are abused into acting. In your business strategy, you must share the vision. In your business tactics, you must adjust your course and measure your success in acheiving you objectives.

My message is obvious, your business strategy and tactics tools are things you may have learned since you were a kid. Tap into them and allow your creativity to

Cat Woman Beats IRS on her Charitable Tax Deduction, look out Batman

At the time you are reading this article, the IRS is still shaking the kitty litter from their feet. Earlier this month, Jan Van Dusen made them cough up a fur ball. The IRS painted her as a wacky cat lady trying to cheat the government out of its hard-earned taxes. As a Fix Our Feral’s volunteer, whose mission was to trap stray cats, Ms. Van Dusen would trap feral cats, neuter them, and care for them until they can be adopted by owners or released…70 cats to be exact. Ms. Dusen then deducted all expenses relating to the cats as a charitable tax deduction under section 170.

A few months ago, I wrote about this type of charitable tax deduction in Serving as a Vounteer? You Don’t Have To Wait for Heaven to Collect Your Reward. In order to take the deduction, you must have support for some unreimbured expense that you used to support a charitable organization. In addition, you need a letter from the organization acknowledging your expenditure as a gift.

This doesn’t mean that you can go out and plant 200 trees and get a charitable tax deduction unless some organization acknowledges that this is a gift to the organization and in furtherance of their charitable purpose.

In the previous article, I spoke of how my wife and me use our horses for such a purpose. We use them over 90% of the time to patrol for the National and State Park Services. Not only do the Services provide a letter to us, but they train us in CPR, first aid, and we log in with a radio when we patrol. We are in effect, the eyes and ears of the rangers. The program is very precise and requires 12 hours of horse training per year. We deduct 90% of our horse expenses as a charitable tax deduction because we use our horses almost exclusively as the mounted volunteer patrol.

The time to think about your charitable tax deduction is today. Don’t wait until April 14th. If you volunteer for an organization, determine what they need to further their charitable purpose and deduct whatever expenses you require to further it. Your burden is to substantiate it with receipts and a letter acknowledging it as a gift. Alway use a tax professional when making these kinds of decisions.

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Business Plans and Strategy: Living on a Hope and a Dream

I once knew a guy who spent every last dime trying to get auto companies to buy his “hubcap” locks for expensive spoked wheels. They repeatedly turned him down. He took his idea to the insurance companies and…”poof!” He struck it big.

David Ronick’s article, 10 Steps from Idea to Business tries to lay out a path to success in 10 steps. I applaud David in trying to help all those who want to be entrepenuers, but the steps can lead one in a direction that may not bear fruit.

1. Come up with an idea-David basically says to brainstorm for a good idea. The problem with this is “what is a good idea?”

2. Think through all angles- David has the right idea, but most people are not equipped to do this. Take for example, Jim Collins in Good to Great. He preaches his three concentric circles. Or, Kim and Mauborgne’s The Blue Ocean Strategy, where they lay out the idea of a product that renders competition virtually irrelevant. A “rough business plan” will not substitute for a well thoughtout strategic plan. Most people can’t do that, and have to hire a strategist to help them with it.

3. Get feedback–This is always good advice, but from who? If you are new to the market, you will most likely not be able to get to the right people. And what about them stealing your idea? This step is hard, so you will have to do your own research. The internet is a good place to start.

4. Respond to feedback–Again, I can’t see this step, or the other steps working because you would not get past step three. This is where so many businesses fail because they live off a dream and don’t do their basic research.

5. Build a basic product–Will you have an inventory? Read Chris Anderson’s The Long Tail. You might have second thoughts about your dream.

6. Open shop–As a newbee, can you manage your shop? Read Les McKeown’s Predictable Success. The book may paint an unflattering picture of where your company is in its life cycle.

7. Test what you’ve created–Have you developed a disruptive technology in your market? The Innovator’s Dilemma by Clayton Christensen explains what this means and how companies used it to become great.

8. Make adjustments

9. Get ready to grow–Collins and Porras’s book, Built to Last can open you eyes as to what makes a susainable business.

10. Stomp on the startup accelerator

My response is not meant to kill any good idea that you may have. Instead, I have listed major strategy books written by authors who have studied hundreds of successful and unsuccessful businesses. Read them, and others before entering step two, above. The more you know about a successful business, the more you will be able to leverage their experiences to make your dream a reality.