Your Story Matters

My wife and I were fortunate enough to take a few days in the final stretch of tax season to attend the Inc Magazine GROWCO (Grow Your Company) Conference in Nashville, TN. My preconceived notions of the potential benefits were quickly blown away as we attended the sessions. It was so much more than I expected.

While we listened to the many successful CEOs and energetic business leaders talk about their start-up days, successes, failures, near-bankruptcies, and recoveries, I was enthralled. Not just because some of these folks had only existed in the pages of my favorite business magazines up to that point but because I was struck with the stories. 

You can read any number of articles out there on how important your “story” is to your customers. The way to drive that point home is to listen to someone’s story and feel this twinge in your gut because you remember how it felt to be there. 

You can remember exactly how it felt to get that first paying customer;

You can remember the fear of opening bills you had no money to pay;

You can taste the first bottle of champagne you bought to celebrate a major victory;

You can feel the handshake from the customer that thanked you for advising them against making a huge mistake.

I love telling our stories, and I thanked every attendee at GROWCO who chose to share theirs with us. I could see the evidence that stories matter.  They matter to those who lived through them and they offer hope for those who haven’t yet reached your plateau. They show a human side to what can seem like superhuman success. They form this common bond in arenas where no other discernible bond exists. They give us built-in empathy, and who doesn't benefit from our relating to them at such a visceral level? The story is the ONE thing we all have.

Great people have said that customers don’t buy what we do until they buy why we do it. We all win when we share our stories. 

Kind Words, Bees, Honey, and All That Stuff

“Wise sayings often fall on barren ground, but a kind word is never thrown away.” 

-Arthur Helps

As entrepreneurs know all too well, it’s easy to become isolated.  We can become isolated in our thoughts, our work, our actions, and certainly our words.  We sit in our offices some days and forget to drink water or eat healthily; we become so “head-down” on some days that no one sees anything of us except the top of our head; and sometimes we simply forget to be kind to those whose paths we cross. It's not personal, we are just stuck in our own head. Since we are so isolated, not only do we forget to speak kind words, we also don’t hear them either.

This plays havoc with your mind.  One day, you look up and say “This sort of sucks.”
I had this happen to me this weekend.  My CPA firm is, of course, heavily involved in completing tax returns (it’s 2/23/15 as I write this). It is the noisy, do-it-now, emergency that is our first quarter. Everyone needs something done at the exact same time. We are all on real and perceived deadlines; busily rushing to the next thing on our to-do list. I know that if I am feeling this way, then so is someone else. It's at this point I walk away from what I am doing and intentionally shift my focus.

Compliment a vendor/customer that you know is in the same boat as the rest of us.  
We work with many small companies, and I find that when I feel isolated, it’s best to reach out to one of those entrepreneurs and remind them that they are not being ignored.  A phone call, a thank-you note (yes, those are still around, and they don’t involve the hated e-mail), or even a visit in person would do great things for her and also for you.

Light up social media with something nice.  
We have a Facebook page and we also have a Twitter account.  Nothing makes me smile more than someone sharing a good experience they’ve had with us or just saying something complimentary on those social media sites. 

Send an inexpensive gift card, just to say hi and thank you. 
Little things matter.  Every now and then, we receive a gift card from someone to whom we have referred a prospect.  I can’t tell you how much joy I get when I use my $5 coffee shop gift card that was sent to me by a satisfied colleague.  I LOVE IT!  So, you can spend $5 and make someone’s day.  How much easier could it get?

We all need to hear compliments and positive commentary.  I don’t care who you are.  Entrepreneurs spend so much time thinking….our brains are always churning.  Many days we perform what feels like thankless work.  Trust me when I say you aren’t the only one feeling this way, so why not send out some good karma in the form of a compliment or a thoughtful, inexpensive thank-you?  Do it, right now.

“If You’re Ever in an Accident, How Will I Buy Stamps?”

When Meghan and I decided to embark on the adventure of working together as well as being married, she quickly learned what I had known for a long time….my CPA firm had NO documented processes.  I had utilized a number of different individuals in the position of Office Manager, and we had no fewer than three different lists purporting to contain our clients’ contact info.  Not one of them was complete, however.  This quickly grew to become a problem.

Over the past (nearly) four years, Meghan has compiled a detailed and powerful master binder of everything that she does to run my firm like a well-oiled machine.  There are screen shots, Word documents, receipts, samples, and spreadsheets.  Nothing is missing.  I put this binder to the test recently when she was traveling and I needed to print a stamp for mailing a large package.  My initial thought was “Wait, Meghan isn't here and I didn't ask her how to print postage before she left. I guess I’ll have to call her.”  But I remembered the binder, and sure enough, there was a tab for “Postage.”  I was going to be OK!

This sounds a bit foolish, but think of the things that happen inside a business that owners take for granted.  In the very beginning, the owners are in charge of these things.  In fact, they create the very first processes.  But, if those processes aren't communicated to the very first person hired to take over, new processes will emerge.  The owner now has no clue how to print postage, or prepare invoices, or when the copier lease ends and auto-renews.

Here are three reasons why documenting your business’ processes is vital:

1.     You are reminded of what you do and why you do it.  It’s amazing how many of our processes were antiquated and useless to us.  I had told Meghan how I used to do things, and for a time, she did them that way.  But, she quickly figured out that I hadn't revamped any processes since the Bush-Kerry election.  Now our processes fit the business we have become over the past 14 years.

2.   You eliminate redundancy and inefficiencies.  Nothing is more frustrating than looking through three contact lists and not finding the email address for your long-time client who needs to receive a tax organizer.  That’s what we kept running into.  I had all the contacts in my Outlook Contact List at the time, but I wasn't the only person emailing clients anymore.  Meghan researched and found a fantastic web-based CRM (Customer Relationship Manager) and now everyone has access to contact information for all our clients.

3.     You create something of value for a buyer. Service businesses like ours are difficult to sell.  You basically sell the hope that your clients remain with a buyer.  Buyers like a sure thing, and CPA firms don’t generally offer that.  But, if you create processes for everything you do, document them, and rely on them to produce predictable, successful results, you've created something of value to a buyer.  Would you rather buy a client, or the way that we managed to build a firm of 400 clients?

Entrepreneurs have enough to do without worrying about how to print a stamp or replace the toner.  In my first month of business, I would have loved to change the toner because I had time on my hands.  These days, I don’t even know where the toner is.  But I bet I know where to find out.  Trust me when I say that building a resource containing your documented business processes will take time, but it will be of great value to you as you grow.  Do it now, instead of changing that toner again.

Lip Balm Will Not Save You

I once worked with a new business owner who started her own hair salon.  She had been in the industry for more than 20 years and felt ready to leap out on her own.  This sounds like a great story so far…frustrated technician is ready to begin running her own business and do what she loves.  Right?

Here were the problems:

•  She had signed a non-compete with her former employer, and she had to move more than 5 miles outside the radius of her previous location.
•  She couldn't, of course, gain access to her client list.  So, she couldn't call them to tell them where she was.
•  Before my client had even vacated her rental chair, her soon-to-be former employer was calling her clients and telling them their stylist had quit and had left no forwarding address.  All they had to do was come in, and someone else could start working with them.

It took weeks for even her most loyal former clients to find her in the new location.  Her expected revenue took a big hit, and she had little to no advertising budget.  She was a frustrated technician.  She had no experience in running a business.

When I met her, things were at the point of no return.  She was done, and out of business, only she didn't know it yet. In one conversation, we were discussing these troubles, and she said, “Maybe we should get one of those Burt’s Bees displays and start selling lip balm. Surely that will drive up sales.”  These were not the words of an expert business-builder or marketer.  These were the words of a demoralized, exhausted, scared technician who finally realized that she didn't know what she was doing.  How had she gotten here?  All she wanted to do was cut hair and make her clients feel beautiful.

When a business owner is in this position, it’s very easy to make mistakes.  Throwing a Hail-Mary works in movies, but seldom do you connect with your intended receiver in real-life.  My client’s problem was that she didn't know how to move retail.  She didn't have enough traffic, nor did she know how to increase it.  But, she also didn't have enough money to hire someone full-time to assist her, and she didn't have enough time to do it all herself. Her chair might have not been full, but she still had to be there every day to answer the phone. She had to make sure there was color and product for the clients she did have. She had to pay the utilities. She had to learn a new scheduling software. The laundry did not do itself. The landscaping and the sign needed to be maintained. And even though she wasn't making much money she now had to worry about sales tax, business returns, property tax returns and who needed a 1099.

This is the dreaded catch-22 some business owners find themselves in.  The sad thing is that she had no one to turn to before the trouble started, to mentor her and offer some advice on how to start things on the right foot.  She felt helpless now and like a failure.  She lost her building, she filed for bankruptcy, and then had to start over again.

How do you know if you’re in trouble?

•  Have you taken out a mortgage to help fund your business, over and above the mortgage you owe on your house?
•  Do you think that “one big insert event here” will help you turn things around?
•   Are all of your credit cards maxed out?  Have you considered debt consolidation so you can get another one?
•  Have you offered up junky self-prepared financials to someone interested in buying your business, only to hear them say no?

This is a true story for far too many people. Owning a business is high stakes game for the business owner. They have everything to gain, but they also have everything to lose. I still wonder how things might have gone differently for her if she had someone that could have helped her locate the landmines before something catastrophic happened. A person who would have helped bridge that gap between the theory of owning a business and the reality of running one. 

I really wish that in this case it had been as easy as selling lip balm.  

"My Spouse Will Just Do My Accounting."

Wow, if only I had a nickel for every time I've heard that one.  You know who’s never in the room when a business owner makes that comment? The spouse.

I am about to give you a cheat-sheet that will guide you through this terrible idea, in the hopes that your decision will change when you’re done.

•      Question 1 – "Spouse, is this something that you want to do?" Please record the answer to this question on your handy, dandy iPhone thingy.  I want to hear the response.
•       Question 2 – "Spouse, how long will you be willing to help me to do this?"  If the first answer is anything other than “as long as it takes you to find a CPA,” I will buy you a steak dinner.
•       Question 3 – "Spouse, when did you last study accounting?"  This can go two ways.  Either the spouse replies “Never.”  Or “I cannot remember what happened last week…you want me to recall what happened 10 years ago in college?”  Either way, you have detected a problem with your spouse’s level of accounting expertise.  Houston, we have a problem.
•      Question 4 – "Spouse, when will you have time to do this for me?"  Whoa, you need to take a step back….right now.

I get it.  When you have 3 nickels in your business checking account, it makes perfect sense to think long and hard about hiring someone to help with your accounting needs.  It’s ironic that this is also the time that you need someone the most, isn't it?

How your hard-earned money is accounted for affects more than your bank account.  Accounting records are used for preparing tax returns, applying for business loans, and enticing investors to help you out.  If that information isn't classified properly, then you could cause yourself some serious heartache. 

•  For instance, when recording money that you have deposited into your company bank account, do you classify it as capital or a loan?  Do you know the difference?
• Do you know the proper way to record the purchase of a new piece of equipment, like a company car or leased office furniture?  How about that land you purchased, on which your new building is about to sit?
• Do you have the proper tax identification numbers?  Did you know that you can’t start processing payroll until you have them, nor can you open a bank account until you can prove to your bank that the business is legitimate?

Fast-forward two years. Assume you’re still married and that your spouse is still doing the accounting for your business

• Do you know how to respond to that latest tax notice from IRS?  They’re expecting a response in 30 days, and it’s day 28.
• Are you ready for the worker’s compensation insurance audit next week?  Do you have all those payroll reports printed, along with copies if your last four quarterly payroll tax reports?
• Do you know who is supposed to receive a 1099 at the end of the year?

Shoving something you don’t have time to do onto someone who doesn't have the expertise can cause some tense moments at your office, and at your house.  Trust me.  But, if your spouse is willing to continue to help you, it could only help matters to have a professional who can serve as a resource to him/her.  You started this business to enhance your life, not fast-track your ride to divorce court.  But if you take for granted that accounting is “no biggie” and your spouse “can just handle it”, you may be in for a bumpy road.

"Do-Everything" Could Mean "Forgets Some Things"

Sometimes, when you are a “do-everything” entrepreneur, you forget things.  You leave your cell phone at Starbucks; you leave your iPad in the car and it slides underneath the seat, and you find it three days later after tearing apart your home; you forget one of the 3,267 passwords you have for websites you access, and it happens to be the most important one.

On the scale of seriousness, forgetting to file a tax return is at about a 7 (with 10 being what we call a "tax-evader"). 

For business owners, it’s like flossing.  You hate doing it, so therefore you push it to the back of your mind.  It wasn’t intentional, but IRS and SC sometimes don’t care whether you meant to do it or not.  You didn’t file the return, it’s late, and you owe penalties and interest and the fatted calf.  Like Stanley, who owned a construction company and didn’t file a corporate or personal tax return for 4 years.  His corporation was dissolved by the state of SC; he paid nearly $6,000 in penalties for late filing and late payment of taxes; and his poor wife was about to pull all of her hair out.  We helped reinstate his business and get caught up, but the cost for all of this in time, worry and cash was completely avoidable.

We chose to establish Start-Up School to help entrepreneurs understand as many facets of running a new business as our time will allow.  One of those topics covers how the IRS and state agencies can be persnickety when it comes to filing tax returns accurately and on-time.  We seek to arm you with as much information as possible....think of us over the 10-week period as your concierge in the hotel of entrepreneurship.

How is a Business Partnership Like a Marriage?

Partnerships are complicated….sort of like marriages.  You've heard of pre-marital counseling?  I think that every entrepreneur needs to discuss adding partners with someone else who’s also done it….like me.

I have discussed the issues that surround partnerships with many of my entrepreneur clients, as my experience draws both from having a partner of my own for a while and from years of advising clients.  The potential questions that arise often pertain to tax and accounting, since those are the obvious ones.  But what about the touchy-feely questions, like whether or not you actually LIKE the person with whom you are about to share profits and business; what about whether your strengths compliment each other?  Are you risk-averse and prone to hives when things don't exactly go your way, while your partner takes risk believing that "no risk equals no reward"? Not every business question needs to have a dollar sign in front or behind it.

My partner experience ended badly.  Bad experiences fuel great cautionary tales, which is one of many reasons why we established Start-Up School.
Plus, a business partnership cautionary tale is a lot less painful when it has happened to someone else.

You + Payroll = Heartburn

Any entrepreneur that tells me he wants to prepare his own payroll confounds me. I mean….why? As one of my clients told me last year, after trying to do her own payroll for one month, “Payroll is just….HARD.” 
She is an architect. She is a smart capable lady who draws things I could never understand or do myself. So, for her to tell me that, says something about payroll. She had no time to figure out payroll and try to run her new business. 

I don't think payroll is necessarily difficult from a process standpoint. There are software applications that can make it pretty easy. It’s every single thing that comes after you process your paycheck….making payroll tax deposits, filing quarterly payroll tax reports, preparing annual payroll tax forms like W-2’s and 1099’s, new hire reporting, verifying that your new hire isn't an illegal alien…and the list goes on and on. Not to mention any time your employee moves or gets a new bank account or owes back child support their payroll issues become your issues. I don’t even do my own payroll anymore, and I only have a grand total of 4 team members.

Every single client who once allowed us to assist with payroll, then left to do it themselves, always returns with two things in hand….the info for us to begin assisting with payroll again and a stack of IRS and SC payroll tax notices. And did I mention Unemployment? Don't even get me started. When I say that it takes nearly four months to rectify a payroll tax error, I’m being conservative. I had one client who made a mistake in filing an incorrect form, and it took me SIX YEARS of writing letters to fix it. No lie.

Start-Up School was designed to alert entrepreneurs to all of the things necessary to run a business well, and payroll is something that every business will likely encounter at some point. I think that having someone to assist with the proper setup and with answering questions BEFORE the first check is processed is key.   

3 Elusive Accounting Concepts

In my 21 year career as a CPA, I have met scores of entrepreneurs….start-ups, established business owners, and those about to jump into the arena of comfortable retirement. To be successful, you have to understand accounting concepts. But there are some areas that are just elusive….too nebulous for anyone to understand. Enter the reinforcements…the trusted advisor….the CPA.

Retained Earnings:  “Um, what is that number down at the bottom…retained earnings?”  I get this one all the time. I remember having a tough time wrapping my college-aged head around this. I have taken to using the penny jar analogy, and it goes like this:

Imagine that all of your profits from Day 1 have been deposited into this penny jar.  Imagine also that every year that you lose money, pennies are withdrawn from the jar.  And lastly, if you take distributions of profit from the company, pennies are also withdrawn.  What’s left over is your Retained Earnings figure.”  50% of the time, I get an enlightened nod.  50% of the time, I get a hesitant nod, meaning “I don’t quite get it, but let’s move on.”

Dividends/Owner Draws:  Entrepreneurs are a lot like my 10-year old daughter when it comes to profits.  When my daughter receives money for doing things around the house, she wants to spend it right away. Same goes for entrepreneurs who start to see blank ink where their net profit figure resides. So, they remove the profit from the company in the form of dividends.  Trouble is, you can’t do this forever because you will come to a point where those profits have been exhausted. And telling the trusting entrepreneur who has looked to me for advice and guidance that she can’t keep taking dividends quickly turns her into my 10-year old. The look of incredulity is scary. So, I won’t attempt to explain dividends and draws here, but suffice it to say that I will spend hours explaining this concept in Start-Up School…it’s not an easy one to understand.

Accrual Basis Accounting vs. Cash Basis Accounting: My therapist probably makes money off me due to the stress that this conversation causes with my entrepreneurial clients. There’s a reason “accrual” has the word “cruel” in it.I should just place a bull’s eye on my face and give them a hammer.  So, I've tried to use this example:

Accrual basis accounting records income and expense when incurred…you send an invoice to your customer, it counts are revenue. You receive your utility bill that is due in 28 days, it counts as an expense. Cash basis accounting records ONLY record things when cash is received or spent. But, there is one exception….credit card expenses….

And then I lose them. Insert bull’s eye and get your hammer.

I get it, this stuff comes easy to those of us that do it every day. But, as I have said, I don’t change my tires because the guy at the tire shop does it all the time and it takes him 30 minutes. Entrepreneurs like to be “do-everything” people, but sometimes you gotta call in reinforcements to explain retained earnings and why it’s important.  That way, you can get back to filling that penny jar.

#salestaxhurts

How many people do you think work for Target in the area of sales tax implementation?  I don’t know either, but I’d imagine it’s quite a few.  I recently read of an error that Target made in Richland County (South Carolina) in the addition of a 1% tax that didn’t apply to sales at all, but to transportation.  Some shoppers noticed that their taxes were too high on the receipts, by only 1%, but too high nonetheless.  The SC Department of Revenue worked with Target to fix the problem, and all was well.

How many people do you have helping you with sales tax?  Is it less people than Target has?  I bet it is.  If Target can mess it up, do you think you can?  I bet you can.  Do you think it would be helpful to have someone walk you through the pitfalls?  Yeah, I bet you do.

Money Pit Pitfalls

We have many clients who own real estate, and not one of them is named Trump (thank goodness).   The complicated tax rules that surround rental properties, both commercial and residential, are many and understanding is limited.  Even tax professionals have a hard time with them, so can you imagine how confusing it is for someone who just wants to purchase a fixer-upper for $300 of monthly income?

We had a very difficult case arise with Ron and Anne, who purchased a commercial shell in a distressed area to turn it into a commercial rental property.  Anne owned a business that was going to utilize half of the building, and they planned to get a renter for the other half.  This tap dance went on for three years, and no one was renting anything.  Anne devoted most of her time to working with contractors and real estate agents, doing anything and everything to rent that place, and she felt as though she should be able to deduct all of the expenses related to the property.  We felt that it was a toss-up, and informed them of the possibility of losing the case under audit.  And that’s exactly what happened.

We never like losing something under audit, but we certainly learned a lesson that we’ve been passing along to every single client after them.  You can bet that we’ll share this story with our Start-Up School attendees because this lesson is a golden one.

Outsourcing Isn't Defeat...It's Growth

Entrepreneurs are “do everything” people.  I’d say that it is difficult to run a successful start-up if you don’t possess that trait.  The entrepreneur crosses a milestone when she realizes that she can’t do everything forever.  Just like we tend to allow auto shops to change our oil and rotate our tires, there comes a time when outsourcing some of the important aspects of your growing business becomes necessary.

Outsourcing is a difficult call to make, because it costs money.  Maybe it will cost you slightly more up front than you benefit.  But, done properly, the outsourcing should eventually free you up to make a quantum leap in profitability.  We aim to discuss how to do this properly when Start-Up School convenes in the Spring.

Outsourcing should provide mutual benefit.  In other words, if you experience more problems with the outsourced task after you delegate it than when you were doing it yourself, then something is wrong. 

Understanding the end result of your outsourcing decision is key, and Start-Up School was designed to help entrepreneurs assess these types of situations with a critical eye toward success.

Margins Don't Just Exist on the Edges of Your Paper

It’s difficult to find a business that lives and dies by its gross margins any more than a restaurant.  Margins can make a restaurant very profitable, but failing margins will close the doors for good.

We began working with a local restaurant, providing very basic services like tax preparation and financial statement generation.  But everything we did focused on the past…what happened last month or last year.  We were asked by the owner to prepare real-time financial reports and weekly profit & loss reports so he could track his margins.  With our assistance, he was able to improve his margins by nearly 9% after he was able to see the areas that needed improvement each week when reviewing our reports.  His year-end profit increased by nearly $60k by engaging us in this enhanced role.

Restaurants are among the most difficult businesses to run, manage, and sustain.  Let's face it....tastes are fickle.  But bad food is only one reason that most restaurants fail, and I bet it's not even in the top three.  I would bet that the top three reasons relate to finances. We hoped when Start-Up School was formed, we would have the chance to work with more restaurateurs (yes, I did spell this word correctly....check it if you don't believe me) from the beginning to make them aware of what they didn't yet know about restaurant finances. For us, that's rewarding work and the ultimate "pay-it-forward."  Who knows...I may get some free entrees out of this!

3 Common Newbie Accounting Errors

1.      Death.

2.      Taxes.

3.      QuickBooks Pro accounting errors made by newbie entrepreneurs.

The three things we can count on, as CPAs.  As sure as the sun will rise, and as sure as Congress will never understand what it means to own a small business, we will see the same errors made by every start-up that attempts to do its own accounting.  I will refer to QuickBooks Pro here, because that’s what my clients use.  But you can insert any accounting software name here.  We see these errors all the time, and advise start-up entrepreneurs on how to remedy them…or sometimes do it ourselves.

Setting up a chart of accounts that would make GM flinch:  For most small businesses, I would estimate that all accounting could be done through maybe 30 general ledger accounts.  More than that, you start to have duplication and confusion, not unlike the Duggar family. I have seen the following accounts set up in QuickBooks…taxes, payroll taxes, property taxes, federal taxes, state taxes, estimated taxes, business taxes….in the same QB Pro file, for one client.  You’re not Bubba from “Forrest Gump.” Consolidate, please.

Never reconciling the checking account:  OK, this is dangerous.  Checking the bank balance online each morning is NOT the way to run your business. Actually comparing that intimidating, three-page bank statement to your accounting records is a good thing, grasshopper.  I met with a prospective client that ran a $3m company, and he wasn't aware that his in-house bookkeeper hadn't reconciled his company accounts in more than two years. I was seriously fearful of the mess awaiting me (for good reason, I later found). Make it a habit, like your morning coffee or reading the Twilight series.

Recording deposits from customers incorrectly:  I once saw an accounts receivable balance in QuickBooks Pro for -$1,845,526.  This company was nearly 10 years old and had never once recorded a customer revenue deposit correctly.  And they had never balanced their checking account (see the previous paragraph). When it came time for the business to entertain buyers, they wondered why no one was knocking down their door.  This was one of those problems that I just didn't think we could fix.  It would take less time to press “delete” and start over again.  Even my love for Single Malt couldn't get me through that housecleaning.  Sheesh.

There really are people who have no business doing their own accounting.  I’m not ashamed to say that.  But if you insist on doing your own accounting, watch these three things so that I don’t make fun of you when I review your work.  Because I will make fun of you.

Pricing for Your New Business - A Longer Process Than Ordering Take-Out

Pricing is difficult.  How do you determine how much to charge?  Do you compare your prices to others in your industry, then add 10%?  5%?  What if you could set your own pricing strategy, determined solely by the value you bring to your customers?  Charles thought I was nuts when I brought this up. 

“I know what my customers will pay me, and if I raise my prices, I’ll lose them.”

My answer to him went something like this:
"Of course you’ll lose them if you raise prices but give no additional value in return. But can you agree that prices should rise when you receive more?  I’m talking a little about raising prices, but more about making your services so important and valuable to the customer that they’d never think about leaving you." 

I’m talking about creating a scenario where your customer LOVES paying you after every interaction. One where you bring so much value to the table that they rave about you to everyone they know. I'm talking about reevaluating what you are doing, not gouging your client. 

It doesn't surprise me that most entrepreneurs don't know how to price for their service or their product. Most of the time, they are still thinking like a customer. Which is important, but one-sided. When you price a service there is more to it than just, "What can I get someone to pay for this?"

I thought I knew how to price for the longest time. But when I came to dread the question, "So how much?" I came to the realization that I had no clue. What caused my stomach to churn and my speech to stammer was that I had no real foundation for where these "prices" were coming from. Which meant that if I was pushed at any point, everything became negotiable. Then I found myself doing work I didn't really want to do for less than it was worth. And that was frustrating.

If you have a franchise, you have limited opportunities to change your prices.  But for those of us that don't work within a franchise environment, pricing strategies feel a little like the "What came first, the chicken or the egg" exercise.  You don't know what people will pay until you put something out there, but you don't want to price something too high for the fear that no one will buy. Check, please!

I wrote the Start-Up School curriculum piece on pricing first, because to me, it's one of the most important elements of any new business venture. The mindset you have toward the pricing in your business will make or break it.  If you think that's shocking, wait until you hear me say "Cost has nothing to do with price."  
(I just blew you mind, didn't I?)

"Numbers? Eh."

"I know how successful my business is by looking online at my bank account."

When someone tells me this with a straight face, I am immediately nervous.  It just isn’t possible. Financial statements give a more complete picture of the business' health.  If you don’t know how to read financial statements, you’re in trouble.  Period.

"But, I’m not a numbers person."
Is not the thing to say to a bank when you are trying to get a loan.

"I’m a big-picture thinker. Numbers just bog me down."
Is not what you tell your vendors when you haven't paid them.

"I’m better at marketing." 
Is not what you say to your one employee when their payroll check bounces

"I’m not a “business person.” (Yes, I've actually heard this from business owners.)
Is not what you say when the IRS levies your account to pay back taxes owed by the business you own.

You better learn to be a numbers person if you want to run a successful company.  This is one of the reasons we established Start-Up School. What better place to learn how to read important financial data than in a series of one-on-one mentoring sessions with a CPA?  What if you knew exactly which numbers were the most important, and you could focus on them? You can and you should.

The Heart-Attack-Inducing Certified Mail

Audit.  Certified mail.

Two things that strike fear into the heart of any business owner.  When Louis’ company was randomly chosen for an audit, he sent in the notice for our review.  At first glance, it looked like every other random notice.  But Louis knew something I didn't know.  He discovered that his company had accidentally omitted revenue from his tax returns, because he had no accounting system in place to effectively track his activity.

There will eventually be many lessons learned in this ongoing situation, not the least of which is that sometimes you need someone else to help you track your business' finances.  After all, Louis is great at his job...he sucks at accounting.  But, to Louis' credit, he is the typical "head-down, nose to the grindstone, works from dawn to dusk" entrepreneur, and he adds value to his customers' lives.  He's got most of it down just fine.  He could use someone to round off the edges of his business' financial house, you could say.

We are firm believers in the adage that "You don't know what you don't know."  In fact, when my wife Meghan and I came up with the idea for Start-Up School over a couple of beers one evening in a local restaurant, we wrote down a long list of reasons why we felt this was a great idea for entrepreneurs.  She wrote that quote within about three minutes of brainstorming.  Teaching entrepreneurs through real-life experiences is why we're here.

Three Reasons Business Plans Shouldn't Be Comic Books

When I started my CPA firm in May 2002, I wrote a business plan.  I wrote it because I thought I was supposed to write one….I needed something to distribute to potential banking partners, right?  I put together a bound, thirteen-page work of autobiographical non-fiction and numerical fiction that was sure to wow anyone that read it.  I took it to my favorite bank, walked out with a $50K unsecured line of credit, and was sure that it was my business plan writing prowess that did it for me.

But, I know now that it wasn't.  The reason I know this is that I projected profit in the third year of my cash flow projections that I, to this day, haven’t yet achieved.  My business plan, except for the parts that were purely autobiographical, was crap.  It is comical to read it now.  For a CPA, I sure put together some junky financial information.

On what basis did he grant me that large, unsecured line of credit? I had banked with this bank personally for many years, as had my father and his small business.  Maybe it was that.  Maybe he called some people who knew me.  I know for sure it wasn't due to my prowess in crafting my own financial projections.

What can we acknowledge to make sure we aren't competing with DC Comics’ Batman Eternal #41?

You don't have Spider-Sense, so you can't predict the future. I think that readers should assess your grasp of grammar and your ability to use spreadsheets to prepare financial information, not commit to your version of the future as predicted in your business plan.  

Ask yourself, would Bruce Wayne endorse these financial projections, or would his Board of Directors at Wayne Enterprises advise against that?  Today, things change too quickly.  I think that preparing financial projections is a good exercise (see, I used that word again), but to think that lenders and investors hold you to those figures is folly.  Unless you’re starting a business with a guaranteed customer list and immediate, measurable profitability, the projections are shaky at best.  And, we all know now that running a business and generating profits isn't the same as sitting in your cubicle and sniping at your boss from a distance. 

Lenders, customers, and investors buy into Hulk, not his well-crafted anger management plan.  In the small business world, you can have a great idea for a business and be a total jerk, only to find that no one wants to work with you.  You can be genuine, care about your work and your potential clients or customers, and have a less-than-stellar presentation, only to find that you've impressed people with what is inside YOU, not the business plan.  Today, people care far more about why you do something than what you’re actually doing.  You can almost bet that you aren't the only person in your line of work, so it has to be about more than just the business plan.

I’m not saying that you should never have a written business plan.  I’m simply saying that you need to call it what it is, and depend on it only for what it can do for you.  It’s an introduction to WHY you’re starting a business, and then WHO you, as the owner, are.  Blow people away with serving customers, not with a well-bound work of fiction.  Save that for the authors.

"But, I didn't know."

James owned a successful construction company, utilizing some of the best subcontractors around.  However, one of those fantastic subs was relieved of his duties when he came to work drunk for the third time in a row and he decided to file for unemployment benefits.

This subcontractor thought he was entitled to them, even though he wasn’t technically James’ employee.  The unemployment office told the terminated subcontractor that he may have been compensated incorrectly….maybe he really was an employee.  Maybe this deserved a second look.  So, they audited James' construction company, and found that most of the “subcontractors” were, in fact, James’ employees.

James had to pay a hefty amount of penalties, going back three years, and re-file every payroll tax return for those three years.

Lessons are effective no matter when they’re learned.  It just would have cost a lot less if James had learned his lesson BEFORE the audit.  We have a passion to teach entrepreneurs and allow them to learn from our mistakes. That’s why we chose to create Start-Up School….why make needless mistakes and learn the hard way when we can run interference for you?

Why Will Start-Up School Help You?

Start-Up School fills a void that most entrepreneurs will have in the very beginning of their new adventure.  You can’t know everything immediately, and you’re going to make mistakes.  That’s inevitable.  But, we feel that serving as a mentor to a new entrepreneur will allow us to point out problem areas before they become crippling, and also share our experience of succeeding, failing, blowing things up, and starting over.

Every entrepreneur feels alone in the beginning, no matter how many people she’s surrounded herself with or how large her office may be.  We want Start-up School and our mentoring relationship with that entrepreneur to be a source of strength and comfort, and a value-add to a thriving new business.

A successful mentoring relationship requires a few things to remain valuable to the parties involved:

• Mutual trust
• Mutual caring
• Freedom to voice opinions
• Truth
• Availability
• A desire to see the other person succeed in their role

Entrepreneurs benefit from having a mentor in many ways, but here is a big one:  We ask questions that may not have been asked yet, prompting answers that lead to more questions, whose answers hopefully point the way to success.  It's hard to get that interaction while working away, with your head down, stressing about paying bills, and trying to time your next Tweet.  This is how we envision Start-Up School helping our "students."

How Sick Day Policies Turn Your Business Into a Daycare

Sick day policies have been in the news lately.  This isn’t a political commentary, I promise.  I am a fellow entrepreneur, and there are times when we can write our own rules as long as we don’t break the law or discriminate. This is why I think that sick day policies, for the most part, suck for small businesses.  I tend to gravitate toward “trust and reward” than “police and punish.”

Most business owners write sick day policies like David Hilbert wrote algorithms.  “If you work for three consecutive orbits around the sun, then you are entitled to one Earth day of sickness, provided you bring us a vial of infected blood and a note from your physician of record.”  What the hell?  Why not give the new employee a slide rule and a set of litmus strips and wish them good luck?

Sick day policies immediately make everyone think they have to call you with hourly updates.  I have a 10-year old daughter, and I can remember her daycare calling me hourly to update me when she showed the smallest sign of not feeling well.  “Mr. Godwin, she’s not as active as she usually is, but she ate her strained green beans so we think she’s OK.”  I had a client tell me the other day that one of his employees called him to let him know how her…um, intestinal regularity…had turned into chronic stomach upset…no lie.  And she was much more graphic than I’m being here.  You could be reading this over lunch, right?

You become the hall monitor.  Jeez, running a business is hard enough without you having to read a doctor’s note and a summary of hourly fever changes.  You’re making things happen….generating profits….talking about matters of state….being the MAN.  You have no time to do a drive-by and make sure that your employee is really in bed and not waiting in line for “Mockingjay” tickets.  Give me a freaking break.

If you can’t trust your team, then you don’t need them in your office.  If you can trust them, for the love of all that is holy, please don’t treat them like children.  If you expect them to deliver like grown-ups, treat them like grown-ups and they will.  Life is too short and entrepreneurship is too challenging to require you to act like someone’s second grade teacher.  I get it, Mr. President….paid sick leave makes for a great headline.  But for small business owners, let’s call it “salary.” Get out there and tear up your sick day policy, and then watch people act like adults.  It’ll change your life.

The Prayer Walk

You may think by the title of this blog that I am writing about a spiritual experience.  Maybe I am, but it didn't feel that way at the time.

If you've owned a business for any period of time, you've made the Prayer Walk.  This was my version of the Prayer Walk:

My first office was in an old house, built in 1909.  I had no mailbox, only the slit in the door where the postal carrier would PLOP my mail.  When it hit the hardwood floor, it made this popping sound and I was out of my chair and on my way.  I was on my Prayer Walk.

You see, when I started my firm, no one paid you online or with ACH.  You got a check.  Every now and then, someone paid in cash.  But 99% of the time, you got a check by mail.  I can distinctly remember days of updating my accounting records and looking at a small balance in the checking account, knowing that I had to make payroll the next week or pay my rent.  I would say aloud “How am I going to make that happen?”

When I would hear the mail hit the floor, my Prayer Walk began.

Two steps…echo, echo….Please let there be a check in the mail.

Two more steps…echo, echo….Please let there be a check in the mail.

Two last steps…I only need $750 to get me to next week….come on, no Whammies, no Whammies…

Then, I would see the result of my Prayer Walk.  Some days, prayers were answered.  Other days, I was told to ask again later. Prayers aren't always answered when you pray them and sometimes they aren't answered at all.
Sometimes you are required to hold on until the next day. Which means you have to figure out how to hang on one more day. String together enough days of "figuring it out" and you are running a business, like any true entrepreneur.

We Are Who We Serve

Meghan and I heard a news story this morning on NPR, and the interviewee was a financial planner.  He said “It’s not all about money.”  Meghan chuckled and said “Only people who have lots of money say it’s not all about money.”  I had a good laugh at that, but I began to think….Are we who we purport to serve?

I confidently answered yes to that question.  In the case of our Start-Up School, it definitely is so.  We are entrepreneurs.  I didn’t start out as an entrepreneur, however.  I can honestly say that over the 12+ years I’ve owned my firm, I have only been an entrepreneur for about half of that time.  I couldn’t have offered this class to entrepreneurs after owning a business for 5 years….I wasn’t ready.  I didn’t know the difference between a technician who began a business because he was angry about how he was treated at his previous job, and an entrepreneur.  Frustrated technicians don’t have the vision that entrepreneurs have.  They’re too busy being technicians!  I remember what it was like to be frustrated technician, and I can definitely speak about how it feels to make that transition.

So, yes, we are who we serve.  That is what makes this Start-Up School experience so much broader than the free hour you get with the speaker at the latest Chamber of Commerce function.  As your designated mentor for this intensive 10-week adventure, I will deliver information, opportunities for learning and share life experiences in order to prepare you for your entrepreneurship journey.  Because that’s what it is….a journey.