“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.