CHAPTER 17:
ACCOUNTANT JOKES: BUILDING YOUR FINANCIAL TEAM
A portrait of playwright August Wilson by Stormi Greener.
I don't know why there are so many lawyer jokes and almost no accountant jokes. My Certified Public Accountant (CPA) is a pretty funny guy. His name is Jim Orenstein (no relation). When I first started working with him twenty years ago, I had just opened my first studio and my gross that year was about $9,000. A couple of years later, he said, “Hey, I think you're going to break six figures gross this year.” A couple of years after that, he said, “Looks like you're going to break half a million gross this year. If you do that, I'm going to start telling people we're related.”
But I guess that's not an accountant joke, it's an accountant making a joke. Maybe there are no accountant jokes because having a good CPA is the keystone to building your successful business — and that's not a laughing matter.
GET THEE TO A CPA
“Most people go to a lawyer first when they're looking to start up their own business,” says Orenstein. “That's a mistake. You need to start with a reputable CPA who specializes in small businesses. He can start you out from ground zero: getting a tax ID number, helping you structure your business, choosing what type of entity you should be. Going to a CPA first can save you some needless expenses. Then, when he's got you up to speed, he can refer you to the other professionals you'll need to help make your business successful.”
NOT JUST ANOTHER PRETTY FACE
You don't just want an accountant — you want a CPA. And you don't want just any CPA, you want one who specializes in small businesses like your own. Preferably someone whose firm is also relatively small.
“Larger firms can't afford to put experienced CPAs in their small business divisions because they can't charge them as much as they do their big clients, so the small business person gets the newbie, who can't offer the same level of service a more experienced person would bring to the table, and who might not even be at that firm next year. If you choose a CPA with a small firm, you'll pay less for a higher experience level.”
HOW NOT TO FIND A CPA
Do not pick one randomly out of the yellow pages — that doesn't give you enough information to make one of your most important business choices. Do not pick one because he's in the neighborhood. You don't pick your doctors or your dentists because they're close by, you pick them because you trust them with your health and your teeth. It should be the same with your CPA.
A macro nature image by Kerry Drager.
THE BEST WAY: WORD OF MOUTH
The only way to choose your CPA is through word of mouth. Get referrals from people you know and trust, and who have businesses of a similar size to yours. Then once you have your CPA, he can help you assemble that team of advisors you're going to need.
A landscape by Brenda Tharp.
IT TAKES A VILLAGE
Orenstein says you need a team of advisors to help you in your business. Your CPA should be the director of this team. “He's the one you see the most — well, hopefully he's the one you see the most, if you see your lawyer the most there's probably something wrong,” Orenstein says, exhibiting that accountant humor once again.
Who comprises the rest of the team?
YOUR FUTURE: BE SURE YOU CAN BANK ON IT
“Your banker is very, very important to the success of your business. Not just the bank, the institution, but the person,” says Orenstein. “You should get to know him, socialize with him. This is one guy you should take out for lunch and establish a relationship with so when you need him, he already knows and trusts you and he'll help you out.” Most people never talk to their banker until they're in trouble, and that's a less than ideal time to establish rapport. Pick a banker who will be around for a long time. Typically, larger institutions have higher turnover. So choose an established individual who's affiliated with a small- to medium-sized service-oriented bank.
A nature image by Lewis Kemper.
SOMEONE TO KEEP YOUR DUCKS IN A ROW
Perhaps as important as your banker is your bookkeeper. “In all likelihood you won't need a full-time bookkeeper, you just need an independent contractor. You need someone called a ‘full charge’ bookkeeper. Not someone who used to foot columns for [a department store],” says Orenstein.
There is no “full charge” certification for bookkeepers, so you'll have to rely on your CPA's recommendations about who to hire — another reason it's essential to have a CPA you trust. Beware the CPA who offers to do your bookkeeping for you himself — a full charge bookkeeper can do anything your accountant can do for you for much less.
What about all those stories about bookkeepers running off to Brazil after embezzling the company funds? “You never give the bookkeeper access to cash — never,” says Orenstein. He also advises keeping separate duties. The person who collects the money shouldn't be the one to disburse it. People are less likely to collude than to act on their own to siphon funds.
Your bookkeeping is best done by a hired hand rather than a family member. “People will come in here and say, ‘My wife is going to do the books. We bought QuickBooks, and that's go-ing to save me loads of money over having to hire a bookkeeper.’ But that's penny-wise and pound-foolish. Doing bookkeeping is not where you make your money. Creating, marketing and selling your product is where you make your money, and where you should focus your time and energy.”
Orenstein also warns against the allure of programs like Quick Books. While they're efficient tools for some situations, they often take time and energy from your main focus — creating, marketing and selling your work.
SPECIAL AGENTS
The next folks to add to your village are insurance agents — several of them.
• LIFE INSURANCE AND DISABILITY INSURANCE. What do you think you need more — life insurance or disability insurance? Yes, this is a trick question. “Everybody thinks they need life insurance,” says Orenstein. “Everybody has life insurance. Hardly anybody has disability insurance. But you are much, much more likely to become unable to work than you are to die prematurely. So disability insurance is much more important to have. You need an insurance agent who will assess your personal needs and honestly guide you to the best products for you. Buying insurance is like buying a car: They can load it up with accessories that drive up the cost unnecessarily. For instance, you can buy an inflation rider. But that's ridiculous. Because if inflation goes through the roof, wouldn't you just buy more insurance? They're asking you to insure your insurance! That's why you need an honest agent, someone who will tell you when you really don't need the bells and whistles.”
• BUSINESS INSURANCE. Many items fall under this category: worker's compensation, unemployment insurance, liability insurance; health/medical insurance and casualty insurance. “You want a good agent who knows how to write a plan that covers everything you need covered,” continues Orenstein. “For instance, let's say all your cameras are stolen or destroyed. You go to make a claim, and you find out your cameras weren't covered — your most important tool for your business!”
No matter what type of insurance you're buying, you need an agent who isn't loyal to just one company, because he only gets paid if he sells you their products. You also want someone who stays in touch with you, who calls you now and then, and checks to see if your situation has changed — your needs can change, and insurance products are changing all the time.
LEGAL EAGLES
You will need a lawyer or lawyers. There's a whole smorgasbord of different specialties, including employment law, tax law and others. Is it okay to use a generalist for your business law needs?
“I think it's fine to do that,” says Orenstein, “because a good, reputable generalist will point you in the direction of another professional if they find themselves in over their head.” Another advantage to using a generalist is that you'll see them more frequently than if you have a whole stable of attorneys for different issues, and you'll establish a better relationship. We'll look more at lawyers and legal issues in chapter eighteen.
WHAT ABOUT A FINANCIAL PLANNER?
“Ideally your CPA also acts as your financial advisor,” says Orenstein. “I don't believe in financial planners — the person advising you shouldn't also be making commissions on investment products he's selling you. Often the brokerage houses underwrite the stocks they're selling.”
Orenstein recommends picking a solid-performing stock in each of several different industries: energy, medical and technology, for instance. Then buy the shares, stick them in your safe-deposit box and forget you have them. Stay in for the long haul — the only person you'll make rich by doing a lot of buying and selling is a broker.
“The best place to invest your money is in your own business. That's where you're big returns will be,” Orenstein concludes.
GET A CREDIT LINE BEFORE YOU NEED ONE
Early along, when your business is showing a healthy profit and regular growth, you should establish a line of credit. It doesn't cost you anything, and you may never use it, but it should be there if you need it. If you wait until you're in trouble, no one will extend you credit. It's the old “you can get it if you don't need it, but you can't get it if you do need it” routine.
TO BORROW, OR NOT TO BORROW
Let's say you want to open a photo studio and you've already got some adequate camera and lighting equipment. It's not pretty, but it does the trick. Thing is, you'd like some nicer, fancier stuff so you can put your best foot forward when you open your new business. Is it justifiable to take out a loan to cover this expense?
A portrait by Vik Orenstein.
“You have to make realistic projections,” says Orenstein. “Let's say you've been working at a big studio for a while, and you have some loyal clients who will follow you when you open your own place. They amount to maybe $30,000 worth of business each year. You figure that to make your business expenses that first year, and to feed your family and have enough to live on, you need to make $75,000. Then you go month by month and figure out what gross you can expect. $1,500 the first month because it'll be slow to begin with. $2,500 the second month, because that's the beginning of your busy season. $3,500 your third month, because you'll have picked up one new client by then. With some luck, hard work and marketing, you'll be able to realistically turn that $30,000 worth of clients into $40,000. That still leaves you $35,000 short. So you march down to your banker and you get yourself a line of credit, but you don't use it if you don't have to. Wait on that fancy equipment until you see your projections and your basic expenses being met. Then you'll be able to justify that kind of equipment purchase. But not right away. You need to prepare yourself for your worstcase scenario.”
Your CPA has the business knowledge and experience to make accurate projections. Trust him to help you, and you'll avoid stretching your funds too tight.