Inside Scoop

In July of 2006, my brother bought an ice cream shop in Martinsville, Indiana.  Not just any ice cream shop...  it is The Inside Scoop in Martinsville!  The last five years provided John, his wife Stacey, and me with a lot of learning experiences.  And now, as we look toward the next five years, the risk of owning a small business is ready to pay dividends.

The year 2006 was the last of a ten year steady minimum wage of $5.15/hour.  In 2007, the rate would begin a three year incline to its current level of $7.25/hour.  Most of The Scoop's workers are students earning minimum wage.  Because of these minimum wage increases, the first three years of ownership saw an 11% to 14% increase in most of their employees' paychecks.  Personnel costs as a percentage of income went from 30% to 35%.  During the second and third years, scheduling cut-backs were made to attempt to keep personnel costs at 30%.  The wage issue had a tag team partner.  In 2007, the price of milk took a steep step up.  Turns out ice cream shops use a lot of milk.  This caused cost of goods as a percentage of income to go from 35% to 45% in the first year.  The reaction to this for The Scoop was to lower inventory and to shop around for lower cost suppliers.  These two issues were combined with normal maintenance and business development costs.  A few pieces of equipment were replaced, a few new machines were brought in to offer new menu items, a water line broke, the store was painted, the parking lot was paved, etc.

In looking back over the first five years, the most impressive thing to me that John did was get the facilities up to a high standard, and then keep them there despite the cash flow issues.  It is easy to let things go.  Everyone knows a leaky pipe doesn't get better with time, it just keeps getting worse.  Despite that knowledge, most of us tend to let the leak go until we have to do something.  Since the beginning, The Scoop has fixed all actual and figurative leaks when they start.  The facilities are in their best shape in years.  The machines are newer, and extremely well maintained.  And the parking lot is the smoothest and cleanest in town.  This has been the reason a few attempted competitors did not succeed, and over the past three years, The Scoop has broken even financially.  This is not a small feat in this economy.

The Scoop has its normal decision to make at this time of year - when to close down for the season.  Most years, this has been a fight between John, Stacey and me.  But this year is different.  No major repairs were needed this year, and personnel costs and costs of goods sold as a percentage of income were close to the budgeted 65%.  That makes staying open throughout October a viable option.  The decision to stay open hinges on one thing, the ability to cover your variable costs.  Fixed costs are going to be paid no matter what, so they should not factor into the decision.  With 35 cents of every dollar of income going to costs of goods sold, The Scoop has 65 cents of every dollar to pay for labor, utilities and other miscellaneous costs.  Based on the past five years, these costs should be approximately $4,300.  A quick break-even calculation shows that The Scoop needs to have $6,500 in sales to cover expenses.  They have met this number every year so far.  So, this year, the decision is easy.  If you are in Martinsville in October, be sure to stop by and get your pumpkin flavored ice cream.

So why is the future so bright?  I mentioned the facilities before.  They really are in great shape, which is a huge advantage over The Scoop pre-John and Stacey.  A system for managing labor and inventory is also in place.  It will always need tweaking, but the first thing for any small business to do is get systems in place.  And the most important reason...we, as a society, are finally beginning to react appropriately to our economy.  I won't say the economy is on its way up, only time will tell.  But we are all beginning to realize that we drive the economy, and until we start moving forward, the economy won't.  This is allowing us to begin budgeting again, so we are able to pay down debt while taking time to enjoy ourselves.  2011 saw a bit of this, and it should only increase in 2012.  For The Scoop, pitfalls still exist.  Good employees will come and go.  Vendor price wars will always occur.  These things will always have a major impact on the bottom line.  However, as long as John and Stacey keep the facilities up to a high standard, and consistently pay down debt, the future will remain bright.

My goal for this month is to get all the accounting records updated.  This includes reconciling the bank accounts, filing all the payroll tax forms, revisiting the income tax estimate, and updating the budget vs. actual worksheet.  This will put us in a great position to start planning for next year and beyond.

Chronicles of a New Business: Planning II

The last post ended with my second phase of planning - the marketing strategy. The final part of the plan includes aspects that are all new to me as a business owner. Everyone creates budgets, and every accountant has some sort of marketing plan, even if it isn't written down. Previously, while working at the firm, I had been pretty insulated from administrative decision making. I did a great job of sticking to my pay grade. Over the years, I recommended hardware purchases, software purchases, marketing purchases, etc., but I never made the final decision. That was done by the owners, and that was fine. The decisions are mine now, and I'll make them all the only way I know how. I will research like a mad man, and then make a decision with 100% of my firm's support. Luckily, my wife is the only other person I need to sell my decision to.

My first decision was hardware. A good computer was important to me. I began pricing around and found that my first year budget didn't justify as much as I wanted with a new computer. So I began to look for a less expensive alternative that could get me through the first year. This basically meant refurbished from a store, or a cast off from someone I know. The price on refurbished computers still seemed high. I don't mind buying a refurbished computer, but it needs to be under warranty for a few years if I do. At that point, the pricing got close to $1,000. That was a little more than my budget allowed. Luckily, I found a great option from family. I had a computer that I had given to my Mom. It was a work computer that was phased out a couple years ago. It was six years old, but could do anything I needed it to. My Mom wasn't using it, so it was a perfect fit. I needed to do a few things to get it ready to use. I bought a second video card so I could have two monitors. I also bought a second monitor, and maxed out the RAM. Total cost of my work computer was $200. That worked for my budget. This was my thinking with all other hardware also. I already had a phone that worked fine. I used Google Voice to organize my office phone. I bought a laser printer, the cheapest I could buy, with the realization that I will likely replace it in a year.

My next thought was location. This wasn't as important of a thought for me because I knew my work station would be in my office at my house. The only planning required was for a place to hold client meetings. Again, family helped out a ton. Mark Just was kind enough to allow me to use conference room space in his beautiful building as needed. Someone else offered the opportunity to use office space on the Northwest side of town if needed. I will also be working with Black Swan Brewpub. That will become a great place on the Southwest side of town to meet clients for lunch or dinner. This gives me many great options, allowing me to be very flexible as I grow.

My next decision was software. I have used several software packages over the years. My main goal was to be as technologically advanced as possible. That meant going to the Cloud. I hate this name, but I really don't have a better suggestion, so I guess I'll live with it. The software I will use will allow me to log in anywhere I have an internet connection. It also will allow clients to have a place to get their tax returns whenever they need them. These two pluses were enough to sell me. As mentioned above, with multiple meeting places, being able to connect to my tax planning or preparation software is crucial. I don't have an assistant who can manage the electronic documents. Therefore, if clients need a return, they either need to be able to retrieve it themselves, or I need to email it to them.

Another decision was marketing materials. I am a huge fan of Google. Free and easy to use, what is not to like? I created a website through Google sites. I registered a web address and pointed it to my site through godaddy.com. This was almost free and very easy. This blog is obviously through Google as well. As discussed in my marketing plan, I also needed a pamphlet to hand out. I spent time writing down short blurbs for specific target markets. These are brief and intended to provoke discussion with prospective clients. I also designed business cards and ordered 500 of them. This was easy through a website, and pretty inexpensive. My only goal with the cards was to list my name and contact info. I can update these as business grows.

So, I was now left with the most important decisions I had to make. These decisions were actually made toward the beginning of planning, but they changed all the way up to the jumping off point. They were my name, mission statement and colors. The name was decided fairly quickly. I could have gone with Big Bob's CPAs, or something not linked directly to me like Shake and Bake Advising or Wolfpack Accountants. But these all seemed better fantasy football names than CPA firm names. In the end, I chose a name I am very proud of. My family has always been who I am. My Dad and his sisters and brother are a tough bunch who command life by always keeping a smile on their face. My sister, brother, cousins and I have lived this way as well, and have done all we can to pass this on to our kids. Using my name as my firm name assures that I will do everything with the utmost care, a high quality of ethics, and a smile. Helping clients attain financial stability by creating a simple system to account for current cash flow while budgeting for future cash flow has been my focus since becoming a manager four years ago. Peace of mind is invaluable, and the skill set I have been blessed with makes my purpose helping others attain comfort in their financial position. This comfort better enables the people who's skill set makes them sales people, doctors, dentists, veterinarians, financial planners, engineers, fireman, policeman...you name it...to do their jobs. My motivation is assisting clients in being able to have total focus on their jobs without worrying about an unknown financial position. Hence, the mission statement, "Stability Made Simple." That just leaves the firm colors. Those who know me know how important Purdue is to me. Going there was the greatest decision I didn't make for myself. That being said, black and gold have been with me even longer than that. My middle school's colors were also black and gold. I have a lot of great memories of my years at both schools. Without the experiences I had at both, I would not have the opportunities I have today.

Planning is now done. Time to get to work. I'll write next month how the first month went. Please know that my family, friends, clients and business associates are very appreciated for all they have done for me. I will work as hard as possible to make it all pay off.

And now, I jump off.

Chronicles of a New Business: Planning

Since this blog is being done primarily as a marketing piece for my new business venture, it seems fitting that I start a series about that venture. First, I will discuss the planning of the business. This has been going on for quite a while. Four months to be exact. At the end of April this year, I took my family out to Denver to visit my sister. At that point, I was pretty drained. Busy season had a lot of good moments, but there were also a lot of moments that made me realize this change was needed. I took this vacation as a chance to step completely away and enjoy the more important parts of life, most notably my family. After the trip, I launched fully into planning mode.

My first order of business was to put together a personal cash flow analysis. This is a backward calculation that starts at zero and goes all the way back up to the cash I need to bring in to make my lifestyle work. The key to this was being honest with myself and being conservative. The worst spot I could see myself getting into was budgeting for a $100 monthly electric bill and it actually being $150. $50 off doesn't seem like much, but 50% off can be a real issue for your overall budget. This first step took maybe six hours. But over the next four months, I would put much more time into it.

The next part of my business plan was a business cash flow budget. This was a lot of fun, at least at first. I started by deciding how I would bill, and at what rates. I took that and created seven different "types" of clients that I feel best represented my client base. From there, I needed to come up with goals for how many of each type of client I would work with each month. Once this was determined, I had to project collections. This is the most important step of the cash flow budget. Let's be honest, spending money is easy, and billing clients isn't too hard either. Getting them to pay is always the trick. Again, I was conservative and spaced out my collections pretty well. I then filled in the expenses. At this point, I did a little research into software costs, licensing fees, legal costs, etc. This was a helpful task because it got me thinking about running a business as well. In looking at the two budgets together, I now had a good picture of how my savings would be affected by this new venture. This isn't something I wanted to think about mind you, but again, very important.

The next thing to plan had to be marketing. Marketing is not my strong suit, so an effective plan was imperative. I decided there were four areas for me to target. The first was referral sources. I listed the names of all the bankers, financial planners, lawyers, realtors, etc. that I knew and their contact information. I am a big proponent of referring people who will best serve each particular client. I also understand that not everyone can work together. Knowing this, I felt it was a good idea to have three to five people in all areas of service. I began organizing my list this way, noting differences that I felt would be important to my clients. The list became my initial call list for my first week. The second area I focused on was associations or groups I wanted to work with. This includes Chambers of Commerce, Professional Associations, Business Incubators, clubs, etc. I began looking around Indianapolis at organizations I could become involved with, and discovered it was incredibly easy to find groups I was interested in. It just took a little desire. The third area I aimed at was current clients. My first week, I wrote a letter to the clients I would retain through the transition from my old firm. I created another call list that I would also go through the first week. This contact with my clients would be to introduce them to my new firm, as well as kindly request that they give my name to anyone who may need accounting or tax planning and preparation help. The fourth and last area to attack was prospective clients. No one wants to cold call, but someone starting up his own business can't pick and choose. For my own comfort level, I wanted to have an organized plan to execute. So I picked a few industries I have a strong background with, and a few local areas I am familiar with, and began looking for clients I could market to who fit both criteria. I then came up with a short summary of what I do with my clients in each specific industry and something about my ties to their particular area. I intended to physically bring these to the prospective clients I had found. I'm still not 100% comfortable with marketing, but I definitely feel better about it with a plan.

The next step was to decide on a location(s), technology, legal structure, internet presence, and the most important part of the whole plan. This will take a while, so I will cover this all in my next post.

Simple

Today's financial world is very complex. Your tax rate depends on your income. However, due to income phaseouts and tax credits, your tax rate is not really what tax you pay. Refinancing your home or business loan can help you save a lot of money in your monthly expenses. However, in the long run, it could cause you to pay thousands more in interest. A company you invest in could have great liquidity, solid profits for the last few quarters, and an outstanding projection. However, instability in the market could cause that company's stock price to be very volatile. The only way to navigate through this complexity is to keep things as simple as possible. Athletes often say they perform better when everything seems to slow down. Things seem to get simpler for them. Financially, we should strive for the same state.

Simplicity is easy to obtain if you really want it. First, you should organize your tax situation. Know what your income sources are, and review them periodically. Find out how investments are performing. Always be asking yourself, "Is this a tax deduction? If not, how could it be?" Discuss your tax situation with your tax professional at least once a year for planning. Second, meet with your financial adviser at least once a year. With market fluctuations, last year's big loss in an investment should be met with this year's big gain. Consider your full investment strategy. How many institutions/advisers do you work with? Investment diversity can be better achieved with one investment adviser than with ten. Your insurance situation needs the same consideration. A good way to have too much life insurance is to have multiple insurance providers. Third, get rid of the clutter. Bundle your utilities as much as you can. Cancel unnecessary credit cards - one credit card is all anyone needs. Narrow your charitable giving by becoming a strong supporter of a few organizations, rather than a minor contributor of many organizations.

It is not a coincidence that the most powerful advice we get is often considered simple. Keeping it simple is the way to make your financial world slow down, allowing you to obtain the control you should always have.

Stability

Financial stability, or the ability to meet the needs of ourselves and our loved ones, is always at the core of our goals. Sure, we may want the big house, expensive car and VIP tickets to all of our favorite events, but we would not consider having any of these if our basic needs were not met first. Most basic needs are the same for everyone - food and water, shelter, clothes. However, we all get into a bit of a gray area when determining what is a need and what is a want as we begin fulfilling those needs. How much do you spend on food? What size of a house is really necessary? How new should your wardrobe be? The answers to these questions are different for us all. But the answers are incredibly significant. Your state of mind factors heavily into your financial stability. If you are uncomfortable about what your basic needs are, finding financial stability becomes very difficult. This is why keeping a clear definition of what your needs are is very important.

Once you have stability defined, you have to find a way to achieve it. Many of us meet roadblocks on the way to achieving our financial stability. For some, it is mounting credit card debt they cannot manage. For others, it is a bad investment they cannot get out from under. For many, it is student loan debt that has put them in a position where it seems impossible to succeed. The good news is stability is always possible. It just takes knowledge, creativity, a good work ethic and patience. A good work ethic and patience are all up to you. A quality adviser can help give you the knowledge and creativity to set up the plan you need to succeed, and to help you evaluate and adjust your plan as you go. The best decisions are those with 100% support. Your adviser will help you make sure you have a plan you can support 100%.

Through good times and bad, financial stability is always at the core of our goals. It should, therefore, be something we plan with a much bigger emphasis. If you have not thought about this in the past few months, it is time to think about it now.

C.I.T.P.

I feel I should personally thank the AICPA for creating the C.I.T.P. designation especially for me. I got this designation without taking any test. I didn't take any different continuing education or do any different work. The C.I.T.P. was created simply to bring people like me together. So who are we? We are the people who have an atypical interest in technology, and want to see what we can do with it to help businesses be stronger.

My atypical interest started when I was very young. My neighbor bought a Commodore VIC 20. I could make programs that changed Fahrenheit into Celsius, or did simple math problems. I was hooked pretty quickly. My Dad saw this and decided it would be a good idea to get a computer of our own. He bought the much more powerful Commodore 64. I spent a lot of time with that thing over the next couple of years. My main interest was making a stick figure that walked, jumped, climbed and fell all over the screen. A couple years later, my step dad got a PC. A big step up, it had an internal hard drive. My school also began using the Apple 2Cs in the classroom. By the time I hit college, I was pretty smitten with computers. Purdue offered a ton of classes in this department. I ended up with a minor in Management Information Systems. This wasn't as much for work as it was for fun. The programming class I had to take may have been the easiest class I took in college.

When I graduated, the firm I worked for had a need for some technology help, and I jumped right in. My first task was hooking up Palm Pilots to the contact management database. Over the years, I have set up a lot of workstations, upgraded network operating systems and migrated a few servers. I have done a lot of research on new equipment, for clients and the firm. I have spent countless hours on problem troubleshooting, and I am proud to say I have won most battles. I have also done an amazing amount of work with accounting packages, most notably QuickBooks. This led to another certification, QuickBooks Pro Advisor. Needless to say, I have had many opportunities to fulfill my extraordinary interest in technology, and I have enjoyed every minute.

The C.I.T.P. community is still developing, but for me the designation has been a great way to make people aware of my skill set. Having a trusted adviser who can help you create a technology backbone to best serve your financial needs is invaluable. I often find people struggling between a lack of efficiency and a lack of cash. The best thing about technology is that the price in no way represents the effectiveness. Effectiveness is all about your process and cutting out useless steps to make you more efficient. I'm glad, as a C.I.T.P., I can help myself and my clients figure this out.

C.P.A.

In becoming a C.P.A., there are a few distinct memories that shaped my development dramatically. The first was moving into the upper division of the accounting curriculum at Purdue's Krannert School of Management. Pre-recs were done. My classes were all subjects I wanted to take, and not just there to make me more well-rounded. The second was my first tax season. I learned as much in those four months as I did in all of college. The hours were tough, but that wasn't a big deal. Managing everyone's expectations (bosses, co-workers, clients, etc.) was amazing. You learn to juggle quickly when moving into the "real world." The third was my first sitting for the C.P.A. exam. I studied for two months and felt totally unprepared. I woke up early, drove down to the fair grounds, and took my seat on a little wooden chair at a 50-year-old folding table in the sheep barn with 5,000 of my closest friends. They kept the doors open to keep air flowing. Of course it was the beginning of November, so that flowing air was pretty cold. I never thought I passed anything that day. I did know that I would pass it, no matter what it took. These three experiences were key to my meeting the requirements of the C.P.A. license. They made me realize it was going to be a fight. And I fought, and fought, and fought. I can't tell you how proud I am when I look at my license. I am proud because of the fight to get it, and I am proud because of what I can do with it.

The C.P.A. license was established as a way for accountants to regulate themselves. As a C.P.A., I have certain responsibilities. I must stay educated, keep within the guidelines set forth by industry accepted rules, and maintain a strong ethical standard when advising and assisting clients. As a business adviser and income tax specialist, my education consists of keeping up with the latest industry trends and government regulations. The economy and the government's reaction to the economy over the last decade have made this a complicated task. Fortunately, the ever-expanding internet as well as other technological advances have made it possible to keep up. Staying within guidelines isn't as much of a challenge for me as it is for others in public accounting. Auditors for public companies are much more focused on this task. For me, making sure all government filings are done timely and correctly are the main focus. The virtue of ethics is important for all of us. If you cross the line into unethical behavior, you get yourself into a tough situation. Usually, this occurs when something unexpected happens that shouldn't have been unexpected. If you won the lottery in January of last year, April 15th of this year isn't the time to find out how much tax you owe on it. This is an important part of my practice. My advice has to remain honest, and timely. I must strive to keep in strong communication with my clients. At least strong enough to know when they win the lottery. I must also be as true with my advice as possible. If cash flow is tight, and the current business model isn't going to change things, I need to let my clients know. Problems won't be resolved by ignoring them. They must be challenged full on.

The C.P.A. profession is the most unique profession because it is self-regulated. Although certain government agencies have tried to change this over the years, their regulation has paled in comparison to the standard at which we hold ourselves. This is why I am so proud of that license. It makes me a part of the most trusted group around.

Accountant

When I was 14 years old, I was asked by a friend's father what I wanted to be when I grew up. My response was quick, accountant. In thinking back, I'm not sure why the 14-year-old me chose accountant. I have distant relatives who are accountants, but I'm not sure if I even knew that then. It doesn't matter, accountant was what I said, and I never wavered. Four years of high school, four and a half years of college, and I was an accountant. Now what? Well I figured out pretty quickly what an accountant does at my first job. I started with a local public accounting firm in January. My first week, I worked just over 40 hours. Not too bad, except I started on Wednesday. My second week, everyone left the office except for me and one senior staff accountant. We were in charge of payroll. Poor Jason. My average was four touches on each payroll client. In other words, I prepared the return, I made changes per the senior staff, I made more changes per the senior staff, I made more changes per the senior staff...you get the idea. The rest of my first tax season was more of the same. No two projects I worked on were the same. I prepared 70 personal returns. All were different. I prepared 50 business returns.
All were different. I did salary schedules, fixed asset listings, and more payroll returns. I adjusted clients' accounting files to allocate payroll, recorded depreciation, set up new loans, and set up new companies. I learned about SIMPLE plans, 401(k) plans, Section 179 for fixed asset purchases, and Section 351 for non-taxable asset transfers. After April 15th that year, I knew what an accountant did, and more importantly, I was glad a very smart 14-year-old me said accountant.

Over the years since, what I do has changed a lot. I can prepare payroll as well as anyone out there, but I don't. I know how to calculate a retirement plan match for a company, but I don't. I can key in check stubs into an accounting system quick as lightning, but I don't. Mainly because of government regulation and technological advances, what I do is different now. However, what I am is very much the same. As an accountant, I help people understand the financial environment around them. I do not make business decisions for clients, but I do help clients understand what the decision means for their business. I do not make personal financial decisions for clients, but I do help clients understand where they currently are, and what all their options are going forward. I firmly believe that the worst decision anyone can make is one that they will not 100% support after making it. It is impossible to support any decision, even a little bit, when you have no idea what the decision even is.

So the question now is, what can an accountant do for you? Are you comfortable with your current tax situation? No, not your 2010 tax situation, but your 2011 tax situation. Do you know how your current business/personal cash flow breaks down? If a new opportunity came about tomorrow, would you be comfortable making a decision you can support 100% based on the information you have right now? Answer honestly. This is where an accountant can fit in for you. With new technology, an accountant can get a great picture of your current tax situation. This will leave no surprises for the spring. Keeping up detailed records that allow a quick assessment of your cash flow, and how different opportunities could effect it, has never been easier. Bank files download into accounting programs, websites can keep track and organize personal expenditures, and internet search tools allow you to research more powerfully than ever before. And accountants can use all of this to help you make the very best decisions. That is what an accountant can do for you.