Month: September 2019

Preface: Yes, we like lawyers, and if you’d like to know one reason why, research this quote.“I shall not rest until every German sees that it is a shameful thing to be a lawyer.”

Why Your CPA Advises You to Work with an Attorney When Necessary

Credit: Donald J. Sauder, CPA | CVA  (2015)

You are well advised to retain an attorney in certain instances. Why? Sometimes you don’t know what you don’t know. Your CPA appreciates this fact. After all, if you knew every tax and accounting angle, you wouldn’t need your CPA. When financial matters involve a peripheral individual or business, additional risks arise, and an attorney is worth the investment.

Often your CPA and attorney will work together to provide your business with a financial fortress. The fortress works like this.

If you need accurate financial statements, tax advice, resolution of an IRS matter, or numerical analysis, your CPA is the right resource. If you need to amend a partnership agreement, write a buy-sell agreement, incorporate a new business, or draft a letter of intent, you need an attorney. Remember this–if your CPA or attorney disagrees with this advice, you probably need a new CPA or attorney.

Often your CPA and attorney will work together to provide your business with a financial fortress. The fortress works like this. You wouldn’t pay a carpenter to install a new phone system in your business, nor would you pay marketing experts to install carpet in your new office. You understand the importance and value in working with a business or individual specializing in the task at hand. You would, perhaps, pay a human resource specialist to hire the right talent for a managerial role in your business. These are understandable examples of specialization. In too many instances, entrepreneurs have the wrong impression of what trusted advisors, such as their CPA, can do for their business.

Who forgot to take your name off the business credit card, or the at-the-limit-line of credit with your personal guarantee?

Suppose you are selling an interest in an LLC to your partner. You tell your accountant your plans, and he writes an agreement of sale document and amends the Operating Agreement. Your accountant makes the appropriate adjustments with the tax filing, and you receive payment. Here’s how things can go wrong.

Three years later you decide to contact the bank for a loan on investment real estate. Your banker says your credit score is too low, but when you checked five years ago it was stellar. The problem–the partner who bought your business interest has a delinquent credit card with a $35,000 balance.

Think of your attorney as saving you and your business from making major mistakes, not just getting you and your business out of major mistakes.

Who forgot to take your name off the business credit card, or the at-the-limit-line of credit with your personal guarantee? Don’t sweat a business attorney’s fees if you want savvy advice. It should be obvious why your CPA advises you to retain an attorney. They don’t want to pay the line of credit or credit cards from a malpractice lawsuit, and the professional oversight of an attorney provides additional financial protection to you and your CPA.

Think of your attorney as saving you and your business from making major mistakes, not just getting you and your business out of major mistakes. Listening to your CPA when they advise you to retain an attorney is in your best interest.

In summary, attorneys can save your business from legal hassles.   An attorney is an asset to your business, not a liability. Your CPA will likely give you a referral to a trusted attorney, should the need arise within your business.

Preface: “I never worry about action, only inaction” – Winston Churchill

Planning vs. Procrastination

Churchill might very well have been the “un-procrastinator”. Although he was plagued by doubts many times in his career, he never let such doubts interfere with the need to make a decision based upon the best available information. He made his share of mistakes, but he also realized that failure to make a decision is invariably the worst possible course…..click the link to continue reading.

Planning vs. Procrastination

Donald Feldman has worked with a wide range of companies in many different industries as an advisor with his business Keystone Business Transition, LLC. The KBT team works with a wide range of professionals, including leadership development specialists, employee stock ownership plan (ESOP) experts, qualified retirement plan and deferred compensation experts, merger and acquisition attorneys, and transaction intermediaries. These collaborations allow our advisors to develop a targeted transition plan that solves your unique challenges.

Preface: Kind words are like honey–sweet to the taste and good for your health. Proverbs 16:24 “Good New Translation”

I Can’t Believe He Just Wrote That

By Jacob M. Dietz, CPA

Preface: “Am I being careful enough with what I write to ensure that my implicit tone and meaning cannot be misunderstood?” Dr. Rob Skacel in Tailing Mulligan

Imagine Elmer’s business just entered the world of email. He and the team are excited about the whole new realm of opportunities and possibilities it opens to them. Now Elmer can document in writing what he wants others to do. It will be right there, in black and white. From now on, his team’s communication will be effective, clear, and mutually upbuilding. Right?

Although email does have some great capabilities, beware of the pitfalls that come with emails.

The Dumb Mistake

Elmer showed up at work Monday morning ready to fire off his first email. Elmer struggled with spelling, but he planned to rely on spell checker to get his emails right.

But that was 15 years ago when Elmer flunked his spelling tests consistently. He looked forward to typing emails that would automatically fix his spelling errors.

In school he dreaded spelling class. He received a 100% in spelling class one time. But it only lasted a minute. The teacher handed him the test, with a great big blue 100% splashed across the top and absolutely no red ink. Elmer was overjoyed. As he started to descend from cloud 9, he looked closer at the spelling test and realized the teacher mistakenly handed him the test of his cousin, Elam. Elmer pointed out the mistake. Dejectedly, he saw the red 60% on the test his teacher handed him with his name on it.

But that was 15 years ago when Elmer flunked his spelling tests consistently. He looked forward to typing emails that would automatically fix his spelling errors.

He needed a subcontractor to bring a dump truck to the jobsite that day, so he fired off an email to Eli, a subcontractor.

“hay eli I need your dumb truck today. Can you please drive it to the job down from your shop? Tanks elmer”

Spell checker showed no problems, and Elmer hit “send.”

Eli showed up for work that morning. While still rubbing sleep from his eyes, he saw the email from Elmer. Eli’s blood pressure rose when he read the email. “I can’t believe he just wrote that,” muttered Eli. Eli realized that his truck wasn’t the newest truck on the road, but he thought it could do a good job. It certainly wasn’t a dumb truck.

He quickly responded with his own email.

“Elmer, if you think that of my truck, then you can find someone else to help you. I prefer to work with contractors that appreciate me and my equipment.”

Elmer was confused. He liked Eli’s truck, and still hadn’t noticed that he inadvertently misspelled “dump” as “dumb.”

 Eli was taken aback. He thought Elmer was insulting him based on the email, but now, based on the nonverbal cues, Eli could tell Elmer liked him.

The Accidental Accusation

Elmer, while speaking on the phone with a customer, typed back.

“I do appreciate you liE. I don’t know why you think I don’t.

Eli was so frustrated, he decided to give up on email and walk the 500 feet down the road to Elmer’s shop. He opened the door to Elmer’s office. Immediately Elmer jumped up, smiled, stuck out his hand for a handshake, and said, “Hi Eli!”

Eli was taken aback. He thought Elmer was insulting him based on the email, but now, based on the nonverbal cues, Eli could tell Elmer liked him.

Eli asked why Elmer insulted his truck by calling it dumb. Elmer gasped “what do you mean? I never called your truck dumb!”

The Truth is Revealed

Eli told him to pull up the email. Elmer was dumbfounded when he found the word “dumb” in his email. I’m so sorry, he said, I meant to say “dump” truck.

Eli continued. “Then you had to accuse me of lying in your second email. I have never told you a lie for the 10 years we have known each other.”

Elmer was shocked when he pulled up the email. He now saw he had misspelled “Eli” as “liE.”

“Eli, I owe you an apology. Those misspellings were not what I intended to communicate. I was wondering if you could bring your dump truck to the job site. Thanks for stopping by this morning so we could hash out this miscommunication.”

Eli promptly forgave Elmer. The two shook hands, and later that day Eli’s dump truck was working away at the job site.

The Future of Communication

Eli and Elmer continue to use email to share information about jobs. They love the convenience of sending email and the ability to look back and see information that they would have forgotten if it had been delivered verbally. After the “dumb” truck email, however, they share a greater appreciation for the pitfalls of email. If an email seems insulting or unusual, they quickly meet face to face or call each other to find what is really intended.

Preface: Whatever your line of business services, to ensure your business is managed effectively, you need Bob Cratchit’s math skills to calculate your  costs accurately as frequently as every month.

Why Hourly Job Costing Analysis?

Donald J. Sauder, CPA | CVA   (2015)

Do know your hourly job costs? Maybe you need an Excel document from Bob Cratchit ? Costs count, and accurate hourly job costing is a easy component when analyzing if your business is making a profit on an hourly basis.

If you have a team of service technicians who service computer networks, how do you know how much to bid on a new server install or client network upgrade? How do you calculate what to charge per service hour? If one technician works on three projects in a day, how do you begin to calculate your cost for upgrading a hard drive, repairing a server power supply, and resolving malware concerns?

So when you calculate costs of your technician wages at $40 per hour, you can see that your true cost for your business per billable tech hour is closer to $114 per hour to upgrade the hard drive, repair the server power supply, and resolve malware concerns.

With thanks to Bob Cratchit, here is a simplified method to figure hourly costs for your projects. For example, your service technicians costs $40 per hour including employee benefits, employer taxes, and perks. If a hard drive upgrade takes 3 hours, your cost is $40 x 3 = $120 for labor. So what should you charge? Let’s say you have five technicians who work a combined 420 billable hours per month. Your cost for employee wages is approximately $1,600 per week (40 hours x $40 per hour), and $6,400 for the month ($1,600 x 4 = $6,400 per technician, per month). Overhead for the five technicians is $175,000 a year in rent, utilities, office supplies, advertising, office staff, and sales reps. Your fixed cost for the service technicians’ salaries plus overhead is approximately $575,000 per year. At 420 hours per month average your five technicians would work 5,040 hours a year. $575,000/5040 = $114 per hour of labor costs per hour to break even. For an 8% net profit margin, you should charge at least $123 per hour ($123 x 5040 = $619,920 of yearly sales).

So when you calculate costs of your technician wages at $40 per hour, you can see that your true cost for your business per billable tech hour is closer to $114 per hour to upgrade the hard drive, repair the server power supply, and resolve malware concerns.

If you didn’t accurately figure the cost of your operating expenses in the above example, and billed $95 per hour, your business would have a loss of $96,200 for the year based on the 5,040 billable hours. However, if you can optimize efficiency from you technicians and have only 4 technicians working 1,260 billable hours per year (vs. five technicians working 1,080 billable hours individually) you could decrease service wages $76,800, and decrease operating expenses and service wages to $482,200 per year to an average of $95 per hour.

Perhaps you have a good sales rep and have five efficient techs working 1,500 billable hours per year, which would be 7,500 billable hours yearly. With an overhead cost of $175,000 and technician wages of $384,000 your total costs of $575,000 would result in a cost of $77 per tech hour at 7,500 billable hours. So if you billed $95 per hour you would net $18 per technician hour, or $135,000 with five billable service technicians.

In summary, accurate costing is key to profitability in any service businesses be it plumbing, cleaning, electric, snow plowing or mowing yards. If you are unsure or need your confidence boosted when calculating cost, contact your trusted advisor.

Whatever your line of business services, to ensure your business team’s costs are managed effectively, you likely need Bob Cratchit’s math skills to calculate your updated hourly costs accurately as frequently as every month.