Many entrepreneurs and small start-ups start exactly that – small. A one-person show bootstrapping their way through all the hard yards until they can afford to hire staff. The days and nights and long and the sweat is plenty but as time goes on, the fruits of your labour begin to ripen. Often these enterprises have incredibly low initial capital, tiny margins intended to attract new clientele and overheads that are deliberately cutthroat. In essence you are doing it all yourself and trying not to spend a single cent if you do not have to.
There is one relationship though that can never be underestimated. Even when you are starting out with the barest of start-up funding, having the right accountant by your side is a must.
Let me show you a real life case study of what the impacts are if you do not get this critical relationship right; and I know it all too well, because it is about me.
Case Study – Matt’s Financial Nightmare
Some of you will read this with a sense of familiarity and a shake of the head. Others will read it and hope it never happens to them.
As a budding entrepreneur, I thought myself very responsible by engaging my first accountant; but without the skills or know how to assess what I really needed, I ended up selling the concept of my business to my prospective account instead of him selling the quality of his services to me.
My criteria for what I needed was pretty simple – I wanted someone local and preferably from a more boutique firm so I could get a bit of attention as I started out.
My business at the time was incredibly diverse covering the following activities:
- Importing from India – handmade good by local Indian artisans were shipped here by the 40 foot container load and sold at low margin as a balance between philanthropic and commercial activities. We averaged a container every two months (I finally shut it down after 4 container loads due to workload – more posts to come on that! ☺)
- IT Consulting – I averaged 18 – 20 days per month on client sites as a Senior Consultant
- Virtual Staffing Solutions – I had an office in Delhi with a small team working on a variety of client projects
- Varanasi Estate Farm – I had a functioning 50 acre farm generating small volumes of revenue but requiring long term investment in micro-projects
I operated in this manner for a few years with the only component of the business to cease being the importing from India. Virtual Staffing continued to grow with an office lease being signed in the Philippines and a growing team located there.
It was shortly after signing the lease on the Philippines based office and I was sitting in a taxi in Manila when an SMS from my accountant came through – “Please call me, we need to talk”.
The phone call that followed outlined that there had been an error in my accountant’s understanding of my business. That previously submitted tax assessments may be incorrect and the future tax obligations may be significant. “How much am I looking at?” I asked. “Could be $75K, could be $130K or as much as $200K” was the cold reply. “How much time do I have to pay this?” I asked. “No more than two months as the ATO does not like letting people carry that sort of debt” was the colder reply. “You know I can’t pay that – what happens then?” I asked. Then came the coldest reply – “You will lose your farm”.
In shock, I asked my accountant how this could happen and his reply was “Matt, It is your responsibility to review the work we perform and ensure you keep aside adequate funds to cover your tax obligations”.
When I challenged that, I was then informed that I was “uncontactable for a period of time which contributed to the issues” (2 weeks in India over a several year engagement with this firm. Hardly an excuse).
BANG! I was on my own. The advice I received was dismissive, there was no support from those I had engaged for their expertise and the bill I was looking at was huge.
Immediately seeking a second opinion, I spoke with another firm. Whilst I still had an issue, we worked together on how to make it manageable. The further we dug and the more we talked, the smaller the issue and the lower my stress levels became. Working closely with the Australian Taxation Office, my new accountants built a solid relationship between all parties and put together a plan that worked for everybody. They even identified areas where I was owed in some instances which was great. The only downside was that my old accountant was tardy in handing over documentation despite the gravity of the situation.
The end result was that I kept my farm, my company, my team and my sanity ☺. I also gained valuable partners for my business in the form of my new accountants.
So, let’s talk about what I really needed and what I should have been looking for….
In terms of my company, I needed an accountant who had experience in managing transactions and dealings with a distinctly international flavour. Much of my work and income came from overseas and there are nuances and considerations that cannot be underestimated.
Example – Which Bank?
I asked for advice on which bank account would suit my business best. Here are the replies I received:
- Previous Accountant – sent me to my local credit union which would have been great except for the fact that they had no payment gateway to integrate with my website (meant an additional subscription and more fees), higher international fees and longer clearance timelines. There was nobody there I could talk to about my business in any detail. Note: No disrespect for the local credit union – I happen to love them! They were just not fit for purpose for my business in this instance
- Current Accountant – actually identified that my bank set up was incorrect, arranged a meeting with a more suitable bank who assigned me a Small Business Manager who understands what I do. My accountant did all the paperwork for the accounts, set up internet banking and set up my live feeds into XERO. He knows my Small Business Manager by face and name and clarifies queries before they even need to come to me. Increased limits, temporary overdrafts – whatever is required is handled competently and proactively to ensure my payroll is smooth and bills are paid.
I also needed an accountant who understood my business. It is complex and challenging and does not operate the same way that a small local business does. I have staff, contractors and suppliers in multiple countries. I travel frequently for business. I have multiple income streams that come from varying sources.
I also needed the “hand brake”. Many entrepreneurs will agree that we are a bit of a unique breed. We can have lots of ideas. We can start too many at once and bog ourselves down. We can start new ideas before we truly finish the last one. We can sometimes charge through without full respect to all the details missing vital points. I’m guilty as charged on all these crimes ☺
My new accountants formed a team with me. I was the ideas guy charging ahead. I was the business. Tom was the method, the mechanics that kept order behind me. The eyes and ears that kept things in check. Pete is the “hand brake” – the guy who kept me moving at the right pace and ensured that we focused on a sustainable number of initiatives at a time. This trio did great things to stabilise the business and our overall approach.
So where has choosing the right accountants evolved to for me?
Well, Pete is still the hand brake but he needs to apply it a lot less than what he did in the early days. Tom is still the mechanics behind the scenes but now at a much higher level only. I have Connie who is my full time internal accountant who takes care of all the books and lots more. Connie is one of my All-Rounders and she takes care of the leg work allowing Tom to work in his capacity as advisor.
This has resulted in some changes:
- I haven’t had to stress about making payroll for quite some time!
- I haven’t had to stress about getting bills paid
- I have a forward plan and the ability to review what we have done in the past (nice!)
- My conversations with my accountants have gone from excruciatingly stressful, reactive and negative to exciting, considered and planned
The right accountant will provide you control. They will sell you their services and go the extra distance to keep you in order. Without them, success is so much harder.