Accounting Advice Every Growing Business Should Hear
The #1 accounting tip that Ernie Paszkiewicz has for business owners is this: if you’re going to grow, do it profitably. In his 40+ year career, Ernie has seen the full spectrum of challenges and mistakes that trip up growing businesses.
When Ernie came to visit the set of Next Level, he had plenty of advice for business owners looking to grow. Below is the transcript from our conversation. You can watch my full conversation with Ernie here.
Samantha Androsky: You’ve been working in the accounting industry for 40 years now. Can you tell me a little bit about your experience helping businesses with their accounting?Ernie Paszkiewicz: Yeah, it's been a wide range. I've worked with very small businesses to large financial institutions. I have sat in the basement of a bank trying to help them get federal insurance during the savings and loan crisis. I've worked with family owned business trying to help them keep their books straight and to make sure everything is good from a tax and profitability standpoint.
S: Does prioritizing the accounting side of a business make a difference when that business is trying to grow?
E: It does. If you have growth without profitability, all you're doing is wasting your time. We work with a lot of businesses. We can't go out and sell their product for them or anything like that. But, if they increase their sell volume, but they're not pricing things the right way or not controlling their costs, they might start getting out of control.
Growth on the top line doesn't do anything for the bottom line. That's what you really have to look out for when you're looking to get that balance of growth and profitability.
S: When it comes to accounting, what areas do you think that growing businesses usually need the most help?
They don’t have to be a CPA, but you have to have somebody with at least a reasonable background and experience, who is able to keep a set of books and a general ledger in reasonably good shape.
S: If a business owner is watching this and saying “Well, I’m guilty there!” What solutions would you offer to them?
E: I'm working with a number of companies right now as we go into year-end tax planning, and trying to figure out where they stand for the year. We’ve been running into some issues like things aren’t tying up right or the income isn’t right because a particular account that’s not balanced properly.
I really have to be honest with them and say, “I'm not trying to sell you extra services, but you really need to evaluate if your bookkeeper really understands what they're doing.” You hope that they respond with “I'm going to pay someone to help us keep things straight.” Unfortunately, when the person in charge of the books is a relative in the family business that makes it a little more difficult.
The business owner has to make a decision to get things in relatively good shape or else we can’t really go in and help them make tax reductions and prioritize minimization. We also can’t see any trends, like if their healthcare costs are out of line or their purchasing is out of whack.
S: Something you said about relatives caught my ear. I can see that happening a lot, especially when businesses are smaller. They're going to want to pull in people who they trust. They usually know they can rely on family, but I'm assuming that can sometimes go wrong too.
E: I have seen the whole range of possibilities. I've seen it work extremely well from generation to generation. The next generation comes in and the transfer works well, and that's great. I've seen brothers and sisters of the same generation not work well with each other and some actually leave the business.
It is very difficult because sometimes, as you said, we see family as highly trusted. However, sometimes the family situation ends up being a situation where maybe the person shouldn’t have been trusted.
When you're running a business, you have to look at family members as employees and not as being above reproach because we've seen people get burned with that.
S: Do you think that's what makes the difference between having a solid or not so solid family team? The professional nature of the relationship when you're at work?
E: Yeah, there should definitely be an evaluation just as you would do bringing in another business partner or a key employee. You have to evaluate the person sitting in the room, whether they're family member or not, because the business depends on it.
S: Following that, problems often arise when there isn't a good accounting team at a company. Do you have any tips for a business owner on how they can hire a good person to do their accounting?
E: The problem right now is there is a very large shortage of good, qualified accountants. Ones that are really good get scarfed up quickly. Business owners see a lot of resumes come in. In the old days, if you saw people changing jobs every two or three years, you would just throw their resume off to the side. Now you have to evaluate because it's a different generation and mentality about staying at a job.
However, it really is important to look at a candidate’s past experience. It's important to try and talk to many as many people as possible like your bankers, lawyers, insurance people, etc. to see if they if they have a good candidate in mind.
I’ll tell you when people do turn through the system, and you will find that their names pop up a lot. Over the years, certain names have come across my desk every two or three years, and I know they won’t work. I just know enough history about that particular person.
You want to try to hire someone that you can find out why they’re leaving their current company. They might be available because the company they work for has been in an industry turn down. You hope to find somebody who's leaving because they are in a situation where they need to find something, but they aren't leaving just because they can get a little bit more money. With those candidates, you’ll find in three years from when you hire them, somebody else will offer them a little bit more money and they’ll leave.
S: Something that caught my ear was when you were talking about getting some recommendations from your business’s advisors or even just feedback on someone you're about to hire. Like you said, bankers and lawyers, they all run in the same circles as people in the accounting field. That's a great tip. Is there ever a point when it makes sense for a business to outsource their accounting function?
E: It does. That's where you have to evaluate the cost benefit. A lot of our clients rely on us for what we call CFO services. It's more a high-level service then say a bookkeeper, but we have some clients that just choose to have us. Some of them still have us do payroll tax returns, even though, quite honestly, the different payroll companies are out there can do it more efficiently than we can. It’s just the trust factor that they want us to do it, and they're willing to pay a little bit more for us to do it.
When it comes to payroll, there have been a number of instances where payroll companies have actually stolen the money and caused businesses to have to double pay their taxes. It’s put some of them out of business. So you have to be aware of what's going on.
Outsourcing is always an evaluation. You have to make sure it's the right situation. You want an outsourced company to be doing it at a reasonable rate. You don't always want the cheapest option out there, but you need a reasonable rate for the level of work they're doing.
Even if you just want to outsource bookkeeping services because you don't think you need a full-time person, finding a good part-time bookkeeper is difficult. I get a lot of questions about which bookkeepers I know. On the side, I feel like I’m running a recruiting company.
Through the relationships I have, I’ve probably placed 20 or 30 different bookkeepers with clients over the years that I've been at Gross Mendelsohn.
S: A lot of businesses work with a CPA firm, but as that business continues to grow, are there any issues that they should specifically be turning to their CPA for?
E: You want to be looking at if you have a profitability issue. Now, a lot of companies can manage that very well on their own. Accounting and CPA firms nowadays do more than just debits and credits. They do more than taxes.
Like we are a CPA firm, but we also have technology services, including cyber security services, that keep our network safe. We offer those services to our clients as well. Business owners should be looking for their CPA firm to be helping with transition planning to the next generation.
Sometimes there are generational issues in a family or a family business when it's easier to bring in the accountant to be the bad guy. That's what we do. Sometimes I feel like I'm an accountant. Sometimes I feel like I'm a psychiatrist. Sometimes I feel like I'm a priest. We handle a lot more than just numbers.
S: I think that would surprise business owners who are maybe necessarily only using a CPA for taxes. There is so much more that can go into a CPA client relationship. For businesses out there that are trying to grow, what is the #1 accounting tip that you would give them?
E: Like I said earlier, growth is good, but you have to do it profitably. If you come up with a plan that you want to grow the top line, you have to make sure that you're growing the bottom line proportionately.
I was just working with one of my clients where they've doubled their sales, but their profit is half of what it was last year. The explanation is that they changed their model from being a labor only to being labor and materials. When you have labor-only jobs, you'll make more profit then when you have labor and materials.
There's something wrong with their mix, which we're evaluating it now. Were asking, “Was your growth really something that was beneficial or did you just get a lot more activity? Even if you get a lot more activity and break even, was it worth the extra effort that you went through?”
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Published on February 18, 2020