In the past, I have written that there are two types of people – employees and business owners. My incredibly well-supported theory is based on the idea that a business owner will never be happy for long as an employee, and an employee will never succeed as a business owner. I have explained this in detail before. So I won't repeat the entire discussion here. The most important thing to note is that, sadly, my theory is wrong. There is a third type of human being – oxygen waster. Although I may be stretching the definition of human being.
Harry called our CPA firm office the third week in March. We were the fifth CPA firm he had called, and I was the only fool to return his call. At the time, I was proud of my commitment to client service. I was a fool. I am a fool.
Harry explained to me that he owned a small federal government contracting firm providing IT services. He then told me that he was having trouble getting paid by Uncle Sam. In fact, he hadn't been paid in over two years. Obviously that's a bit of a problem. He went on to explain that Uncle Sam's employees were regularly rejecting all of his billings. They would not accept his billing rate and any of the invoices he presented.
Let's step back a minute and give you a REALLY brief primer on billing the federal government. Yes you can bill Uncle Sam $10,000 for a hammer, but you have to know how to do it. When you submit a proposal to the government in response to a request from an agency such as the Department of Defense, you have to understand the type of contract upon which you are bidding. Some contracts are fixed price. That means you submit a bid, and if you are a qualified bidder, and you have the lowest price, you win the contract. However, if you mistakenly bid less than your cost, you are on the hook for performing even if you are going to lose money.
Another type of government contract is called a cost plus contract. With this type of contract, you prepare a proposal based on all of the direct costs you will incur in performing your service. You prepare a budget for direct labor, travel, and any materials you will need. Then you calculate two additional factors to add into your proposal. You calculate an overhead rate and a general and administrative (G&A) rate. I'm not going to go into how you determine those rates. The point to understand is that a cost plus contract is based on how much you spend with a fixed percentage markup on those costs. In exchange for getting a guaranteed profit, you must accurately submit your costs to Uncle Sam to get paid.
Harry's contract was a cost plus contract. He wasn't able to get paid, because his cost submissions to the government weren't accurate. He was unable to correctly calculate and support his overhead and G&A rates. When it comes to cost plus contracts, either your bills are correct, or you don't get paid. Harry was in the “don't get paid” mode.
In our telephone conversation and the ensuing onslaught of long winded e-mail messages, he told me how he had hired accountants and billing consultants before. They had all failed him. After a quick review of the e-mail messages, I was ready to schedule a meeting with Harry to determine how to proceed. Then he sent me a final message. In that message, he stressed two criteria I had to meet. First, he didn't want to pay for the meeting. He wanted to keep the meeting time short enough so that I wouldn't bill him for it. Second, he wanted the result of the meeting to be a proposal from me to fix all of his problems for a “firm fixed price.”
In that message, Harry gave me two very important pieces of information. First, he let me know he is a cheap bastard not willing to pay a fair price for my time – especially in the middle of tax season. Second, he really didn't understand how he got into his sad situation. I replied to his message and told him I would be unable to meet his expectations and didn't think a meeting would be worthwhile for either of us. Of course, I was way more polite and civil than the thoughts percolating in my twisted mind. I think you know me by now.
If you asked Harry why he was having a problem getting paid on his contract, he would tell you that he had been failed by the CPA's and consultants he had hired. If only he had hired better people, his results would have been better. There is a VERY small amount of truth in his reasoning. He certainly could have used better advice, but he got the advice he was willing to pay for. Nobody with any real government contracting expertise would take on his mess for a fixed price. I certainly wasn't going to. In my experience, anyone who uses the term “firm fixed price contract” when it comes to complex professional services is an idiot. Harry didn't change my mind any.
Harry's real problem isn't his consultants. They are just a symptom. Harry's real problem is Harry. Harry just isn't a business owner. Business owners understand value. Real value for Harry would be getting paid by Uncle Sam for two years of work. He was only concerned with cost and impressing me with the term “firm fixed price contract.” I suspect that Harry was driven to being a business owner, because he couldn't function as an employee. I know that is a lot for me to derive from a telephone conversation and some e-mails, but I am pretty certain I am correct.
Unfortunately I see this all the time. People believe that owning a business means you don't have to answer to a boss anymore. In my case, I gave up having one boss in favor of having six hundred when Paul and I opened our CPA firm. Not functioning well in an employment setting isn't a qualification for business ownership.
Harry forced me to revise my theory of business owners and employees. I thought my theory was absolute genius. I was sadly mistaken. Harry is an oxygen waster – not well suited for either employment or business ownership. He is using oxygen that would be better used by someone with a functioning brain. I'm not certain just exactly what Harry is well suited for – maybe he would make a great bathroom attendant.
Speaking of bathroom matters, since you asked, here is an update on the S&K bathroom motivation challenge. Special thanks to Art Gose for providing a nearly nude autographed picture of my beloved Jen Aniston. We now have three pictures of the sainted Jen gracing our bathroom walls. My motivation is surely increased as I sit on the pot with my beloved Jen observing my bathroom etiquette from three different angles. She doesn't even seem to mind the smell.
As always, if you would like real business and income tax tips, please visit the real S&K web site at www.skcpas.com. Thanks for reading.
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