There is no place for unethical practice in business

Someone asked me recently in a profiling questionnaire if I thought there was any place for ethics in business. My answer was immediate and almost involuntary. I said that I thought that there was no place in business for unethical practice.

Nowhere is this being more graphically illustrated at the moment than in the case of Rebekah Brooks, the embattled Chief Executive of News International. Brooks was The Editor of the News of the World (NOTW) when a private investigator, allegedly working on its behalf, hacked into the mobile voicemail of Millie Dowler when she was missing and a full scale police search for her was underway. The discovery that voice mail on Millie’s mobile phone was being accessed gave the impression that she was still using her mobile phone. We now know the dreadful truth was that Millie was dead and the activity was a private investigator without scruples or morals working to find a story for the NOTW.

Brooks yesterday told News International staff it was "inconceivable" that she knew of or sanctioned the hacking of Milly's mobile phone. But this is not a defense – it is utterly irrelevant. I don’t think anyone is accusing her of personally organising this action. But as the Editor of the paper she can’t distance herself from it by pleading ignorance. That is as weak a position as it is possibe to take. She was in charge, she was responsible for setting the culture at the NOTW and I am afraid it stretches credibility that she didn’t know that this kind of behaviour was prevalent. If she didn’t know about it she should have done – she was the boss.  It may not have directly been her fault but it most certainly was her responsibility.

So it is time for Rebekah Brooks to show some moral courage and set an example to her staff. She has allowed her organisation to behave in the most despicably unethical way and she has no option but to resign. Her attempts to distance herself from the act beggar belief. She was in charge; there is no distance between her and the tactics of her staff. Every day she clings on to her job is another day when she is making the very clear statement that she condones unethical behaviour. Far better to hold her head high, stand up for stong ethical business practice, admit responsibility (if not fault), be accountable and resign than to be forced from office by a public campaign that shows no signs of relenting.

You Might Be a Business Loser If...

I am on a Loudoun County Chamber of Commerce committee that is sponsoring a lunch in July on succeeding in the Chamber. We have assembled a panel of four successful, at least in my opinion, businesspeople. A number of people suggested one particular person for the panel. I decided, under the exalted authority granted to me by the remainder of our committee, not to pursue this person. I don't consider him either a success or someone to be emulated. Yet, if you asked a hundred other Chamber members, eighty would disagree with me.

I have been actively involved in the Chamber for three years or so. Jack has been an active member since well before I came along. He is a Chamber membership ambassador, who has sponsored a lot of new members. He has been ambassador of the month many times and, if I remember correctly, ambassador of the year. Everyone considers him a great success in the Chamber. What could I possibly have against Jack?

I don't consider Jack a success. Over the three years that I have known him, he has worked for probably half a dozen different companies as a salesperson. I don't consider any of these companies places where I would work as a salesperson. I don't want to identify any of the companies by industry, but I don't think of these companies as someplace a salesperson could succeed. The dollar amount of each transaction is too small to support substantial commissions. Not surprisingly Jack hasn't succeeded in sales for any of these companies.

How can I hold that against him? First, he isn't a good enough business person to accurately identify real opportunities. Second, he hasn't been able to land a sales job for a serious company. IBM isn't competing for his skills. Jack is a success for the Chamber, but he isn't a success in the Chamber for his employers. Therefore, he isn't a success to me. He is just a guy with a lot of time to attend Chamber events. That isn't the message we want to or should want to covey in a presentation about succeeding in the Chamber.

A couple days ago, I ran into another Chamber pretender. She is a very attractive and well-packaged woman in her forties – I am guessing on her age. She isn't in my beloved Jen Aniston's class, but who is? At first glance, this woman reminds me a lot of my wife, Laura. She is very pretty and comes across as very intelligent. However, I had an almost immediate negative, visceral reaction to her as soon as I learned a little about her. Why?

She has or had a whole bunch of businesses, none of which have amounted to anything. Her current business is providing advice to businesses on using social media. Hey – that's a unique business these days – isn't it? It's a lot like being a real estate agent in Florida during the boom. I had a bell hop at a hotel pitch real estate to me during a vacation trip to Disney World.

What is this woman's experience in social media? Her level of experience is apparently about the same as mine. She knows what a hash tag is. Her other businesses have nothing to do with marketing as near as I can tell. She is just another person waiting to be buried in the graveyard of stupid business ideas. Why should that upset me?

She makes succeeding in the Chamber much more difficult for the real businesspeople in the Chamber. When a real business person attends a Chamber event and sees the number of people like her attending the event, he / she gets turned off. I hear this comment a lot, “How many business losers do I need to know in a lifetime?” Not everyone uses the word, loser, but they all mean that.

Business networking is a lot like dating on a number of levels. If you want to get beyond first base with either a date or a potential business prospect, you have to bring something to the relationship. If you don't have a real business, you bring nothing to potential business contacts. You don't deserve even a kiss on the cheek.

With all due respect to Jeff Foxworthy and in respect of any royalties I may owe him – you might be a business loser if:

1. You have owned three or more different and unrelated businesses in the last five years.
2. You have been employed by three or more companies in the last five years.
3. None of your businesses has ever achieved more than $30K in annual revenue.

Business losers are guilty of not sticking with anything long enough to succeed. The lady with the social media company won't succeed, but her failure will have little to do with her social media consulting skills. Obviously, I don't have any faith in her skills, but skills can be learned. She will fail, because at the first sign of difficulty, she will be off to another business idea. I have no clue what trendy home business idea will pop up next, but I know she will be there.

If you are interested in non-snarky business advice, check out the Stitely & Karstetter tax and accounting blog at www.skcpas.com. Thanks for reading!

Get Your Priorities Hijacked – Solving the Population Crisis

Let's start out with an unfortunate fact. Seven billion human beings is too many for the earth to support. We have to find a way to decrease the surplus population. You can call me Scrooge if you want, but I am prepared to offer a real suggestion to save our overloaded, under loved planet. I suggest decreasing our population by ridding ourselves of all the people, whose jobs waste other people's time. Let me give you an example of just such a person.

My wife's patience is being sorely tested by an oxygen waster at work. Laura is trying to submit an expense report to her company to be reimbursed for her travel costs using our fine Washington DC metro transit system. She is entitled to receive $120 monthly to defray the costs of using mass transit. Since she is a thorough, due diligence type of gal, she got on her employer's web site and read the instructions for submitting the claim for reimbursement. Her employer's policy requires the submission of either a log detailing the daily commuting expense or metro transit receipts. Laura elected to submit a daily log since the metro system doesn't print a receipt every time you take a trip from Vienna to Foggy Bottom for example.

Laura submitted her expense report, which was promptly rejected by the “expense report auditor”, who exists somewhere deep in the bowels of an office complex in Tennessee. There is something you should know about someone with the exalted title of “expense report auditor.” This person is no more a real auditor than my left big toe is the Pope. My right big toe is the king of England and my nipples are named Jack Ham and Jack Lambert, but those are stories for another time. The expense report auditor is really a lowly accounting clerk with a ridiculous title. Of course, giving someone an exaggerated title is always less expensive than paying a real salary. In the accounting world, this auditor is lower than whale dung on the bottom of the ocean.

Why was Laura's expense report rejected? Ms. Whale Dung decided that she could require receipts in addition to the daily log despite the company's policy of requiring one or the other. You might wonder if there is an IRS rule requiring the receipts and the auditor is just being a good steward of the company's fine reputation. Since I am a bit of an expert in this area, let me research this. I'll be back in a minute........ The answer is that the log is sufficient for the IRS.

Why is this battle of wills between Laura and Ms. Whale Dung important? Because this battle is costing Laura's employer a lot more money than just a $120 travel reimbursement. This battle has tied up hours of otherwise productive, and did I mention yet – billable time. Ms. Whale Dung isn't just wasting her own time. She is wasting Laura's time and the time of a number of other employees, whose jobs are to produce revenue for the company. These employees are all six figure salary types. Their time is just a bit more valuable than Ms. Whale Dung's time. This expense report will end up costing the company five grand or so. Five grand isn't a whole lot of money to a large company, but Ms. Whale Dung is probably a repeat offender. She is a time thief who costs the company money by wasting the time of revenue producers. That wouldn't be her description of her job, but most criminals deny their guilt.

I am not suggesting that the company save money by harpooning Ms. Whale Dung. Well, maybe I am. A more reasonable suggestion would be sterilizing her and any descendants. That would contain the genetic mutation that would make someone desire a job as an expense report auditor and help decrease the population thereby saving planet earth. Quick - somebody call Al Gore. He could make another movie.

If you are looking for real accounting and tax advice, check out the S&K blog at www.skcpas.com. Thanks for reading!

Hire a Consultant - Business Vampires

Let's start out with a hypothetical question – at least I hope it's hypothetical. If you were a vampire, would you feed on healthy or sick people? I would feed on healthy people to get better quality blood. Of course, I don't have much experience in this area other than watching “True Blood” on HBO.


Two months ago, I met a business vampire (consultant), who sucks the blood out of sick companies. He focuses on sick companies, because no healthy company would ever invite him in. And, we all know a vampire needs an invitation to enter.

I have (or had as it turns out) a client in the construction industry, who has been in financial trouble for the last year at least. His business has suffered from the recession as have almost all construction contractors. But his business has a fundamental problem most other construction contractors don't face. He has to order and pay for his materials six and sometimes nine months before he gets paid. He has a custom product that requires a month lead time to get from the manufacturer. Then,he has to hold the material until almost all the other contractors on the job are finished to install his product. If the other contractors are late getting done, he has to wait. If they get done on time, and he isn't ready, he faces financial penalties. His business is a really tough business.

Of course, he needed good bank financing, and I helped him find a bank that generously provided that financing. But over time, his revenue began to trend downward with the recession. He faced serious problems keeping his bank line of credit within terms while still paying vendors to get material for new jobs. Eventually, he was forced to violate the terms of his bank financing, and the bank wanted a plan to get back within terms. That plan would almost certainly involve a new capital source. In case you haven't noticed, not many investors are interested in financing construction businesses in trouble.

When the bank became insistent on cutting its exposure, Fred began a desperate search for anyone, who could potentially rescue the business. I introduced Fred to a reputable investment bank, who began a search for potential merger partners. The investment bank actually had a couple of prospects. However, in the middle of putting together the financial information for the potential merger partners, Fred was introduced to Greg. Greg told Fred that he had investors just waiting to invest in fine businesses like Fred's – even businesses in trouble. Fred would only have to give up a minority ownership interest, and he could operate the business as before. All Fred needed to do was hire Greg.

Fred scheduled a meeting with the bank. When I showed up for the meeting, Fred introduced me to Greg, who had brought along his trusted accountant, who looked like the crypt keeper. He was so old, I wasn't certain he would survive to the end of the meeting. After exchanging a few pleasantries with the crypt keeper, I determined that he knew absolutely nothing about the construction business.

Before the banker showed up, the four of us had a brief pre-meeting meeting to come up with a plan to present to the bank. Greg and the crypt keeper had absolutely nothing in mind to present to the bank. I offered a plan where the bank would provide additional capital for new jobs in exchange for receiving all of the profit from those jobs. That way, Fred could get the material for new contracts, and the bank would be able to gradually reduce its exposure as the line of credit was paid down. My plan wasn't perfect. There ain't no perfect in this situation. Fred would have very little money for overhead expenses, which meant he would have to make deep cuts. But he would live on to fight another day. Greg opined that my plan was near genius. The crypt keeper wheezed in agreement.

When the banker arrived, we presented my plan. The banker, who is a personal friend and someone whose business opinion I greatly respect, was non-committal. I had anticipated this. He agreed to take the proposal back to the bank's other executives. I had told Fred this was going to be a tough sell. At least, Fred was still in the game.

After we completed the discussion of my proposal, during which Greg and the crypt keeper thankfully kept quiet, Greg launched into his presentation. He stood at the head of the conference room sketching out his vision of the world on a flip chart. His first phrase to the banker was, “You know you can trust me.” When I hear someone lead with that, I know the world is about to come to an end. Of course, the banker had no clue who Greg was or what he was up to.

Greg continued on, spewing forth about the difference between venture capitalists and vulture capitalists and how you never want to deal with the vultures. Of course, none of this was remotely relevant. The banker just wanted a plan to get repaid. He just nodded politely throughout. I was mortified that our good proposal might be forgotten after Greg's presentation. Any college professor would have failed even a freshman business student for giving that presentation. There wasn't even a hint of substance or a plan to pay the bank except with some unnamed source of either equity or debt capital, who was ready to invest in two weeks. Mercifully, the meeting soon ended, and the banker left.

Greg, Fred, the crypt keeper, and I walked from the conference room to Fred's office. On the way, Greg told me how impressed he was with my plan. He told me he had a lot of important friends – like Lindsay Lohan's father. Greg told me he had vacationed with Lindsay's father in the Hamptons, and that he would soon introduce me to all of his important and rich friends.

When I got home that night, I told my wife, Laura, “We are damned.” Instead of “damned” I actually used a synonym for coital relations that begins with the letter “f”. I think I also added “doggie style” to the phrase.

The two weeks Greg had promised the banker soon passed. Now we are at two months with no sign of any money. Greg hired his wife, Mrs. Dracula, to suck out all the blood even faster. Then he fired all of Fred's office staff. Of course, there is no investor and no money. Greg is a vampire, who feeds on nearly dead business owners. He isn't even a competent vampire let alone a real consultant. The moral to this story is simple, never invite a vampire (consultant) in to run your business.

On a happier note, I now get the popularity of yoga. A couple of days ago, I was doing my normal stretching routine at Lifetime Fitness. My wife was scheduled to take a 3:30PM yoga class. As I finished stretching, I smelled a familiar acrid odor, that could have come from the psychedelic 1960's, wafting out of her slightly ajar classroom door. Now I get it. Yoga is a bunch of women who get high, lie down to nap, and call it exercise.

I have started a new exercise class for men. It involves drinking beer, watching sports, and belching. I call it beerobics. Last Friday, we held our first class at Buffalo Wild Wings. Mike Otto, Neil Richman, Jon Butt, and I worked out together. We were exhausted afterward. I needed a good ten hours sleep and four Tylenol to recover.

Thanks for reading. Check out our real S&K web site at www.skcpas.com. You'll find real advice there. I promise.

Keep the Wrong Customers – Become a Good Customer

To determine who your bad customers are, you must first determine the characteristics of your good customers. One of the best ways to determine the characteristics you want in a customer is to practice becoming a good customer yourself. One of the first characteristics of a good customer is realistic expectations.

My wife, Laura, orders the same drink from Starbucks almost every time. She orders a vente bleedy blah soy green tea latte with sugar free blippsy do instead of blippity wa. You can tell I don't speak Starbucks. It is a language all its own. She freely admits that the only part of the drink she doesn't change is the green tea. When I order from Burger King, I order, “A number five with cheese, please.” Which one of us is more likely to receive the correct order? Laura admits that her success rate is only about seventy percent. That is pretty good considering that most Starbucks baristas aren't working there to supplement their income from neurosurgery.

I am an easy customer for Burger King, since my order easily fits into their system. Laura is a more difficult customer for Starbucks, because her order takes the baristas outside their normal system. A good customer fits easily into your service delivery system. They want what you do well.

Here is how we apply that principle to our CPA firm. We humbly consider ourselves experts in preparing individual income tax returns. However, we are not experts in international taxation. If someone asks us to prepare a tax return for Pakistan, we aren't the right people. Yes, I know the basics. Payments to Al Qaeda are deductible charitable contributions. Everybody gets to claim Osama Bin Laden as a dependent, and you don't have to send 1099 forms to suicide bombers. But after that, I am pretty clueless about what appears on a Pakistan tax return.

That doesn't mean we can't help clients with international tax returns. We refer them to a good firm that does a lot of international tax returns. These clients don't fit well into our normal tax return preparation system. We know we can't make a decent profit on international tax returns. So we don't prepare them. That policy benefits us, and it benefits our clients. You should determine what you do well, and tailor your service offerings around your specialties. You can only meet your customers' expectations if they want what you do well.

While I have your attention, I would like to make another point about Starbucks. Real men don't drink coffee from Starbucks. They drink the swill from 7-11 and like it. Starbucks is Spanish for “No testosterone here.” In fact, the manliest of men don't drink coffee at all. I don't drink coffee. That is why my shirts split when I flex.

Thanks for reading. If you want real non-snarky advice, please visit the Stitely & Karstetter official tax blog at www.skcpas.com.

Synergy

This past week, a lovely young lady, named Lisa, who is a big fan of the blog, asked, “Frank, have you ever had a big steaming turd of a business idea that cost you thousands of dollars, hours of agony, weeks of lost sleep, and made you kick the family dog like Mark Mosely kicked footballs?” Lisa will be able to read my answer when she gets out of the hospital in sixty days or so. I hear she'll be coming off life support by the end of the week. Thanks to all of you, who sent bail money. The Loudoun County jail doesn't serve Yuengling. Let's all wish Lisa a fast recovery – in time for my trial. My lawyer thinks I'll get off if I use the following alibi, “The bitch set me up.”

Yes, dear Lisa, I have had a few steaming turd ideas. One involved my pursuit of synergy. Here is my definition of synergy. Synergy is when you buy or create a business in a field similar enough to your existing business that you deceive yourself into believing you know what you are doing. That may not be the definition you learned in business school. It certainly isn't the one I learned up at the C.U. (Clarion University).

One genius idea I had back in the early 1990's was to open a bookkeeping company to complement our CPA firm. As I have written before, you should be able to summarize the financial model of any new business on the back of an envelope. I followed my rule. My financial summary went as follows. We could charge $40 to $50 per hour for bookkeeping services. We would have to pay about $25 per hour in labor costs. If we had thirty hours of bookkeeping services per week that would yield $1,200 to $1,500 per week with a labor cost of $750. That would give us a gross profit of $450 to $750 per week before any overhead expenses. There shouldn't be that much in incremental overhead costs for a CPA firm, since we already had an office in place.

The gross profit alone wasn't enough to get me as hot as I get around my beloved Jennifer Aniston. The key was the synergy between the bookkeeping business and the CPA firm that would develop. Synergy would let us convert bookkeeping clients to more profitable CPA firm clients. In other words, bookkeeping clients would ask us to prepare their tax returns and financial statements. That is how the false god known as synergy tempts you. You do something that makes marginal, if any, financial sense in the hope of a much larger payoff down the road. This is how Las Vegas works. If I had turned over my financial model envelope, it probably read, ”Frank is a moron.”

There were two big problems with my idea. First, my back of the envelope financial model was missing one very big cost. Since we are a CPA firm, professional standards and the laws of the great state of Virginia, required that Paul and I spend time reviewing and supervising the bookkeeping. This killed almost 100% of the gross profit. Now, all I had to rely on was synergy. If bookkeeping clients became CPA firm clients, the idea still made financial sense.

Unfortunately almost none of the bookkeeping clients became CPA firm clients. Why? I learned something very important about the bookkeeping business the hard way. Most people like their CPA's. Few people like their bookkeepers. I have written in the past that 80% of bookkeepers stink. So you might justifiably believe that makes business owners hate their bookkeepers. However, in my experience, business owners don't even like the good ones. When a potential new client first comes in to meet with me, I frequently hear,”My bookkeeping is all messed up. I need your help to fix it.” They say that even when I don't find much to fix.

We ended up with a bunch of lousy, unprofitable bookkeeping clients, who took up time better spent on our CPA business. After a little more than a year, we buried our rotting corpse of a bookkeeping business. Chasing synergy is like chasing strippers. The chase gets more expensive by the minute, and you go eventually home alone with an empty wallet and an unfulfilled fantasy.

Entrpreneurs are not driven by a love of winning but by a hatred of losing

I have long held a view that great sportsmen and great entrepreneurs share a common motivation. They are not driven by a love of winning but by a hatred of losing. An extension of that theory is that entrepreneurs are also driven by the thrill of the battle and not by the reward. There is a big difference.

As an example of this consider some of the great sportsmen of the modern era -  Ian Botham for example. I don’t doubt that “Beefy” loved to win – especially if the opposition was Australia. But he seemed to produce his most dogged performances when the chips were down. There was none more memorable than his batting heroics in the Ashes test at Headingly in 1981 when England faced certain defeat having followed on.  Botham’s incredibly determined 149 not out dragged England back to a position from where they won the match.

Another iconic sporting success born of a fear of losing was Seb Coe in the 1980 Olympic 1500m final. Defeat would have consigned him to the history books as a failure having botched the 800m final days before. His arch rival Steve Ovett, still basking in the glory of his 800m gold medal couldn’t match Coe’s fierce determination, driven on by the pain of his earlier failure.

Others who were able to find something extra to pull victory from the jaws of defeat are Seve Ballesteros, Jimmy Connors and Chris Ewbank,

There is a direct parallel between this “refuse to lose” attribute and being an entrepreneur. I don’t believe that the great entrepreneurs are those that like to succeed. Entrepreneurs are not driven by making money. They are driven by something more instinctive and fundamental and it comes to the fore when the chips are down.  The great businessmen that I know have a glint in their eye when times get challenging - they love the fight.

I am not saying that entrepreneurs don’t enjoy the rewards that come from their efforts. But I know from speaking to a number of them that they simply regard the big pay day that comes from selling a business as an indication that they have done a good job. I speak from first-hand experience when I say that the real excitement comes not from the rewards of an exit. The real thrills come months or years earlier when you were fighting to win that deal that was slipping away or scrapping to establish your dominance over a competitor or fighting to get to break-even with the cash reserves running low. In sporting parlance it is those occasions that are like the pivotal moment in a boxing match or middle distance race when victory or failure is determined. The exit is more akin to the medal ceremony. Very gratifying but not the bit we revel in.