Monday, January 31, 2011

Your Accountant, Your Rabbi

Mark likes to say that he learned all of his early business lessons by selling drugs in the playground at elementary school.   That scenario is rich for insights into marketing, I bet, but one of my most memorable early business lessons came from the movies.  In particular, I’m thinking about The Untouchables here, and Al Capone’s great soliloquy “there is a time for personal achievement, and there is a time for teamwork”.

Yeah.  It’s the scene with the baseball bat, the clean white tablecloth, and that startlingly large lake of brain and blood.

Your is not so much of a time for a distinguished personal achievement.

You should always do the books yourself.  Maintain your own accounts.  Enter your own data.  After a while, you may feel comfortable shifting your chart of accounts around so that it presents itself in a manner that means more to you.  But decisions on what is deductible, and how fast a particular piece of equipment can be depreciated?  You got it: it's fielding.  It's time to be part of a team.

Find an accountant you like.  This may take some time.  Interview a few.  Compare their deduction philosophies, compare their rates, and ask for references from current clients.  Make sure they’re completely competent with your accounting software.  Certified Public Accountants charge more for their time than less-trained others, but it is almost always worth it to pony up the extra for their time. 

And once you choose an accountant, you should remember that they are on your team.  You don’t need to open your new business with the aid of a board of directors, but you should understand that your competencies are limited, especially in areas of mind-numbing esoterica (like tax code). 

Your accountant is your consigliere and your rabbi.  Your accountant will guide you in times of darkness, and through moments of indecision.  Your accountant is your counselor.  Speaking with your accountant is like being in confession: tell your account the truth.  The WHOLE truth.  Even when you’ve done something stupid or arrogant or shameful, and you’re embarrassed. 

Lying to the priest may save you a few Hail Marys, but it kind of undermines the whole point of going to confession, now doesn't it?

It is your job to build a successful company.  It is your accountant’s job to keep you from wandering afoul of the law.  Which, incidentally, is easier than you may think.  The Fed is not your friend, and they don't make rules nice and clear so that you might never break 'em.

You are the team owner, and the choices are yours; thus it behooves you to select your team members carefully and play to their strengths.  Remember Mr. Capone and his story of decision...when should your call be a moment of individual achievement?  And when are you  best off relying on your team?

Tuesday, January 25, 2011

Data Entry Party!

In small business, data entry goes hand in hand with banking.  It’s that simple; your daily numbers are used to create your daily deposits.

I know that data entry is boring.  But even if data entry isn't exactly the lifeblood of your business, it DOES track the pulse of your business.  Don’t farm it out.  The company owner should do daily books.  Yes, even if your primary responsibility is fixing cars, writing ad copy, or cooking. 

Business owners that hire other people to do their daily books get ripped off more often than others.  The rip-offs are bigger than others.  And worst of all, those business owners are so out-of-the-loop that they often don’t notice it for years.

But even more, if you don't stay on that pulse, if you don't personally absorb the data necessary to feel your may as well spawn a tadpole and farm it's rearing out to some stranger.  Out of fear or neglect, you may very well wind up robbing your business of an informed leader AND robbing yourself of the experience of being a competent, enlightened leader.

Saturday, January 22, 2011

Data Resolution III: Draw the Line and Maintain It.

By design, Kaladi Coffee is a management-decentralized operation. Most of the decisions that happen on a daily basis at our joint are made by our baristas, the title granted to every fully-trained employee of the company.  Employees are responsible for ordering all supplies, writing the schedule, determining roasting volume, maintaining and controlling inventory, and other key management functions. Ownership has ultimate responsibility; when something goes seriously wrong, it’s our job to remedy the situation (that sounds pretty sexy, but it's usually just a busted toilet, you know?),  but a broad based pyramid of command means that there is a narrow variety of tasks that occur regularly at the top. 

I'm real good with a plunger.

One of the correlating beauties of that design is that while my data needs to be accurate, I don’t need all that much of it.  But it needs to be entered.  Every day.  Like religion, but a lot more serious.

On the retail side of things, the only sales numbers we track are beverage sales, bean sales, food sales, and a catch-all category we call “retail sales”.  Four little numbers per day give me all of the data I need.  We track wholesale operations and internet sales separately, but in similarly streamlined format.  Sales numbers are most often analyzed from within QuickBooks, but bar sales are exported into a spreadsheet as well.  That step allows me to write algorithms for charting, for instance, sales along various-length moving averages.  Data logging takes approximately ten minutes per day, every day of the week.  In exchange for that effort, I get an accurate picture of how each critical segment of my business is trending, can compare that information against historical data, and my daily banking is completed as an extra benefit.

Expenses need to be broken out and tracked in greater detail, as expense information is not only used to help steer purchasing decisions and analyze business segment profitability, but also forms the basis for various deductions on the company’s tax return.  Constructing a chart of accounts, if you’ve never done it before, is something best done with an hour or two of help from your accountant.  Expense accounts should correlate to income accounts, facilitating expense analysis.  Expenses should be nested in an intelligent way, such that related categories of expense build large, meaningful chunks of data.

And the rest is simple.  Laying out the architecture of your bookkeeping system is thought-provoking; data entry isn’t.  But do it.  Do it every day.  Don’t put it off ‘til the end of each month.  Every day of the week, you should log the prior day’s sales, and use those results to build your bank deposit.  Yes, even if it’s only forty bucks.  Your diligence will reward you.

Monday, January 17, 2011

QuickBooks: The Parable of the Generic Muffler

I was still sixteen when I used my hard-earned cash to buy my first car: a ’77 Camaro.  No, not the cool one with Cragars and a 350 and a four-barrel and a four speed…mine was a flaccid old rotbucket with a 250 straight six and an automatic.  My dad’s station wagon was faster.  But still…I was sixteen, and it was my own car.  And I loved it.

When my muffler fell off six weeks later (the car cost $350 for a reason, you know…), I took it to a mechanic and asked how much he’d charge to install a factory muffler.  And while I honestly don’t remember his quote now, I do recall that it was perilously close to the purchase price of the car.

I wound up at an aftermarket auto parts joint, and bought a nice, generic muffler that was approximately the same size and configuration as the original.  But it cost about fifteen percent of what the mechanic had quoted me, and I figured I’d just install it myself.

Thus begins the parable of the Generic Muffler.

Generic mufflers are cheap because they “can” fit almost any automobile…so manufacturers can sell thousands of them.  The hitch, though, is that they really don’t fit ANY automobile.  The average person in a crowded room has one boob and one testicle.  The average doesn’t exist.  Same deal with mufflers.  And I know.  It took three days to install that muffler. 

The same should be said for QuickBooks.

QuickBooks doesn’t really fit ANY business.  In attempting to make a piece of software so bland and broadly appealing, Intuit made something that is the accounting version of tofu.  It has no form, and it has no flavor.  It’s one of those things that has to be massaged and manipulated, begged and beaten in order to make it do anything useful.  It is unfortunate that setting up your chart of accounts and formatting your forms is one of the first things you have to do with QuickBooks, because it’s a task that requires intimacy with a business that doesn’t yet exist, and requires familiarity with software that, often, is brand new.

But it is ill-advised to try and run a business without it. 

Make the sacrifice, take your lumps, and start using QuickBooks (or, if preferred, something else…I’ve never seen another piece of general accounting software that sucks any less) on your very first day of business.  It is an indispensable piece of the infrastructure that holds your organization together. 

Sunday, January 9, 2011

Data Resolution

It's that time of year that numbers-oriented business folk like myself love the most: that period of contemplation, circumspection, and strategizing that falls between the end of the year and April 15th.  It's a reckoning of sorts...sifting through data from the year recently closed and comparing it against the data of the year before that, often trying to find a pattern where, invariably, no such pattern exists.

While the architecture of your data system might not say as much about your company as who you hire, it isn't far behind.At some point we'll go into detail about the business systems used to collect and sift data in detail.  For today, though, I just want to hit one specific part of data collection: selecting a desirable point of data resolution, or deciding what you keep and what you chuck.

Data has become the "it" commodity of the new millenium.  As of today, the world values Google at approximately 197 billion dollars...largely because of the amount of data that flows through their computers.  Hastened by services like Craigslist (think personals) and Facebook, data has graduated from the mundane school of phone numbers and addresses, and has evolved into the fledgling empirical representation of our desires and our psyches.  This is heavy stuff.  This is a marketer's dream.

Alas, the data we discuss today is the old-school type: numbers associated with small business.  Considering the value that the world places on data, one might think that it is best to collect as much data from your business as possible.  Compelling arguments can be made to that end.  After all, you never know what you might learn from exhaustive data until you see it, right?

The problem is that it takes time and energy to collect data accurately.  Even more, it takes time and energy to analyze data.  Data sounds so's easy to get caught up in data collection, often to the point that you wind up neglecting truly critical parts of your business.

I like to remember that data is a TOOL.  If the tool becomes more work than the job it is intended to do, then the tool has gone too far. 

POS (Point Of Sale, not the other colloquial POS...) computerized cash registers in use at most coffee joints are able to provide users with scads of minutae.  The problem is that most of that data is useless.  Just because you CAN collect exhaustive data doesn't mean it's a good idea.  One customer proudly showed me how his system can tell him how many shots of sugar free vanilla syrup he sells in any given time period.  And it does the same thing for his other 16 syrups too. 

I asked why he doesn't just open up a new bottle when the old one is empty.  Nobody in the coffee business makes money off of syrup (with the possible exception of Starbucks, but they're more in the syrup business than the coffee business anyway...).  So who needs that data?  It's a bunch of numbers that probably distract him from other numbers that DO mean money.  For instance, the fact that his POS system costs him $120 a month.

The cash register we used at Kaladi for nine years came out of a dumpster.  Literally.

When deciding what data to keep, ask yourself how hard it is to collect that data.  As yourself what it might tell you about your business.  Ask yourself how it will help you manage your business better.  If you can't come up with a good answer for any particular little bit of belly-button lint data, it should probably be allowed to fall away.

Next post: data retention at Kaladi Coffee.

Wednesday, January 5, 2011

This Little Piggy Crashed and Burned: Don't Be A Greedy Little Piggy.

I got my first non-newspaper delivery job when I was eleven.  I cleaned up and helped pack orders for a then-little electronics company in New York.  The company was called DERF.  Yes, DERF.  As in Fred spelled backwards.  With all capital letters.

I was into hi-fi at the time.  For those chronologically impaired among us, hi-fi was a term used in the sixties and seventies to refer to a good stereo system.  Some dabbled in early multi-channel (my beloved Dynaco among them), but basically, this was two channel equipment.  It was heavy, electrically inefficient, ugly, large, and expensive stuff.  I still own an amplifier that I bought from one of the Brothers Derf (a crude but effective Hafler 200 power amplifier...).  I still reminisce fondly on the hours and dollars I "wasted" on my hi-fi toys.  If I'd have give all that money to Warren Buffet instead, I'd be paying someone else to write this blog today.  While I reclined and ate bon-bons.

So at any rate, a piece of equipment came up available via my boss' friend who was upgrading his system.  We used to call record players "turntables".  But was a record player.  A Thorens 126 to be exact.  The owner of Derf wasn't terribly interested (his hi-fi was pretty phenomenal, as I recall...), but he told his friend that an employee might be interested.

I remember my parents stories of traveling to Egypt and Turkey and all over the place, and hearing about how they had to haggle for everything at markets.  I thought that I had to haggle for everything that was used.  I had the impression that I'd be a sucker if I did NOT haggle, regardless of the opening offer.

So when this guy offered me a Thorens 126 in good shape for fifty bucks, I offered him 35.  And he told me, in language unfit for 11 year old ears, to go screw myself.  And then he hung up on me.

That machine is now worth about $700.  And I'd have derived $10,000 of pleasure out of it between then and now.

The secret of a good deal is knowing what you want to pay for something.  Know what you could pay, and still be happy with paying even if it came up cheaper later.  Understand the difference between dog-eat-dog and the odd scenario when someone is actually giving you a hand up.  Take a fair offer at face value.  Pay in cash.  Smile.  And say "thank you".

That scenario might not happen every day; but it happens a whole lot more often than anyone is apt to believe.  And hey.  If it happens to you, consider making it happen for someone else.  The wheel of business karma you is so very small.