We realized very quickly when we started our business consulting and coaching practice that our profession is lumped by many business owners into the same category as lawyers, financial accountants, and other professionals, whom the business owner / operator only engages with as a last resort. You are not alone if you as a business owner feel that way, but unfortunately, if you are only engaging professionals when the business is in trouble, in the long term, you may be spending significantly more than you need to pay. Engaging experts in a field before there is a problem to help you or advise you will cost you less in the long run.
When to Engage a Corporate Lawyer
When working with clients, we find most do not have a corporate lawyer and are running their business without having ever engaged one. In many cases, that usually means that they have signed contracts with suppliers, landlords, vendors, mortgage companies, banks without ever having the contract reviewed by a lawyer to make sure that it is fair and equitable from their business’ perspective. In most circumstances, it usually means that they are running their business without the proper legal documents, (or perhaps they downloaded copies from the Internet) such as, a shareholder’s agreement, employee contracts, order or credit agreements, distribution agreements, or a variety of others that depend on the business.
Review of Contracts
If you are going to sign a contract with someone else, you need to have a corporate lawyer review the contract to make sure that it is legal and binding and that your business is protected. We hear on a regular basis,” I trust this company or this person.” This is only until the point that something goes wrong. Once you sign the agreement, it is legal and binding and in most cases has been developed by their lawyer, (or, in the event of Internet-sourced documents, maybe by a lawyer in another industry or company) so is most likely one-sided, or worse, not relevant to your business. By not paying to have it reviewed, you are opening your business up to the chance of a disagreement where you will now have to engage a lawyer. Since you signed the contract, your chances of winning are slim to none. In addition to the original costs of the problem, you now will most likely be paying for mediation and court costs along with your legal fees versus paying to have the contract reviewed when it was received.
Development of Contracts
We have had a few clients that are in business with another party and do not have a Shareholder's Agreement or those that have employees, yet do not have Employment Contracts. We often hear, can we download a template off the Internet? The other one we hear is, “ we do not need one at this point; we are not having any problems with our business partner or employees.” Downloading a template off the Internet can sometimes be more dangerous than not having a contract at all. A lawyer may not have written the contract, and it may not be relevant to the laws of your jurisdiction. The laws are not the same from country to country and in many cases even province to province. We usually hear from a client in an employment situation asking what they can do after their employee has now gone to work for their competitor and has taken their customer list. If you want someone to abide by rules, then you need to have a contract that is legal and binding and signed by the other party when they come on board with your business, or you do not have a leg to stand on with the courts.
You can reduce the amount for the development of contracts by doing your homework upfront. Lawyers are not there to tell you what your business practices should be or outline your business processes. They are there to make sure your rights are protected. For this reason, we work with many of our clients in helping them develop all of the business rules that they need in the contract before they visit a lawyer. This reduces the amount you will pay them and will not waste their time on areas that they do not want to be involved.
There are times when situations are occurring within your business that you should obtain legal advice before proceeding. An example of this could be before you fire an employee. If you are not knowledgeable of the Employment Standards or Human Rights Legislation, not contacting a lawyer before you dismiss an employment could end up costing you 10’s of thousands of dollars in additional to wage settlements, court costs, legal fees, and even fines.
When To Engage Accounting Professionals
A financial accountant is one of the first professionals that we will tell a start-up to engage. Most business owners do not understand what a financial accountant versus a management accountant is and what services each can provide their business. Both should be Chartered Professional Accountants, but in many cases provide very different services. There are some accountants that perform both financial and management accounting, but in most cases they tend to focus in separate areas. Make sure when you engage either a financial or a management accountant that they have a CPA designation. Accountants with a designation are governed by the Chartered Professional Accounting Association within your Province. If you are using an accountant without a designation, you do not have the same protection.
When most business owners hire an accountant, they are hiring a financial accountant. A financial accountant can help you choose the right accounting package for your business, define your chart of accounts based on how you want to run your business, advise you how to structure your business for the most favorable tax advantage based on your personal and business goals, compile your annual statements and prepare your taxes. Also, there are Licensed Public Accountants that perform Reviews and Audits.
In most cases, business owners visit their accountant only once a year to have their statements compiled and have their taxes prepared. We would recommend meeting with your financial accountant more often so that they understand your business better to provide more accurate financial advice when it comes to your particular business versus other businesses in the same industry.
Management accountants are more focused on understanding how your business operates and helping you make informed day to day operational decisions. They look at both your current performance and forward-looking trends versus your past performance. Financial accountants tend to look at what has already occurred through issuing Notice to Reader compiled financial statements. Management accountants focus on internal business planning activities such as, but not limited to, strategic planning, budgeting, working capital and cash flow management, performance reviews, capital investment analysis, operational efficiency and effectiveness improvements, and finance (where does the company get it sources of cash to operate the company).
Management accountants can help set-up your business properly out of the gate and can help you get back in control of your business when issues have taken your business off the rails. A management accountant will work in concert with your financial accountant.
It is best to engage both a financial accountant and a management accountant at the beginning of the life cycle of your business. Having your business structured correctly and your financials and tax structure set up for how you run the business is more cost effective than waiting until you are in trouble. Once your business is in trouble the time is spent trying to figure what has gone on in the business and to fix necessary issues before any work can be done to restructure your business and financials properly.
We have had clients where their accounting system was out of date and not set-up correctly for how their business should be structured, are having cash flow issues, and then find out there are outstanding payments to CRA for HST and/or payroll taxes. At this point, the business is strapped financially but requires significant help by usually both types of accountants and usually a bookkeeper. If the business owner had not waited until they were in trouble to get help, they most likely would not be in the situation they currently find themselves.
Many times business owners believe that a bookkeeping function is nothing more than a glorified data entry clerk, and this is a very costly mistake. Understanding bookkeeping, financial transactions and the different accounting systems, and keeping someone’s books up to date on a monthly basis is a function that should only be given to a trained bookkeeper. It is sometimes hard to find a reputable bookkeeper, as the good ones are in high demand.
A bookkeeper will make sure all your sales, expenses, and other transactions are entered promptly, will reconcile your bank accountants and credit cards, and make sure your payroll taxes and HST are filed and paid on time. Having a bookkeeper that is knowledgeable can end up saving you money at the end of the year on financial accounting fees. You can either pay a bookkeeper $30-$45 dollars an hour to make sure your books are correct or pay a CPA firm $120-$250 an hour at the end of the year to clean up the transactions in your accounting system before they can compile your financial statements and prepare your taxes.
When to Engage a Business Consultant or Business Coach
Though consultants and coaches can help you when your business is in trouble, this is not the best time or the most cost effective way to engage our services. Waiting until the 11th hour to get help, greatly reduces your chances of getting your business back on track. If you are waiting until you are in financial trouble to get help with financing, it does not matter how well the business plan is written, if you do not have working capital and cannot support repayment of a loan. In this situation, the probability of a bank or an investor who will give you money is quite small. In most cases if you can get money at this point, it will be through financing such as factoring, where you will be paying 20-30% interest.
You need to invest in making sure your business is structured correctly, have an understanding of what is going on in your business in all areas, and made an investment in the business to make sure it gets off to a good start. When businesses do this and engage us and other types of consultants early, this is when consulting and coaching has the greatest effect in helping the business and in making owner successful.
If you have a significant number of issues, and you wait to get consulting or coaching help, you will find “fixing” a problem takes a lot longer than business owners getting help early on in areas they are not as familiar. Some examples are:
It takes a significant amount of time to get the business back on track that has been running with issues for a period. The longer the issues persist, the harder and longer it takes to make changes in an organization. If it took years for the business to get in that condition, it is not a quick fix to turn the business around.
It is best to engage a consultant or coach before you make major decisions you are not sure about instead of after they are implemented.
We have all heard the saying, “You can pay me now or you can pay me a lot later.” When deciding to engage professionals for your business, this saying could not be truer. No one likes to pay money, but it is important that when you are making decisions that affect your business and you are not certain if they are the right ones, you are affecting not only yourself, your business, and your own family. If you have taken on the responsibility of hiring employees, the decisions you make affect them as well as their families.
What you need to consider if you plan to take a short cut is what will it cost me if it goes south versus doing it right the first time. It is important to treat professional services as an investment in your business rather than an expense to be managed and minimized.
RK Fischer & Associates