Advice for entrepreneurs: when to invest in the best
Starting up a new business is great fun, exhausting, and overwhelming at times. A classic mistake made by many of us who have that entrepreneurial bent is to try to do too many things yourself.
We all have unique skill sets – so be sure to focus on the things you know and do well, then hire great professionals to do the rest. It’s important to remember that a great professional doesn’t mean expensive.
When the time comes, how do you find great professionals? Just ask! Your friends in the business world will have plenty of recommendations. Today, you can also use social networking tools such as LinkedIn to find those key members of your business team.
It comes down to sense and cents. Although there is a lot you can do yourself, there are a few roles where you should look to professionals for their trained knowledge and skills. Hiring someone to do it right the first time is beneficial to your pocketbook, and when you’re just starting out every penny counts. Here are a few tips on when it makes good sense to hire professionals.
Lawyer and CPA
DO NOT try to set up your LLC or Sub-S or C-Corp by yourself using the Internet. The type of company you establish has a significant impact on how the taxes you will pay. It also has a significant impact on your exit strategy. For example, in a Sub-S structure, the company pays no corporate taxes. The profits (or losses) are passed on directly to the shareholders as income on their personal income tax. The opposite is true for a C-Corp; in this structure the company pays corporate taxes.
Your lawyer and accountant should work together to explain the options to you. If you find a good lawyer first, he or she will also have recommendations for a CPA that makes sense for your type of business.
The other reason it’s so important to establish relationships early on is because finding a good lawyer when you really need one (when someone decides not to pay you, sue you, etc.) often results in a bad decision. Lawyers are like spouses – you need to build a relationship with someone you trust with all your heart. That doesn’t happen overnight. So, start the process at the beginning of your business planning. Then when you do need one, that relationship of trust will be in place and reliable help will be a phone call away.
I’ve found it’s much harder to have a warm, fuzzy relationship with my CPA and/or tax planners. They typically aren’t warm, fuzzy people. But when it comes to money and taxes, accuracy and knowledge are much more important than a cheery “hello!"
I remember one year when my CPA arrived with the income tax returns and I owed over $20,000 because we accepted a large check on Dec. 30 for work that would not be completed until early summer of the following year. It was a terrible lesson to learn – not to mention expensive. From that point on, I learned to call him to discuss seemingly simple actions before I made decisions on leases, pre-payments, and contracts.
Another reason it’s so important to consult with a highly competent CPA is to avoid potential problems should you ever be audited. I used a well-known CPA firm in my early years in business. I never thought to show them our invoicing process and they never asked to see it.
I’ve been audited by the State of Missouri three times over the past 24 years. The first time the auditor left without me owing any money. The next time was an entirely different story simply because we did not clearly show shipping details on our invoice paperwork. At that time, we had a client with many locations out of state. If we shipped a final project out of state, sales tax was not owed. We were assigned an auditor straight out of school and she went through three years of billing jackets, each and every time asking, “Where was this job shipped?” It was excruciating, took more than six months and cost me a bundle because I had to hire another accounting firm to help me through the audit process. After this experience, we added a “ship to” line on our invoicing system. This simple addition made a world of difference when we were audited a third time.
Through this experience, I learned about “nexus” – which happens when you’re located in a bi-state area like Kansas City. Even though my business is located on the Missouri side of the state line, we have to collect sales tax in both Missouri and Kansas due to a rule called “nexus.” It’s very difficult to go back to clients and tell them they owe you sales tax for jobs billed over a year ago – a valuable lesson to learn.
Banker
Your banker is also a key to the success of your business. Much like a lawyer, this relationship must be one of trust. I was extremely lucky in that my first lawyer referred me to Grant Burcham at Missouri Bank & Trust when I was starting my business. That lawyer relationship didn’t last, but the one with Grant and MoBank has – I’ve been a customer for nearly 25 years and was asked to be a member of the board more than 10 years ago. Grant is the first person I call when I have bad news. In year two of business, I received a letter from a customer (on the day of our first open house!) notifying me that they weren’t going to pay an invoice of nearly $30,000. Most of the invoice was for items we purchased from printers on the client’s behalf, so this wasn’t about just losing time invested – it meant I owed other vendors a sizable amount of cash.
I got a meeting with Grant immediately and explained the situation. He advised me to call my vendors, explain the situation to them, tell them I had every intention of paying them back and propose that we work out a payment plan over the next six months without interest. I followed his advice and every one of those vendors agreed to the plan. I paid everyone off within six months and also hired a lawyer to sue my client. It took over a year to get any recourse, and while I did win a judgment, we only got back 80 percent of what we were owed.
Are you catching a drift here? There are so many things you don’t know. Which brings up my next piece of advice – put together an advisory board. Fellow entrepreneurs love to share their stories and advice; and they don’t want money to do so. Here are a few suggestions on how to set up an advisory board.
1. Don’t include your professional team – you want independent outsiders who can offer you advice from the outside looking in. For the same reason, don’t include family members or friends.
2. Look in local business publications such as Small Business Monthly to find entrepreneurs for your advisory board.
3. Invite the prospect to lunch, tell him or her about your business and ask if they would be willing to spend 90 minutes four times a year without pay to assist you. Let them know you’ll have an agenda and will share that along with a business update via email before the scheduled meetings.
4. Once your advisory board is in place, use them and their time wisely.
There are many great resources in the Kansas City area that you can utilize as an entrepreneur. Some of these resources include the SBA (Small Business Administration), Economic Development Corporation of Kansas City, Kansas Women’s Business Center, Missouri Women’s Business Center, Missouri Women’s Council, the Helzberg Entrepreneurial Mentoring Program and the Kauffman Foundation. Many of these offer free or extremely affordable classes and training.
Marketing and Web Development Professionals
Your logo and marketing materials (which might be just a business card and website to start) are the “face” of your company. If they aren’t professional, prospective clients will assume you aren’t either. Poorly done materials also send the message that you are just a “mom and pop” or “basement business.” You only get one chance to launch a new business, so do it with your best foot forward!
Of course, there are things you can do yourself. Here are a few tips on these initiatives:
Research your competition and provide that information to your marketing professional. Provide your marketing and Web professionals examples of what you like and don't like. Meet with the SBA and/or EDC to discuss the possibility of getting an SBA loan to fund your startup.
An overall rule of thumb – when in doubt, ask someone or several someones! Best of luck in your new business!
Deb Turpin grew up on the farm in Kansas and graduated with honors from Pratt Institute, in Brooklyn, New York, with a B.F.A. in Communication Design. In 1985, she founded River City Studio, which is still located in Kansas City’s historic River Market.
Deb Turpin currently sits on the boards of Missouri Bank and Trust, Kansas City Repertory Theatre, the Arts Council of Kansas City and the Economic Development Corporation (EDC) of Jackson County, MO. She is a past board member of The Chamber of Greater Kansas City. She is a founding board member of Rick’s Place – an organization she helped start in 1998 to aid at-risk members of the graphic arts industry. She is also a founding member of the Art + Copy Club and was the first woman board member for the Heart of America Council of Boy Scouts of America.
Related books
Birthing the Elephant: The Woman's Go-For-It! Guide to Overcoming the Big Challenges of Launching a Business by Karin Abarbanel and Bruce Freeman
The Accidental Entrepreneur: 50 Things I Wish Someone Had Told Me About Starting a Business by Susan Urquhart-Brown
Lessons of a Lipstick Queen: Finding and Developing the Great Idea That Can Change Your Life by Poppy King
