As business owners, most of us understand that the people who help us get our company to one level may not be the folks who can get it to the next. A great salesman may not be your next sales manager. The sales manager who can supervise and mentor a half-dozen reps may not be able to create your sales process training for a national team. The national sales manager may not be the strategist who can identify and develop horizontal markets.
So it is also with outside professional advisors. When your business is just starting out, you have a clear criteria for retaining a professional. He or she is usually the cheapest one you can find. Then your business begins to grow. A few years later, if you are lucky, you are bringing in millions of dollars of revenue, and employing dozens or scores of people.
At that level, you are far too experienced to seek professional wisdom solely on price. You understand that the folks who charge the least usually have a reason. The ones who charge the most have a reason too. Yet your now-substantial enterprise is still running with the help of the cheapest professional you could find when you were a fraction of this size.
The two ubiquitous consultants for any business are the attorney and the CPA. In my book “11 Things You Absolutely Need to Know About Selling Your Business” I relate the sad stories of estate attorneys, divorce attorneys and litigation attorneys who have been asked to handle business transactions beyond their expertise. Unfortunately, the glut of unemployed lawyers in the market leads any number of them to take all the work they can find, and their license allows that to happen without penalty.
You know, a medical license allows a physician to perform any medical procedure as well, but none would dare practice outside their training. I wonder why lawyers can regularly screw up things for which they weren’t qualified, but their profession does little or nothing about it?
Even more frequently, I see accountants whose client has long ago outgrown their skills and capabilities. These are companies who need to be advised about investment tax credits, research credits, buy vs. lease decsions, and hiring incentives, but whose accountants roll merrily along preparing basic tax returns that leave thousands of dollars in the IRS’ pocket unnecessarily.
There are many competent solo accountants, but I’ve never met one that could handle all the needs of a complex organization. I’m regularly surprised by owners who brag that their $5,000,000 business still pays $700 for a tax return. Do they think that’s buying them top-shelf services?
I knew a retailer who was rapidly expanding. His solo and very inexpensive home-based CPA got pregnant. She filed an extension for his tax return, then another, then a third. Finally she filed a special “It’s my fault, not the taxpayers” professional extension. (I’d never heard of that one.) All that time he kept right on building new stores.
By the time she finished the tax returns, it was a year after he had closed his books. Most of his expansion had been done under with the wrong kind of contracts, with the wrong leases, and with a misunderstanding of how depreciation worked. Too late, he found out that he owed the IRS hundreds of thousands of dollars from the previous year just as he opened his biggest store ever. Negotiating a tax payment plan consumed all of his working capital, and the new operation had to start in an untested market without any advertising budget.
That store failed. His CPA had never discussed why he should isolate his risk by separating the new venture from his other, profitable operations. He lost everything.
That’s one story of a business owner paying the price for using an advisor who couldn’t keep up with his business. I have another, and another, and more after that.
Right sizing your outside services should be instinctive. You wouldn’t have a 30 gallon aluminum garbage can for a manufacturing plant. When the garbage starts to pile up, you get a dumpster. It’s just a cost of doing business. Why would you stick with professionals whom you’ve long ago outgrown?