Or maybe I should say more magic than science.  After spending the day at some amazing Napa Valley wineries and being in the presence of Craig Underhill, a partner at Brotemarkle, Davis & Company, I have a tremendous amount of appreciation for the skill, expertise, and pure faith of any winery owner and their team. I marvel at the impact of nature on their annual results and at the lack of control they have over many aspects of the finished product.  It was also fascinating to be able to relate the wine business to accounting concepts like Uniform Capitalization, LIFO inventory, and Revenue Recognition (did I mention that I am a nerd?)  thanks to Craig and his firm's expertise in this unique industry. 

I wonder how many accountants would have the stamina to run a business that is impacted by temperature, rainfall, by soil quality, plant spacing, insect infestation, disease, not only in their local area but in other areas that might provide grapes for their finished product.  There are so many factors that are totally outside of the winery's control. 

And to think about all the advanced decisions that have to be made based on an assumption of future crop yield.  These same issues plague every business that involves agriculture,  but it is certainly clear to me why wine is so highly prized as a magic elixir. 

We are coming upon the end of a month, the end of a quarter, and in some camps the end of the fiscal year.  That means it is open season for sales discounts in many companies.

So the question I have is this.  Do sales discounts really work?  Aren't we just messing with the timing of sales across every year - bunching up deals so that they fall at the end of those magic discount cycles?  And setting up the next two periods for a vast dry cycle, only to be reversed by another round of discounts?  How do you break the cycle?  Don't customers get tired of the constant pricing games?

I have to admit that I have been involved in my share of discounting approaches over the years (and often looked for a new spin on an old offer).  It is the way most of us have learned to do business and in fact most of the re-selling community expects a certain number of discounts.  In most cases, customers and distributors can predict when they will occur and have learned to hold sales to wait for a better deal. 

Am I the only one who gets sick of the constant specials and sales offered at many retail establishments? Doesn't it just make you wonder how much the prices were marked up before they were reduced by 50% ?  Haven't many of us become no better than Used Car salesmen willing to fool around with pricing in order to close a deal?  What if we all went the way of Saturn, setting a base price and then sticking to it. 

Is this short-sighted discount mentality a function of  corporate ownership which drives us to meet the short term expectations of the trading public?  Aren't our investors better off if we eliminate discounts, and sell our products based on the value of the solution? 

And what about the service industry?  You don't see many accountants offering summer sales in which they reduce their hourly rates to drive more business.  

Note:  this article was 30% larger than my original article at no additional charge.

On a recent visit to the Los Angeles area, I chanced upon the La Brea Tar Pits.  It is an amazing thing to suddenly arrive at a lovely grass-filled park dotted with fenced-in pools of tar,  plus a bubbling tar lake complete with life-sized statues of prehistoric animals. 

It occurred to me that the tar pits at the Rancho La Brea site are much like information systems :  
¨     You have to dig through buckets of  sticky black stuff to uncover anything of value.

¨      Often what you uncover is the fossilized remains of something that used to be important. 

¨      Sometimes the information doesn’t pass the smell test. (The tar pits reek of sulfur. Here's hoping your data isn't quite as pungent.) 

¨      You know there is valuable information in there, but you have to get dirty to uncover it.

¨       Sometimes your job is the pits.

¨      The tar pits are surrounded by a fence, only authorized employees who have the right keys are allowed access to the secrets buried within.

¨        At the top of the park there is a clean white building (Ivory Tower) that is totally separate from the black pits.  That is where all of the data fragments get assembled into “the big picture.”

¨      Sometimes creatures (projects, ideas, systems) get mired in the ooze, never to be seen again. 

If you find too many similarities between this list and your business, it might be time to look for a better solution.  

What I learned about Billing

In the course of running my unplanned not for profit, I realized that I had a problem billing for my work.  I also began to notice that the very clients who received the biggest discount were the ones who expected the most.  Since I had undervalued the services I delivered, they felt no qualms about taking advantage. 


The interesting thing is that I was working on their accounting systems.  I had access to their financial statements and was frequently involved in posting transactions to their system.  None of them were in a troubled financial situation and in fact, most of them never had any issue with my bill. I never considered the facts in determining how to bill them, but had instead relied on a fictional scenario of my own invention.  In my mind, I felt they couldn’t afford my full rates.  What’s worse, since I was billing by the hour, I felt they shouldn’t have to pay for the full number of hours it took for me to complete a job.  So I ended up billing discounted rates for fewer than actual hours.  I had built the perfect equation for starvation. 

How I resolved my Dilemma

During the course of consulting for clients, I came across an accounting firm that serviced a mutual client.  We began to work jointly on a number of clients and I really respected their expertise and approach.  Since I was also a CPA, I approached them about bringing my client base into the firm and joining their practice.  I also had a tax background so the combination of computer and tax expertise was appealing to them. 

We worked out the arrangements, and I joined the team as a salaried employee.  The responsibility for billing and collecting was lifted from my shoulders.  I was so relieved!

So here’s what happened immediately:

1. They raised my rates. Significantly.  I did not lose a single client as a result. 
 
2. I stopped understating hours.  Because now that my hours were not my own, they had value.  I was being paid a salary.  It would have been unethical to give away my hours when someone else was paying me for them. 
 
Notice how my own perception changed.  It is amazing what happens when someone else sets the value of the services you deliver.  


Books I wish I head read back then : 
 
Let’s Get Real or Let’s Not Play, Mahan Khalsa


 

I am currently in the process of launching my own business for the second time.  

What Not to Do

The last time I tried to go out on my own, it was not a conscious decision.  At the time, it was the best way for me to make a living in a new town.  I felt desperate about finding work.  I had a feeder network that thankfully kept the marketing going, but I still believed I had to take on any job that came my way. (This is a very common entrepreneurial problem  visit this site for more on this topic http://www.e-myth.com/) .

In addition to being a CPA, my real niche was small business accounting software implementation and support.  This was in the early days of PC automation and I was in Atlanta, so there was more Peachtree Software business than I could handle.  I was very successful in finding and generating business, but when it came time to bill for my work, I was a disaster.  

Turns out I was suffering from this all-too-common ailment, that of being a “Solutionist Professional”, which is beautifully described by my friend, Ed Kless, in this posting on www.versage.com .  I really wanted to help every client I came across. I knew I had valuable tools that would help them get better - whether they could afford me or not. Therein lies the problem.  

I ended up running one of the most successful not for profit businesses in Atlanta.

During my early days as an implementer of  Peachtree Accounting Software (for DOS), I had the pleasure of working with small businesses all over the Atlanta area.  One of these wonderful clients is the source of this memorable saying - “ Well, I’ll be dipped in daaaawg doo-doo!”  That statement is the best reward I have ever received for solving a pesky printer problem. It also makes a wonderful wall hanging in my California home.  

But on to the point. I also had a cold storage client who had a small business office on premise.  The office was accessible only by walking through the middle of the storage area.  It always had the scent of something that hadn’t been kept cold enough.  As a result, I am absolutely positive that I know what rotted chitlins smell like.  In the midst of this lovely aroma sat the most wonderful classically trained bookkeeper. She had been handed the box of software and was told to figure it out. I am pretty sure she was around during the invention of the pencil so she wasn’t planning on putting that device out to pasture any time soon.  She was wonderful at executing tasks as I described them and was meticulous about accounting for every single transaction properly.  She printed out reams of paper and recorded every keystroke for posterity. (I’m pretty sure she is solely responsible for Global Warming.) 

On one occasion I was called to come onsite as the system “wasn’t working properly".  She told me it was messing up and skipping transactions.  I asked for more information and she opened up a drawer containing beautifully hand written records that mirrored every single transaction in the automated system.  Turns out she didn’t trust the computer so she was also recording every transaction on individual green ledger cards.  

Most of us can hardly find employees to do a job right once.  Here was an employee who took such pride in her job that she did it beautifully twice. Well, I’ll be dipped…

 

Financial statements are the number one tool that we accountants have to communicate with the rest of you.  Problem is, most of you don't know a Debit from a Credit and don't know the difference between amortization and depreciation.  And most of you don't really care.  (But if you do care, I will cover that in a future posting. )

They serve a very useful purpose, these great balanced financial statements.  They afford a consistent view of a business year after year. They create a standard language useful in comparing one business to another.  They help banks evaluate risk.  They help auditors support their opinions.  They create measures that give a glimpse into the health of a business.  But they do not give a wholistic view of the business.  They don't show operational efficiencies.  They don't tell you if customers are happy with the solutions they buy.  They don't give insights into the environmental impact of the business.  Yes the financial measures they provide are important. But it is the non-financial measures that hold the keys to really judging what is happening in a company and which can serve as predictors of future results in the hands of a trained professional. 

Which one would you rather be? And if you are a business owner, whose skills would be most useful in helping you treat your business ailments?

X-ray technicians are highly valuable, highly skilled professionals.  But they are trained in identifying the problem, not correcting it.  Surgeons, on the other hand take the pictures produced by the X-ray team and make a decision about how to solve the problem identified. They define an action plan, communicate with the patient, and then take corrective action. 

As an accountant I would rather be more like the surgeon. I would rather help my clients take corrective action to build better businesses going forward.  I find no thrill  in producing the most wonderful picture of yesterday's results -- in perfect balance, mind you.  Yes, the picture is useful, but only as a starting point for future decisions.

And besides, surgeons always have really nice cars.