An accountant visited the Natural History Museum. While
standing near the dinosaur, he said to his neighbour: “This dinosaur is two
billion years and ten months old.”
“Where did you get this exact information?” his neighbour
asked.
“I was here ten months ago, and the guide told me that the
dinosaur is two billion years old.”
There are a lot of “experts” out there. You usually find
them holding court in coffee shops or bus terminals. They have lots of time on
their hands and they’re full of information. Much of that information is
obviously useless or without any substance to make it matter.
Most people in business, particularly business owners, are
indeed experts. If you’re in business, I’d wager that you’re an expert in your
business. There’s likely very little that anyone can tell you about your
business or what you need to do in order to survive in your industry.
When I first started out as a fledgeling accountant (seems
like a lifetime ago), I made the horrendous mistake of telling a client that I
knew more about his business than he did! My client was a baker, the second
generation of an immigrant family that had built up a serious business.
Operating a bakery is one tough business. You’re generally
up before the crack of dawn, lugging sixty pound bags of flour and dumping them
into the hopper. Before any alarm clock has even thought of rousing its
sleeping owner, the baker has already put in a full day. Fresh pastries fill
the display cases and beckon street traffic, together with the scent of fresh
coffee.
The bakery trucks have been filled hours ago with racks of
breads, buns and pastries, and have already negotiated traffic to make their
deliveries while the breads are still steaming fresh from the ovens. You put in
a full day before most people brush their teeth in the morning, then before you
go home at the end of your day, you prepare for tomorrow, when you’ll be back
at it. It’s a very personal business, where human hands still touch every
product, where a skilled eye ensures that each pastry is prepared to
perfection, consistently, each day. The alternative is disaster.
There’s no doubt that my client was an expert in his
business and it was an error on my part to even suggest that I knew more about
his business than he did (obviously the exuberance of youth).
However there is a distinct difference between being an
expert in your business, and being expert at doing business. The environment in
which we do business is complicated and dangerous. For business owners, it
comes down to what you don’t know, that can hurt you.
For my baker client, he continued to operate the same way
his late father had, simply using tried and true recipes to create tasty and
popular breads and pastries. He also continued to operate simply under the form
of organization as a proprietorship, an unincorporated business. He never
thought about the possibility of a lawsuit from an errant customer who had an
allergy to one of his products! He never thought of the possibility of that lawsuit
costing him his business, his livelihood, his home and his reputation. My baker
client knew how to make bread, but did he know how to keep the bread he made?
He didn’t consider the possibility, until I alerted him to
it, that he might save a great deal of tax, defer paying a great deal of tax
and conserving cash flow by incorporating several companies. One company could
hold the assets of the business and lease them back to the operating company,
thereby protecting those assets while allowing for tax deferrals and cash flow
savings.
Another company was incorporated to handle employees and
payroll. The employee and payroll company ensured that the business assets were
separated from possible claims emanating from the director’s personal
liabilities and claims from errant employees, or worse.
No matter how careful you may be in your business, there
always exists the possibility that an employee may be injured. In an instance
like that, the employer is generally deemed to be guilty until he proves
himself innocent. The objective of a business structure is to ensure that your
business can continue. One cannot know what tomorrow may bring, but by planning
today, you can ensure that you will endure through any claims, baseless or
otherwise. The point is to protect your ability to earn a livelihood and to
ensure that you’re able to look after the people who depend on you and the
success of your business.
I made my client aware of the possibility of sheltering his
personal assets by creating a legal structure whereby his accumulated wealth
was separated from his business activities. This pleased his wife to no end, so
that she could sleep at night secure in the knowledge that her home was safe.
Sometimes there is no price one can put on the peace of mind that a little
planning can bring.
Most business owners need to rely on advice from experts in
order to be an expert at doing business. As a business owner, you need a good
accountant and a good lawyer to help you be an expert at doing business, so you
can be expert in your business.
Sid Karmazyn is a Chartered Accountant, author and speaker,
who lives and works in York Region. Your comments are welcomed.
T:
905-771-3813F: 905-771-3810
