Strategy vs. Goals & Plans

https://www.inc.com/tanya-prive/why-67-percent-of-strategic-plans-fail.html

Strategy is a nebulous term that has never been adequately defined. It’s not just planning, but it involves goals & planning.

For instance, the way I normally describe the difference is this. The goal in WWWII was to conquer Germany. But it required a strategy, which involved goals, each of which was individually planned.

Looking back, their first goal was to drive Germany & Rommel’s North Afrika Korps. out of North Africa. The 2nd goal was to cross the Mediterranean Ocean & invade Italy. The third goal was to fight their way up the boot of Italy to draw attention & support away from the Russian Army invading from the North and from the West coast of Europe where the allies planned another invasion. All of these goals required individual planing, which resulting in catching Germany in a pincer action winning the war.

 Conquering Germany was the strategy, involving individual goals which were individually planned.

The accompanying article is another reasonable take on strategy.

MY STORY, briefly

MY QUALIFICATIONS

After graduating from college with highest grades, I joined the biggest & best CPA firm in the world where I audited, advised & prepared tax returns for the largest companies in the world. After that, I joined the Fortune 500 where I held C Suite positions w/ 2 Fortune 500’s & led the team that introduced mag stripe cards to the marketplace, initiating the digital economy & revolutionizing the way the world does business, attempted LBO, ran for Congress, founded the first cloud based CPA firm in the country & built it to 7 figures. Clients in 46 states & 5 countries.

POWERFUL INTELLECT – Mensan • Genius IQ • Polymath • Creative • Innovative • Thought leader • Exponential experience.

Accountants, CPA’s

According to Google, there are 654,375 CPA’s, 29,000 attorneys, 210,190 CPA’s, 213 enrolled actuaries, 57,805 enrolled agents, 642 enrolled retirement plan agents and 60,463 people with other qualifications.Total tax preparers – For a total of 952,303 credentialed preparers. 155.8 million tax returns filed. Average tax returns, 164 per preparer.

Big 4
312,000 people work at Deloitte
219,281 people work at KPMG
270,000 people work at EY
276,000 people work at PWC.
1,077,281 Total

Fortune 500
The population of Fortune 500 companies is too diverse to come up with even a reasonable estimated average. Small Fortune 500’s have at least 500 accountants working for them. Larger Fortune 500’s have at least 10.000 accountants. For the entire Fortune 500 that average’s 5000 each.

Since the need for accountants is so great in Global companies, accountants & CPA’s are highly sought after.

CPA

The term CPA is a riddlewrapped in a mystery, inside an enigma.

The term has always troubled me.

 

I took my first CPA exam while still an undergraduate at my professor’s insistence, but I never got my score so apparently undergraduate scores didn’t count. I passed the exam soon after I graduated with half an hour in the AA&Co library to learn governmental accounting. I got my certificate nine months later when I satisfied the experience requirement.

 

The CPA exam was a popular topic of discussion among AA&Co staff, half or more of whom had not passed the exam. Other than that, it wasn’t discussed at all. It was just the price of entry to the accounting profession. Without it you could not very well practice accounting. For those who hadn’t passed it, it was like Damocles sword hanging over their heads.

 

My career progressed into Fortune 500’s, where they didn’t care whether you were a CPA or not. In fact, I never heard it mentioned. Two of my accounting bosses at two different Fortune 500’s did not have their certificate. As my career progressed into the C suite, the subject never came up. And to be perfectly honest, I began to see it as a bit of an impediment, that somehow it pulled me down to their level & degraded me.

 

Later after attempting to buy my Fortune 500 employer, attempting an LBO and running for Congress, the CPA designation came back into focus when I decided to open an accounting practice of my own. I suddenly found myself in an environment where the CPA designation was talked about a lot. In fact it separated the top echelon from the wannabes. If you had a CPA certificate the other CPA thought you walked on water.

 

I had a staff person one time who passed the exam while working for me. He immediately walked into my office and quit to open his own firm. I told him he probably didn’t have enough experience to go out on his own, but that just mad because he had always heard just the opposite. He joined an office sharing arrangement and then just disappeared. That experience had a big influence on my attitude about the CPA designation and on the general intelligence of CPA’s.

 

Over time I dropped the CPA & began calling my company simply ‘Ellis’, rather than the legal title ECPA PC or Ellis CPA Firm PC.

 

But the deciding factor hit yesterday while watching a Youtube video by Dan Pena about creating deal flow. Pena’s tagline is “the Fifty Trillion Dollar man” so he does have some influence and is worth listening to. Pena ridiculed the CPA designation. “People who call themselves CPA’s are doing business out of their bedrooms.” and “Deloitte doesn’t call itself CPA. Ernst & Young doesn’t call itself CPA. PWC doesn’t call itself CPA. Peat Marwick doesn’t call itself CPA.” In fact, out of 2019’s top 100 accounting firms, only four included the term CPA in the name.

 

That brought back memories of a magazine I subscribed to when I first started my practice. The Practical Accountant ran a monthly article of demeaning published comments about CPA’s, who were apparently widely ridiculed across society. The magazine ceased publication years ago, but apparently the attitude they wrote about is still prevalent.

 

So … This morning, I texted the person working on a new logo for Ellis to brand around and told her to nix the CPA. Not that I include it in our online name, but I was going to include it on my updated landing page, but I decided other wise.

It’s very likely that the CPA designation is a net negative in the real world.

Spending CPA Marketing Dollars

I read something in the book ‘Corporate Cancer’ that opened my eyes. After years of trying to advertise my way to fame & fortune, I recently wrote a post on LinkedIn saying advertising for new clients simply doesn’t work. You get a few new clients, just enough to keep you pouring money into advertising, but at the best, fees on new clients barely pay the marketing costs. I still believe that. But now, I know what does work.

Corporate Cancer is well written and easily held my interest, but it has nothing to do with marketing.  I didn’t expect to find any marketing revelations in the book, but I did. I got definitive proof in my mind that the best way to spend your marketing dollars is to establish your brand.

The author,  Vox Day, spent a couple chapters building the case that converged companies overrun by social justice warriors push positions that are deeply rejected by most of their customers. But SJW warriors hold positions that are low enough in the organization that most SJW activities escape the attention of Senior Management. The remarkable thing that caught my eye is this. Although many (most?) of their customers aggressively dislike or even hate the company’s public positions, most of them hang around because of the Brand. They are more attracted to a well established brand than they dislike how the company actively pushes an agenda they basically hate. While these companies are losing customers, they aren’t bleeding them as you would normally expect, for that reason alone.

If brands are powerful enough to work that kind of magic & keep customers who genuinely dislike a company’s SJW policies from switching to another supplier, then they are very powerful indeed. Imagine what could happen if the company actively pursued their customers’ business instead of ignoring them.

I had already decided to devote my marketing dollars to developing my brand. But now I am doubly convinced, because all of this makes sense.

 

Going Virtual & Other Experiences

When the Pandemic hit, we were already paperless & cloud based. We weren’t trying to be PAPERLESS. Nor were we trying to be REMOTE.  We were just trying to stay on the cutting edge of technology.

The first computer I ever saw was at the offices of my Big 5 accounting firm. It was a paper tape job. The second computer I ever saw, I actually mistook for a railroad freight car somehow misplaced into the basement of the high rise my Fortune 500 #254 employer had offices in.  It turned out to be a Burroughs mainframe computer. Burroughs was the big dog in mainframes in those days, but I was disappointed it wasn’t an IBM, the only computer company I had ever heard of. Your watch probably has more computing power than that behemoth. I’m still not certain whether the railroad car housed the computer, or if the railroad car WAS the computer. In any event, every month when the financial statements were printed, all the C Suite executives met in the basement to get the first P&L’s off the printing press. So as a young executive I was hob-nobbing with the CEO, CFO and all the CXO’s of a Fortune 500, about 15 of us in all. Actually, it struck me as foolish to require the entire C Suite (not called that in those days) stand around and watch a dot-matrix printer slowly crank out printed pages. But that’s what we did.

 IBM 360

Later when I was in the C suite of a bankcard company, we had dual IBM 360’s (probably the most successful computer IBM ever built) and later an IBM 370, which didn’t work out as well for us. The computers were sequestered behind glass walls on elevated floors to facilitate air conditioning necessary to keep those powerful computers from melting down to a puddle of plastic & metal.

After leaving the corporate world in the dust and running for Congress, I started my own accounting firm, where I bought two IBM System 3 computers. (My LinkedIn profile provides more info if interested. https://www.linkedin.com/in/elliscpa/)

it took all night to process & print one tax return. If you made a mistake, it took another day. Bookkeeping was more efficient, so we used them for bookkeeping, but we were actually just trying to stay on the front lines of technology innovation. We were certainly the first CPA firm in our city that used computers in any way. As a general rule, the CPA profession did not take quickly to automation. Two decades later I knew CPA’s who were still paper based and using adding machines (I still miss my adding machine.) and shipping off tax returns to be processed at processing centers. To this day, the largest CPA firm in the city I am now located in still provides paper copies of tax returns and charges extra for a digital PDF copy. They bought a building on a major street to increase walk-in traffic.

Today, the software is setting the pace, not the machinery, and certainly not your location. We have clients situated right next door to a CPA firm that uploads everything to us, half way across the country, for us to do their returns.

Everyone in our practice has a computer and two screens, but it’s the software where we outdistance our competitors. When the pandemic hit, we had 12 or 14 computers working with a server. When we got the stay at home order, it took us a day to move everything to Microsoft One Drive, and our server went the way of the horse & buggy. We added Textus & Microsoft Teams and that was it. But we could have done just as well without those new programs. Texting on our phones kept us connected. We hit the ground running & never stopped. When PPP came along. it gave us a boost in work load, but we were so efficient we pumped them all out like we’d been doing them for years. It disappointed us that it took the government quite a long time to decide how to tax them & the terms of forgiveness. If Chinese tanks pulled in front of their building, it would take them two weeks to decide what to do.

The biggest problem we had as dealing with 10-15 people scattered around the country without just walking down the hall and asking. It wasn’t that we weren’t communicating, it was that we were communicating too much. Everyone could text & call everyone else. We also had text groups for the Tax Team, The accounting & payroll team and the entire Ellis Team. Every time a message comes in I get a beep to alert me. Textus & Microsoft Teams also alert you to incoming messages. I remember one morning sitting in my home office listening to the messages come in. It sounded like a machine gun going off, and I knew I had to read every single one of them.

Our biggest problem was the communication was too efficient. Who would have thought? We may be unique, but everyone was closely connected and missed everyone, so they communicated back & forth about everything.

That’s our story, but we know for a fact, that was not everyone’s story. I have a family member that works for Spectrum, a local wifi provider. He said they were busy setting up offices at home for CPA’s. I have also stumbled across things on the web here and there about how CPA’s did not do well in the Pandemic. There were a lot of businesses that failed during pandemic, fortunately none of our clients. Those failures came from someone’s practice. But no one of them is willing to say, “We fell apart during pandemic.”

Observations.

To this day, months into this thing, most businesses are not back to full staff.  Some of them still won’t let customers in their business. Every business that does is much less crowded than they used to be. Their business has to be off by half, or more. Nor are they stocked as well. Where I live, nearly every used car lot has gone out of business, and many restaurants. Before all this is over, more will fail. This is contrary to our experience. Our business actually increased during pandemic. What is everyone else not doing that we did?

Overall, the marketplace is moving backward, not forward. There is still a movement not to reopen schools, and I just got a notice on my phone that Sam’s is going to require masks again starting next week. My supermarket required masks two days ago. And where I live, nothing out of the ordinary going on.

Just between you & me, this is completely bullxxit. There are a lot of states reporting increased infections, but the fatality rate is lower than the ordinary flu. Plus there’s apparently some fraudulent reporting. In my opinion, this entire cluster-flux was politically motivated. If we can ever prove that, hundreds or thousands will go to the guillotine. I can’t wait.

Reorganization

Here is a summary of the entities most commonly used in business. There are actually something like 30 entities people can operate businesses in. These are five are commonly used.

 

1-Schedule C self-employed with no credit protection. Owners can be sued individually.

 

2-Partnership with no credit protection. Owners can be sued individually. Those have been around since the time of Christ.

 

3-Corporation with limited liability. Widely known as a C corp because it‘s taxed according to Chapter C of the Internal Revenue code. Owners cannot be sued for unpaid business costs. This came on the scene in 1700 when investors had a need for liability limits to raise large amounts of money. The initial purpose was to create the East India Company that governed India & half of China for two centuries. This was by far the biggest & most profitable economic enterprise ever. The corporation is the only entity that pays income tax directly to the government.

 

3-S Corporation with limited Liability. A C corporation which elects to be taxed as a flow though organization that pushes out profits & losses to be reported on the owner’s tax returns. Commonly known as an S corp. Taxed under subchapter S of the Internal Revenue Code. Profits & losses flow through to the owners and are reported on their tax personal tax returns. That’s why you will sometimes hear the terminology “flow through companies” for entities that don’t pay tax directly to the government. Corporations & LLC’s commonly elect to be taxed as an S corp. This does not affect their legal protection. S corps are limited to 100 owners. That’s why all the big companies such as General Motors and Amazon are C corps. After 300 years all states have come to agreement on how to tax corporations & S corporations.

 

4-LLC with limited liability. This came on the scene in 1971. Owners cannot be sued individually as long as there are two or more owners. There is still disagreement on how LLC’s should be taxed by states. Wyoming created the LLC in 1977 to satisfy a demand for a partnership with limited liability. It has the same structure as a partnership and files taxes on the same tax return, but it has limited liability as long as there are two or more members. Owners are referred to as partners in a partnership, & as members in an LLC. LLC’s commonly elect to be taxed as an S corporation. It is a toss-up whether S corp’s or an LLC’s are the most popular business form in the U.S.

 

5-C Corporations with limited liability. Corporations have been around since 1700 and the law is basically settled. In every state corporations are treated essentially identically. LLC’s are relatively new (50 years) and the states have not yet come to agreement how they will be treated. In some states they are treated well, and in other states they are not a good alternative. We create most new LLC’s under WY law, South Dakota or Nevada because those state have charging orders that make an LLC almost bullet proof against lawsuit or collection activity of any kind.  Nevada also has charging orders for corporations.

 

For most small businesses an S corp or an LLC with an election to be taxed as an S corp are the best entities. Each of these four entities are subject to different tax treatment and can deduct different expenses on their tax returns.

 

The state you organize is also extremely important. Wyoming, Nevada & South Dakota are probably the three best states to organize in, but the type of entity also plays a determining role in the selection. Also, there is kind of a civil war among states competing for being the Delaware for pirvately owned businesses. Every year someone drops a delightful goodie in our lap. But, remember this … you should never just organize in the state where you are located. But, as you can tell, that’s a post for another time.

 

A significant part of our practice is determining the proper combination to use to incur the least amount of tax.

The Common Business Entities

Here is a summary of the entities most commonly used in business. There is actually something like 30 entities that can operate a business. There are four that are commonly used.

1-Schedule C self-employed with no credit protection. Owners can be sued individually.
2-Partnership with no credit protection. Owners can be sued individually. Those have been around since the time of Christ.
3-Corporation with limited liability. Widely known as a C corp because it’s taxed according to Chapter C of the Internal Revenue code. Owners cannot be sued for unpaid business costs. This came on the scene in 1700 when investors had a need for liability limits to raise large amounts of money. The initial purpose was to create the East India Company that governed India & half of China for two centuries. This was by far the biggest & most profitable economic enterprise ever. The corporation is the only entity that pays income tax directly to the government.
3a-S Corporation with limited Liability. A C corp. which elects to be taxed as a flow though organization that pushes out profits & losses to be reported on the owners tax returns. Commonly known as an S corp. Taxed under chapter S of the Internal Revenue Code. Profits & losses flow through to the owners and are reported on their tax personal tax returns. That’s why you will sometimes hear the terminology “flow through companies” for entities that don’t pay tax directly to the government. Corporations & LLC’s commonly elect to be taxed as an S corp. This does not affect their legal protection. S corps are limited to 100 owners. That’s why all the big companies such as General Motors of Amazon are C corps. After 300 years all states have come to agreement how to tax corporations & S corporations.
4-LLC with limited liability. This came on the scene in 1971. Owners cannot be sued individually as long as there are two or more owners. There is still disagreement on how LLC’s should be taxed by states. Wyoming created the LLC in 1977 to satisfy a demand for a partnership with limited liability. It has the same structure as a partnership and files taxes on the same tax return, but it has limited liability as long as there are two or more members. Owners are referred to as partners in a partnership, & as members in an LLC. LLC’s commonly elect to be taxed as an S corporation. It is a toss-up whether S corp’s or an LLC’s are the most popular business form in the U.S.

Corporations have been around since 1700 and the law is basically settled. In every state corporations are treated essentially identically. LLC’s are relatively new (50 years) and the states have not yet come to agreement how they will be treated. In some states they are treated well, and in other states they are not a good alternative. We create most new LLC’s under WY law or South Dakota or Nevada because those states have charging orders that make an LLC almost bullet proof against law suit or collection activity of any kind.  Nevada also has charging orders for corporations.

For most small businesses an S corp or an LLC with an election to be taxed as an S corp are the best entities. Each of these four entities are subject to different tax treatment and can deduct different expenses on their tax returns.

A significant part of our practice is determining the proper combination to use to incur the least amount of tax.

 

Pandemic or Nothing Burger?

The pandemic was a world-wide tragedy, a national tragedy and local tragedies everywhere, thousands of people died. It was terrible. The deaths were serious and I’m not making light of any of the genuine tragedies (i.e., retirement homes), but from my perspective, much of the tragedy could have been avoided with better qualified people running those cities & states. The nursing home fiasco was a tragedy. I read recently they accounted for 85% of all deaths. The average barber where I live would be better at running a  government than the people actually running the cities & states. Look at what’s going on in Seattle, New York, Chicago & other cities. Crime & homelessness were pretty big problems in those states & cities already, and now a lot of those cities may not survive. I’m reading about people abandoning big cities. I don’t blame them, but I hope they don’t move here. (Please God, not here.)

Real estate values are dropping in the cities and rising out here where I live. I have the best of all worlds. I have a national 7 figure practice with clients in 46 states & 5 countries, but I live in a spectacular paradise for outdoor enthusiasts. I have a spectacular view from my home, and I’m thinking about putting a $5 million price tag on it and seeing what happens.

For our firm, for all intents & purposes, the pandemic turned out to be a nothing burger.  We were actually busier during pandemic than we’ve ever been. PPP loans kept us busier than one armed paper hangers. That’s a gift that’s going to keep on giving until they’ve all been forgiven.

When pandemic happened, we just picked up a computer & a couple of monitors and took them home. We didn’t lose a day. We expected the biggest problem would be keeping everyone connected, but in the end, we probably over connected. We managed great with Microsoft Teams, Textus, email, regular texts & the old, reliable telephone. I recommend them all. We also kept sent numerous email newsletters to our clients to keep everyone in the loop. Some of them are so happy with us they sent us boxes of candy. (Thank you, we love you.) Believe it or not, sometimes we over communicated. There were times when all the incoming sounded like a machine gun. But such is the price of working with a great staff and a great clientele.

The biggest problem with going fully virtual was actually an unexpected benefit when the schools closed, because everyone was already at home. Today, we are all back at the office, but now everyone has the option of working from home whenever they want. Sometimes there are two or three kids running around the office. But we’ve always been a noisy office, so it works.

I read a survey about how CPA firms are handling everything. My take is about half are doing fine and the rest are not going broke. We have been virtual for years with everything in place. We don’t have very many clients in this very great place where we live, most of them are somewhere else. I’ve been trying to buy practices, and very few good practices are for sale. My gut feeling is very few weathered the storm as well as we did, but very few have already gone broke.  We’ll see how it all breaks over the rest of the year as the economy shakes itself out.

If you’re a CPA and want to sell your practice, get in touch with me. You can save the commission. cc@elliscpafirm.com.

For us, we’re happy and optimistic. But this is no time to get sloppy.

TAX AVOIDANCE

One thing is certain, paying more tax than the law requires will not improve your chances of surviving. Re-arranging client affairs & re-organizing client businesses opens doors to extensive tax avoidance. Every dollar saved drops straight to the bottom line as another dollar of cash, profit, working capital & competitive advantage, and improves your chance of surviving the 21st century.