Positioning your business for long-term financial success

Steve San Filippo, Founding Partner, Sensiba San Filippo

Taking a company from start-up to success story is a daunting task for even the most experienced business owner. Having a solid business plan and financial backing may open doors, but once the doors have opened, the hard work has only just begun. In the endurance race to get a business off the ground and keep it thriving — or even just afloat, as the case too often becomes — many business owners neglect some critical steps.

“A business owner’s first line of defense is to be cognizant of the various actions to take from day one to proactively protect the business from failure,” says Steve San Filippo, founding partner at Sensiba San Filippo, a CPA and business consulting firm with four offices in the San Francisco Bay Area. “Understanding and controlling costs followed by implementing systems to keep you on track is key. Another important step is to surround yourself with expert advisers who can help you act on what you learn, anticipate and head off problems before they fully materialize or take advantage of opportunities as they arise.”

Drawing on his more than 30 years of experience as a business owner and working directly with clients from small companies to multinational companies to help them succeed, San Filippo sat down with Smart Business to discuss how owners can avoid the pitfalls that plague even the most promising companies.

What are the most critical success factors for business owners?

The statistics are not pretty — some 80 percent of all businesses fail in the first year, and another 80 percent or so go under in the next five years. Too often, when business owners are starting out they focus on short-term successes and overlook factors that are crucial to long-term success. So how can you beat the odds? The first thing every owner should do is create a plan that outlines goals and objectives, including how to manage financials, meet inventory demand, maintain the records, hire, and find and retain customers.

Also, I always tell my clients that the greatest investment they can make is to surround themselves from the beginning with the best professional advice they can get. I’ve had standing relationships with friends and business contacts in professional services industries for 30 years now in which we just call on one another once a year to touch base and find out how we can help one another.

Business owners are often unaware that they’re naturally a part of a number of different networks with invaluable knowledge. Actively engage with contacts new and old on LinkedIn and other social networking sites.

Make a list of all the professionals you’re likely to need in the course of your business’s lifetime —  an accountant, a banker, a lawyer, an insurance agent, etc. Talk to more experienced owners to find out what professionals they wound up needing along the way. Then introduce yourself and begin to get a good idea of who you’d like to work with when the time comes. If business owners don’t do this early on, by the time they decide to find a professional to address a specific issue that has arisen, there’s often little time to find one who is truly a great fit.

What are the most expensive mistakes you see business owners make? And how do you advise clients to dodge them?

Some of the most common and expensive mistakes often stem from owners failing to realize that all business is regulated one way or another. For example, when it comes to the payroll, an owner has to know the difference between an employee and an independent contractor. If they inadvertently treat one like the other on tax submissions and withhold the incorrect amount of income, the result could be a tax violation and a potential unwanted IRS interaction  that could take away focus from normal business operations along with  extraordinarily high penalties.

A common mistake we see time after time is an owner who doesn’t maintain the books and records properly. It’s pretty typical for someone starting out to enlist a family member to do this as a cost-saving measure. All too often, clients come to me in a panic because they’ve relied on accounting software to be the brains of their bookkeeping without understanding that, while it can be a valuable tool, it is not the whole answer. I encourage owners to work with an accounting firm from the beginning to either manage their books or who, like our firm, provides ‘guardian angel’ services, such as our Business Services Department, which works with our clients and their bookkeeper to provide training on the software they’re using, and to produce timely, meaningful financial statements that help ensure business owners have the most accurate information and reduce the costs of financial statements and tax filings.

Consider the potential consequences of not maintaining the records properly — for one, the inability to secure a loan after the bank discovers the books are not in order. Often the only place a business owner can turn at that point is to personal credit cards, which can take them down a dangerous path because the interest can be prohibitively high.

Is there a specific point at which an owner should transition to a professional accountant?

I always recommend that clients work with a professional from the beginning, even if just to provide general consulting advice. In terms of when an owner should absolutely bring in an expert for the long haul, I’d say when some sort of meaningful transition occurs. Even if a family member has been able to handle the job, once the business reaches the point where there is a significant and sustained increase in some aspect of the business — the number of sales, revenue, the inventory or the orders — it’s time to bring in a professional.

Do you have any other final words of advice?

Being proactive, and not reactive, is key. No business owner is going to be able to control or anticipate everything that comes along in the life of the company. But being well prepared for the things that can be anticipated will allow for the flexibility needed to efficiently tackle the surprises that do pop up.

Steve San Filippo is a founding partner and audit partner at Sensiba San Filippo (www.ssfllp.com), a regional CPA and business consulting firm in the San Francisco Bay Area. Steve can be reached at (650) 358-9000 or [email protected]