On a daily basis, I coach aspiring and active entrepreneurs at various stages of their businesses, and I’ve found that they have very similar accounting-related challenges at the outset. In an effort to better inform them, I could think of no better professional to reach out to than my own CPA Ben Ofori, Founder and CEO of Karpos & Associates, LLC, who has been an advisor since the very beginning of my professional coaching and training practice New Roots Living. Beyond being a highly skilled professional, Ben is also passionate about the application of timeless leadership and operational strategies that help businesses operate more efficiently, produce profits sustainably and scale. In this post, you will read Ben’s responses to some of the foundational questions entrepreneurs ask and you will move forward with a clearer understanding of what the most effective business owners practice during the start-up phase and beyond.
DENISE: Ben, thank you for making the time to respond to a few questions for the benefit of my community.
BEN: It’s a pleasure to serve and thanks for the opportunity, Denise.
DENISE: Awesome. Well, let’s dive right in with a habits-related question. In your opinion, what are common accounting-related mistakes you’ve observed first-time entrepreneurs make and when should a CPA definitely be involved?
BEN: Great question, Denise. As I have said in our past conversations, the entrepreneur is one of the most vital players of our economic and social systems. In my daily life, I have the honor of getting to know many of them and walking with them in the course of their venture. That said, I have observed many first-time entrepreneurs repeatedly make the following three (3) mistakes:
Doing everything themselves: Even in a one-person operation, you will have your hands full. I always say, if you are not in the position to hire an in-house accounting team or bookkeeper, at least consider outsourcing to free up yourself to doing tasks that will actually grow your business;
Taking accounting advice from friends and acquaintances who aren’t accountants: Nothing takes the place of receiving firsthand information from an expert or a professional. When it comes to tax and accounting matters, a “one size fits all” mentality couldn’t be further from beneficial. In fact, different industries not only require different or specific accounting practices to remain compliant with various rules, they also have unique tax benefits that could easily be overlooked. It is important that you consult with a CPA with expertise in the particular industry of your venture; and
Not consulting an accounting professional from the get go: This third accounting-related mistake sort of goes hand-in-hand with the previous two. I couldn’t tell you the number of times we have discovered that various business owners are overpaying taxes or running inefficiently due to having the wrong business structure. These types of occurrences could be prevented by seeking accounting help earlier in the venture. As a rule of thumb, I say once you firm up any business plan, a CPA should be one of the first professionals you seek out.
DENISE: Thanks for sharing that guidance as I believe many entrepreneurs need the message. On the flipside, what are the best accounting-related habits you've observed among entrepreneurs?
BEN: This might sound like a short response, but the most effective business owners do the exact opposite of the mistakes discussed before. Those key mindset shifts can truly help set a solid foundation within a company that will enable that venture to grow down the line.
DENISE: Fair, I’d say. Now onward to interpreting business performance. Which financial statement is the most important in your opinion? When are you convinced of the financial health of a company or that it’s profits are sustainable?
BEN: In my opinion, the Balance Sheet, Income (or Profit and Loss) Statement, and the Statement of Cash Flows are the most important financial statements.
In determining whether a company is financially healthy, I look for a number of things. Using ratio analysis (which by the way, isn’t as scary as it sounds), I look at the following:
A quick test from the Balance Sheet will be the Working Capital (WC) or Current Ratio. This ratio essentially measures a company’s efficiency and short term financial health. Given by the formula Current Assets/Current Liabilities, WC or Current Ratio indicates whether a company has enough short-term assets to cover its short-term debt. As such, anything less than 1 indicates a negative working capital or potential short-term solvency concern.
Another one of my favorite ratios from the Income Statement is the Operating Expense (OE) ratio, which compares expenses to revenue. Calculated by the formula Operating Expense/Total Revenue. The smaller this outcome, the better off a business is because it indicates increased efficiency. It shows that a particular business has been able to rein in on cost. Lenders and financial institutions love this. In fact, it allows the business owner room to grow and expand their venture.
DENISE: Thanks for another gem. Now, let’s move to the legal side of things a bit because these questions come up a lot. How can a first-time business owner determine the appropriate legal structure for their company and what are the accounting implications? What resources do you recommend founders review before making this decision?
BEN: It is imperative that first-time business owners speak to a lawyer and/or a CPA to determine which business structure offers the right liability protection and tax efficiency. Depending on what product or services the first-time business owner is offering, setting up a particular business form may be more desirable than another. Generally, your local chamber of commerce has a directory of resources; that is a good place to start.
DENISE: I couldn’t agree more. Speaking for myself, professional guidance has definitely made a huge impact on my start-up experience. In selecting a team of advisors, how does an entrepreneur choose an accounting firm that can work alongside them at both the start and growth phases? What should they be looking for? (e.g. local business begins to franchise and wants to grow nationwide)
BEN: When done right, choosing an accounting firm or CPA to work with will not only save you money and headaches, but will actually enable you to accomplish your overall organizational goals and objectives. Yes, all CPAs take the same unified national exam. However, overtime, CPAs build on some strengths, pushing many of us to specialize and master specific niches and industries. It’s worth repeating that once an entrepreneur has identified their particular industry, it should subsequently inform the type of accounting firm they choose to work with. My advice: start by researching which ones handle your particular industry or competition. Once you have identified the particular CPA, schedule an office visit or a phone interview. By talking to them, you can determine whether they are a good fit for your particular business or not.
DENISE: Thank you, Ben. Lastly, any advice on how to find quality and affordable accounting services when you are just starting out?
BEN: Here are a few things entrepreneurs can do:
Talk to colleagues and get referrals;
Leverage the local chamber or small business offices. They usually have a directory of various businesses, including those performing accounting services; and
Of course, Karpos & Associates, LLC is always here to help. We serve clients nationwide and can be reached online at www.karposandassociates.com or by phone at 914-831-9277.
MORE ABOUT BEN & HIS PRACTICE
Ben Ofori’s professional experience spans over 16 years in consulting, public accounting and finance. Over the last 2 years, Ben has worked as the Founder and CEO of Karpos & Associates, LLC, a boutique certified public accounting (CPA) practice that offers consulting, financial stewardship and tax strategy to a variety of clients with annual revenue of $500K to $10M. Prior to that, Ben spent 7.5 years working with the CFO of a $6B broker dealer company to build the finance function, and in order to accommodate the rapid growth of business in New York, London and Hong Kong. Prior to this experience, Ben worked as an analyst at the Royal Bank of Scotland for 3 years and actually began his career working as an auditor at the New York office of KPMG’s financial service practice, serving diverse clientele within the real estate, asset management and banking industries. His educational background and global work experiences afford him multicultural awareness and knowledge of international business practices. Today, Ben also serves as an executive partner at Apex Healthsync, LLC and as a board member of Delmarva Dialysis Center. A New York State licensed CPA, Ben holds a master’s degree in Global Finance from NYU’s Stern School of Business and a bachelor’s degree in Accounting from Baruch College’s Zicklin School of Business. Husband, father of three, and an avid reader, Ben enjoys traveling and spending quality time with his family.
International life and business coach, author, and speaker, DENISE SARKOR was born in Monrovia, Liberia and raised in northern New Jersey. Denise is the Founder and CEO of New Roots Development, LLC—a professional coaching, boutique publishing and editorial company, supporting like-minded Change Agents. In 2016, she completed an ICF accredited training program that has been equipping life coaches since the 1980s and earned her coaching certification. Denise served as Managing Editor of Columbia University’s Journal of International Affairs from 2012 to 2013, and previously worked as an international banker and development consultant at institutions such as Goldman Sachs, Citigroup and the World Bank. She earned a Bachelor of Science in Economics from the Wharton School at the University of Pennsylvania and a Masters in International Finance and Economic Policy from Columbia University. A lover of the arts, global citizen and humanitarian, Denise supports the causes of economic empowerment, education, and human rights. She is author of The Clean Poetry Series—healing poetry for women experiencing separation and divorce, and her work has also appeared in The Huffington Post. You can follow her on Instagram, Twitter, and Facebook @denisesarkor.
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