Delaware accountants talk tips and easy mistakes

Joe Giordano sits in his office at Newark-based CPA firm Whisman Giordano. He says many small business owners know their product or service, but fail to make financial preparations.

By Michael Bradley
Special to Delaware Business Times

Ask Joe Giordano Jr. to list the mistakes small business owners and entrepreneurs make as they launch and work to sustain their firms, and he’ll respond with a question of his own.

“How much time do you have?”

During his 14-plus years with the Newark-based CPA firm Whisman Giordano, he has helped a variety of clients in the for- and nonprofit worlds. In the best cases, he has been called upon at the beginning of the journey, to help arrange protocols and put into place systems that allow for smooth operations. However, he has also encountered situations in which people have waited too long to make the necessary financial preparations. That’s when the trouble becomes most acute.

“The most common mistake people make when starting a business is that although they are generally really good at delivering their product or service they want to provide, that doesn’t lend itself to the back office stuff, things like outsourcing payroll,” Giordano said. “I cringe when people do payroll in-house. It’s not a great idea.”

Payroll is just one of the potholes that can cause problems for businesspeople, he said. A variety of problems can arise from a lack of planning: refusal to solicit professional advice at the outset or during key periods of a business’ existence, and an unwillingness to devote the same kind of attention to financial issues as the actual creation and sale of products and services.

Giordano said many business owners are experts in their field of choice. If someone is outstanding at developing software applications, it’s unlikely he or she has much — if any — experience in financial matters. As a result, while the creative process may move ahead without any problems, business fundamentals might be neglected to the point that real problems arise.

“That’s the classic entrepreneur,” said Doug Phillips, managing director at Horty & Horty in Wilmington. “He understands what to do with his product, but he doesn’t understand the financial aspects of the business. A lot of them can sell, but they don’t understand the financial side.

“At a small or medium-sized company, it’s hard to find [and afford] someone who can do that. You need to rely on an accountant, who can fill in the middle management or financial role and help with banking, budgeting and planning for the company.”

Phillips, who has been at Horty & Horty for 34 years, considers budgeting a major issue for small business owners. Many launch their companies without a plan. They don’t know what their goals are and how they are going to conduct day-to-day operations. It’s one thing to have a great idea and quite another to execute it properly.

“The budget doesn’t have to be precise,” Phillips said. “You just need an idea and overall picture of how you are going to make money and spend it.”

Don Bromley, a tax partner at Wilmington’s Gunnip & Company LLP, is adamant that some new business owners focus the basics before even thinking about starting up. One is making sure they are licensed to do business in Delaware. It sounds simple, but Bromley said that many people fail to do that and end up with problems in taxes and fines. “If you don’t respect your own business, neither will the IRS or the law,” he said.

The other thing for business owners to understand is that it is necessary to register in surrounding states and municipalities. Bromley tells the story of a Delaware-based fish company whose truck driver was stopped just after crossing the bridge into New Jersey. Because the business was not licensed in the Garden State, the truck was detained, and 1,000 pounds of fish spoiled.

“A lot of times, New Jersey police will see a truck with Delaware plates drive into the state and will pull it over right away to ask for its license,” Bromley said.

His associate, tax consultant Chris Jones, reminds business owners that even if they are registered to do business in Pennsylvania, they must also be licensed in Philadelphia. “If you are located in North Wilmington, you can be in Pennsylvania, Philadelphia or New Jersey quickly,” Jones said. “You have to have the appropriate authorization.”

And business owners must take the time to exercise oversight themselves. Starting a business is a time-consuming, demanding enterprise, and after a day of producing and selling widgets, an entrepreneur doesn’t want to spend any time poring over financial reports. But even if a businessperson employs a professional, bonded CPA and a crackerjack attorney, he or she still must look at the numbers. That way, mistakes can be caught, and crises can be averted.

“The entrepreneur still has to review the financial statements,” Giordano said. “The entrepreneur will roughly know the sales figures. If he or she gets a report that said sales were $1,000, and he or she knows it was about $10,000, then something is wrong. You don’t want to underreport your sales to the IRS.”

Anne Mary Kluska, a director in the tax and small business department at Belfint, Lyons & Shuman in Wilmington, said it is a good idea for new business owners to establish controls and protocols for employees — and then enforce them. Even more important is figuring out accurate cash flow projections that allow for capital to be directed toward a variety of areas, rather than just focusing on one. For instance, it’s important to have furniture in an office but also to devote proper resources to inventory.

“It’s not easy for new businesses to get money from a bank without good cash flow projections,” Kluska said. “Those are the numbers you are taking to the bank. Projected sales are good, but you have to quantify that with dollars. People don’t take time to do that.”

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