I hear this often from entrepreneurs and small business owners: “I have the popular accounting software to manage my business checkbook. I can use it to create invoices and pay suppliers. I even use it to manage my payroll. It is simple, and it is just like my checkbook. I think I have it all covered. I use an accountant for my taxes, but do I really need an accountant other than tax season?”
The answer is,yes. You should have an accountant who can support your business year-round.
An accountant offers much more than bookkeeping and taxes. In fact, an accountant’s area of expertise often goes far beyond that of your neighborhood bookkeeper. While undoubtedly a bit more expensive than a bookkeeper, you should be able to rely on an accountant to add value to your business operations.
For example, an accountant will:
Help you read and understand your financial statements. If you are just printing them off your accounting program each month without a thorough understanding of what you are reading, your business may be in trouble, and you may not even know it. An accountant can help you decipher the numbers on your financial statements and determine how to use those numbers to determine the actual condition of your business.
Advise you on Generally Accepted Accounting Practices (GAAP). Like most business operations, accounting has a defined set of “business rules” or the “acceptable way to do things.” Although most accounting software packages provide some safeguards to prevent you from making significant errors in bookkeeping process and they do provide an audit trail for what you have done, they will not force you to follow these standard business rules. Regardless of your business size, you will want to be able to justify your record-keeping and financial reporting by the accepted practices.
Provide a dose of business reality. As a business owner, one of the most challenging things to do is to look at the books objectively. An accountant will provide you with an objective outlook on how your business is really doing. Moreover, an accountant can give you guidance on how to get back on track if you find your business is heading south.
Provide finance-based business guidance. Most accountants can also provide you with a variety of other businesses services and advice outside what you might consider being the traditional accountant role of bookkeeping and taxes. Some accountants have experience in other areas of business, too, and can also provide support for:
Financing options and sourcing
Loan proposal assistance
Budgets and projections
Business succession planning
Strategic and long-range business planning (business plan development)
Accounting software systems review and set-up
This is not to say that you should turn these functions over to an accountant. As the business owner, you have a responsibility to understand the numbers that drive your business deeply. An accountant can serve as a financial mentor to help you better understand why the numbers are significant and how to use them better to make more intelligent business decisions.
Remember that while accounting software can help you manage your daily administrative tasks relative to accounting, the software is just a business tool. As such, the software is not a replacement for a knowledgeable accountant who can help you navigate the financial side of your business.
Licensors often start their vetting process with a license application to learn about a prospective licensee’s proposed licensed product, the sales potential for the licensed product, and the underlying financial health of the licensee. This may be sufficient if the primary goal for a licensor is revenue generation; however, if the licensing strategy goes beyond royalty generation, a licensor will need to consider other factors to help ensure all parties have more significant opportunity for success in the licensing relationship.
A licensor who seeks to increase awareness of its brand, expand into new categories or markets, or develop new products to help serve its business goals, for example, may not consider short-term royalty potential as the primary factor in evaluating new licensees.
Depending on a licensor’s strategy, it might also incorporate factors into its review and vetting process to gain a broader view of a prospective licensee, its alignment with a licensor’s mission and vision, and potential for long-term growth. In such situations, a licensor’s vetting process might include the following:
Organizational Fit. A prospective licensee and the new licensed products it proposes must be a good fit with a licensor’s mission and vision. The proposed products, the manufacturing and sourcing procedures, and the marketing and merchandising strategies, must all be in alignment with a licensor’s brand, image, and organizational direction. The prospective licensor’s business practices, executive leadership, management, and customer service staff will likely have an impact on a licensor’s brand, and these factors should be considered in the evaluation of alignment with the licensor’s organization.
Operational Stability. Stability is essential, and some licensors assess stability by the number of years a prospective licensee has been in operation or the appearance of financial solvency; however, a more in-depth dive is always required. For example, a licensor will likely want to pull Dun & Bradstreet reports, ask for financial statements from non-public companies, check several references (other licensors, vendors, and manufacturers), and evaluate the leadership biographies for relevant experience. A licensor might also want to consider a prospective licensee’s operational structure and supply chain, paying particular attention to the ability to fulfill its marketing, sales, product delivery obligations in determining a potential licensee’s stability. In some cases, a licensor might also want to conduct a site visit to confirm its findings before issuing a license.
Expertise. Experience with the proposed licensed product and the specific market for that product is best, although not always essential. If a prospective licensee has strength in a product category or market, a licensor will likely benefit from that expertise. However, there are times when a prospective licensee has knowledge with similar products in the market and is looking to expansion opportunities. In these situations, a licensor will need to consider if the expertise in existing markets or with similar product-lines will translate well into the proposed expansion plans with the licensor’s brand.
True Opportunity. Opportunity for expansion into new categories and markets always should be considered, although carefully weighed against the risk to the brand. Prospective licensees rarely hit a home run with their first proposal to a licensor because they do not have a thorough understanding of the brand or a licensor’s strategy. It is up to a licensor to look for the “true” opportunity within the proposal, rather than just what is written specifically in the proposal. A licensee may not have sufficient knowledge of what is possible when proposing a licensed product. However, if a prospective licensee is open to exploring how to create a better fit with a licensor’s needs, values, and expectations, a licensing partnership might evolve to maximize the opportunity for both parties.
Innovation and Creativity. Innovation and creativity may be the most critical factor when considering a prospective licensee’s proposal. Most licensors need progressive licensees—those who desire to go beyond placing a logo on an existing product in potential license’s current line. While there is a need in some categories for a product with a “logo slap,” a prospective licensee who demonstrates a commitment to developing new products or merchandising approaches that align with a licensor’s strategy, mission, or vision reflects a level of innovation and creativity that can create a valuable licensing partnership.
Commitment to Brand. Commitment to a licensor’s brand should be demonstrated through a prospective licensee’s product development plan, marketing plan, and merchandising approach. A financial commitment should be readily evident, but a licensor should also look for messaging alignment, documented product growth strategies, and of course, a passion for the brand.
One way for a licensor to build value is to use this approach to systematically identify and develop new opportunities beyond the obvious. In fact, a key strategy for growth brands should be to raise brand visibility in unexpected places.
Unexpected places In fact, many excellent opportunities will come from distribution through unexpected places and proposals for such distribution warrant a much closer look. This is particularly true when a brand is first launching a licensing program or when a licensor desires to connect with its core audience in a different market.
For example, in the case of one organization rebuilding its licensing program, a prospective licensee’s commitment to the brand and their creativity and innovation in design resulted in several solid concepts, which later became successful licensed products in consumer markets where the licensor’s presence was very unexpected. The success of these licensed products proved the value of the licensor’s brand in the consumer marketplace and was instrumental in helping the licensor re-launch its licensing program.
Better partners Stable, innovative, and committed licensees who have a passion for a licensor’s brand are likely to be better partners and generate substantial revenue over time.
Some licensors may choose to focus primarily on new licensees who might generate higher royalty revenue for a short period, while others prefer the steady, long-term growth in royalty revenue. For the latter, a vetting process designed to create stronger alignment with a licensor’s mission, vision, and long-term goals, ultimately provide greater success for the program and result in stronger, more prosperous licensing partnerships.
The six factors above will not ensure the long-term success of a licensee nor necessarily create a better licensing partner. However, considering those factors will help a licensor identify prospective licensees who are a better fit with the overall licensing strategy.
The following is an interview with Eric Hilferding, CEO of ClassB, a custom t-shirt manufacturer, and printer for my graduate coursework in entrepreneurship. Eric and I first met in 2005 when I was with the Boy Scouts of America. His company was one of the BSA’s first licensees in the revamped licensing program. We became fast friends and I have long admired his attention to detail, his creativity, and his commitment to service.
Q. Tell me a little about ClassB and your role with the company.
A. ClassB is a provider of custom decorated goods including t-shirts, embroidery and promotional products to primarily nonprofit organizations. The company started in 1982. We currently have 38 full-time employees. We focus on having a great customer experience. The internal motto is we sell service not t-shirts. I am the CEO of ClassB and one of the two company founders back in 1982. I have been formally running the company since the mid 1990’s.
Q. Did you have any entrepreneurial experience or education before launching the company?
A. I have zero business or entrepreneurial education – I have a BA in History. Luckily, learning about running a business was always a part of my life. I started working at around age 8 at my grandfather’s lumber yard. My parents often discussed business at the dinner table.
When my mother and I started ClassB, all immediate family members eventually were employed. I read profusely to fill gaps in my knowledge. I was very lucky to have my father with his extensive business knowledge available at all times. Without his experience, I would have failed many times over. Now I realize how right he was on everything.
Another key area is my Boy Scout experience. I learned so much by making lots of leadership mistakes in my Troop and working at Summer Camp. Having that sandbox to learn is one of the most valuable things I can imagine. If not for my parents and the Boy Scouts, my only business reference point would be work based sitcoms.
Q. What are you most passionate about and how does it tie to your work each day?
A. My main passion is that we treat customers right. It’s probably some of the Boy Scout indoctrination. However, most of it is driven by a sense of perfection and trying to avoid the guilt of an unhappy customer. I obsess over a bad customer experience and have to process thru it to be able to move on. I get lots of satisfaction by improving things. I lose interest if things stagnate or a task becomes repetitive and no longer optimizable. The idea of constant iterative change and the occasional disruption suits me. I also enjoy the new things I have to figure out. On some days I’m a scientist, engineer, investigator, lawyer, judge or a plumber, etc. It’s never the same every day.
Q. Business owners have many responsibilities during the day. Some of those responsibilities are more challenging than others. What are a few of the things you find to be the hardest to do? What are some of the easiest? Moreover, why are these things easy or hard for you?
A. The hardest thing for me is finding uninterrupted time. Every day being different is great – having so much to do is a problem. I have lost weeks just trying to finish something in 30 min increments. Kind of related: the most challenging thing for me is finding good people – they make all the difference. I have learned to hire people that fill my weaknesses not people who are like me.
I can’t tell if someone is a good fit in an interview. I have to hire them and then decide in 2 weeks at most so I can circle back to my 2nd option. The destruction to customers, profitability, and other employees that a single person who is “not a good fit for the job” can bring is incredible. As long as I remember that, firing people is easy. If I forget, firing is a drawn out, expensive, painful to all parties process – especially me. The easy stuff is fixing systems and things – why because I’m a systems guy, not a people person.
Q. As an entrepreneur, there are all kinds of things that can affect the business. We could spend all day, every day, worrying about those things. What are some of the things that “keep you up at night?” And what do you do each day to mitigate those worries?
A. I worry a lot – to the point of being unhealthy. I have a terrible fear of not doing things correctly – still a Boy Scout in some ways. I always strive to go above and beyond. I always play things straight – I assume that everything will always be discovered at some point – so it should be done in a way that would be correct from the get-go.
My biggest fears are someone taking advantage of us. This comes in two forms – frivolous lawsuits and unfairly instituted/ enforced regulations. I have seen a few ridiculous claims – I have a good family lawyer to pass them off. I also worry that someday an employee here makes a small mistake that destroys the company, puts all my employees out of work, and puts me in bankruptcy.
Many regulations often require academic-like responses, seem punitive, or meant for an unspecified situation—they are a time and soul killer. My fear comes in because they often seem to be unfairly applied. Unfortunately, you never know for sure how to comply or if the rule is real. You have to wait time to have an idea. It’s the uncertainty that gets me. The personal interpretation of a regulation by a single inspector has been devastating in time and money.
I mitigate these two things by trying not to think of them. I do all I can to do the right thing anyway and just hope.
Q. How do you motivate yourself each day? What do you do to let off steam?
A. Motivating is easy for me – I’ve worked all my life, so has everyone in my family. I’m a workaholic for sure. When things become overwhelming as they often do, I just have to remember to ignore the 100 things going on and move one thing forward at a time. Eventually, I can work out of the mess. I wish I could say being a business owner is glamorous – clearly, I’m doing it wrong, but my ‘letting off steam’ is maybe two days a year where I get to go hiking in the desert with not a soul in sight for miles.
Q. What’s your favorite customer story from your business?
A. For owners and managers, you really only hear the problems. It’s great you ask this question because it’s important not to lose sight of the daily things that go right. Ninety-eight percent of the time, things go good or perfect. The customer service people at ClassB get to hear all the good stories. I encourage them to share with everyone. We have the entire wall of the customer service area with photos and experiences that customers have shared with us.
I think my favorite situations are when we go out of our way big time to get the customer their shirts in time for an event that has special meaning for them. We have turned out shirts in a day and overnighted them because the customer made a mistake and we wanted to make it right for them. The best customer experiences come from looking for the customers best interests and ignoring the effect on any single transaction. Bake in some money to your price to be able to treat them the way you wish things worked.
Q. In your experience, what have you found works best to motivate employees?
A. Wow, have I worked the gamut on that! The one thing I have learned the hard way is don’t listen to what they say will motivate them. Money, benefits, and perks only work in certain market conditions or individual situations and are secondary or even a counter to the true motivator. The number one motivator is good managers. Those managers have to have people skills. They have to make the work environment-friendly, positive, professional, productive, fun and fair. They have to respect all the employees by having their fellow employees have a purpose and contribute to the team.
All managers have to pull their weight and show appreciation for everyone’s efforts. They also have to hold a high standard. If all that is in place – employees will be close to self-motivated and not look to leave. They are more productive, and guess what: Now those managers worth more, and they get more money. Try to work it backward, and it does not work at all. I personally am a horrible motivator – I am lucky that I have managers that are really good at that.
Q. Entrepreneurs are risk-takers. We know there’s a probably a more significant chance for failure than for success. Still, we move forward. As you think about your entrepreneurial plans, what is your worst-case scenario? What makes that the “worst” for you?
A. I always view the current situation as transitory. What is working today will not at some point. All I can do is keep moving and try my best to adjust.
I think my worst case scenario is that I get so caught up in the day to day issues of running my business that I lose the big view of where the market is going, and we fall behind. Know this always happening to an extent. I don’t want to fail my family or employees because of something I missed. I don’t want to look back after the failure and realize I spent too much time on ABC instead of XYZ.
There is a burden in having so many people and their families relying on you for their lively hood. I have maybe 60-100 people indirectly or directly relying on me. I do not want to fail them. If it was just me, failure is easy and guilt-free – plus the Boy Scouts taught me how to survive in the woods if need be.