CXO

New column will give consultants good financial "cents"

John McCormick's new "Financial IQ" column will offer insights into operating a small consulting firm and managing personal finances.


My goal in this column is to provide some financial insight into operating a small consulting firm, as well as to offer some suggestions for managing your personal finances.

Those who are new to the consulting business or who operate small shops lack the in-house accountants and other finance specialists of larger firms. Therefore, while we won't ignore the needs of larger companies, many of these columns will specifically target those operating small businesses with 10 or fewer workers.

These smaller shops are also the ones in the most need of financial guidance for a couple of reasons:
  • Most computer consultants are obviously trained more in computer technology than in small business finance.
  • In smaller or newer firms, the people in charge of the money are also probably the most productive workers, as well as the top salespeople.

No time for financial concerns
Most consultants spend their days getting new work, managing employees, completing contracts, supporting clients, and, in the odd free minute, keeping up with professional reading. Is it any wonder that these people haven't a lot of time to think about negotiating the best line of credit, finding the highest-paying CD to park some short-term funds, and getting the best deal on a lease? And is it any wonder that they don't have a lot of time to think about the benefits of incorporating, tax breaks for small businesses, and expense tracking?

But, as Ben Franklin wrote, “A penny saved is a penny earned,” and since it can be pretty difficult to get that penny in the first place, it only makes sense to spend as much effort trying to keep what you've earned as you did getting it in the first place.

Obviously, a Web column can't replace the professional advice of bankers, attorneys, and accountants who know you and your business firsthand. But in approximately 30 years of operating first a sole proprietorship and later a closely held corporation, I've gained a lot of experience dealing with banks, money managers, brokers, accountants, and the IRS.

Besides offering some suggestions based on my own experience, I'll also pass along tips from financial professionals, including my own CPA and bankers.

There are many excellent financial resources on the Web, and I'll be guiding you to some of them as well, but mostly I'll try to help you keep focused on the bottom line. I find that a surprising number of small businesses get so wrapped up in their main business that they start ignoring the reason they went into business in the first place—to make money.

That might seem elementary, but stop and think about it for a minute. When is the last time you really sat down and analyzed how much additional work you would have to put in to hire and manage one new employee? A new employee means more revenue, but does that always translate into more profit?

The problem sometimes starts when business owners see a great new contract that they can almost handle and could easily manage with just one more staffer. So they sign up the client and hire another worker. But every new worker means extra work for you, and while the new employee will make money, that doesn’t mean you will.

Many small businesses get into trouble by growing too much. You start out wanting to just make a decent living; then the money starts rolling in, and you find yourself spending 15-hour days at the office and forgetting your kids' faces.

The balancing act
To be successful over the long-term in business, you must balance the amount of work you do against the money you are making and what you are giving up to make that money.

As most small businesses grow, they reach a point where the owners make less and less money for every new employee they hire. In other words, top management becomes less productive—you spend more time managing, but there's a diminishing return for those extra hours you put in.

At some point, you have to balance income, social life, and whether you want to be a consultant or manage consultants. There is no wrong answer, but if you don't occasionally stop to ask the right questions, you'll eventually find yourself very dissatisfied.

Now you have an idea of what we'll cover in this new column. I hope you'll keep coming back for more. We'll always focus on the bottom line, but won't stick strictly to money management.
If you have a question or suggestion for John McCormick, e-mail him at siliconsamurai@usa.com. If you have a general comment, e-mail TechRepublic.

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