Every week as SmallBizLady, I conduct interviews with experts on my Twitter talk show #SmallBizChat. The show takes place every Wednesday on Twitter from 8-9 pm ET. This is excerpted from my interview with @HollySignorelli. Holly Nicholas Signorelli, CPA, The Money Therapist™ has 26 years of experience and is the owner of a boutique firm that works with high net worth businesses with a particular expertise in medical, distribution, real estate and entertainment industry. When Holly takes on a corporate client she takes care of every aspect of their financial needs.
Holly’s book Do You Know Where Your Money Is?® was written to bring awareness of the nine emotions that cause people of all income levels to make bad decisions relating to money, debts and overspending. If you have ever found yourself in a financial bind due to overspending then this book will help you understand the cause behind it so you can change the pattern and bring absolute abundance into your life.
Holly believes that anyone’s financial epidemic can be changed by realigning the way one thinks about money. This is based on her many travels and interviews with people of all ages and comparing the reality of what prosperity really means in different cultures. For more info, visit hollysignorelli.com
SmallBizLady: What is the biggest emotional decision that you face in your practice with new small business owners?
Holly Signorelli: Unlike established businesses, new small company owners think they cannot afford a CPA and Attorney. They end up coming to me 6, 9 months or even a year later and have made critical mistakes that have cost them thousands of dollars – much more than they would have paid for by getting help from a professional. The reason I apply this to an emotional decision is that logically a CPA and Attorney are the first two people you need when you start your business. Because of this problem, combined with the failure rate of small business, I am currently editing a video book that will outline everything legally, professionally and emotionally that you need to know to survive that first year. The idea is for it to be affordable and plant the right seeds and foundation for your business, so that it doesn’t collapse as you grow.
SmallBizLady: What mistake costs small business owners the most money?
Holly Signorelli: The first is that most people have a general idea about what an LLC is, but the majority have NO idea that you have to CHOOSE what KIND of LLC you will be. Not choosing the right one can cost you thousands, or tens of thousands of dollars in taxes. It’s very important to review this with a professional so you choose correctly!
SmallBizLady: In your practice, what is the number one cause of small business failure?
Holly Signorelli: This topic is so dear to my heart, because I have a very low failure rate with clients in my practice, but see that 80-95 percent in general go out of business the first year. In my practice, 1-2 clients go out of business each year and it’s always because they run out of money. One of the biggest mistakes that new business owners make is not asking for enough money up front. They don’t want to have debt, and they feel the can finance their venture, but they don’t realize that whether they are aware of it or not, the stress of watching your hard earned savings dissipate is MUCH more stressful than having a loan and paying it off with your profits. Ask for money from the bank when you don’t need it! When you are struggling six months in cash flow wise, no one will loan you money because you will be considered high risk.
SmallBizLady: Besides money, is there another factor that you equate to emotional causes for going out of business the first year?
Holly Signorelli: Absolutely! The biggest problem with partners is that in small business, partners are usually family or friends and because of that, they don’t do the proper contracts and other paperwork. Every year I have partners come in with glorious plans to make millions of dollars, and a year later, they hate each other and are closing the company, not because they ran out of money, but because they were not on the same page. They didn’t take the time to set up the foundation properly and they didn’t take the time to agree on what each partner was going to do. Almost always this involves one person that is financing the deal and the other is working (sweat equity). The working partner always feels taken advantage of and wants to be paid for their time, in addition to the ownership of the partnership. This is very common with real estate but also applies to any other partnership.
SmallBizLady: What about businesses that make it through the first year with a loan, but go out of business the second year? What do you see the most in your practice that causes that?
Holly Signorelli: In my book Do You Know Where Your Money Is? ®, the second chapter is called Instant Gratification. This is when you try to make your office, business… so perfect that you spend so much money on small and completely unnecessary things that turn into big totals. This type of spending is usually small stuff that adds up to your loan payment and you find that you can barely make the payment each month. If you just pay attention to your small spending, and really look at your bank drafts, you will see that you are potentially spending thousands on items that are completely frivolous! This happens all the time, for business owners when they pay personal stuff out of their business account. It’s not deductible, but the money is gone, and they think they didn’t have taxable income. When I show them the personal drafts and the totals, they sometimes shed tears in my office because they can’t believe how fast the small stuff adds up!
SmallBizLady: Speaking of partnerships, how does that affect spouses that run a business together?
Holly Signorelli: This can create divorces! Don’t get me wrong, it can also be hugely successful, but you still have to do the contracts and agreements as if you do not know each other. A lot of people compare partnerships to a marriage, because it can be just as difficult to get out of a partnership just like a marriage. When you combine both, then getting contracts is just like getting a prenup. A lot of people think that is negative, but just like I said before, when you don’t have documents, your mind goes in all kinds of directions and fear about what will happen if the partnership doesn’t work. When you KNOW what will happen if the partnership goes down, and you have the documents to protect your own interest and assets, then you will have peace of mind, which allows you to focus on the business.
SmallBizLady: How often do you see small businesses go out of business in the latter years?
Holly Signorelli: If I had to tell you just one reason that this happens to an established business, then it is putting your eggs in one basket. It’s common for someone to have huge success in business and begin to feel “Invincible”. These are the stories you hear about, even of famous people that lost everything. After a certain amount of success, they simply do not believe they can fail. Of course it’s great to have confidence, but that doesn’t change the fact that you have to be prudent in your business and that no matter how good something looks, you should not put more than 5-10 percent of your savings into it. There is always something that can happen (think 911, the housing market crash…). It may be remote, but you will have more confidence if you know that you will be OK if business doesn’t work the way you hoped.
SmallBizLady: What kind of advice would you give a small business owner that is doing well, but needs to go to the next level?
Holly Signorelli: To bring in a partner with money! I can’t count the number of businesses that I have worked with that had a brilliant and semi successful product, but got stuck because they didn’t want to share the profit with a finance partner. Especially with inventory that you are required to keep stocked in stores so that they don’t remove your product, you have to have the funds to finance that, even though you won’t get paid until 60-90 days later. Sharing 25% of potential millions is better than keeping 100% of a stagnant business. Business owners always want to have their cake and eat it too. They don’t qualify for a bank loan, but they want someone to loan them money at 8% and turn their company into a multi million-dollar business. This doesn’t work because the investor knows that they are not only taking a risk, since you don’t qualify for a loan, but that they are the one getting you to the big bucks. I love the show Shark Tank, because these small businesses know that’s what it takes to go global!
SmallBizLady: Aside from staying in business, what kinds of emotional patterns do you see with your established clients?
Holly Signorelli: One of the fascinating things that I see all the time, is that a business will suddenly have a banner year, and when we are doing taxes and projections for the next year, I frequently am told by the owner that it was a “one time thing” and that they won’t be able to make that kind of money again. This shocks me because, to me, the bar has been set – and it should stay there! It’s a deep fear that I believe is a global one that people sometimes don’t feel they “deserve” success, or they feel that they have to “work hard” for it. When it happens, and maybe it happens easily and effortlessly because they are doing something they are passionate about, they feel that they aren’t worthy of it and that somehow they will have to go back to struggling. I think this is an epidemic in our society. Instead of working “hard” we should all work “passionately”. It’s the same thing, but takes on a different meaning of our allowing that success to come from our effort.
SmallBizLady: Do you see emotional patterns pertaining to employees or the overall business model with clients?
Holly Signorelli: Absolutely! The old school way of “ruling with an iron fist” is outdated. Sure, some people use it and some of them are still successful, but what you really want is a company with a strong and passionate leader. Employees feed off of the energy and emotion of the boss, so if that is a stressful or angry energy, it will affect the employees accordingly. This is very subliminal by the way! I always say, “Creativity does not exist in a stress filled environment”. When you make your office appealing physically and your vibe is positive and upbeat, then you will have an office/store/business in which your employees want to be! Then and only then, will you get the perfection you want. I have seen many business owners create fear in their employees that ironically causes them to make mistakes! Be a leader and create the vibe you want for your business, and demand perfection, but not through fear-based tactics. Nowadays, that just results in a lot of turnover.
SmallBizLady: What about emotional patterns for a new small business with only the owner and no employees?
Holly Signorelli: I would say the most common emotional issue would be that you have to establish boundaries from the very beginning. I remember when I started my company I was taking calls and texts at 10 and 11 at night because I wanted to be available and to impress my clients. I would also take last minute filers on 4/15 and 10/15 deadlines. I realized that in order to be the best CPA and Adviser that I could be, that I had to have a set schedule and stick to it and that there had to be a time to put the phone away. Yes, that can mean the loss of a client, but do you want that kind of client? And will that help you build your business and your brand? On the other hand, I think communication is critical, and within your boundaries you need to be timely with your paying clients and customers, or your business won’t grow. When I do business with someone, I expect them to get back to me within 24 hours, even if it’s just to say that they are running behind and have to get back to me in a few days. I think that’s part of having a healthy and respectful relationship with your clients, while still keeping a balanced schedule.
SmallBizLady: What do you think is the single most important emotion when it comes to small business?
Holly Signorelli: HOPE! All businesses have ups and downs. When I was in my twenties starting my business, I was a broke single Mom with a toddler climbing all over my files. When I went through a major financial loss 10 years ago, I went through a period of time where I had no idea how I would get back on my feet. I remembered those times, as a young single Mom, that what drove me to success was the hope of giving my child and myself a great life, with a strong income and freedom of time as well. That’s why I created The Money Therapist – to help people of all income levels that have suffered loss of a business, or even their fortune, to never lose that innocent feeling of hope that we all have when we are young. That’s what gets you through the ups and downs, especially with a new small business!
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