PART FOUR - SMALL BUSINESS SUCCESS STORY(Michael D. Warner) PART FOUR SMALL BUSINESS SUCCESS STORY

Bad debt ...or the lack thereof. Do you have what it takes to try?

by Michael D. Warner

Copyright 2012 by Michael D. Warner All rights reserved.


I had been selling, building and installing my lightning protection systems for a couple months when it occurred to me that I needed to set up an accounting system. Oh, I could do the basics, like I knew how much my parts cost was and I knew how much I was taking to the bank. I could add and subtract.

The CPA was sharp looking, brown hair pulled tightly back from her forehead and temples, appeared good at what she did and came highly recommended. When I mentioned something about being creative, she removed her horn-rimmed glasses and responded rather coldly: “You can’t be too creative in my business.”

“I will get you a sales tax number. Each month we will need to fill out a state sales tax report.”

Okay, I thought. No big deal. But, it turned out that it was a big deal. Georgia has 159 counties. Each county does not collect sales taxes at the same percentage. Some have an optional sales tax, special purpose tax, MARTA tax and etc. I based my sales strategy upon point of sale being the customer’s location as they were used to paying the local tax rates. My location was in a higher-taxed county and I felt they just wouldn’t understand why they were paying for a rapid-transit system they would never use.

My accountant took care of this chore. After a couple months, she managed to get me on quarterly-tax return basis, which made it simpler and less costly. Also, she had the state labor board send out the mandatory bulletin board postings about equal this and equal that for employees. At that time I only had my “lovely and talented assistant” as an employee. Still, no matter how many workers a business employs one must open a special bank account in which to make the monthly payroll tax deposits, like the FICA stuff, social security/etc. We opened one.

The business deposits its employee payroll deductions and the government draws them out. Everyone’s happy as the bank gets to handle the money, the owner is covered legally and the government continues to function.

This is where I first learned about “estimated income tax”. It seems that if a reasonable estimate of one’s federal tax liability exceeds a certain amount, then one must pay in an estimated amount. This can be refunded at the end of the year if overestimated. Okay, so now I had to do that.

Just a side note on my attitude about taxes: I love paying taxes. Does that sound crazy, or what? Think about it: The more I was paying, the more I was bringing in! Hell, I’d love to be paying a million dollars per year in income taxes today. Can you imagine how much money I would be making in that instance? When one tries to “weasel” on his taxes, it’s really a deterrent to one increasing his/her income. You see, that sort of attitude belongs only to losers. Yes, when one thinks small, one acts small and will never allow themselves to make it big.

There is a big difference in keeping tight rein on expenses for a streamlined, efficient operation and that of cutting all sorts of corners to save something on taxes. The former is a successful strategy, the latter that of failure. But in managing a small business, there are many tax advantages one may successfully employ. To wit: Take along business cards to pass out when traveling. Making personal contacts while enroute is evidence of a business trip. Regardless what you may do upon reaching your destination, you have been selling all along the way. This strategy allows one to deduct transportation expenses/etc which add up to big deductions from gross income. Most organizations log-in visitors/guests when they appear. Stop off at a few places. Get yourself recorded. One day, a memo supporting the fact you were there from one of these on a far away trip may save your travel deduction. (!)

Keep written records of everything you do. Auditors are impressed with paperwork. They know you will appear at a hearing with boxes of paper and likely will succeed in defending your position. Actually, they would rather pursue easier prey.

I found I was doing most of the accounting work for my CPA, keeping receipts sorted in various envelopes and tallying them all up. All she was doing was filling in the forms. I paid her $1200 per quarter for this service and I had to do all the leg work, hauling stuff back and forth to her office. It didn’t take too long for me to figure out that I could do her job, now that she had me all set up. That was a $4800 per year expense I could remove. And, I did just that. We parted friends. I would recommend her to anyone that needed a start up CPA.

Each coin has two sides. Just after renting my building in Roswell, I visited the business license lady to change the address on my business license from the subdivision house to the new place. She mulled over her forms, then: “Is your home address the same?”

“No, I’ll stay at my place of business.”

“Well, you can’t do that because it’s zoned commercial, C-2, and no residences are allowed.”

“But, that’s where I’m staying.”

“No, you’re not.” Well, this went back and forth for a minute or so. Then she offered, “Of course, you may use a night shift or a security service which would be okay if someone was there...” Then she told me the fire marshal would be by from time to time to inspect...”

Driving back, I felt a bit frustrated. Then, I thought about the tax advantages of not having a business declared a “home business” by the IRS, where one is restricted greatly by not being able to deduct the whole place and not being able to deduct more than the gross income amount. Hey, I would rent an undivided area of my son’s home in another county, pay him a small monthly rent check, then deduct my entire building. What a deal! I was able to take one-hundred percent of the rent, utilities other building expenses ..hell, the whole thing. Totally deductible. I even had written notice from the city to show the IRS if ever needed that no residence was possible at that location.

Business license lady had done me a great service. With the lower back problems I endured, I slept on the floor anyway using a couple sleeping bags as a pallet. These were rolled up and stuffed in a closet during the daytime. The refrigerator in the kitchen was part of my testing equipment for the boxes I had invented to protect telephone systems, as the FCC required “bake and shake” testing on everything, including our having to drop the electronic devices from a specified height onto a specified hardness of floor surface and etc. The same went for the stove and oven. To emphasize this I placed placards on each detailing the operational temperature extremes for these tests.

I never had a question from the fire marshal about any of it. Hell, every business was entitled to a “break room”, anyway. My exit signs were properly placed, the bathroom marked with “Men/Women” decals, and the really important object was to keep the fire extinguisher’s inspection tag current, an annual chore performed free by the folks I had purchased it from.

Here, I would like to explain how I came to hire “lovely and talented assistant” in the first place. You see, I had stopped at a McDonalds for a cup of coffee the morning I was leaving to ride out to Colorado to browse the National Center for Atmospheric Research’s library and facilities. I will be gone for over a week.

The gal who took my order looked totally out of place there. To confuse me farther a new supermarket had opened recently nearby using girls dressed sort of like cheerleaders on roller skates to skate around “helping” customers/etc. It was an opening event of some kind. So, I sort of figured this gal was there in McDonalds doing something like that, not appearing like the typical teenaged person flipping burgers.

We chatted a bit. She had a daughter in high school and therefore needed the job. Just that simple. She was a tall blonde Viking, light complexioned, big blue eyes. In fact, she was a part time actress performing in local productions right down the street from McDonalds. She told me that her daughter was embarrassed that her mom worked there, where ALL her friends hung out.

I was impressed that she had taken whatever job she could find and was working. I told her I might be looking for someone to help out in my office/shop and wondered if she might become interested. She told me she would “think about it”. Upon my return her voice was on my answering machine, leaving her phone number. I called. She told me she would have to have XX per hour. I agreed as it was lower than I had expected to pay. She started right after that.

Now think. Had she not taken a menial job to get some money coming in, we most likely never would have met. My point: One never knows where opportunity will appear, nor just how. She sort of made her own break and I got a very fine asset for my new business.

Eventually, my business settled down to routines that worked in a logical and efficient manner. Not too hard, really.

One morning, lovely and talented assistant handed me the phone. “It’s XX”, she told me. “He sounds excited.”

I talked to a man whom I admired for his technical abilities and also for his experience with fuel systems. He had just acquired a business of manufacturing control systems in a sort of unexpected way. Being a family man having multiple children, he worked 24/7 to fill their little bellies and to provide all the things a family required.

He had come into ownership when the previous owner suddenly couldn’t pay the salary he owed. My friend took the offer of just taking over the business as payment for the back salary owed him of which amount had grown to a large sum. Now, he needed lightning protection for his units. I would wholesale my devices to him and he would sell them to his existing and new customers/etc.

We came to terms on an amount and a delivery schedule for an order for fifty of my systems. Wow! Big sale. Now, I needed more help to get them out. My ol’ war buddy Bobby, disabled vet, was available so I hired him. Now, I had he and my lovely and talented assistant working in the shop, building up and testing boxes, packaging and delivering them. Life seemed good ..for awhile.

After delivering the first ten units, I took my new customer’s check to the bank, returned to the shop and managed the building of more of them, assuring that we had enough components such as LED’s, photo-transistors, resistors, solder, shrink tubing, and etc. Eventually, I had delivered twenty two units but had only been paid for the original ten. What’s up? It turned out that my friend had relied upon his CPA’s appraisal of the net worth of the business he had acquired.

Whoa! Nearly all of his assets were on paper, just accounts receivables of which many were more than six-months in arrearage. He had money owed him by customers in the states of Washington, Idaho, Montana, Arizona, New York and others. Some of these debts were for $600 or less. Now, how the hell are you going to force collection of a $600 debt in a state 3,000 miles away? That money was gone! I saw that and now so did he. He also understood my position.

Regretfully, I repossessed my unpaid-for boxes and returned to the shop with the bad news. “This is it,” I explained. “You guys are out of a job come next Friday.” I was surprised at how easy it had been to make such an announcement to my two employees, also friends. Mike Warner, individual, never could have done this. He would have borrowed money to continue paying wages with no income coming in to support them. But Mike Warner, company owner, had no such problem. My company could not do that. It was an easy decision for me and a good lesson learned about facing facts, being decisive, and rolling with the punches.

I still needed help operating the business. What to do? How to do it? Okay, I can contract out whenever I needed someone, just like from time to time I would contract a licensed electrician on a job requiring someone holding a valid state license. Why not do the same with someone to install a box now and then?

Bobby was happy with it. He never did like punching a clock, anyway. I actually paid more per hour than if they were on hourly wages. So what? The bottom line is what really counted. The up side is that I didn’t have to pay for their time when nothing was going on. Lovely and talented assistant was comfortable with it too. She felt more like she was her “own person” again. For the remainder of my business existence I operated exclusively using contractors.

The state has a few tests to determine if, in fact, a person is an “employee” or a valid “contractor”. One, is that they do not work regularly scheduled hours, must work unsupervised, no tools furnished by the company, and etc. I did have to file an IRS 1099 form each time the amount I paid them exceeded $600 per year. (It’s at a higher value now.) But, look at the advantages, just from a book keeping standpoint: No payroll taxes to deposit and keep up with. A lot less state paperwork too. The method ended up working well for my small company.

A tip on dealing with the various bureaucracies: As mentioned above, I had to file a quarterly state sales tax return. Well, one quarter I had no taxable sales, therefore had collected no sales tax. I just skipped filing the form. A month or so later, the state mailed me a bill containing a penalty for failure to file. Hey, what’s this? I called them. A woman put me on hold then transferred my call. I waited forever. Nobody came on. I hung up. Then I thought about it.

Ho-ho! The first one dealt with me by passing the buck to another person. The next person never got the call. Well, the first one felt she was finished with me, and the second one never had me to begin with. I was in limbo down there somewhere, I guess. Anyway, I never heard about it again.

Now for some dumb things:

“Just forget that idea,” he told me. “If that was any good, someone would already have invented it.” (Period!) Whoa there! This bad advice was from a good friend of mine who had helped me understand solid state chips when they first appeared. Had I listened to him, I never would have invented my device. Well, my advice? Don’t listen to negative comments, ever.

Also, never let previous knowledge “build a wall” around your thinking. Good example: Isaac Newton’s physics were the defining knowledge, the last word as it seemed, forever. All had been solved. Gravity exerted a predictable and measurable force upon a mass causing a specific acceleration/etc. But wait. If Newton’s theory was the end, how did Einstein’s theories ever come to replace them?

Newton was brilliant, no question about that, and his contributions were magnificent. His stuff worked on everyday problems, but failed when things became very small or very fast. That’s where Einstein’s took over, allowing understanding of atomic theory and all of the science attending that.

If you want to tackle something, tackle the control of gravity. Another one begging a solution: Try to understand “light”, which according to current physics is photons. Definition: Photon: a “massless particle”, otherwise a “something nothing”. How can that make sense? If you want to succeed, don’t be comfortable with something simply because everyone else has given up determining what it is. Tackle it. Think on it. Dream of it. Try. You might get lucky and you might succeed far beyond your wildest dreams!

How’s this for creativity? Traffic cams had just been introduced to the traffic signal department of one of my county customers. They were there on a trial basis for a time, then the county got serious about catching red-light runners.

The county sent him a picture of his car, including clear view of a legible license tag, running a red light along with a traffic ticket having a $50 fine. He snapped a photo of a $50 bill, clipped it to the ticket and mailed it back!

Maybe this is enough of the “small business” treatment by one who has been so fortunate to succeed in the fertile environment of this great country. I’ve only made a scratch, maybe a dent. I could have made millions and millions more had I been able to obtain the patent. I would have (of course) contracted with foreign firms to manufacture them. Had I done so, the vast majority of the money would have been made right here and taxes collected here and paid here. The money I would have paid to a foreign company would only have given them money with which to buy our American products. (Caterpillar Tractor’s foreign sales were something like 65 percent of their total last year!) Trade is good for all of us, and the freer, the better.

Electronic assembly does not necessarily require “skilled” labor. One could be illiterate yet be totally capable of constructing my devices. We used six colors of wires. You strip the insulation from the end of the wire, wrap it around a terminal, solder it, grab the next wire, repeat and etc. A picture diagram on the wall in front of you details all of it. Really simple to construct. I am not going to have to pay a very high wage to fill this position. Let the Orientals have it if they want it.

Like, how many Americans are raising their kids to work at unskilled labor in a factory, anyway? Don’t we hope for higher callings? Opportunity exists nearly everywhere. It’s all around you, problems screaming out for solutions. Think, People. Think ...and prosper!

THE END



SMALL BUSINESS SUCCESS STORY - PART FIVE
Addendum The American Dream

by Michael D. Warner

Copyright 2012 by Michael D. Warner All rights reserved

This is an addendum to the four part series as an illustration of how these well established organizations bought protection systems from a small start-up proprietorship which sold a device that actually worked when major protection equipment manufacturers had failed in their efforts to solve the same problem. Just one more example of the American Dream.

Do our devices do the job? ...Just ask a few of our totally satisfied customers:

U.S. National Park Service, Maryland
U.S. Army Fort Gillam, Georgia
Pool Company, Longview, Texas
Cobb County Fleet Maintenance
Cobb County Water System, Georgia
Portman Marina, South Carolina
Oglethorpe Power Corp, Atlanta, Georgia
Chambers County Highway Dept, Alabama
City of Calhoun, Georgia
Averitt Express, Tennessee
Three-D Oil Company, Palestine, Texas
Muscogee County Schools, Georgia
Houston Distributing, Texas
Fayette County Schools, Georgia
S.C. Aeronautics Comm. South Carolina
City of Roswell D.O.T., Georgia
Mattingly Foods Inc., Ohio
Cobb County Traffic Signals, Georgia
City of Anderson, South Carolina
Atlanta Gas Light Company, Georgia
South Carolina D.O.T.
Florida Well Service Felda, Florida
Indian River Sheriff's Dept, Vero Beach, Florida
St Johns County Sheriff's Dept St. Augustine, Fl
...and many others.

We specialize in protecting remote communications that utilize cabled wiring such as:

Municipal traffic controller signals:

Transyt Traffic Controller Systems
Eagle Traffic Signal Systems

Fleet Remote Site Fueling Systems:


Tech-21 Fuel Control

Sentinel Card Lock

E.J. Ward Fleet Fueling

Fuel Master Fuel Management

Phoenix Automatic Fuel Control

Veeder Root Tank Level Sensors


Remote Weather Observing Equipment:

Surface Systems Inc.

Note: All trade names are property of their respective owners.

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