Joanna ran a very successful business, but a huge tax bill almost drowned her.
After a messy divorce, a doctor chose to close his successful practice. He couldn’t afford to give 50% of it to his wife.
Dennis, Joanna, and the doctor made stupid small business mistakes. Dennis never chose the right business partner. Joanna didn’t understand cash flow. The doctor didn’t have his practice valued until it was too late.
Though relatively common, business mistakes like the ones above are avoidable. The stories come from Smart Business Stupid Business: What School Never Taught You About Building a Successful Business, a new book by CPA Diane Kennedy and small business expert Megan Hughes. Kennedy and Hughes provide tips, recommendations, and real-life anecdotes help you avoid common business mistakes.
Their recommendations are based on years of experience in the bookkeeping and legal industries. Smart Business Stupid Business fills in the tax, bookkeeping, and legal knowledge gaps that most small business owners have somewhere in their organization. The end result, ideally, is that you prevent yourself from experiencing stupid mistakes at all.
Summary of the Book’s Contents
The authors list Action Steps (exercises you can do) and resources at the end of each chapter. The book is best read with a notebook, so that you can jot down answers to exercises and notes as you go.
The book is divided into seven sections. Each section is comprised of several chapters.
The first section is one of the few parts of the book that doesn’t talk about bookkeeping, accounting, or legal aspects of running a small business. Here, you learn about building an entrepreneurial foundation for your business, including how to devise a mission and values.
Section 2, on the other hand, dives into the kinds of details that make up the meat of Smart Business Stupid Business. This section tells you how to cover your butt if the IRS takes an interest in you, fund options for your business, make projections, recognize and manage cash flow, select good partnerships, boost your business credit, and recognize employee embezzlement.
Section 3 teaches you bookkeeping basics that every small business owner should know. In Section 4, you learn about financial statements and financial scorecards. Section 5 jumps into more advanced asset protection strategies, such as the benefits and drawbacks of C- vs. S-corporations.
The next two sections include chapters that veer away from the book’s bookkeeping core. In Section 6, you read about pricing your time right, creating systems that allow employees to replicate your own functions, and creating and managing passive income. Section 7 tells you about exit strategies, buyouts, and building your legacy.
The meat of this book had to do with accounting, bookkeeping, and tax tips. I found some of these tips original and valuable. For example, the chapters on projections and embezzlement gave me insights I’d never read about before. I learned about new types of 401(K) plans, too. And after reading the book, I had a general idea of what could go wrong with my business down the line if I don’t pay attention to my paperwork.
The authors also have online resources to help you learn to streamline and organize your business. These resources look useful, but be forewarned: The authors promote them (and themselves) a lot in the book, more than most other business books I’ve read.
It’s not clear from the book’s title or back-of-jacket summary that it mostly covers taxes, accounting, and legal issues. Though it dives into some entrepreneurial content at the beginning, Smart Business Stupid Business doesn’t tell you anything about growing your customer base, marketing, relationships, or many other crucial entrepreneurial steps. To me, this means you should already have a good business and good product before reading this book (unless you’re in the accounting business).
I recommend Smart Business Stupid Business for people who already have a small business, but need to get it organized in a clean, financially sustainable way.
Here’s the book’s website.
Disclosure: We received a free promotional copy of this book.