How do I assess my parents' small business situation?

January 3, 2013 6:27 AM

Both my parents and one of my partner's parents run small businesses, and they're not doing well.

In both cases there isn't really much systematic book keeping, and in one case there are mental health issues to complicate things.

I've been asked to help out (I wouldn't interfere on my own) because I'm the numbers guy who can hopefully provide some clarity and rationality in messy situations, but while I'm able to, say, analyze cash flows, I don't really have any experience running a small business on my own.

How should I approach this? What should I watch out for? Any resources? We're all in different EU countries if it matters.

posted by anonymous to work & money (13 answers total)

What kinds of businesses? My mom's small advertising-based franchise is COMPLETELY different in operation from my dad's one-man structural engineering firm, and both are completely different from, say, a retail operation.
posted by rockindata at 6:33 AM on January 3

I've worked in small businesses for basically my entire working career. I have been in situations where people running the show were a little funny in the head, and where books or inventory was grossly mismanaged, and being a numbers guy isn't necessarily going to help. The problem isn't with the numbers themselves, but it's that there's no system to track them.

Anyway, the absolutely very most basic thing you need is a way to track expenditure and income. And how you want to do this really depends on what the business does, and what the vendor and clientele situation looks like. If you have three vendors you're buying from, and walk-in clients, that's a totally different story than having fifty vendors and regular clients.
posted by griphus at 6:37 AM on January 3 [1 favorite]

There is almost no way this ends well, and many, many ways it ends badly. Your advice should be limited to "Here is another really good numbers guy that you should talk to, because I am on your side unreservedly, and that is not a good place for the numbers guy to be."
posted by Etrigan at 6:40 AM on January 3 [7 favorites]

Yup, beat the bushes for a good accountant who deals with similar small businesses, and offer your advice as the Numbers Guy to follow the accountant's advice. Help them automate their book-keeping, and then let the pros take over from there.
posted by Slap*Happy at 6:51 AM on January 3 [6 favorites]

Yup, beat the bushes for a good accountant who deals with similar small businesses...

Yeah, I feel like I may not have been clear enough: if you do not know what you are doing, do not get your hands dirty. The best you can do is find a good accountant to go in there and assess the damage and make a plan for fixing it.
posted by griphus at 6:53 AM on January 3

I've been running a small business in Sweden for a decade.

Your parents don't need a "numbers guy" they need a perfectly ordinary bookkeeper who can go through their accounts (bank statements, business receipts, invoices, income) and enter this into an accounting system, submit the proper forms to the tax man on schedule, and see to it that they are following accounting regulations.

Once done, on a monthly or quarterly basis, have this person do an update.

As tax and accounting rules vary from country to country, you need someone well-versed in the specific country where your parents are established. The person will also help you to file the appropriate monthly and quarterly tax statements (but not the year-end tax return which is what an accountant is for.)

There are plenty of retired people who do this part-time for small businesses (as is the case for me). I use a Chartered Accountant for my annual reports and tax return and he gave me the recommendation for a local, part-time bookkeeper who hounds me like my mother (which is much appreciated.)

What you should look for is the failure of these small businesses to report salary taken out and to make the appropriate withholding and employer tax payments. Income taxes and employer fees are very high across the EU and tax authorities relatively unsympathetic to businesses who fail to report and pay these taxes.
posted by three blind mice at 6:58 AM on January 3 [3 favorites]

Okay, all these people are telling you to be involved by hiring somebody else, and it sounds like your basic question was "since I've decided I want to do this, what are the best techniques?"

I'd say, buy yourself a copy of Quickbooks, which is a flexible but fairly comprehensive small-business account-keeping software, and a "how-to" book about it. There are various different ways of keeping track of the cash flows, so read the book until you understand what all the words mean, and can make some guesses about which methods might suit each business the best. That might depend on how many customers, the timescale of interaction (i.e. is there an inventory, and a customer gets their product within a week; or does a customer call up with a request, negotiate a contract, the work gets done, invoice gets sent, check is received, etc), the amount or variety of debt/loans/capital for the business, etc. A combination of a Quickbooks how-to manual and googling about any accounting terms you need explained will probably set you up pretty well.

Do some reading, then just try it and see. While you might volunteer to help them set up the cash-flow books, I'd do my best to stay away from any tax-filing. If you're all in different countries under different laws, taxes are something that you shouldn't try to get involved in. In the US, for example, the person who prepares the taxes has to put their information on the forms and is liable if the taxes are underpaid or wrong, which is farther out on a limb than I'd be willing to put myself in that situation.
posted by aimedwander at 7:10 AM on January 3 [1 favorite]

I guess if I were going to jump in on a situation like this (very hairy), I'd start by just asking them questions. What is it that they want you to do, exactly? Are they needing to trim costs? Are they trying to figure out where their customer base went? Are they having trouble paying their taxes? Have they lost track of their inventory?

I really think that as a numbers guy your best tack would be to help them clarify and then seek professional help. An outside pro can instantly go for the weak spots and be frank with them. Since there are "mental health issues" I just have a feeling that nothing but woe awaits you in this task. I think you are best able to help them by clarifying and then working with them to implement a pros advice. That allows you to use your skills while remaining compassionate and "on their side."

If you are the person in the family that everyone defers to and respects and are able to be no nonsense and walk away when things get stupid without feeling all guilty and entangled then go ahead and start poring over their books. In my limited experience, people get really weird about money and really defensive about their bookkeeping skills or lack thereof.
posted by amanda at 8:51 AM on January 3

As 'three blind mice' suggests they should use a good bookkeeper to get their financial records organised. This person could also help with basic compliance matters like sales tax. An accountant could do all that but they tend to be a lot more expensive. Given the scale of operations you seem to describe what they need is a fairly cheap person who understands double entries and can reconcile a bank account.

Once they are up to date with records (and stay that way because bookkeeper spends a few hrs regularly keeping them up to date) the most I'd consider doing (if pushed) is look at the figures to see if I can see any trends and help them see these, too. That's it. They draw their own conclusions.

But really, stay as clear of this as possible - nothing good can come out of your involvement no matter how well intentioned everybody is.
posted by koahiatamadl at 10:25 AM on January 3 [1 favorite]

Here's what I suspect that you'll find upon opening the books.

That both business have never been profitable and have been kept afloat for years on credit and lottery winnings.

So many people get married to their businesses, and ride a once successful concern right down the drain. They can't see that the tide has changed, or the economy isn't right, or that their product or service is no longer needed. They keep doing what they've been doing and they keep hoping that it will get better. It rarely does.

I'm thinking of those restaurants that Gordon Ramsey goes to, where the owners are so out of it, or so focused on one thing that the rest of the business has gone to hell.

What you'll discover is that the parties involved are not ready to understand the truth of the situation, nor will they agree to any cost cutting measures, letting people go, or finally shuttering the business to keep the hemorrhage of money from killing them.

This will make for bad feelings among the family because they'll resent you. They'll resent you because you pointed out to them that they were failing. They'll resent you because if they close the business there will be a small part of them that will always wonder if there wasn't a better way to get the business back on its feet. They'll resent you if they don't take your advice because eventually it will come to bankruptcy (because you just know they mortgaged the house to prop up the business) and then they'll be financially ruined and you were the one that pointed it out to them.

I think that for your own good that you should audit both businesses. So you know and understand what the next couple of years will look like. I also recommend that you get a neutral third party in there to deliver any bad news.

No matter what, do not put any of your own money into either of these businesses. That way lies madness.
posted by Ruthless Bunny at 12:54 PM on January 3 [2 favorites]

Part-time bookkeepers come cheap. Think about the ways in which your knowledge can help -- probably by going through the newly-tidy books with them and discussing the implications of the difference between income and expenditure, and which of their operations are most profitable.

Trying to do the bookkeeping yourself is unwise as you may be unaware of all relevant regulations in your own country, let alone a foreign one.
posted by Idcoytco at 2:30 PM on January 3

In the US, you'd be able to get technical assistance from the Small Business Administration; see if there's anything comparable. Put some time into finding a really good small business accountant. When I owned a small business, finding this person was extremely important, and not easy, and the 2 crummy accountants along the way cost time, effort & money. Almost any small business will benefit from sprucing up. People let cruft accumulate, the signage gets worn, the inventory may need weeding out. That's something you can actually help with. Make sure the businesses have up-to-date marketing, which means accurate information in the white and yellow pages(or equivalent), and a usable web page. For most businesses, it doesn't have to be flash-y or large, but most people look on the web for most stuff. I'm amazed when a business makes it hard for me to find their phone number, address and hours.
posted by theora55 at 10:53 PM on January 3

Ruthless Bunny has it. All you'll be able to do is tell them with a little more certainty when the sheriff is going to kick them out of their houses.

So yeah, go ahead and look at the books and tell them that they haven't actually made a dime in the last 5 years. And then wash your hands of it.
posted by gjc at 5:11 AM on January 4