and 3 lessons i learned.
by ed mendlowitz
call me before you do anything: the art of accounting
my childhood dream had two parts. one was to have my own cpa practice and the other was to own a bunch of businesses.
more: high cpa fees should be a client’s goal | hot shot sales manager is not such a hot shot | you must push the pencil | the art of the deal: starts with listening | working for a jerk
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the cpa part worked out great. the businesses part did not.
i always seemed to have entrepreneurial instincts. at 11 i was delivering prescriptions for the local drug store. at 12 i had a couple of newspaper routes, at 13 i started a mail order stamp business, at 14 i started selling advertising specialties and at 15 wedding invitations.
i started moonlighting as a tax return preparer almost as soon as i started working and built up a nice side practice – enough so i was able to start my own practice in 1969 at age 27. however, that year my mail order business was throwing off more income than my job, so my mindset was that i was going to be a “player.”
about a year earlier one of my clients who was a printer had an opportunity to buy a competitor and he asked me to review the books. it turned out i knew a lot about printing and saw that this business was a steal. afterward i asked him how he was going to get the money to fund the purchase and he mentioned a friend of his who was going to put it up for a 50 percent interest. i knew this friend and also knew that he didn’t have that much money. i called my client the next day and told him that if his friend did not come up with the money, i would, but i had one condition that he would have to agree to if he needed me.
he called me a few days later and asked me for the money and what my condition was. we were purchasing a letterpress business and my client did offset printing. we were going to move into the purchased premises but convert all the printing to offset. i wanted to handle selling all the lead type, the old wood type and all the presses except one. we ended up receiving more money from this than we paid for the business, and i got my money back except for what was needed for working capital.
a year later my company commander in the national guard was starting a restaurant with a bar and asked for my help at one of our weekend meetings. of course i helped him. he was applying for an sba loan and needed projections to include with the application.
in the course of my assisting him, i asked him how he was going to get the upfront money. he said he was putting up 70 percent and three friends each would come up with 10 percent.
the next day, i gave him a check for a 10 percent portion and said that if one of his friends did not come up with their check, i wanted to be his partner. i told him to hold the check and when he got the others’ money to rip it up. however, if one did not, then he could deposit it, but i had one condition that i would tell him if i was in. he called me a few days later and said, “hi, partner,” and asked what my condition was. it was that i would introduce him to the person who would provide the jukebox and cigarette and other vending machines for the bar area.
we received as a “bonus” an amount that equaled 75 percent of the upfront money, which we divided up. so i was in for next to nothing. also, my partner’s day job was running an nyc head start project and he got me the audit, which gave me a pretty good fee, so i was ahead of the game. a single guy with his own pad in manhattan and a “restaurant” made me feel pretty sharp.
unfortunately neither of these businesses worked out and i ended up losing on both of them, pretty much walking away with nothing and actually in debt to the sba. so much for being a player! the good thing was that i got it out of my system. from that point on my interest was in building my cpa practice, and any entrepreneurial instincts were applied to the cpa business, which i think i did very well with.
a takeaway here is that being a cpa positions you to get into deals at the source. in retrospect, i think it reduces your effectiveness as an advisor, but i know of a few cpas who built very substantial portfolios and became extremely rich this way. of course they left their practices.
my interests were toward building a great cpa practice, and side investing wasn’t meant to be for me. another takeaway is that being focused on growing a practice and treating it as a business can be very satisfying, but you must be dedicated to this, and not be looking at becoming partners with your clients.
a third takeaway is that failing in something, while very upsetting at the time, can provide valuable lessons, which can benefit you much more than the losses hurt. we are in this for the long haul, and it needs to be looked at that way.