the takeaways crucial to ensuring business sustainability and continuous improvement.
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accounting arc
with liz mason, byron patrick, and donny shimamoto
center for accounting transformation
when a cpa realizes his business-owner client has never paid sales tax, it can be a jaw-dropping moment.
when they realize the client has owned and operated a successful business for years and is nearing 100 years old, it could cause an aneurysm.
more: accounting arc: exploring ai’s role in modern accounting | accounting arc: unraveling the collapse of silicon valley bank | accounting arc: introducing accounting, reaction, comedy | harper & co. cpas: the perspective of a non-accountant is imperative | menlo innovations: improve office culture by overhauling internal reviews | dustin wheeler: for serious cas success, hire tech teams | chase birky: overcoming paralysis by analysis |
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byron patrick, cpa/citp, cgma, vice president of client success at the b3 method institute, kicks off the fourth episode of accounting arc by explaining how his experience in this real-world example illuminates the often-overlooked complexities of sales tax compliance. patrick recounts how the scenario underscores the necessity of keeping accurate records and the potential disasters of neglect, emphasizing the long-term impact on business operations.
the hosts discuss the ramifications of the wayfair decision, which has significantly tightened the noose around sales tax compliance. they stress the importance of this often secondary aspect of accounting as crucial to businesses’ sustainability.
leadership in business transformations
shifting gears to leadership challenges, donny shimamoto, cpa/citp, cgma, the founder and managing director of intraprisetechknowlogies and the founder and inspiration architect for the center for accounting transformation, shares stories about business transformations that stumbled due to inadequate leadership support. he illustrates how the absence of holistic executive buy-in can derail even the most well-intentioned initiatives. “the failure that we saw…was the lack of top executive level buy-in,” shimamoto notes, revealing the critical need for alignment at all levels of leadership to ensure a successful transformation.
empathetic change management
liz mason, cpa, the ceo and founder of high rock accounting, provides her perspective on managing change, especially regarding technological implementations. she shares an approach used to instill empathy in her team by physically altering their work environment to help them better relate to clients struggling with change. liz explains, “if i move your pencil across your desk, you’re frustrated. and so, i started doing this thing that annoyed the heck out of my team where i would, at night, i’d stay late, and i would move their desks.” mason says this tactic vividly illustrates the human side of change management and the need for patience and understanding.
ethical considerations and client management
the episode also touches on the ethical considerations crucial to maintaining a professional and responsible practice. mason recounts a challenging scenario with a prospective client who presented numerous red flags during the vetting process. this anecdote highlights the importance of ethics in client selection and management. “clients will tell you what they think you need to hear to do what they want you to do. and really, being cognizant of that is important,” liz says, pointing out the necessity for transparency and integrity in all professional engagements.
10 key takeaways
- sales tax, often overshadowed by other financial concerns, is crucial and must be managed diligently to avoid legal and financial repercussions.
- accurate and comprehensive record-keeping is essential not only for compliance but also for informed decision-making and historical reference.
- successful change initiatives require not just the vision but the active support and participation of the entire leadership team.
- understanding and addressing the human response to change is crucial for effective management.
- rigorous client vetting is necessary to ensure that engagements align with professional standards and ethical practices.
- addressing potential issues before they become problematic is a hallmark of effective management.
- empathy and patience are critical in facilitating change and fostering a supportive environment.
- honest communication with clients about their obligations and the realities of their situations helps build trust and compliance.
- the dynamic nature of laws and technology demands ongoing education and adaptation.
- upholding high ethical standards safeguards the reputation and efficacy of the accounting profession.
transcript
(transcripts are made available as soon as possible. they are not fully edited for grammar or spelling.)
liz mason 00:09
yeah, well, welcome to arc guys. today we’re gonna talk about lessons learned. oh my god, sorry, there’s a coyote outside my window. but the big one yeah, it just sorry just went behind a tree otherwise it threw my computer out. it was big. like, walking through the parking lot. okay,
byron patrick 00:26
restart only in arizona.
liz mason 00:30
welcome to arc, guys. today we’re gonna talk about some lessons we’ve learned with working with clients and some interesting stories. i think, as accountants, we get to see kind of the lifeblood of businesses, the ins and outs, the fun stuff, the bad stuff, the legal stuff, the illegal stuff, the things people don’t even know they’re doing that are illegal. but that’s also why we have jobs right to help keep them on the straight and narrow and make sure they’re complying with all those fun federal and state laws. so, guys, i know you guys have a few fun stories to share. so byron, why don’t you jump in?
byron patrick 01:07
oh, boy. yeah, definitely. and it’s kind of funny, as i reflected back thinking about this in preparation. a lot of the stories that i have come from, like my early days in accounting, when, you know, they kind of just threw the staff into the biggest like disasters possible, because it was just, you know, how it was. the first one that comes to mind was actually a consignment shop. i we had a client that had this very successful consignment shop. it was in an area where like boating was really popular, so a lot of like, you know, boat knickknacks, and sailboat things and stuff like that. and the owner at the time, i remember really sweet lady, she was nearing 100. like she like not, not an exaggeration was nearing 100 had never paid sales tax. ever. yeah. and basically, my job was to go back in and recreate from, you know, piles and piles of paper records. all like they had records because they actually like we’re paying people for their consignments and stuff, but it was all just like done on paper and everything else. so i think i did go back through it was no more than five years of records, basically recreating all of the information so that we could file appropriate sales tax information. and it was just like, i remember that was my first like, lesson of like, when it comes to sales tax, like this is one of those things that you just do not like, if you’re going to err, it’s going to be on the side of paying too much than not enough, because it was just such a disaster, trying to piece together all of that information. and, you know, who knows how close we actually were to the reality. but it was it was through bard.
liz mason 03:16
it sounds like it. how did you handle that with that winner though? did you? i mean, did she hire you to do that? like,
byron patrick 03:23
yeah, she she hired the firm to to do it. you know, so she, i mean, she was really like, upset about it, because it was a very big tax bill that they had to pay. and i believe if i remember, right, and this was, you know, decades ago now, but if i remember, right, the only reason like she got cornered on it was it got to the point where she couldn’t make business decisions, because her charter to do business in the state was no longer valid, because she had been receiving notifications, you know, just throwing them away, ignoring, ignoring, ignoring until she couldn’t. so, you know, she was helpful in just getting to, you know, the resolution, but yeah, i mean, just, yeah, the lesson between, you know, keeping good records, and then just actually filing sales tax was it learned a lot there.
liz mason 04:32
yeah, well, it’s amazing. she stayed in business because i know that that type of, you know, transition for a lot of businesses from, you know, cash under the table, not really taking great records that shuts them down and a lot of places especially retail. yeah.
byron patrick 04:49
yeah, i mean, i don’t believe the consignment shop is around any longer. i think after she passed the family just shut it down. but you know, she she had been very successful. so fortunately had the cash to pay it at the time. but yeah, it was a disaster.
donny shimamoto 05:09
yeah, the usual story you hear is that they didn’t do that. and then the liability is so huge, and they can’t get out of it, because it is a tax liability that they end up having to shut down. that’s good that she was in that situation, i think to sales tax, that’s one of these areas that, especially at the cpa level, often gets ignored, because we’re more focused usually on state and federal income tax and not looking at the sales tax. and you normally think of sales tax as the bookkeeping side of stuff, which is which, you know, i don’t mean to make that lesser, but it’s it’s not viewed as one of those elite services. but it’s so critical to the lifeblood of a business.
byron patrick 05:47
well, and i mean, to back up a little bit, the thing that i also learned from that, that i reflected on to your point on is, we were the tax accountant for this company. so i can remember thinking in my very young days, like, how did we allow this to happen? how did we never ask those questions or look into that information as the cpas? who were, you know, providing tax guidance? i can imagine that she probably had the question like, why didn’t you all? ask me about this? or helped me with this before?
liz mason 06:26
yeah, well, and i think, you know, until the wayfair, came out, a lot of cpa firms kind of ignored sales tax, much to doneita point in that, you know, that was one of those state and local compliance, things that businesses are supposed to do, there was never really came up for, you know, the income tax side of it, right. but i do think that firms are taking a very heavy, heavy stance on it now knowing, knowing the consequences of ignoring economic nexus, and knowing that there are so many opportunities for businesses to fail, just surrounding sales, tax compliance.
byron patrick 07:03
yeah. in fact, i was at a meeting recently with bdo, where they had the head of their salt group, and they said, a lot of the projects that they have come through right now, are people going through acquisition, and it’s getting held up, because in due diligence, the the acquiring organization is like, y’all been filing sales tax, and it’s they’ve seen deals, you know, leave the table because of that.
donny shimamoto 07:33
wow, that’s interesting.
liz mason 07:34
yeah, we work with a lot of eecom companies. so frequently, we get clients that are multistate, you know, they’re shipping all over the world and a lot of cases, and they have no idea what the tax implications of that are, or what it looks like. and half the time, they don’t even have systems good enough to like, figure out how much they have shipped into what state in what year. and so step one is just putting in place systems to track that. and then step two is figuring out where they actually have filing requirements. and then half the time we have to go back to the states and say, hey, so they probably should have filed and prior years, how do we work this out? right? like, can we anonymously disclosed and come to a deal with you and ignore penalties and interest? or are you going to try and impose that? because if so, they might just not do business in your state? because there’s not a ton of enforcement you can do outside of that?
donny shimamoto 08:24
yeah, no, no. that makes me think to like, the other big difference with the sales tax or just assault in general is that the burden is on the taxpayer, right to prove that they don’t either don’t have to pay have an exemption or something. so that that paper trail that byron was mentioning earlier becomes even more important, especially when you’re in multi state commerce. right?
liz mason 08:49
well, and then states don’t really have big enough revenue departments to enforce all of this on out of state businesses. so you know, some of it’s just a roll of the dice, right? are you going to get audited? and if you do, will you be able to support your position? and of course, we are a registered cpa firm. so we always support all the positions that we take with clients. and of course, you know, they sign engagement letters saying it’s their management decisions, we’re not responsible, but at the same time, you know, we do a higher level of, you know, due diligence on that with our clients versus i would say some of the other cats firms that are not registered cpa firms, where the rest of adm is basically zero, right. but yeah, it’s really fascinating. so donnie, what are some cool lessons you’ve learned through client fails?
donny shimamoto 09:40
i’ll maybe go the opposite direction into this into some bigger issues. because you guys know that i work a lot on these business transformations. so for me, it’s when we’re trying to enact this type of really big change with the client. the fail that we saw kind of twice and they it both of them are kind of new. last was the lack of not executive level buy in. so both of these situations that i was involved in the owner, ceo, or managing partner, you know, whatever that top title is, was the person actually driving the change there was, there was definitely the want to change from that lead executive. but the buy in actually wasn’t there with the rest of them. so actually went into these situations as almost like an advisor or not almost i was an advisor to the ceos, helping them think through, okay, this is what is actually involved in the change. these are both large multi year contracts, because that’s what it takes is not like quick, hey, we’re going to make this transformative change. it’s going to take us a few years to get through these, i was actually on site with them. so i actually had an office at their offices there. and it was interesting to see how you know it, again, not a traditional accounting role. but i’m there and we would go through these meetings, and we would do visioning to say, okay, this is what we’re going to change to let’s talk about the changes that have to occur. so a lot of stakeholder involvement, facilitating conversations around, how is the organization gonna change? what is it going to look like? what’s our new processes? what’s our new internal controls? what are all these things that are going to be put into place? and then afterwards, i’d be sitting in the office, and i get these knocks on the doors are like, hey, can i talk to you about something? and they’re like, yeah, sure, come in, they come in, and then you see them close the door, and you’re like, oh, this is a closed door conversation, okay. and then they start unloading, whatever it is, you know, variety of things. and it’s, it’s kind of like, i didn’t you bring this up in the meeting, we just had a whole meeting about this. and i had asked anyone have any concerns or problems with this, and no one said anything. and it’s not just one, it’s like two or three people coming in, afterwards, and kind of having those kinds of conversations. so those are kind of the big ones. in both cases, actually, the transformations failed. you know, and part of that i took to heart to myself, i’m like, wow, did i really, really fail as as an advisor. in reflecting on it, i actually came to the conclusion, actually, the situation was more of the fail. and the the lesson learned, for me, there was really, it’s not just the ceo that really has to buy, and then we really have to have full executive support, when we’re making these really big changes. but you know, a lot of that comes back to governance, like how is this organization governed? how is it making decisions? and what is our role in actually facilitating and enabling these decisions to occur?
liz mason 12:54
and what do you think the role should be?
donny shimamoto 12:58
what is the role should be? yeah,
liz mason 13:00
like, what is our role as an external advisor coming in to help these companies like, what’s our role?
donny shimamoto 13:06
i think, i think it is actually that it’s like bringing in these best practices, and ensuring that we’re seeing these organizations follow them. you know, and i think that’s one of the great things that we have from seeing multiple organizations and working with multiple organizations works and what doesn’t work. you know, in this particular case, i say a little bit of my own fault, because i didn’t validate that there was full executive buy in, i assumed that because i had talked with the ceo, there seemed to be an agreement, but as we started to train it, and everyone actually, i should say that everyone was nodding in the meetings, but it’s actually afterwards that we found out that there wasn’t,
liz mason 13:49
that’s really hard. that’s like, a key thing for failure is when you have leadership and disagreement, right, because then you can’t have a direction.
byron patrick 14:02
oh, yeah. i mean, it’s like having parents who disagree, right? i mean, it’s just employees will we’ll put them up against each other and everything else. i mean, i’ve i’ve lived that with a business partner where we, you know, had severe disagreement with a lot of things and i mean, it really impacted our ability to manage and lead an organization so it’s a it’s kind of interesting and it may be my old age coming out but i i really have gotten to the point where if people don’t have a real desire for change or transformation, i just i don’t think there’s convincing them like i you know, there’s so many you know, books on how to like get people to transform and you know, convince them but the reality is like it, it is rare that you can actually get some somebody to make that much of a transformation when they’re opposed to it from the start. it’s just so hard.
liz mason 15:07
so, i think it’s really fascinating, you know, as accountants, that we, in some cases, come into businesses and work with them on change, when as a profession, we are very, very change averse, and struggle through it ourselves. and i always find it fascinating because like, you know, i work with a team that comes in and does tech implementations. and then we outsource accounting, right. and when we first started the types of tech, we’re using cloud based, you know, just in degree that it was very different for our clients. this was 10 years ago, right? like, today, that’s normal. but 10 years ago, it was still different for most of our small business clients. and my team had no empathy for people going through these changes and how much they struggled and how much hand holding we had to do to train them through these changes. and like, do a good job of change management requires a lot of communication and a lot of training. and my team would come into the office, and they would bitch about it. and they’d be like, oh, so and so required me to like, sit down and like show them 10 times this thing. like, i don’t understand why that’s so difficult. and they were just go off and i was sitting there, like, if i like move your pencil across your desk, you’re frustrated. and so i started doing this thing that like annoyed the heck out of my team where i would, at night, i’d stay late, and i would move their desks, just like physically move their desks to the other side of the office, or like, into a different room. move their monitors, like hide them from them sometimes or like put their papers in like different places. and every day they would come in, like anxious, and they were like, what are you doing? like, why are you doing this to me? dawn? yeah, yeah. but i thought yeah, well, i did. and every day they would come in, and they’d be like, so frustrated and anxious. and they’re like, oh, you messed up my whole day. and i was like, how do you think our clients feel? yep. you’re moving their papers, you’re moving their desks, you’re moving everything they’ve known for 25 years or 30 years. and they’re super anxious every morning trying to learn this. so hold their hand, be compassionate and be a frickin human guys.
byron patrick 17:26
yeah, and, you know, i think the the part of that too, and this is where your example, moving their desks is really good, because it’s unexpected. so they don’t even know like, if the day before you said, hey, guys, tonight, i’m going to rearrange this office, they are prepared to see that when they come in, and that’s one of the challenges with change management that people struggle with, because they kind of expect people to just blindly accept change, because you’ve said that the change needs to happen, but you really haven’t painted prepared them for one, why you’re going to change and to what that change is going to be. it’s just like a surprise thing. the pencil is has been moved. so it’s i mean, you know, we could probably go down the rabbit hole on this stuff. but i you know, i think at the end of the day, though, you know, if people don’t want to change, like, i’m just i’ve reached the point in my career where i’m like, i’m, i’m not fighting people to change if you don’t want to change.
liz mason 18:32
and i think, you know, we absolutely should do an episode on change management, but to refocus those back onto lessons learned from some, you know, clients. i do think that that is one of the lessons i learned pretty early on, though, was that clients need to have that impetus behind them to actually want to do things better, or anything they’ve messed up in the past is irrelevant, right? and i think like, i struggled with that a lot with some of our clients where, you know, we would uncover issues and say, hey, we’ve discovered this is being done wrong. and they’d be like, yeah, it’s not that much money, though. so just ignore it. and, like, for me, that’s really difficult. like anyone who knows me personally knows, i’m a bit pedantic and i struggle to leave things like almost right, especially when it comes to accounting. and so it’s, it is a big struggle when you have clients that say, it’s good enough and to accept that and move on when you know that it’s going to cause an issue in the future. right. and i think like one of the really good examples of this i have is, when i first started my firm, one of my first clients was a construction company. and this construction company was it was very fascinating, to be honest, but they were not paying their subcontractors on a regular basis. they were paying them when the subcontractors came to collect. yeah, which is not only illegal and can cause like liens on properties and all sorts of other issues. but they were effectively keeping such poor records purposefully so that when the subcontractor came back there was like, there wasn’t much they could look at from a legal perspective. and so, you know, they had hired a general manager for the company, and that general manager came in and said, oh, we need an actual accounting system. we can’t do this in excel anymore. and it was a $20 million construction company guys running an excel who had no ap or ar ledger’s, to be fair, they had, you know, lists, somewhere, and there was an inbox that subcontractors would send their, their actual paper, it was like an actual physical like box that they would send your paper invoices to. and there was one lady that was in charge of paying when people showed up. and that was it. and i brought this up, you know, to clearly the owner and the general manager, and he’s like, guys, like, you need to track your ap and actually, like, have a plan for cash flow. and they were like, well, we don’t really think we should do that. that doesn’t seem like a good idea. and of course, they didn’t tell me they were purposefully not tracking it, because they’ve gotten into legal issues before where if they didn’t, it’s, you know, kind of hard for the court to prove one way or the other who owes the money, and what the dollars about should have been and all of that. so they frequently didn’t sign contracts at all with subcontractors. they didn’t acknowledge invoices, they it was it was horrible. it was really bad practices. and at one point, a subcontractor put a lien on, you know, one of the properties that they were working on, and it was, it was pretty nice, pretty big. and it was a problem. and clearly the owner had a big issue. and that led to a big lawsuit, and it caused their business substantial harm. and that was after we resigned from the engagement, mostly because i was like, i won’t be associated with someone who’s not paying their bills, right? like you got to pay your vendors guys, and like track it and do it officially. but it was a really a big lesson to me, because i realized, like, a lot of companies and a lot of companies especially like in the trades, just do business the way they’ve always done business. right. and that’s a lot of handshake deal. that’s not a lot of process. that’s not a lot of, you know, security for people that are working. and that’s, you know, hiring and stuffing people, which apparently is like quite common in the construction trades. and yeah, so anyways, i, i learned a lot from that. and i also learned construction was not the industry i wanted to focus in. and what was the last construction client i ever worked on personally.
byron patrick 22:44
wow, wow. i just i can’t imagine intentionally being that much of a disaster just to stiff people. like i mean, if you’re going to be that bold, just just not petted people, like, just don’t pay them.
liz mason 23:05
and when they saw their writing on the wall that i was gonna leave and not, you know, work with them anymore. they stopped paying us to, of course, yeah. which i expected and like planned for. and also, like i made him sign a contract, i made the owner sign a contract that had like interest on it for unpaid, and it was very enforceable. and like the responses if they you tell anyone i signed this, you better tell them that you brought it back to the meeting. which of course, like you said in jest, kind of, but that’s actually how most of the subcontractors collected so like. they just intimidated the crap out of the lady that was supposed to be the like gatekeeper of the catch.
byron patrick 23:53
well, you know, and that’s another really good lesson that and i’ve seen this firsthand, and certainly secondhand and talking to other like firm owners and accountants that it’s, it’s fascinating to see businesses that are run just so poorly, where people aren’t getting paid. and you continue to do business with them. and then you’re surprised when they leave and you don’t get paid for the work when you’ve seen it. you’ve seen it happening right in front of you. and then you’re you’re you know, frustrated or angry that you didn’t get paid for the work. it’s just, you know, you have a front row seat to what is going to happen in the future. so, you know, either make sure your, your contract is allowing you to get paid accordingly so you don’t get stiffed or that you know, it’s probably not a good business to work with you on.
liz mason 24:52
and then the other thing i learned from that was that clients, i look at ap turnover this is a ratio that is not normally used for anything useful, right? i use this ratio to find qualification. yeah. and if their ap turnover is like 90 to 120 days, which is not uncommon, i’m like, we’re not the best fit for you.
donny shimamoto 25:21
actually, some of what you’re saying makes me think of so my very first engagement. this is before i even formed my firm, because this is right. this is during college. i think i was either a sophomore or junior in college. and i was doing bookkeeping on the side. so i had started my own kind of that was actually my first time i started my own firm. and i took on a lawyer, as a client to do his bookkeeping for him. and kind of look towards what what you guys are saying like once i started going into the book, so there’s some red flags there on like late payments and other things. but you know, i’m a college kid, i don’t know any better. i’m like, i’m following. i’m doing my debit seeker. that’s i’m putting everything into, i think we were using peach tree at the time. going through that i even had a friend and other friends, college friends, i’m like, hey, they really need someone that can do like their bookkeeping, more, more. and that’s more time than i can do. do you want to just do the bookkeeping piece. so she came in, she did the bookkeeping piece. and i would see some of the stuff this lawyer was saying, i’m like, man, this guy’s a little dirty. but you know, if you figure is like, hey, that’s part of law, maybe that’s what it is. in the end, this guy actually came back and tried to sue me like a college student, sue me, because he paid his taxes late. and i was like, well, one, we’re doing the bookkeeping, about the taxes, you should be talking to your tax va. and but coming back to the hole keeping good paperwork, i had documented that i had sent to their tax cpa, i said, here’s the information, you know, let us know what you think the right course of action is for this, to show that i wasn’t making the tax decisions, the tax cpa was making the tax decisions. so i actually had sent that back to the lawyer to say, i have proof that i was not the one making these decisions for you.
liz mason 27:24
so, i felt like what kind of lawyers gonna hire a college student to do their books?
donny shimamoto 27:29
no problem, right? yeah. no.
liz mason 27:33
like, you’re smart. you’re also like backup to that for a second.
donny shimamoto 27:39
i’m gonna go with not even what actually i’m trying to think how i got the i know how i got this out of the lawyer was, so that was actually a referral from the wife of the managing partner at the firm i was working for at the time.
liz mason 27:53
so questionable? yeah. i still question that. not to, you know, say anything. i run a small business, i’m not hiring a college student to do my books.
donny shimamoto 28:08
no, but think about it from the small business standpoint, they don’t know any better, right? that’s kind of a lot of some of the stuff we’ve been discussing a long time as a small business owner doesn’t know any better. they don’t understand the complexities and the differences. like sounds good to me. sounds good. do my bookkeeping.
byron patrick 28:22
well, and even, you know, the, the technology i, i just had a conversation, we have a woman who comes here to do some special training for one of our horses. her husband is an electrician, and she does the books. and she asked me the other day, a question, and i was like, are you using quickbooks? and she goes, no excel? and i was like, what? for billing? and she’s like, oh, yeah, i put everything in excel. and i tracked everything in excel. and at the end of the year, i, i get the bank statements from the bank, and i type it all into excel. and i give it to my accountant and i like, you know, i just, she’d be better off having a college student, run it through quickbooks for them. it’s, it’s fascinating to me and 2023 that people are operating that way, but they are.
liz mason 29:19
and it’s fascinating. and quite frankly, you know, i think a lot of people just don’t know this side of the business, right? like they are subject matter experts in what they do. they have no idea about accounting or compliance. and quite frankly, like i’m a cpa, i had, you know, a dozen years of experience before starting my own business. and also i learned i knew nothing, you know, like between hr laws and different state laws around what gets taxed as with sales tax and what doesn’t because it’s different all over the place. and sometimes services do get tax, which i think is also kind of fascinating. and then even like i wouldn’t appropriately hire people is difficult, right when you’re crossing state lines, and it creates all sorts of muddiness and messiness. and in the world we live in, like, we have international contractors and trying to figure that out was also kind of a pain in the butt. and then the implications in those countries for the business and what it looks like, from filing and a compliance perspective. there’s all sorts of like stuff, right? and i don’t think you can know everything. and as an accountant, you can’t know everything, either. and so it’s being aware of what questions to ask and how to ask them and what research you have to do to even get to the point where you can be useful, then i think we have the perfect background for knowing that side of it, right? like how to ask the questions, what you know, where to go for the answers, and who we can even call. but i think we get we get muddied a lot, especially when you look at the small business side of it, like, it’s pretty straightforward to go in and do a year end financial statement on it. all the other stuff gets very messy, and can create a lot of issues. so you know, i tried to have compassion for my clients that are messing things up, but not trying to mess things up. and learn from the ones that messed it up so bad. it’s, it’s hard to unwind. and then, of course, like learn from the ones that messed it up purposefully, or just are purposefully ignorant.
byron patrick 31:31
yeah, and there’s also the ones that you attempt to educate, but then they, they really don’t have a desire to hear it, you know, so they’re like, so. and that’s what makes it hard to have compassion for those ones that are just like, they’re open to it, but they’ve just kind of messed up, you get jaded, it’s easy, at least for me to get jaded by those that it’s like, you know, you should be like filing sales tax in virginia, you have more than, you know, 200 transactions in a year. and it’s just this, no, i don’t their argument as to tell me what those rules are. so it’s a you know, it’s a delicate balance with, you know, different types of people. but i think
donny shimamoto 32:17
a lot of this is coming towards the code of ethics and our profession, right, which is a really important thing, that we’re not allowing clients to perpetuate these types of behaviors. it’s why like, liz probably resigned from her engagement, because it’s like, i can see where you business owner are not being ethical in your practices, and therefore i cannot be associated with you. and i think that’s a really important thing that we look at when we take on clients as well as the client that we want to be associated with it. are they behaving ethically? are they at least trying to comply with the laws, and they understand it. and then as byron indicated, when you’re in a situation where you tell them, hey, you’ve got a compliance requirement, you need to follow this? do they actually follow it? or are they willing, fully not complying with the law? and then you have to ask yourself, like, hey, is this a client that i can continue to work with?
liz mason 33:16
yeah, absolutely. and i think that that’s critical, right? like asking those questions. and then also like, clients will tell you what they think you need to hear to do what they want you to do. that’s a bit of human nature, right? and so taking the time to think about it from a perspective of, are they telling me what i want to hear? or are they actually doing what i think they need to do? and really, you know, being cognizant of that, because, like, i can tell you, we’ve gotten ourselves into some hot water, i was telling these guys like, i have some great stories, i can’t share them, because there’s either ongoing lawsuits or i know, i will get sued for talking about it, right. um, but it’s insane. the stuff that you see when you get in with these small businesses and like sometimes not even in the door, like, can i share a prospect story that was really intense. so a few years back, and i’ll, i’ll do the the short version of this story, a few years back, we had a prospect come to the door, he was looking for a cpa to help scale a roll up. and this was all self funded. in his, in his words, it was family money that he had inherited, and he was sorry about doctors, but he had inherited this money and he wanted to place it in, make sure that he could buy similar types of businesses and then roll them up, like streamline everything together. right. um, and so, you know, he came in and he said he had about $100 million to play with. again, he, you know, told me it was family money. he gave me a fake name. he gave me a fake name that did in fact, link to family money. and i did a bit of sleuthing and researching he came in with checkbooks. he came in and with like a stack of bank statements, like all sorts of information for me. and, you know, i started digging through it, and i’m looking at it and i’m going like, there’s something weird here, right? like, i just like my spidey sense went off. i’m like, this is not right. so i started researching further and looking into it and trying to figure out who this guy was. well, i figured out he did give me a fake name. he was actually a human under a different name, who was indicted in california for embezzlement from nonprofits. they could only find about 15 million of embezzlement, but he served about 10 years in prison before being released about two months before i met him. um, yes, so i figured this out, because i’m pretty good at internet research. and i tend to like not really trust people from day one. and especially when they come in saying they have $100 million, and they want to hire a small cpa firm to help them with a roll up strategy. like all of that was like, if you really have $100 million, you’re working with the top 10 firms. i’m sorry, but you are working here, if you don’t have a relationship with a top 10 firm because of your family that you inherited this money for? i’m like, that’s surprising to me. right? and so all of this, i’m like, okay, well, i’m flattered that they came to me, right. um, but anyways, i like go through the whole exercise. and this is where the story like gets a little weird. and he comes in to pick up this stuff, because i was like, i’m clearly not picking this knowing this guy’s a criminal, right. and he comes to like, pick up his stuff. oh, and the other side of it was they wanted to repatriate a lot of the money, like he was saying, and that he inherited it from, you know, family members overseas, whatever. so no, he, you know, money laundered that longer. yeah. and then needed to bring it back legally. yeah. so. so anyway, it’s in like, very clearly i could do this. this work. like that isn’t the problem, right? like, i know how to repatriate money legally, i know how to put it into businesses and invest it and help with like, whatever strategy wanted and do it like all aboveboard, but i’m not going to do that for a felon knowing that it was money stolen from nonprofits. and so i like, confronted him and my business partner was like, do not confront him. just hand xbox back, say we’re too busy to be like, we’re over capacity, like, sorry, we’re too small. you need someone bigger. i was like, yeah, but like, it’s really, it’s really upsetting me like to my core. and so i sat down with him. and he was like, well, why are you like, why don’t you want to do this? and i’m like, to be honest, you gave me a fake name. and he was like, like, silent. he’s just looking at me, like, very clearly trying to read the room. and i was like, i, you know, i don’t really handle people lying to me. well, like, if you had come forward and told me, like, directly what was going on, we might have had a different conversation, but you didn’t. you lied to me. and i’m not i’m not okay with that. so like, you know, have a good day, right? and of course, like, i’m kind of freaking out inside. and he, like, in the midst of this conversation was like, and it had been like two months of talking to this person, like back and forth. and like, we had built a really strong relationship from the perspective of like, how do you build this this guy freaking brilliant, clearly, like embezzling so brilliant. and then he was like, honestly was like, i’ve never met someone as smart as you. i really need someone like you in my corner, like, can you start to flattering me? and i was like, i appreciate that. but like, i think it’s time to go. and i’m not i’m not even kidding, guys. he got down on one knee with a ring and was like, will you marry me? i will give you as much money as you want. like, you can do whatever you want for the rest of your life. and i was like, no, like, this is very inappropriate. and also at the time i was married, and i’m like, i’m currently married. like, this is, you know, i again, flattered, but like, please leave like this is getting awkward and like really hard. and he handed me an envelope. and he’s like, well, if you ever cashed that, i’ll know that you’re in, and i’ll find you, like, walked out the door. it was a check for a million dollars. and i was like, what just happened? like, that was the most intense like 45 minutes of my life. and of course, like, the whole time, i’m like, is he gonna, like hurt me like, clearly a felon?
byron patrick 39:13
like, it just does not sound safe. they know what not to do.
liz mason 39:17
yeah, well, also, to be fair, i had made sure there were a few other people in the office that day, like i wasn’t alone. and we did have at that point when a close friend of mine who was an ex military sniper and he was in the office and he was like, at the like when he saw this going down. he like literally opened the door and was like, let me help you to your car. mostly was so awkward. anyways, i wrecked the checkup that was kind of hard. but at least i know i can’t be bought for a million dollars like, never know until it happens to you right?
byron patrick 39:58
do you have to shred that check. yeah.
liz mason 40:02
yeah. like i oh my god, it was so crazy guys. but yeah, so like, clearly doing your research and figuring this stuff out before you get in the midst of like repatriating stolen money is probably a good idea.
byron patrick 40:13
and, you know, trust your senses, right? i think that’s one of the things that another lesson that you know, you’ve heard it so many times where something goes sideways in a deal or a business relationship or something, and you’re like, you know, something at the beginning was like, picking it me that this wasn’t a good idea, but i ignored it. you know, and it’s so often, there’s something to that, you know, so, you know, some internet sleuthing and maybe really reflecting on what that that weird feeling is, can can spare you a lot of hardware.
liz mason 40:55
yeah. yeah. and, you know, i think, i think the biggest takeaway i got from that one, because i had invested a lot of time upfront in this prospect. and i think the biggest takeaway is, like, if it sounds too good to be true, it probably is. and if the outset of that you need to, like dig pretty hard and be very skeptical. and, you know, i think like, all of the experiences with clients we took with clients we didn’t take with, like this type of, and this is, this is the most extreme, sir, it has to be fair. but right, i get myself into some weird situations like i can, i can tell you a few from like, mjbizcon, to work in the cannabis industry a lot. so i’ve gotten myself into some really bizarre situations, working with clients. so like, we’ll save those for another day, though. but this one, it was, i learned, like, first off, if somebody’s trying to make a personal connection with you over a business idea, there’s probably some angle to it. and i also learned that, you know, when you’re thinking about taking on clients, especially big ones that are new to the firm, or something exciting, that would be a growth, they know that your clients know that the prospects know that they’re humans, and a lot of times, they’re pretty good at reading you and they’re going to try to manipulate or something. in this case, it was like illegal services. in a lot of cases, it’s a discounted price, or it’s, you know, additional services that maybe you wouldn’t normally perform. and it’s, you know, when you get excited in those types of prospect meeting, people can tell, and it makes it really hard to get what you’re worth, and then also perform on your, what you’re good at, right the core of what you should be doing.
donny shimamoto 42:54
so if i were to kind of summarize that i that to me comes back to our standards of presenters a practice and doing proper client due diligence. it’s why as as, especially as cpa firms, but i hope a lot of accounting firms that maybe are not cpa firms also follow that, in looking at and having proper client acceptance procedures in place, right? because that’s really what that comes back to is, am i doing my due diligence on my client to make sure this is a legit client, a legit situation? and as you just indicated, does is it services that i actually am qualified to perform? because that’s another thing as part of our standards is if we’re not qualified to like, if someone came to me for a tax return, i would not do it because i do not do i don’t even do my own taxes. so that’s definitely not something that we are qualified to perform.
liz mason 43:48
right. yeah, and i think it’s really important upfront, especially for smaller firms to really think through those things and have a good intake process. like that’s been my biggest takeaway with all the crazy stuff i have gotten myself into over the years is you really need to vet the people you’re working with and be careful in the way you have conversations and probably go into things a little less bold, then i can do nothing.
donny shimamoto 44:19
i think it’s interesting though, is none of this is taught to us in in college, right? we, we learn all the fundamentals of kind of the accounting there but all the stories that we shared these are these are things that are kind of like the battle scars and the things you learn as you go through. but it’s interesting that we all have to deal with these kinds of different unique situations that you’re you would never think of if you were just like hey i’m gonna major in ai.
byron patrick 44:49
i mean think that would be such an awesome course like legit case study like crazy accounting case studies because you’re right like the the case studies in college are always so like, you know, curated and it’s it’s all perfect and everything like we we could easily do a, you know, three credit course on case studies,
liz mason 45:17
we should do a spin off podcast called accounting war stories and just interview people with crazy stories and stuff that they’ve done.
donny shimamoto 45:26
i think it would be entertaining. oh, definitely.
liz mason 45:29
definitely. and also like, you know, depending on industry, right, like, like the cannabis stories i could tell you are amazing and ridiculous and absolutely, like not okay. and also in cannabis. it’s like, okay, whatever, right. but when i tell people in the county, and they’re like, oh, my god. it’s just, it’s funny. but anyways, i think i think to wrap today, donnie summarized very well, focusing on making sure you have a good intake process, and you’re following standards and thinking about this, even if you’re not a registered cpa firm, from the perspective of let’s make sure that i’m performing services i can, and i’m qualified to do and i will do a good job. and these are good, legitimate businesses that want to do the right thing that have the leadership on board for the right type of change, and that are focusing moving forward. you know, let’s try and avoid holistically where you have divided leadership or anyone that’s not trying to do things for good. you know, if they just don’t care, they really don’t care about compliance or legal practices. i think that that’s a red flag and a problem. and also don’t work with criminals and don’t build relationships with them because it gets awkward.
donny shimamoto 46:50
oh, my god, let’s use summarize. that’s so awesome. thank you. so that’s been fun, guys. you guys, look forward to seeing everybody on the next episode. all right, bye now. thanks so much.