An accountant visited the Natural History Museum. While standing near the dinosaur, he said to his neighbour: “This dinosaur is two billion years and ten months old.”

“Where did you get this exact information?” his neighbour asked.

“I was here ten months ago, and the guide told me that the dinosaur is two billion years old.”

There are a lot of “experts” out there. You usually find them holding court in coffee shops or bus terminals. They have lots of time on their hands and they’re full of information. Much of that information is obviously useless or without any substance to make it matter.

Most people in business, particularly business owners, are indeed experts. If you’re in business, I’d wager that you’re an expert in your business. There’s likely very little that anyone can tell you about your business or what you need to do in order to survive in your industry.

When I first started out as a fledgeling accountant (seems like a lifetime ago), I made the horrendous mistake of telling a client that I knew more about his business than he did! My client was a baker, the second generation of an immigrant family that had built up a serious business.

Operating a bakery is one tough business. You’re generally up before the crack of dawn, lugging sixty pound bags of flour and dumping them into the hopper. Before any alarm clock has even thought of rousing its sleeping owner, the baker has already put in a full day. Fresh pastries fill the display cases and beckon street traffic, together with the scent of fresh coffee.

The bakery trucks have been filled hours ago with racks of breads, buns and pastries, and have already negotiated traffic to make their deliveries while the breads are still steaming fresh from the ovens. You put in a full day before most people brush their teeth in the morning, then before you go home at the end of your day, you prepare for tomorrow, when you’ll be back at it. It’s a very personal business, where human hands still touch every product, where a skilled eye ensures that each pastry is prepared to perfection, consistently, each day. The alternative is disaster.

There’s no doubt that my client was an expert in his business and it was an error on my part to even suggest that I knew more about his business than he did (obviously the exuberance of youth).

However there is a distinct difference between being an expert in your business, and being expert at doing business. The environment in which we do business is complicated and dangerous. For business owners, it comes down to what you don’t know, that can hurt you.

For my baker client, he continued to operate the same way his late father had, simply using tried and true recipes to create tasty and popular breads and pastries. He also continued to operate simply under the form of organization as a proprietorship, an unincorporated business. He never thought about the possibility of a lawsuit from an errant customer who had an allergy to one of his products! He never thought of the possibility of that lawsuit costing him his business, his livelihood, his home and his reputation. My baker client knew how to make bread, but did he know how to keep the bread he made?

He didn’t consider the possibility, until I alerted him to it, that he might save a great deal of tax, defer paying a great deal of tax and conserving cash flow by incorporating several companies. One company could hold the assets of the business and lease them back to the operating company, thereby protecting those assets while allowing for tax deferrals and cash flow savings.

Another company was incorporated to handle employees and payroll. The employee and payroll company ensured that the business assets were separated from possible claims emanating from the director’s personal liabilities and claims from errant employees, or worse.

No matter how careful you may be in your business, there always exists the possibility that an employee may be injured. In an instance like that, the employer is generally deemed to be guilty until he proves himself innocent. The objective of a business structure is to ensure that your business can continue. One cannot know what tomorrow may bring, but by planning today, you can ensure that you will endure through any claims, baseless or otherwise. The point is to protect your ability to earn a livelihood and to ensure that you’re able to look after the people who depend on you and the success of your business.

I made my client aware of the possibility of sheltering his personal assets by creating a legal structure whereby his accumulated wealth was separated from his business activities. This pleased his wife to no end, so that she could sleep at night secure in the knowledge that her home was safe. Sometimes there is no price one can put on the peace of mind that a little planning can bring.

Most business owners need to rely on advice from experts in order to be an expert at doing business. As a business owner, you need a good accountant and a good lawyer to help you be an expert at doing business, so you can be expert in your business.

Sid Karmazyn is a Chartered Accountant, author and speaker, who lives and works in York Region. Your comments are welcomed.
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