Can You Relate? -- Legal and Accounting

A closer look at the accounting and legal professions, and their value to woodworking businesses. 1998.

by Anthony Noel

This series on business relationships concludes with a closer look at legal and accounting services.

We were talking last month about lawyers and how to avoid them. OK, maybe that's a little harsh. We said that almost every business will need legal advice at one time or another, but also noted that purchasing adequate insurance and writing clear contracts are big steps in keeping the time you spend in distractions of a legal nature to a minimum.

Performance contracts - ones which stipulate not only a project's payment terms and specifications but an anticipated delivery date as well - are one method I've found to keep clients happy. And happy clients don't sue.

I noted last month that some contractors feel the last thing they need is a written document stating a date of delivery. What happens, after all, when they miss the deadline? That depends on what has been agreed to. Performance contracts can hurt you. Some, particularly those which are written for large commercial projects, levy big daily fines if work is delivered late. If you are doing high-quality custom work, (and I assume you are, if you're reading CWB), I would recommend that you forget about that kind of contract. And, more importantly, don't sign one.

Instead, write your own contracts, with a project delivery date included. Then, prepare to be amazed at what a little self-imposed pressure can do.

The way I write my own performance contracts, they are set up as a win/win situation for both me and my client. They are not meant to set up conditions under which I will miss a deadline and clients will have something in writing to use against me when it comes time to settle the bill.

Last month, I listed some of the circumstances which can delay completion of a job. Several years ago, I decided to let my customers know about them, right in the contract. I began to include all of those extenuating circumstances, such as material shortages and other things clearly beyond my control, in a disclaimer just above where the client signs. (Never use small print - doing so raises legitimate questions about your integrity.) I even include 'Acts of God' in my disclaimer. After all, if my shop is damaged by a tornado, shouldn't my client expect delays while it is been repaired?

'Well,' you may be wondering, 'with all those exceptions, what is the point of doing the performance contract in the first place? Aren't you just as bad as the insurance company that gives itself all sorts of policy loopholes?'

The answer is no - and here's why.

It is true that extenuating circumstances can have an adverse effect even on companies with the best intentions. But what a clearly written performance contract does is make it evident from the get-go that yours is such a company, one that cares about meeting client expectations.

Remember, our customers - who are usually spending many thousands of dollars and expecting to get top-quality work - deserve to have some idea of when that work will be completed. And while delays are often inevitable, they are just as often the result of poor planning as they are of unavoidable occurrences. Putting a due date on every contract you write has an interesting side effect: It forces you to write that same date on a production schedule.

If you are one of those businesses that delivers projects later more often than sooner, committing to a date, even loosely, will produce profound results. It makes you schedule work more realistically and forces you to think critically about your production process and how to make it better. And it improves your word-of-mouth advertising to boot.

So to avoid needing a lawyer, start by writing clear, easy-to-understand contracts. And be committed enough to your customers that you include a delivery date - with a reasonable disclaimer, of course.

Buying the right insurance policy is another good way to stay out of court. Do you do your own installation? If so, you will probably want a liability policy. The odds are that sooner or later, a hammer will fly, probably through the nearest picture window. With liability insurance, you are protected. Without it, you are taking a chance.

If you use independent installers, insist on current insurance certifications from all of them. If they are not protected, you are not either.

What should you do for those times when you do need a lawyer? As with buying the right insurance policy, it is a matter of determining your needs. If you are ready to incorporate, this is a process that is basically a matter of filling out forms and advertising your company name in the right places. You could do it yourself. But you could also find a lawyer who does it at a reasonable price, probably reasonable enough to make it more efficient to let him handle it.

But for most legal areas, my initial advice from last month stands: Resort to the courts only when every other option has been exhausted. The time, money and stress you will save yourself and your business makes it smart to avoid legal remedies at almost any cost.

Which brings us to accountants. The major thing to watch out for with accountants is their tendency to tell you what to do with your money. Some of this is OK; advice is never harmful. What you decide to do with it can be.

Your accountant's primary functions should include making sure your bookkeeping practices are up to snuff in case you are audited, preparing regular tax reports and returns, and compiling profit and loss statements. That's really about it.

Remember that an accountant is different from a cost accountant. The latter is someone who studies your manufacturing process and determines what it really costs you to make something. If your regular accountant offers his services in this realm, politely refuse - unless he happens to possess a strong background in woodworking. Either do your cost accounting yourself or hire somebody with the necessary background to do it for you. An estimator with some shop experience is often a good choice.

When selecting an accountant for bookkeeping needs again, take the 'What do I really need?' approach. Many small shop owners are often pleasantly surprised to learn just how cost-effectively and admirably the local independent tax preparer or H & R Block office can handle their basic tax and bank-related accounting requirements.

Lawyers, accountants and, as we covered last month, insurance agents are salespeople, too. Determine your needs in advance of contracting for any of these professional services. And resist the temptation to impress anybody by buying the biggest insurance policy, having the highest-priced lawyer on retainer or working with a CPA when all you really need is an accountant.

Above all else, remember to hold all of your vendors to the same high standards you work to yourself. You will find that all your business-to-business relationships are rewarding - for you and your suppliers.

Anthony Noel writes, consults, and teaches woodworking and journalism, along with doing an occasional custom job in his shop in Macungie, PA.

Have a business related question? Visit WOODWEB's Business Forum. The Business Forum is co-sponsored by ISWonline and is moderated by Anthony Noel. All business topics are welcome, from sales and marketing to dealing with difficult customers.

This article is reprinted by permission of Custom Woodworking Business Magazine.