It's not you...it's your system.
In my high school AP English class, I was introduced to The New Yorker magazine. While some of the short stories were required reading, unsurprisingly it was something else in the magazine I looked forward to – the well captioned single frame comic (thank you CartoonBank for giving me a place to reminisce). On one of my favorites was a couple seated at a restaurant table with the caption, “It’s not you. It’s me. I just don’t like you.”
I was listening to a podcast recently in which habits were being discussed and the guest discussed habits as being “systems.” Systems are a set of principles and procedures according to which something is done that work together as parts to complete the whole. When something goes wrong it is not you that is the problem. The problem is your system – including habits and processes.
This past month I have been working on year-end accountings and helping clients prepare their year reporting and payroll returns. Part of that is preparing 1099s and W-2s for a few clients who run manual payrolls. This month has been a rough month. I could blame it on the clients. I could blame it on myself. In both cases I would be wrong. The real source of the lack of smooth operations comes down to systems – client systems and my own. Now that things are finished and out the door, I get to look back, evaluate and then improve. I get to tweak my process (part of the system) and invite a few clients to improve their systems as well.
Most of the trouble came from missing data. The data was missing when vendors and employees were setup and stayed missing until I needed it to do my piece of the process. Having to stop and track down stuff took a long time and put pressure on the time table to meet the impending deadlines. What can be done to fix the system? In this case, for the client’s system, establish a process of not issuing a check to a vendor without having a W-9 on file and input in the system. Make it a habit. Practice that and the problem is fixed. On my side, I can add an extra step in my quarterly process and alert the clients that there is data missing when I look at their books at quarter ends. Finding an issue sooner gets it fixed sooner and perhaps avoids having to spend time searching when the clock is ticking for the deadline.
We can examine our processes and systems every time the result generated is not what was expected. We can make changes and improve, making our systems better in the process. During some Lean/Six Sigma training I did a while ago, we were to create an assembly line and build Lego cars. We would run the line, stop and huddle together to discuss where our process wasn’t working well. We would make changes and then run our line again. Each time we did this, we improved our systems and improved our outcomes. We can do this on the shop floor, in the office and in our personal lives. Despite it seeming like something might be wrong with the bathroom scale, it is probably something wrong with our systems (Darn gelato). Change is hard but a lot of small changes over time is easier. Involve your teams and your families. They can be the source of great ideas and solutions. Hire a professional if needed.
You may even need to put other things like growth on hold so you can fix the systems first.
As I tell my kids, “Remember you rock.” If something isn’t going right, it isn’t you – it is your systems.
It is that time of year again when many of us are setting goals or resolutions. Why do we do it? We do it because we want to be better, do better, make a difference, change and grow. We are okay with where we are at now but want to improve ourselves, our families, our teams, our businesses and our lives.
A goal is the stated end-state of where we want to be in the future. Sometimes these goals are big and in order to reach them, we will need to set smaller goals that are steps to reaching the bigger one.
A neighbor of mine grew up in a small town and participated on the local school’s track and field team. His friend was the best high jumper in the school. He would go to the track meet, make his jump and win the competition. He rarely practiced as his talent and ability were so good. He was invited to participate in the state competition and looked forward to it. When he arrived at the competition, the bar was set to start at the height that he normally jumped over. He cleared the jump but when the bar was raised, he failed to clear it and went home empty handed. He spent the entire season being okay with where he was but had he challenged himself and set a goal to improve, he could have done much better in the state competition.
In the business and self-improvement world we find the acronym of SMART as a guide in setting our goals. We can use these suggestions to improve the likelihood that we will achieve our goals.
S stands for Specific. Your goal should be well-defined. Avoid vague language. “I am going to lose 10 pounds by March 31st by exercising three times a week for 30 minutes and not eating sugar.” is a lot more specific than “I want to lose weight.” Include answers to questions like: Who is involved in the goal? What will be accomplished? Where will it be done? Why am I doing this?
M stands for Measureable. Are you able to track progress and measure the outcome? The measurement should allow you to know when your goal is accomplished.
A stands for Attainable. Is the goal realistic and reasonable within the constraints you have? Is your goal too high or too low? (To stay with the high jumper - Don’t lower your bar. You should raise but not too high too fast.)
R stands for Relevant or Realistic. Is your goal consistent with your long term plans and will it meet your needs?
T stands for Timely. Your goal should include a time limit. Having a sense of urgency will prompt you to work on it rather than put it off until tomorrow.
I set goals several times a year. I have ten year vision of where I would like to be (a vision is not a goal as it is so far into the future and is subject to change.) I have broken that down into five year, three year and one year benchmarks that would need to happen in order to reach that vision. I take these and break them down into quarterly goals and select the ones that are the most important to achieve during the quarter. By focusing on only a few at a time, I do not feel overwhelmed and make progress towards the larger goals.
In the book, The One Thing by Jay Papasan, he encourages us to think about seven different areas of our lives for goal setting – Job, Business, Finances, Spiritual Life, Physical Health, Personal Life, Key Relationships (Family, Partners, etc.) After thinking about these he encourages us to ask “What’s the one thing I can do such that by doing it everything else will be easier or unnecessary?” He then suggests working on that one thing as your goal until you have it and then move to the next one thing.
There is no one right way to set goals but the practice of setting them and working towards them brings progress. Good luck on your goal setting and achievement.
Let’s look at the corporate structure today.
An entity formed as a corporation and operated as such has its own legal and tax life different from its shareholders. There are two types of corporations under the tax code we will discuss today.
The first is the “C-Corporation," or a regular corporation. They exist because state laws allow them to. A corporation will issue stock or shares as evidence of ownership to the person, persons or other business entities that provide cash or assets to the corporation in exchange for a piece of ownership. The shareholders hope that the cash and assets will be used by the corporation to provide a return to them as owners. Shareholders are entitled to any dividends paid and corporate assets after creditors in the case of a liquidation or dissolution.
There are two major reasons for electing to incorporate. The first is limited liability protection. Owners’ liability is limited to the amount of money or assets they have invested in the corporation. In other words, they can’t lose more than what they have put in. This liability shield can be broken for officers or directors of the corporation if there are personal guarantees, tax obligations or violations of statutory duties.
The second major reason is the ability to raise capital. The corporation has the ability to raise capital by selling shares of stock.
There are other benefits such as the business will continue to exist, if well run, well past the death of its shareholders. It has the ability to live forever. A corporation can act on its own and enter into contracts, sue or be sued and can even commit crimes (not recommended.) Employee owners of the corporation are also eligible for better deductions of fringe benefits when compared to other entities.
Disadvantages include the extra formalities of having a board of directors and meeting frequently, having shareholder meetings, and extra costs and burdens or record-keeping.
Another disadvantage is taxation. A corporation will pay tax on its profits. When those profits are distributed as dividends to the shareholders, the shareholders must pay tax on the dividends. This is called double taxation, where the profits if distributed are taxed twice – once at the corporate level and once again at the individual level.
A S-Corporation solves the double taxation disadvantage of the double taxation rules of a regular corporation. A corporation (or even and LLC or partnership) can elect to be taxed as an S-Corporation. This election only changes the tax rules, not the other legal and operation rules of the entity. An S-Corporation will have its profits taxed once at the owners level, similar to an LLC does.
What is the catch? S-Corporations can’t have too many shareholders and generally only individuals can be shareholders. All owners must agree to the election. Only one class of stock can be issued and no nonresident aliens (Think non-US citizens living abroad) can own shares. The election must be made timely, within 60 days of the start of the tax year.
Once elected the S-Corporation gets the same liability protection as a regular corporation, avoids the double taxation, allows the owners to use corporate losses to offset other types of personal income, selling the shares can be taxed at a lower rate and the other big advantage is the self-employment tax savings.
If you are an owner of an S-Corporation (or another entity that has elected to be taxed as one) and you work in the business, you must take a reasonable salary for your work. This reasonable compensation will be subject to income tax and payroll taxes but the rest of the company profits are no longer subject to payroll taxes. This can be a big benefit compared to an LLC or general partnership where all the profits are subject to payroll taxes.
There are other disadvantages such as corporate formalities listed above, less deductibility of fringe benefits for owners, less flexibility and limitations on passive income in the S-Corporation. Many states also have a minimum tax on S-Corporate returns despite them being pass-through entities.
This blog allows you to experience the raw, gut wrenching drama of human conflict through accounting in each of its three stages: preparing to do battle, the thrill of victory and the agony of defeat.