September 26, 2023 • 30 mins
Join us on this insightful episode as we delve into the intriguing world of business failures with our esteemed guest, Jon Neal, CPA, MST, CPFP, CTP, and founder of The Neal Group. This thought-provoking conversation explores why businesses may fail in the modern age, going beyond the commonly assumed notion of undercapitalization.
From inadequate market research to poor planning, we uncover the hidden pitfalls that entrepreneurs often face and discuss how these challenges can be navigated successfully. Jon Neal's extensive expertise and experience in the field provide valuable insights and practical advice for both aspiring and seasoned business owners.
Tune in to gain a deeper understanding of the complexities behind business failures and learn how to mitigate risks in your own entrepreneurial journey. Don't miss out on this enlightening episode that will leave you empowered and equipped with the knowledge to thrive in the competitive business landscape.
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Episode Transcript
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Speaker 1 (00:04):
Welcome to the Teaching Tax Flow podcast, where
the goal is to empower andeducate you to legally and
ethically minimize taxes paidover your lifetime.
Speaker 2 (00:17):
Welcome everybody back to Teaching Tax Flow, the
podcast, episode 50 today. We'regonna take some time and really
jump into why businesses fail.So our guest today actually has
a great approach to this as hecalls the three p's of why
businesses fail. But before wemeet him and we get into this
(00:37):
discussion, let's take a momentto thank our sponsor as always.
This podcast is sponsored byRep's Tracker.
Are you a real estate investorwho is bogged down with a huge
tax burden? Real estateinvesting can open the door to
powerful tax benefits. Rep'sTracker can streamline the
process of accelerating thesetax benefits. To take advantage
of a special TTF communitydiscount, go to
(01:05):
and use the code I f g. You canlook in our show notes or email
us at hello@teachingtaxflow.com.
Hey, everybody, and welcome backto the Teaching Tax Flow
podcast. I am John Topolsky herefrom the TTF team joined as
always by my counterpart withmuch less hair, Chris Pacquero.
(01:26):
How are you, Chris?
Speaker 3 (01:28):
I am great. As always, John,
Speaker 1 (01:31):
great to be with you.
Speaker 2 (01:32):
So let's get
Speaker 3 (01:33):
those snarky comments. Continue. That is
alright, my friend.
Speaker 2 (01:37):
Hey. No one Alright. Knowing you for over two
decades. I have plenty in thehopper. So before you actually
introduce our guest a little bitfor us, I wanna point out one
thing that he has that you donot, which this is a this is
very interesting to me.
I didn't know there was actuallya degree, which I believe is a
is a master's in taxationscience, or or something along
(02:00):
those lines. So, Chris, I knowyou don't have that, at least
that I know of. So let's jumpinto it. Tell tell them who tell
them who's joining us today.
Speaker 3 (02:08):
Right. Well, I we are very excited to have John Neil
join us. He's a CPA, an author,has a lot of credentials, has a
private practice in Wisconsin,and he is with the Neil Group
LLC. He's also, a member of theNational Association of Tax
Professionals and the AmericanInstitute of CPAs. So him and I
(02:31):
are both a part of thoseorganizations and part of the
personal financial planningsection.
He's an amazing resource thatwe're very excited to have on.
And, you know, yes. Do we have avery, profitable private CPA
practice and, true, and in someother things that we've done
well here. But I will tell you,I've had businesses that have
(02:51):
failed. And just because, youknow, we we talk about failing
forward all the time, we talk toour families and kids about you
learn more from from losing thanwinning.
So that's why this subject, whybusinesses fail, is really
pertinent to anyone in theteaching tax law community.
Because I would bet that eitherI know many of our listeners,
(03:12):
many of the people in theteaching tax law community are
business owners, are real estateproperty owners, but almost but
if you are not, many of themhave an entrepreneurial spirit
and have thought about startinga business. So, John Neal,
welcome to the the podcast. Canyou give us a little bit of a
personal introduction?
Speaker 1 (03:34):
Sure, Chris. Thanks for having me, first of all.
Nice. Neil Group started back in1984. I got tired of the big CPA
firms that I was partner in, soI I went out on my own.
Small firm, but, we handle a lotof of, different kinds of
(03:56):
things. You go to these seminarsand somebody talks about, well,
I don't know what this is, andthere I am raising my hand
saying, oh, I've dealt withthat. So we're not we're not
afraid to take out anything.Have some concentrations in
restaurants, construction,health care, and real estate.
And, it will work with anybodyfrom the startup to third
(04:20):
generation companies.
So we, we've seen it all.
Speaker 3 (04:26):
Excellent. Well, that is it Spurs a question for me
right off the bat because we wetalk a lot about how businesses
fail, and we're gonna dive intosome some ideas from John from
John Neil. But I also wannatouch on the as you mentioned,
they're third generationbusinesses. There's a whole
myriad of challenges formultigenerational businesses
(04:49):
that are passing on ortransitioning. And those
typically, the biggestchallenges are actually not
financial.
There's relationships. There'sroles. We're working on a couple
cases in our private CPApractice that work with just
absolutely amazing families andand working through that,
(05:09):
especially for the matriarch orthe person that started the
business, kinda like one oftheir babies. So, Jack, can you
kinda touch on some of the maybethe keys for multigenerational
business planning andtransition,
Speaker 1 (05:20):
and then we'll we'll dive into startups? Sure. I I
think first of all, the businesshas to be well run. Otherwise,
it's not gonna last that long.But, you have to have children
or the younger generations thatare interested in it, and you
(05:42):
have to be able to get them, Iguess I'll use the word trained,
and get get them experience sothat they can assume the the
role of leader, in instead offollower when the time comes.
I know my own son, graduated,college in accounting, was
(06:08):
trying to decide whether hewanted to be a CPA or a lawyer.
So he worked for me for a year,and, he'd had his challenges
with, you know, trying trying totrain him and whatnot. And he
finally decided to become alawyer. And so, you know,
they're about my successionplan. Good.
(06:28):
But, but, you need to do it.I've I have I have clients. They
started with me back in 1979and, you know, I guess I'll call
them the grandpa. You know,grandpa and grandma ran the
company, then they passed it offto their sons who are now
(06:50):
passing it off to their sons.And, you know, they, as I said,
they they needed to be theyworked in the business while
they're going to school andwhatnot and liked it and and,
and are going to continue on.
And maybe their sons, you know,so the fourth generation, will
(07:12):
will be running the businesssoon.
Speaker 3 (07:14):
Wow. And you you mentioned something very
important. The the nextgeneration has to take an
interest in the business. And Ifeel like sometimes when that
when they don't take an interestor when they're kind of
shoehorned or forced into thatsuccession plan, things go
things go poorly. I'm not gonnamention any details because this
is a pretty high profilebusiness, but, at some point in
(07:36):
my career, we were working on,some financial analysis and some
audit work for a big familybusiness.
And the owner of the business,had, I'm not kidding you,
between eight and ten peoplefrom that person's family on the
payroll, all making over ahundred thousand dollars, and
(07:57):
that was over fifteen years ago.Wow. And the bankers and and the
unfortunately, the business wentunder. And the bank and and the
conclusion was the businessowner would have been better
paying every family member$80,000 a year salary to never
step foot in this business. Theyabsolutely destroyed it and ran
it into the ground.
(08:18):
So, you know, that's, that'ssomething to that's something to
consider. What are some of thethe the the tax, considerations
for transitioning a a business?Because, obviously, there can be
a you could have giftinginvolved or a sale or, you you
(08:41):
know, you could havepotentially, seller financing,
bank financing. But, yeah, couldyou gotta touch on that just for
a couple minutes? Sure.
Speaker 1 (08:53):
As he as he mentioned, different ways to do
it. The ones that I've beeninvolved in typically involve
just the the older generationgiving their interest and making
a gift of their interest in thebusiness to the younger
(09:13):
generation. And with all thediscounts and and whatnot that
are available, It's a it's agood tax planning tool, you
know, to avoid, having to payeither an estate tax or a gift
tax on on the value of of thebusiness.
Speaker 3 (09:32):
Absolutely. So for people out there listening, if
when when we, you know, we starttalking about estate tax, estate
tax exemption is is very lothigh right now, and, you might
have a value you might theremight be a valuable business of
of x million dollars, but thereare some IRS compliant ways to
legally and ethically reducethat value using valuation
(09:55):
discounts. Meaning, if John, youknow, looks like a John Neil is
runs, the Neil Group, and theyhad then the business has a
certain value within running it.With them not running it, it
might be discounted, if thatmight make sense. So, 30,000
foot view.
So let's start let's starttalking about start ups or let's
(10:16):
say we're gonna call thebusinesses in their infancy
phase three years or less.Obviously, getting even from
year one to year two is a, is achallenge. But what are you
seeing as the top reasonsbusinesses don't survive that
they go under? Well,
Speaker 1 (10:33):
when I was doing a little homework and outlining
for this session, I came up withwhat I call the the three P's of
why businesses fail. One isplanning or lack thereof. Two
would be what I what I callprinciple or cash to run the
(10:57):
business, and then three isprocess. They they don't know
anything about running abusiness, so they don't do
things that you should do. Youknow, so getting back to
planning, I I meet with peoplequite frequently that, hey, you
(11:22):
know, I got this great
Speaker 3 (11:25):
recipe for barbecue sauce. Oh gosh. I'm hungry
anyway as we're talking time.We're we're quite in the middle
of the day. Alright.
So so all my friends are tellingme
Speaker 1 (11:36):
I should open up a restaurant, and it's like, well,
what do you know about arestaurant? I don't know
anything about a restaurant. Youknow? But I wanna be the owner,
and I wanna, you know, meet andgreet people. And it's like,
well, you don't realize that youget there at, whatever, eight in
the morning, and you don't leaveuntil midnight.
Speaker 2 (12:00):
And it's very factual. I live right by a
barbecue joint here. I see thedelivery trucks come in to town
at about three, 04:00 in themorning, drop it off all the
goods, and then I see employeesstart getting there about four
or 05:00 in the
Speaker 3 (12:12):
morning and then start start prepping food.
Right? Yeah. John Neal makes agreat point, and John Topolsky,
we talk about this, a lot withtax professionals, and he really
crosses industries. Just becauseyou're the inventor, the
visionary, or the creator of aproduct or a service, or you
have a technical skill, likecreating great barbecue sauce,
(12:35):
preparing tax returns, welding,That doesn't mean you could you
you have the skills to run awelding shop.
Being a business owner is acompletely different skill set
than the technical skill thatyou have, if that makes sense.
And I would put that under thatplanning bucket that that John
mentioned. So, what about thecash and principal portion? I
(12:57):
know, you know, you've authoredseveral books, which we'll touch
touch on. One of them, the fiveways to improve your cash flow,
But what would you recommendother than having a money tree
in your backyard?
Yes. The cash or principalportion of it, not only start
up, but also having some type ofcash flow.
Speaker 1 (13:18):
Yeah. Well, I I think you have to be realistic when
you're starting your business.Again, when I'm talking to
people and and we start goingthrough their forecast
projections and whatnot, they'relike, well, okay. You know, I I
think now I'll use a smallerbusiness. Yeah.
(13:38):
I I think I need about a hundredthousand dollars to get this
business started. I was like,great. How much are you gonna
put in? Well, I'm not gonna putin anything. You know?
I should be able to get it froma bank.
Speaker 3 (13:53):
Right. Yeah. You you don't have the money to put it
in and you don't have to takethe rest, but some bank's going
to. But gotta love that.
Speaker 1 (14:02):
You know, and then that also they they,
underestimate how much they'regonna need. You know, the person
who says they need a hundredthousand, they actually maybe
need $250,000 So they, you know,they get the hundred thousand,
and then three months in, fourmonths in, or whatever, they go,
(14:26):
oops. Mhmm. I need more.
Speaker 2 (14:31):
At some point, say, like, you know, was it, consumer
packaged goods? Like, youmentioned the barbecue sauce.
Right? It's one of those and Iin in the past life of having a
marketing agency, we had acouple clients in that space,
and it was the little thingsthat they don't really account
for. Right?
Like, it's like you mentionedtoo, Chris, I think you had said
it. It's, you know, anindividual is driven by passion.
(14:53):
So if they're if they are sopassionate, they think the whole
world will buy into it, theydon't account for, oh, wow. I
need to actually get the messageout. So they're like, I don't
need any marketing.
This is so good. Everybody'sgonna come to me. Where,
ironically enough, we used tohave a lot of really good
connections with banks, in SouthCarolina, North Carolina,
Georgia. And some of these bankswould actually send us clients
(15:16):
because they'd say, hey. Look.
We we we basically looked at abusiness plan. Their marketing
is not really up to where itneeds to be or their plan for
it. Maybe you could work withthem and develop a marketing
plan, a true marketing plan. Andthat's you know, you get into
you get into trouble becausethen it might get so good, and
then they run out of capitalagain. Now they can't supply the
product, and then they startoutsourcing it, and then there's
(15:37):
a whole win.
But that's a huge plan. I lovehow you've developed those the
three p's because they're I knowwe're at number two, but they
are right in line with what Ithink we've all experienced.
Speaker 1 (15:46):
Yeah. And and I've been in some seminars recently
for, you know, practicedevelopment and whatnot, and one
of the things that they hammerhome is marketing is everything,
and everything is marketing.Mhmm. I always used to say
word-of-mouth to get yourproduct out. Yeah.
How are you gonna make money?Exactly.
Speaker 2 (16:05):
Your friends and family only go so far.
Speaker 3 (16:07):
No. Pleasure capitalization is yeah. It's a
huge issue because you're ifyou're a hundred thousand
dollars into this and you havenothing to show for it, but you
still need another hundredthousand, you're between a rock
and a hard place. You don't, youknow so John, do this. Do you
have a rule of thumb?
Obviously, you know, dependingon the industry, it could things
(16:28):
things could be drasticallydifferent. But from a
capitalization standpoint, doyou have a rule of thumb of, for
instance, how much someoneshould have in reserves based on
their monthly burn or
Speaker 1 (16:40):
how you know? Or Yeah. I I'm I'm from the South
Side Of Milwaukee, so I'm prettyconservative. I say at least six
months of operating expenses inthe in the bank in reserve.
Mhmm.
As as I tell people, you know,you open the doors today, you
aren't gonna make your milliondollars tomorrow.
Speaker 3 (17:00):
That would be nice, but I of course. The third one I
wanna talk about is processbecause I I I have personally
struggled. The first ten yearsof my practice, I struggled and
I didn't know I was strugglinguntil I was enlightened, but,
but, I ran the practice based onme running it, not processes run
(17:22):
it. Processes run it. People runthe processes.
So can you tell us a little bitabout, you know, when you what
you're thinking of process andand the third p? Sure.
Speaker 1 (17:33):
Process is is basically, you know, the the
systems and procedures that youneed to put in place in order to
to run the businesssuccessfully. And, again, from I
I forget who said it, but, youknow, it it should be that your
(17:54):
ultimate goal in in creating abusiness is to be able to sell.
And if it's just you runningeverything, how are you gonna
sell it? You know, I'm I'mfortunate that I have a good
team, that I've I've, you know,trained and and they trained me
(18:18):
as well, you know, to to getthese processes and procedures
in place. So, I guess I'll I'llit just it hit it entered it hit
me right now.
Speaker 2 (18:30):
You
Speaker 1 (18:30):
know, think of McDonald's. Everything is there.
I used I used to work atMcDonald's when I was in high
school, and they had binders andbinders of how to make a French
fry and how to clean the shakemachine. And and everything just
was was there in writing sothat, you know, if, if I wasn't
(18:53):
working today and and Susie hadto work the fries, she would
know how to do it.
Speaker 3 (19:01):
Rick was yeah. The not only the processes, but what
you're recommending is crosstraining of your team. Yeah.
Because if we know one thing, isthat the humans are not
reliable. It is not on purpose.
We just are not. Like, what ifone of our children has
(19:22):
something happens? What if ourcar breaks down? What if we
don't have internet? We'reunreliable.
So we have to have that process.You have to be able
Speaker 1 (19:30):
to cover for people. That I mean, one of the things
in our office that we do whensomebody writes a procedure down
is somebody else will take thatpiece of paper, if you will, in
their hand and walk around. Andit's, you know, well, you didn't
say that you gotta put the keyin the lock to unlock the door
(19:52):
to open the door to get in theoffice. You need to add that to
your op to your procedures.
Speaker 3 (20:00):
Yeah. I like having procedures. The worst thing is
if my wife sends me a says, canyou grab, detergent from the
grocery store? Well, how aboutthis? Take a picture of the one
you actually want, and I willgrab that for you, because I
don't wanna get the wrongdetergent.
But I love that planning,principle, process. I mean,
those are the those are thethree things. And, for some, I
(20:24):
wanna I wanna ask you a questionthen then definitely get all of
your, contact information sothat if someone's out there
looking for some assistance,they can we have that available.
But for someone starting your abusiness, what are what are the
one or two things it could be?Because I I see people jumping
into these these extravagantentity formations and flowcharts
(20:48):
and all that stuff, before theyhave any sales?
What, what are what are maybeone or two relationships that
someone starting a businessneeds to have in place that they
might not be thinking of rightnow? And then one or two things
just to get started that theyshould think about as far as,
getting their their books in ain tax and accounting in order.
(21:12):
Yeah. Well, I think one of thethings that you need,
Speaker 1 (21:17):
for sure is a good accountant, CPA, whatever you
wanna call them. You know, somesomebody that deals with numbers
so that they can check yournumbers and see if they're
within reason. That that'sprobably the most important.
(21:40):
Second, I guess I would I wouldsay kind of a a fan maybe or or
or a emotional support personjust to get you through the the
hard times. You know, when Iwhen I started my accounting
(22:03):
firm, you know, I had oneclient.
And it was like, well, where amI gonna get the other ones? And
and so my wife would, you know,don't worry. They'll they'll
come. You know? We we'd bouncethings off each other, and maybe
that's a better thing, somebodyto bounce ideas off of.
(22:25):
You know, hey. You know, you mayyour family may like your
barbecue sauce, but the generalpublic wants it spicier or they
want it sweeter or they want itless red or more red or
whatever. So somebody to bounceideas off of, and and get you
(22:46):
back in reality.
Speaker 2 (22:48):
Right. And that's a great way to to really start to
close us up a little bit onthis. I'd I'd do as we start to
wrap too, I I wanna go back tothose three piece, not hitting
on any specific order, butreally the importance of those
three, which really stand out tome. So you have the planning,
principle, process. Reallywithout any one of those, you
would fall on your face in asense.
(23:10):
Right? And and and I wouldn'tnecessarily say fall on your
face as far as for a completeclose the doors fail. But even
if you didn't have a process,you may be successful for a
short period of time and thencap out and can't grow anymore.
So that's, you know, basically,Chris, as you had mentioned the
the example of and I rememberthese days that you were in, of
almost hitting a burnout alittle bit and saying, wow. You
(23:32):
know, it's I can't even go onvacation or the business falls
apart.
So it's I've seen a lot ofpeople kind of fall trapped to
their own success and and reallyfollow their own passion a
little too far. But then I'vealso seen people that are have
the money tree in a sense, havethe passion, and have no process
and absolutely fail becauseeverything just starts to
(23:53):
unravel and then really you runout of capital eventually. Money
is only as good as the the paperis printed out as long as you
got it. But Yeah. And reallyreally in closing, John, too,
let's let's not forget.
If anybody has any of thesequestions, I know you've
authored a handful ofpublications. If you could
recommend and I'm gonna put youon the spot. If you could
recommend one of your books forsomebody to pick up and thumb
(24:15):
through, And this is almost likesaying which one is your
favorite child. Right? Or or inyour case, I know you have a
handful of grandchildren.
Which one is your favoritegrandchildren? We won't ask that
question. But the books whatwhen what would you recommend to
anybody? Not even somebody justgetting into business, but just
to pick up and really just kindof casually go through the
content and take some notes. Oh,boy.
(24:38):
I knew it was a tough one when I
Speaker 1 (24:40):
Started starting a business, I'd I'd say the the
the ways to improve cash flowactually, there's what there's
two. There's that one, and thenthere's another one, fifty seven
ways to grow your business.Excellent. Excellent.
Speaker 2 (24:57):
Well, I appreciate I'll let you slide with with
scaping out of it and goingback. You're going from one to
two, but it's all good. Well,when
Speaker 3 (25:04):
you have that menu to choose from, that's a good good
problem. Well, John, I'm gonnadust something off, from that we
I I for some reason, I didn't Ihaven't done in a while. But I'm
gonna start doing it again. Wealways ask our guests. We're
gonna have our wrap it up with aquick fire questions.
These are non tax related.They're just fun questions that,
(25:25):
we're gonna hit you up with.And, so John, Neil, you're gonna
be on the hot seat, but Ipromise you these are fun easy
questions. Alright. Alright.
So here we go. Maybe JohnnyJohnny t will put a drum roll in
before, when this gets edited.
Speaker 2 (25:40):
I won't I won't do the audible one of me doing the
drum roll. It's it's pretty bad.We'll do something.
Speaker 3 (25:44):
I know. I know. Alright. Here we go for Johnny
Hill. Favorite vacationdestination?
Speaker 1 (25:51):
Saint Louis.
Speaker 3 (25:54):
Favorite sports team? The Packers. Hey. They're yep.
Yep.
I I, they've had I figured thatbeing in Milwaukee, but, you
know, maybe it was the Brewers,maybe it was Marquette. I don't
know. You never know. So, areare you a dog or cat person?
Dog.
(26:15):
And Tucker's on my website. Oh,awesome. Mhmm. Awesome. Income
shifting to pets.
That'd be cool. But, Well, infact, my as you say that, my
first book was, titled BestDoggone Financial Advice. Oh,
that's cool. How can how can Iclaim my dog as a deduction? I
(26:35):
like it.
I like it. We'll have to checkthat out.
Speaker 1 (26:42):
And favorite cereal. Favorite cereal. Captain Crunch.
Oh, that's one of
Speaker 3 (26:51):
my favorites. Final hot hot stove question. What is
your ideal weekend? My idealweekend.
Speaker 1 (27:02):
Oh, there's a there's a few scenarios. But I guess,
favorite favorite weekend wouldbe going down to St. Louis to,
visit visit my two grandchildrenwho are down there and my son
and, taking in the the sitesdown there, breweries, the zoo,
(27:24):
Grant's Farm. It's always a funtime.
Speaker 3 (27:26):
Yeah. Saint Louis is one of those sneaky places,
especially for kids with the,museum and and there's just a
lot of cool things there. Sothank you so much, John, you
know, for coming on. I learned alot. I know our business, our
listeners and our community willlearn a lot.
How what is the best way we'llleave it at this for we'll put
(27:48):
it in the show notes. What's thebest way for someone to get a
hold of you?
Speaker 1 (27:53):
Two ways. They can call me at (414) 325-2040, or
they can email me atj0n@nealgroup.net. Awesome.
Awesome. Well, John, thank youagain for joining us.
(28:14):
Plan to not fail if you'replanning on going into business
and listen to this podcast acouple times.
Speaker 2 (28:19):
And if you have questions, let us know. And as I
always like to wrap it up with,we will see everybody next week.
Thank you everybody and John forjoining us on this episode of
why businesses fail. Hopefully,we all got some good notes from
(28:41):
this. Realistically, we probablyall know somebody who has opened
a business, potentially closedtheir doors, taken a break from
it.
But either way, we probably knowanybody who's an entrepreneur or
or possibly not and knowsomebody who may have had a
business that has not succeeded,to its full capabilities. Maybe
(29:03):
you've identified a few thingsin here that you may know about
that person. So we covered alot. Another great show as
always. Thank you again to Johnfor taking the time to join us.
We know this time of year iskind of crunch time for any tax
professionals out there. So thetime is greatly appreciated. If
anybody has any questions oreither their business, when
(29:25):
they're thinking of starting,please feel free to reach out to
to John. We'll put his contactbelow in the show notes, but
also to teaching tax flow. Besure to send us a message.
Any of those questions, shoot usan email, drop us a line on
social media. We would love tohear from you. So just two more
weeks to go, everyone, until weturn one year old and cross that
(29:46):
one year mark of doing thispodcast every single week for
the past year. So we're lookingat doing something special for
that episode. So, again, be sureto follow us on social media for
any of the updates and a littlebit of news some people may know
of what we might be up to on theone year anniversary episode of
teaching tax flow, the podcast.
(30:08):
Until next time, we'll seeeverybody very soon.
Speaker 4 (30:16):
Does not constitute an offer of securities.
Offerings can only be madethrough an offering memorandum,
and you should carefully examinethe risk factors and other
information contained in thememorandum. The content provided
is for educational purposesonly. We encourage you to seek
personalized investment adviceadvice from your financial
professional. For all tax andlegal advice, please consult
your CPA or attorney.
Investment advisory services areoffered through Cabin Advisors,
(30:38):
a registered investment adviser.Securities are offered through
Cabin Securities, a registeredbroker dealer.
Welcome to the Teaching Tax Flow podcast, where
the goal is to empower andeducate you to legally and
ethically minimize taxes paidover your lifetime.
Speaker 2 (00:17):
Welcome everybody back to Teaching Tax Flow, the
podcast, episode 50 today. We'regonna take some time and really
jump into why businesses fail.So our guest today actually has
a great approach to this as hecalls the three p's of why
businesses fail. But before wemeet him and we get into this
(00:37):
discussion, let's take a momentto thank our sponsor as always.
This podcast is sponsored byRep's Tracker.
Are you a real estate investorwho is bogged down with a huge
tax burden? Real estateinvesting can open the door to
powerful tax benefits. Rep'sTracker can streamline the
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of a special TTF communitydiscount, go to
(01:05):
and use the code I f g. You canlook in our show notes or email
us at hello@teachingtaxflow.com.
Hey, everybody, and welcome backto the Teaching Tax Flow
podcast. I am John Topolsky herefrom the TTF team joined as
always by my counterpart withmuch less hair, Chris Pacquero.
(01:26):
How are you, Chris?
Speaker 3 (01:28):
I am great. As always, John,
Speaker 1 (01:31):
great to be with you.
Speaker 2 (01:32):
So let's get
Speaker 3 (01:33):
those snarky comments. Continue. That is
alright, my friend.
Speaker 2 (01:37):
Hey. No one Alright. Knowing you for over two
decades. I have plenty in thehopper. So before you actually
introduce our guest a little bitfor us, I wanna point out one
thing that he has that you donot, which this is a this is
very interesting to me.
I didn't know there was actuallya degree, which I believe is a
is a master's in taxationscience, or or something along
(02:00):
those lines. So, Chris, I knowyou don't have that, at least
that I know of. So let's jumpinto it. Tell tell them who tell
them who's joining us today.
Speaker 3 (02:08):
Right. Well, I we are very excited to have John Neil
join us. He's a CPA, an author,has a lot of credentials, has a
private practice in Wisconsin,and he is with the Neil Group
LLC. He's also, a member of theNational Association of Tax
Professionals and the AmericanInstitute of CPAs. So him and I
(02:31):
are both a part of thoseorganizations and part of the
personal financial planningsection.
He's an amazing resource thatwe're very excited to have on.
And, you know, yes. Do we have avery, profitable private CPA
practice and, true, and in someother things that we've done
well here. But I will tell you,I've had businesses that have
(02:51):
failed. And just because, youknow, we we talk about failing
forward all the time, we talk toour families and kids about you
learn more from from losing thanwinning.
So that's why this subject, whybusinesses fail, is really
pertinent to anyone in theteaching tax law community.
Because I would bet that eitherI know many of our listeners,
(03:12):
many of the people in theteaching tax law community are
business owners, are real estateproperty owners, but almost but
if you are not, many of themhave an entrepreneurial spirit
and have thought about startinga business. So, John Neal,
welcome to the the podcast. Canyou give us a little bit of a
personal introduction?
Speaker 1 (03:34):
Sure, Chris. Thanks for having me, first of all.
Nice. Neil Group started back in1984. I got tired of the big CPA
firms that I was partner in, soI I went out on my own.
Small firm, but, we handle a lotof of, different kinds of
(03:56):
things. You go to these seminarsand somebody talks about, well,
I don't know what this is, andthere I am raising my hand
saying, oh, I've dealt withthat. So we're not we're not
afraid to take out anything.Have some concentrations in
restaurants, construction,health care, and real estate.
And, it will work with anybodyfrom the startup to third
(04:20):
generation companies.
So we, we've seen it all.
Speaker 3 (04:26):
Excellent. Well, that is it Spurs a question for me
right off the bat because we wetalk a lot about how businesses
fail, and we're gonna dive intosome some ideas from John from
John Neil. But I also wannatouch on the as you mentioned,
they're third generationbusinesses. There's a whole
myriad of challenges formultigenerational businesses
(04:49):
that are passing on ortransitioning. And those
typically, the biggestchallenges are actually not
financial.
There's relationships. There'sroles. We're working on a couple
cases in our private CPApractice that work with just
absolutely amazing families andand working through that,
(05:09):
especially for the matriarch orthe person that started the
business, kinda like one oftheir babies. So, Jack, can you
kinda touch on some of the maybethe keys for multigenerational
business planning andtransition,
Speaker 1 (05:20):
and then we'll we'll dive into startups? Sure. I I
think first of all, the businesshas to be well run. Otherwise,
it's not gonna last that long.But, you have to have children
or the younger generations thatare interested in it, and you
(05:42):
have to be able to get them, Iguess I'll use the word trained,
and get get them experience sothat they can assume the the
role of leader, in instead offollower when the time comes.
I know my own son, graduated,college in accounting, was
(06:08):
trying to decide whether hewanted to be a CPA or a lawyer.
So he worked for me for a year,and, he'd had his challenges
with, you know, trying trying totrain him and whatnot. And he
finally decided to become alawyer. And so, you know,
they're about my successionplan. Good.
(06:28):
But, but, you need to do it.I've I have I have clients. They
started with me back in 1979and, you know, I guess I'll call
them the grandpa. You know,grandpa and grandma ran the
company, then they passed it offto their sons who are now
(06:50):
passing it off to their sons.And, you know, they, as I said,
they they needed to be theyworked in the business while
they're going to school andwhatnot and liked it and and,
and are going to continue on.
And maybe their sons, you know,so the fourth generation, will
(07:12):
will be running the businesssoon.
Speaker 3 (07:14):
Wow. And you you mentioned something very
important. The the nextgeneration has to take an
interest in the business. And Ifeel like sometimes when that
when they don't take an interestor when they're kind of
shoehorned or forced into thatsuccession plan, things go
things go poorly. I'm not gonnamention any details because this
is a pretty high profilebusiness, but, at some point in
(07:36):
my career, we were working on,some financial analysis and some
audit work for a big familybusiness.
And the owner of the business,had, I'm not kidding you,
between eight and ten peoplefrom that person's family on the
payroll, all making over ahundred thousand dollars, and
(07:57):
that was over fifteen years ago.Wow. And the bankers and and the
unfortunately, the business wentunder. And the bank and and the
conclusion was the businessowner would have been better
paying every family member$80,000 a year salary to never
step foot in this business. Theyabsolutely destroyed it and ran
it into the ground.
(08:18):
So, you know, that's, that'ssomething to that's something to
consider. What are some of thethe the the tax, considerations
for transitioning a a business?Because, obviously, there can be
a you could have giftinginvolved or a sale or, you you
(08:41):
know, you could havepotentially, seller financing,
bank financing. But, yeah, couldyou gotta touch on that just for
a couple minutes? Sure.
Speaker 1 (08:53):
As he as he mentioned, different ways to do
it. The ones that I've beeninvolved in typically involve
just the the older generationgiving their interest and making
a gift of their interest in thebusiness to the younger
(09:13):
generation. And with all thediscounts and and whatnot that
are available, It's a it's agood tax planning tool, you
know, to avoid, having to payeither an estate tax or a gift
tax on on the value of of thebusiness.
Speaker 3 (09:32):
Absolutely. So for people out there listening, if
when when we, you know, we starttalking about estate tax, estate
tax exemption is is very lothigh right now, and, you might
have a value you might theremight be a valuable business of
of x million dollars, but thereare some IRS compliant ways to
legally and ethically reducethat value using valuation
(09:55):
discounts. Meaning, if John, youknow, looks like a John Neil is
runs, the Neil Group, and theyhad then the business has a
certain value within running it.With them not running it, it
might be discounted, if thatmight make sense. So, 30,000
foot view.
So let's start let's starttalking about start ups or let's
(10:16):
say we're gonna call thebusinesses in their infancy
phase three years or less.Obviously, getting even from
year one to year two is a, is achallenge. But what are you
seeing as the top reasonsbusinesses don't survive that
they go under? Well,
Speaker 1 (10:33):
when I was doing a little homework and outlining
for this session, I came up withwhat I call the the three P's of
why businesses fail. One isplanning or lack thereof. Two
would be what I what I callprinciple or cash to run the
(10:57):
business, and then three isprocess. They they don't know
anything about running abusiness, so they don't do
things that you should do. Youknow, so getting back to
planning, I I meet with peoplequite frequently that, hey, you
(11:22):
know, I got this great
Speaker 3 (11:25):
recipe for barbecue sauce. Oh gosh. I'm hungry
anyway as we're talking time.We're we're quite in the middle
of the day. Alright.
So so all my friends are tellingme
Speaker 1 (11:36):
I should open up a restaurant, and it's like, well,
what do you know about arestaurant? I don't know
anything about a restaurant. Youknow? But I wanna be the owner,
and I wanna, you know, meet andgreet people. And it's like,
well, you don't realize that youget there at, whatever, eight in
the morning, and you don't leaveuntil midnight.
Speaker 2 (12:00):
And it's very factual. I live right by a
barbecue joint here. I see thedelivery trucks come in to town
at about three, 04:00 in themorning, drop it off all the
goods, and then I see employeesstart getting there about four
or 05:00 in the
Speaker 3 (12:12):
morning and then start start prepping food.
Right? Yeah. John Neal makes agreat point, and John Topolsky,
we talk about this, a lot withtax professionals, and he really
crosses industries. Just becauseyou're the inventor, the
visionary, or the creator of aproduct or a service, or you
have a technical skill, likecreating great barbecue sauce,
(12:35):
preparing tax returns, welding,That doesn't mean you could you
you have the skills to run awelding shop.
Being a business owner is acompletely different skill set
than the technical skill thatyou have, if that makes sense.
And I would put that under thatplanning bucket that that John
mentioned. So, what about thecash and principal portion? I
(12:57):
know, you know, you've authoredseveral books, which we'll touch
touch on. One of them, the fiveways to improve your cash flow,
But what would you recommendother than having a money tree
in your backyard?
Yes. The cash or principalportion of it, not only start
up, but also having some type ofcash flow.
Speaker 1 (13:18):
Yeah. Well, I I think you have to be realistic when
you're starting your business.Again, when I'm talking to
people and and we start goingthrough their forecast
projections and whatnot, they'relike, well, okay. You know, I I
think now I'll use a smallerbusiness. Yeah.
(13:38):
I I think I need about a hundredthousand dollars to get this
business started. I was like,great. How much are you gonna
put in? Well, I'm not gonna putin anything. You know?
I should be able to get it froma bank.
Speaker 3 (13:53):
Right. Yeah. You you don't have the money to put it
in and you don't have to takethe rest, but some bank's going
to. But gotta love that.
Speaker 1 (14:02):
You know, and then that also they they,
underestimate how much they'regonna need. You know, the person
who says they need a hundredthousand, they actually maybe
need $250,000 So they, you know,they get the hundred thousand,
and then three months in, fourmonths in, or whatever, they go,
(14:26):
oops. Mhmm. I need more.
Speaker 2 (14:31):
At some point, say, like, you know, was it, consumer
packaged goods? Like, youmentioned the barbecue sauce.
Right? It's one of those and Iin in the past life of having a
marketing agency, we had acouple clients in that space,
and it was the little thingsthat they don't really account
for. Right?
Like, it's like you mentionedtoo, Chris, I think you had said
it. It's, you know, anindividual is driven by passion.
(14:53):
So if they're if they are sopassionate, they think the whole
world will buy into it, theydon't account for, oh, wow. I
need to actually get the messageout. So they're like, I don't
need any marketing.
This is so good. Everybody'sgonna come to me. Where,
ironically enough, we used tohave a lot of really good
connections with banks, in SouthCarolina, North Carolina,
Georgia. And some of these bankswould actually send us clients
(15:16):
because they'd say, hey. Look.
We we we basically looked at abusiness plan. Their marketing
is not really up to where itneeds to be or their plan for
it. Maybe you could work withthem and develop a marketing
plan, a true marketing plan. Andthat's you know, you get into
you get into trouble becausethen it might get so good, and
then they run out of capitalagain. Now they can't supply the
product, and then they startoutsourcing it, and then there's
(15:37):
a whole win.
But that's a huge plan. I lovehow you've developed those the
three p's because they're I knowwe're at number two, but they
are right in line with what Ithink we've all experienced.
Speaker 1 (15:46):
Yeah. And and I've been in some seminars recently
for, you know, practicedevelopment and whatnot, and one
of the things that they hammerhome is marketing is everything,
and everything is marketing.Mhmm. I always used to say
word-of-mouth to get yourproduct out. Yeah.
How are you gonna make money?Exactly.
Speaker 2 (16:05):
Your friends and family only go so far.
Speaker 3 (16:07):
No. Pleasure capitalization is yeah. It's a
huge issue because you're ifyou're a hundred thousand
dollars into this and you havenothing to show for it, but you
still need another hundredthousand, you're between a rock
and a hard place. You don't, youknow so John, do this. Do you
have a rule of thumb?
Obviously, you know, dependingon the industry, it could things
(16:28):
things could be drasticallydifferent. But from a
capitalization standpoint, doyou have a rule of thumb of, for
instance, how much someoneshould have in reserves based on
their monthly burn or
Speaker 1 (16:40):
how you know? Or Yeah. I I'm I'm from the South
Side Of Milwaukee, so I'm prettyconservative. I say at least six
months of operating expenses inthe in the bank in reserve.
Mhmm.
As as I tell people, you know,you open the doors today, you
aren't gonna make your milliondollars tomorrow.
Speaker 3 (17:00):
That would be nice, but I of course. The third one I
wanna talk about is processbecause I I I have personally
struggled. The first ten yearsof my practice, I struggled and
I didn't know I was strugglinguntil I was enlightened, but,
but, I ran the practice based onme running it, not processes run
(17:22):
it. Processes run it. People runthe processes.
So can you tell us a little bitabout, you know, when you what
you're thinking of process andand the third p? Sure.
Speaker 1 (17:33):
Process is is basically, you know, the the
systems and procedures that youneed to put in place in order to
to run the businesssuccessfully. And, again, from I
I forget who said it, but, youknow, it it should be that your
(17:54):
ultimate goal in in creating abusiness is to be able to sell.
And if it's just you runningeverything, how are you gonna
sell it? You know, I'm I'mfortunate that I have a good
team, that I've I've, you know,trained and and they trained me
(18:18):
as well, you know, to to getthese processes and procedures
in place. So, I guess I'll I'llit just it hit it entered it hit
me right now.
Speaker 2 (18:30):
You
Speaker 1 (18:30):
know, think of McDonald's. Everything is there.
I used I used to work atMcDonald's when I was in high
school, and they had binders andbinders of how to make a French
fry and how to clean the shakemachine. And and everything just
was was there in writing sothat, you know, if, if I wasn't
(18:53):
working today and and Susie hadto work the fries, she would
know how to do it.
Speaker 3 (19:01):
Rick was yeah. The not only the processes, but what
you're recommending is crosstraining of your team. Yeah.
Because if we know one thing, isthat the humans are not
reliable. It is not on purpose.
We just are not. Like, what ifone of our children has
(19:22):
something happens? What if ourcar breaks down? What if we
don't have internet? We'reunreliable.
So we have to have that process.You have to be able
Speaker 1 (19:30):
to cover for people. That I mean, one of the things
in our office that we do whensomebody writes a procedure down
is somebody else will take thatpiece of paper, if you will, in
their hand and walk around. Andit's, you know, well, you didn't
say that you gotta put the keyin the lock to unlock the door
(19:52):
to open the door to get in theoffice. You need to add that to
your op to your procedures.
Speaker 3 (20:00):
Yeah. I like having procedures. The worst thing is
if my wife sends me a says, canyou grab, detergent from the
grocery store? Well, how aboutthis? Take a picture of the one
you actually want, and I willgrab that for you, because I
don't wanna get the wrongdetergent.
But I love that planning,principle, process. I mean,
those are the those are thethree things. And, for some, I
(20:24):
wanna I wanna ask you a questionthen then definitely get all of
your, contact information sothat if someone's out there
looking for some assistance,they can we have that available.
But for someone starting your abusiness, what are what are the
one or two things it could be?Because I I see people jumping
into these these extravagantentity formations and flowcharts
(20:48):
and all that stuff, before theyhave any sales?
What, what are what are maybeone or two relationships that
someone starting a businessneeds to have in place that they
might not be thinking of rightnow? And then one or two things
just to get started that theyshould think about as far as,
getting their their books in ain tax and accounting in order.
(21:12):
Yeah. Well, I think one of thethings that you need,
Speaker 1 (21:17):
for sure is a good accountant, CPA, whatever you
wanna call them. You know, somesomebody that deals with numbers
so that they can check yournumbers and see if they're
within reason. That that'sprobably the most important.
(21:40):
Second, I guess I would I wouldsay kind of a a fan maybe or or
or a emotional support personjust to get you through the the
hard times. You know, when Iwhen I started my accounting
(22:03):
firm, you know, I had oneclient.
And it was like, well, where amI gonna get the other ones? And
and so my wife would, you know,don't worry. They'll they'll
come. You know? We we'd bouncethings off each other, and maybe
that's a better thing, somebodyto bounce ideas off of.
(22:25):
You know, hey. You know, you mayyour family may like your
barbecue sauce, but the generalpublic wants it spicier or they
want it sweeter or they want itless red or more red or
whatever. So somebody to bounceideas off of, and and get you
(22:46):
back in reality.
Speaker 2 (22:48):
Right. And that's a great way to to really start to
close us up a little bit onthis. I'd I'd do as we start to
wrap too, I I wanna go back tothose three piece, not hitting
on any specific order, butreally the importance of those
three, which really stand out tome. So you have the planning,
principle, process. Reallywithout any one of those, you
would fall on your face in asense.
(23:10):
Right? And and and I wouldn'tnecessarily say fall on your
face as far as for a completeclose the doors fail. But even
if you didn't have a process,you may be successful for a
short period of time and thencap out and can't grow anymore.
So that's, you know, basically,Chris, as you had mentioned the
the example of and I rememberthese days that you were in, of
almost hitting a burnout alittle bit and saying, wow. You
(23:32):
know, it's I can't even go onvacation or the business falls
apart.
So it's I've seen a lot ofpeople kind of fall trapped to
their own success and and reallyfollow their own passion a
little too far. But then I'vealso seen people that are have
the money tree in a sense, havethe passion, and have no process
and absolutely fail becauseeverything just starts to
(23:53):
unravel and then really you runout of capital eventually. Money
is only as good as the the paperis printed out as long as you
got it. But Yeah. And reallyreally in closing, John, too,
let's let's not forget.
If anybody has any of thesequestions, I know you've
authored a handful ofpublications. If you could
recommend and I'm gonna put youon the spot. If you could
recommend one of your books forsomebody to pick up and thumb
(24:15):
through, And this is almost likesaying which one is your
favorite child. Right? Or or inyour case, I know you have a
handful of grandchildren.
Which one is your favoritegrandchildren? We won't ask that
question. But the books whatwhen what would you recommend to
anybody? Not even somebody justgetting into business, but just
to pick up and really just kindof casually go through the
content and take some notes. Oh,boy.
(24:38):
I knew it was a tough one when I
Speaker 1 (24:40):
Started starting a business, I'd I'd say the the
the ways to improve cash flowactually, there's what there's
two. There's that one, and thenthere's another one, fifty seven
ways to grow your business.Excellent. Excellent.
Speaker 2 (24:57):
Well, I appreciate I'll let you slide with with
scaping out of it and goingback. You're going from one to
two, but it's all good. Well,when
Speaker 3 (25:04):
you have that menu to choose from, that's a good good
problem. Well, John, I'm gonnadust something off, from that we
I I for some reason, I didn't Ihaven't done in a while. But I'm
gonna start doing it again. Wealways ask our guests. We're
gonna have our wrap it up with aquick fire questions.
These are non tax related.They're just fun questions that,
(25:25):
we're gonna hit you up with.And, so John, Neil, you're gonna
be on the hot seat, but Ipromise you these are fun easy
questions. Alright. Alright.
So here we go. Maybe JohnnyJohnny t will put a drum roll in
before, when this gets edited.
Speaker 2 (25:40):
I won't I won't do the audible one of me doing the
drum roll. It's it's pretty bad.We'll do something.
Speaker 3 (25:44):
I know. I know. Alright. Here we go for Johnny
Hill. Favorite vacationdestination?
Speaker 1 (25:51):
Saint Louis.
Speaker 3 (25:54):
Favorite sports team? The Packers. Hey. They're yep.
Yep.
I I, they've had I figured thatbeing in Milwaukee, but, you
know, maybe it was the Brewers,maybe it was Marquette. I don't
know. You never know. So, areare you a dog or cat person?
Dog.
(26:15):
And Tucker's on my website. Oh,awesome. Mhmm. Awesome. Income
shifting to pets.
That'd be cool. But, Well, infact, my as you say that, my
first book was, titled BestDoggone Financial Advice. Oh,
that's cool. How can how can Iclaim my dog as a deduction? I
(26:35):
like it.
I like it. We'll have to checkthat out.
Speaker 1 (26:42):
And favorite cereal. Favorite cereal. Captain Crunch.
Oh, that's one of
Speaker 3 (26:51):
my favorites. Final hot hot stove question. What is
your ideal weekend? My idealweekend.
Speaker 1 (27:02):
Oh, there's a there's a few scenarios. But I guess,
favorite favorite weekend wouldbe going down to St. Louis to,
visit visit my two grandchildrenwho are down there and my son
and, taking in the the sitesdown there, breweries, the zoo,
(27:24):
Grant's Farm. It's always a funtime.
Speaker 3 (27:26):
Yeah. Saint Louis is one of those sneaky places,
especially for kids with the,museum and and there's just a
lot of cool things there. Sothank you so much, John, you
know, for coming on. I learned alot. I know our business, our
listeners and our community willlearn a lot.
How what is the best way we'llleave it at this for we'll put
(27:48):
it in the show notes. What's thebest way for someone to get a
hold of you?
Speaker 1 (27:53):
Two ways. They can call me at (414) 325-2040, or
they can email me atj0n@nealgroup.net. Awesome.
Awesome. Well, John, thank youagain for joining us.
(28:14):
Plan to not fail if you'replanning on going into business
and listen to this podcast acouple times.
Speaker 2 (28:19):
And if you have questions, let us know. And as I
always like to wrap it up with,we will see everybody next week.
Thank you everybody and John forjoining us on this episode of
why businesses fail. Hopefully,we all got some good notes from
(28:41):
this. Realistically, we probablyall know somebody who has opened
a business, potentially closedtheir doors, taken a break from
it.
But either way, we probably knowanybody who's an entrepreneur or
or possibly not and knowsomebody who may have had a
business that has not succeeded,to its full capabilities. Maybe
(29:03):
you've identified a few thingsin here that you may know about
that person. So we covered alot. Another great show as
always. Thank you again to Johnfor taking the time to join us.
We know this time of year iskind of crunch time for any tax
professionals out there. So thetime is greatly appreciated. If
anybody has any questions oreither their business, when
(29:25):
they're thinking of starting,please feel free to reach out to
to John. We'll put his contactbelow in the show notes, but
also to teaching tax flow. Besure to send us a message.
Any of those questions, shoot usan email, drop us a line on
social media. We would love tohear from you. So just two more
weeks to go, everyone, until weturn one year old and cross that
(29:46):
one year mark of doing thispodcast every single week for
the past year. So we're lookingat doing something special for
that episode. So, again, be sureto follow us on social media for
any of the updates and a littlebit of news some people may know
of what we might be up to on theone year anniversary episode of
teaching tax flow, the podcast.
(30:08):
Until next time, we'll seeeverybody very soon.
Speaker 4 (30:16):
Does not constitute an offer of securities.
Offerings can only be madethrough an offering memorandum,
and you should carefully examinethe risk factors and other
information contained in thememorandum. The content provided
is for educational purposesonly. We encourage you to seek
personalized investment adviceadvice from your financial
professional. For all tax andlegal advice, please consult
your CPA or attorney.
Investment advisory services areoffered through Cabin Advisors,
(30:38):
a registered investment adviser.Securities are offered through
Cabin Securities, a registeredbroker dealer.
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