Brodsky on Business - Part 1

But don’t complain that you want to be two steps up, but you’re still not willing to take that risk. People sometimes lose their taste for it. It’s a tough thing. Plenty of nights you go home, and you go to sleep, and say, “What the hell?” You’ve had it. “Why am I doing this? I can go out and earn a decent living, and I’m putting all the money I saved at risk, I’m putting my future at risk. Who’s going to hire me three years from now?” I could tell you all the things. I’ve been there, you know? It goes through everybody’s mind. Nobody’s different from anybody else. It’s always a risk. The bigger the risk, the bigger the reward.
LEVIN: What jobs should people be thinking of outsourcing? And what are some areas they should not outsource?
BRODSKY: You can outsource your whole accounting department, if it paid for you to do it, because if you’re doing what you’re supposed to be doing, you know the numbers before they do. But they put everything in a nice little package. In a small business, to start out with, you can hire an outside accountant who will come in, who’ll do your payroll, who’ll send in a bookkeeper to do this, that, and the other thing. I think it’s important to do, by the way, but I don’t think it’s an important function to do yourself. As big as I get, though, I always outsource.
The function that I don’t think you should ever outsource is sales. Now there will be plenty of people that don’t agree with me. Circumstances are different in sales, because you want your thumb on it. That’s the pulse of your business. I mean that really is driving you. I find it very difficult to even think about outsourcing my sales.
LEVIN: What should companies be looking for in lawyers and accountants?
BRODSKY: I learned a fabulous lesson from my bankruptcy judge. During my first bankruptcy, I was fighting with the bank about whether they should continue funding us or not. After a lot of wrangling, we finally settled. The bankruptcy judge says, “Mr. Brodsky, do you know what lesson you learned today?” I said, “It’s better to settle than fight?” She says, “A good settlement is when everybody walks away a little unhappy.”
From that day until today, which is 18 years, I’ve never entered into a lawsuit—never. So every dispute I’ve ever had, I’ve settled on my own without lawyers. And I’ve walked away unhappy from lots of them. If you enter into a lawsuit with somebody, what happens is you get aggravated every time you get a legal bill. Forget about that “the lawyers always win”—it’s more than that. The aggravation continues for years. Lawsuits continue for years. My advice is to try to settle your own problems.
More specifically to your question, I look for a lawyer who’s a lawyer, not a businessman. Most lawyers think they’re business people, and I don’t. I tell a lawyer up front before we use him, “Listen, you’re a lawyer. You’re not a businessman. Stay out of the business issues.” I’ll always take legal advice from a lawyer. But I will not take business advice from a lawyer.
The thing I look for in accountants, basically, is they stick to accounting—same thing. Don’t give me business advice. Tell me the best thing for me to do from an accounting standpoint and a tax standpoint, but no business advice.
LEVIN: But that works for you. You have a lot of experience.
BRODSKY: It works for everybody. It should work for everybody. The people who come to me for help, most of their problem is they’re listening to their accountant’s advice for business. It’s awful. See there’s a difference between business advice and advice that’s good for the business—different subjects. So that’s what irks me.
Also, don’t wait for your accountant to verify your numbers. When you get your accounting statement for the end of the year, it’s too late. Rely on your accountant to come in here and make sure nobody’s stealing from you.
LEVIN: And your taxes.
BRODSKY: And your taxes. But you’d better know your numbers better than your accountant. You know what most small businesses don’t understand? They understand the concept of cash basis. Most people don’t understand the nuances of accrual basis. So accountants come in and say, “Oh, on a cash basis you broke even.” Well, on an accrual basis you might lose $400,000. Understand the relationship of receivables and cash to your business. Understand that because you’ve got a lot of cash in the bank, it doesn’t mean you’re profitable. I could tell you of instances where you have all the cash in the bank and be bankrupt. How’s that possible? You’re running a candy store. You collect the cash. You don’t pay your bills for 60 days—a typical example. I get scared when my cash balances are up. Well, there’s a reason for that. Is the reason because my collectors are doing such a great job? Chances are my business has dropped, so I’m not paying out as much and my cash balances are up. That’s not a good thing.
LEVIN: Your growth has slowed.
BRODSKY: I don’t check my cash balances except for keeping on top of my receivables. Most people concentrate on “how much sales did we do?” You’ve got to understand gross margins and your accountant is not going to teach you a lot of this stuff. This is what you’ve got to look for.