We all have a Goliath that we eventually must kill as a metaphor for defeating the weakness within ourselves. For whether Goliath is a giant warrior or is an insecurity that bedevils us from within, he must be defeated for us to move forward in our lives.

David was a small boy and nobody believed in him. He had no idea how he was going to defeat the marauding giant, but he knew somebody had to step up to the plate. David knew that he could not win by matching strength against strength, so he changed the terms of the battle. He wore no armor, carried no sword but still won the day. He changed the rules to fit HIS strengths. He lured Goliath into the open where he had a clear view of him and then killed him with a simple sling and rock. Again, David changed the terms of the battle to suit his strengths.

Another great example of this is the famous Sugar Ray Leonard/Roberto Duran fights. Leonard fought Duran three times in his career and I remember each time clearly because I was a huge fan of Leonard's. Sugar Ray was faster and more accurate with his flurries of punches than anybody I had ever seen. I watched him in the 1976 Olympics and then followed him as he turned pro. 

Roberto Duran was a brute-force puncher. He would beat people so badly that he often ruined their careers. He was mean and strong and he was very good. Everyone wondered if Sugar Ray could stand up to him.

On June 20, 1980, they met in the ring for the first time. It was obvious as the fight wore on that Sugar Ray had chosen to stand toe-to-toe with Duran and fight Duran's fight. There was no dancing, no fancy footwork, just an epic slugfest that Leonard lost by a wide margin.

The rematch was in November of 1980. This became one of the most famous fights ever because Leonard came into the ring and changed the rules on Duran. Duran was expecting a repeat of the first fight while Leonard used his own strengths instead of fighting Duran's fight. Sugar Ray danced and hit and so thoroughly confused and disoriented Duran that Duran threw up his hands and quit in the middle of the eighth round, yelling "No mas" (No more) to the referee. Leonard found he could not win by playing by the rules that Duran set, so he changed the rules to fit his strengths. David beat Goliath.

We can do the same thing in business. 

Ben and Jerry's makes awesome, decadent incredible ice cream. I know this because I ate a LOT of it before I gave up deserts in 2002. Anyway, Jerry Greenfield and Ben Cohen began Ben and Jerry's in a converted gas station in Vermont on May 5, 1978. Their investment was a whopping $12,000, with $4,000 of it borrowed.

The ice cream shop was a huge hit and in 1983 they started selling through independent distributors. By 1984, they had more than $7 million in annual sales. That same year, Goliath (played by Haagen Dazs - owned by Pillsbury) had enough of the upstart David (Ben and Jerry's).They were tired of having their sales eaten away (pun intended) by the little guy. So Pillsbury tried to use their size and weight to force Ben and Jerry's out of business. Pillsbury threatened punishment against any distributor that carried Ben and Jerry's.

Ben and Jerry's of course filed an antitrust lawsuit against Pillsbury, but there was a problem. They were going to run out of money to fight the battle long before the war was over.

So they changed the rules. More specifically, they chose different terrain on which to fight. The legendary Chinese strategist Sun Tzu felt that governing the terrain and choosing the battlefield were two of the most important jobs of a commander. Ben and Jerry took the battle out of the courts and used one of marketing's most iconic figures against them. Ben and Jerry began selling bumper stickers that said "What is the Doughboy afraid of?". This evoked images in the public's mind that were the antithesis of all the Pillsbury Doughboy was supposed to represent. 

Thousands of the bumper stickers began appearing on the east coast along with a tremendous amount of free publicity for the smaller company. Haagen Dazs sales tanked and Ben and Jerry's sales skyrocketed. Pillsbury finally caved and agreed to end their blockade of Ben and Jerry's products.

Both the Sugar Ray Leonard and the Ben and Jerry's case studies prove without a doubt that David can still defeat Goliath. However, in order to do so, David has to do the following:

1. Recognize that he can't fight Goliath on Goliath's terms,
2. Recognize where his own strengths lie,
3. Change the terrain to suit his own strengths,
4. Change the rules to benefit his particular skills.

And finally, David has to be in a position to act in a decisive manner when Goliath finally moves into the open and exposes his weaknesses.

My father-in-law, Herbert Warner, was a very wise man. He ran an oil company for many years and gained a great amount of knowledge in the process. His original career was as an attorney, but he moved into the oil business quickly after passing the bar. He and I often discussed the business world in general and, more specifically the worlds of law and finance and how they worked together within the framework of real businesses operations. One of the subjects we had many discussions about was risk.

As a paraphrase, Mr. Warner used to tell me that gold wasn't in the hearts of men - oil was. In a slight dig at both his profession and mine, he told me that all of the attorneys and all of the accountants would look at the investment in an oil well, perform all of their analysis and recommend against the investment. Yet wells are still drilled and people still make money. 

Risk is an interesting facet to our existence. Whether we are talking about the physical risk of mountain climbing or the financial risk of an oil well, it is something that increases in direct proportion to the perceived value of the reward. 

Many of us thrive on risk. The rush of the free fall in skydiving or the thrill of investing in a business are what we live for. The anticipation of the roll of the dice is an addictive rush.

On the opposite end, many of us are risk-averse. That means we are satisfied with a much lower level of reward in return for not having to worry about losing our investment. But remember, as the line in the classic song by the Eagles goes, "every form of refuge has its price". Many times the price of sitting on the sidelines is that your savings are not earning enough to keep up with inflation. This creates a slow erosion to your wealth that, over time, causes you to decrease your standard of living.

Most of us live somewhere on the spectrum between risk-averse and risk-prone. If we see a great possible reward, we are willing to part with some of our money. The key is the level of reward. I know people who are penny-pinchers in most areas, yet are willing to part with their money for a chance to win the Powerball. 

Now for the big question: How does a CPA help a client in a matter where risk is involved?

If a CPA is good, he will be able to analyze any transaction and not only identify the risks, but give you solid information that will help you to mitigate the risks. If you are buying a business, the CPA will be able to find inconsistencies in the numbers that the seller is providing to you. Then the CPA will point out ways to improve the business once it is purchased in order to help the business to succeed. 

If you currently own a business, the CPA can help you to uncover areas of risk concentration so that you can adequately plan for problems that may arise.

And finally, if you come to a CPA seeking advice on whether you should invest in the drilling of an oil well, he will politely try to steer you into a less risky investment. Yet sometimes, just sometimes, you will invest in it anyway and prove him wrong by making money. 

It is a simple analogy. As long as you obey the speed limit, you remain in control. The minute you exceed the speed limit, even by one single mile an hour, you turn control of your life over to the peace officer who has his radar gun trained on you. Yes, the rumor is that the police will allow you to travel a few miles per hour over the speed limit. But maybe the officer had a bad night, or maybe you are driving a red car. So just maybe he decides to use the minor infraction as an excuse to pull you over and ticket you. He can do so because you gave him the power.

I use this analogy in my consultations with clients concerning the IRS. There are standards of documentation that the IRS has developed over the last hundred or so years based on the code, regulations, various pronouncements and case law. These standards are the very minimum that you can strive to meet and still insure that you maintain control over your destiny in an audit. True, the IRS has given auditors "discretion" in cases where taxpayers do not meet the standard, but again you are turning control over the decision to a person who is human and subject to the same imperfections as we are.

I know most of the auditors in our area and I know from personal experience that they are great folks that try to be fair. But when confronted with substandard (or no) documentation, it becomes a matter of negotiation. In the negotiation, the auditor is motivated by the desire to maximize the amount if tax collected by the government. He or she is also motivated by a desire to both satisfy their supervisor and still avoid having the taxpayer appeal the audit.

My motivation as the taxpayer's CPA is to eliminate all adjustments so my client doesn't have to write a check at the end of the audit. If I can't accomplish that during the audit, it is my job to try to lay the groundwork for an appeal or a trip to tax court. Regardless of motivation, though, the difference between a costly audit and a no-change audit is almost always the quality and completeness of the documentation. When the documentation is good, I am in control in the audit. When it is not, the auditor is in control.

Given all of this, what are the standards of documentation for business expenses? Generally the standard requires that you supply proof that the expenditure is an ordinary and necessary expense for the business. This includes anything that supports the taxpayer's assertion that the business needed the expense.

Given the above, here are two instances where there is specialized documentation that you should keep in mind:

Auto Expenses:

The easiest way to satisfy the IRS is via a mileage log. The downside is that you give up the ability to depreciate your vehicle.

Meals and Entertainment:

In the case where actual expenses are used (as opposed to the per-diem method), the receipt MUST be detailed, contemporaneous and must have the date, amount, who you were with and the business purpose (the old who what where when and why).

Remember, holding on to receipts is only part of the story. The rest of story is told by a combination of your actions, the subsidiary documents that surround the transaction and my ability, using the documentation to tell the whole story to the auditor. That's what gives you control.

I was at the gym that morning when everything got quiet. I didn't notice at first, but then everyone started to gather around the TV in the lobby. I saw the image of the second plane hit and left immediately to go home to Missy. For the next several hours and days we sat together and watched in horror as our world changed forever.

Today, we mourn the losses and celebrate the lives of all who were taken by evil that day. We also thank the members of our military and their families who continue to sacrifice in the name freedom around the world. May The Lord hold close and comfort their families and friends, and may we, as a nation, never forget.

Anyone can begin a game, but quality always finishes well.

There is a constant war within all of us who provide a professional service. Do we commoditize our product by lowering the price? Or do we price ourselves according to our expertise and risk losing the "bargain shopper". Lets face it - many potential clients are looking for as much product as possible at the lowest cost. That is fine if one product is equal to another, but not if your product is unique and valuable.

I think it was Zig Ziglar who told a story about a small-town that had only two barbers. One priced his haircuts at $10 each and the other at $100 each. The Low-priced barber was ALWAYS busy. From morning until night, he had customers. He barely would get done with one and he had to start the next. In fact, he had 10 times the clients the other barber had. Yet, despite how busy he was, his hair was always perfect.

The second barber would usually only have a few clients per day. He could cut their hair in a very leisurely fashion. He would spend time getting to know his clients, perfecting his craft and finding out what his clients needed. But his hair was always in disarray. Each immaculately groomed client would leaving his shop, look at the barber's hair and smile, knowing that once again they made the right choice.

There will always be competitors out there that are willing to undercut you. But if you build yourself on a foundation of quality and expertise, you will finish the job and the results will be amazing. Oh - and you will have customers who recognize and appreciate what you have to offer as well as having the means and ability to pay for it.

"The quality of a person's life is in direct proportion to their commitment to excellence, regardless of their chosen field of endeavor." Vince Lombardi

http://youtu.be/xwndLOKQTDs

Last week’s column was all about the explorative process of verifying the truth. Inspired by our auditors, I used a movie theme to illustrate the illusions that, as CPAs, we sometimes have to pierce.  This week, Let's take the theme of “truth” a little further.

The quote above is from Ninth century Zen Master Lin-Chi. I have the quote in my desk so I can read it every day. Lin-Chi goes beyond the simple discovery of the truth, or the investigation of the truth and asserts that we have a duty to reveal the truth. And to do so in each moment. A subtle difference between uncovering and revealing, but an important one.

As we saw in last week's column, divining the truth and piercing illusion is an auditor's favorite pastime. But this only involves making a judgement about the truth. Lin-Chi's suggestion places a further, more personal, burden on us. Revealing the truth is to take that extra step to uncover and then to tell the entire story. Certainly as accountants, we are bound in many cases by the standard of confidentiality, but that only applies to releasing information to the public. To our clients, we owe the truth.

Revealing the truth takes strength. Maybe not so much when the truth is good, but when the truth is unexpected and bad, it requires a much stronger constitution. As an example, there are a few (thankfully very few) times in which I have discovered that our office has made a mistake. My policy in that instance is to tell the client immediately and make it right. No questions asked. It is doubly difficult to do so in that 1) it involves revealing to a client (most of whom I consider friends) that we are not perfect and 2) it usually involves some kind of financial loss to myself. For me, though, the alternatives are worse and therefore I choose to be proactive and reveal the truth to my clients.

Motivational speaker Zig Ziglar preached that you cannot be truly successful if you are simultaneously acting in a manner that is incongruent with your own values and beliefs. Sooner or later you self destruct. Enron was a prime example of a company that devised thousands of ways to mislead the public and then wondered why it could not sustain itself. The sad thing is that there were several turning points in the five years before Enron's bankruptcy that, if they had done the right thing, could have saved the company. Instead, the company that was built on lies and deceit, died as a result. Reveal the truth.

One of my areas of practice includes litigation consulting. These engagements are usually built around an ongoing or potential legal action in which I am asked to advise one of the parties and sometimes even testify to a particular financial aspect of a case. In those engagements there are several possible outcomes from my involvement. After my own investigation, I could agree with the client, I could disagree with all or part of my client's position, or I could find that there is more to the story that is not being told. But in all cases, the revelation of truth is paramount (even if it hurts the client). Our system of law is predicated on the concept of truth and my primary responsibility is always to the truth.

Finally, Mark Twain said that if you tell the truth, you don't have to remember anything. I say, if you reveal the truth, you also have nothing to forget.

Wishing each and every one of you a safe and happy Labor Day!

"How tall was King Kong?" This famous movie line was uttered by Sir Peter O'Toole to Steve Railsback in the 1980 film The Stunt Man. It was a way of explaining that things may not always be as they appear. Or, in an alternate reading, we can often take something, cast a different light in the background, throw in a few items of proportion, and it can look completely different than the original.

That phrase and that movie have always stuck with me. In many ways accountants seek the truth in their engagements and are tasked with finding out how tall King Kong really is. A CPA is required by our standards to approach our whole world with "an air of professional skepticism". This means that when a CPA asks how your sales truly doubled when compared to the previous year, and then asks you to prove it, don't take it personally. It is not because he doesn't trust you - it is because he truly wants to know whether King Kong is as tall as he appears.

How tall is King Kong? There have been three major King Kong films. RKOs 1933 original, Dino Delaurentis' 1976 remake and the 2005 Universal remake of the remake. In the 1933 groundbreaking film, the clay model was 18 inches tall. In the 1976 film, there was an actual 40 foot mechanical prop, but the close-up scenes that required facial movements were played by Rick Baker in an ape suit. Mr. Baker looks about 5'7" (there is a publicity photo that I found showing him next to Andy Serkis, who is mentioned next). Finally, in the 2005 epic, King Kong was a CGI image. The motion capture was performed by Andy Serkis, who claims to be 5'7" tall, but in close comparison to other actors, appears to be in the 5'6" range.

How do I know? I asked. And then I verified.