Ripple Effects of Take My Advice
Many times getting advice from an experienced business person is a good place to start. The voice of experience can be a tremendous resource for learning and avoiding costly mistakes. Unfortunately, it can also be a source of costly mistakes when the advice you receive is about legal, tax, accounting, or compliance issues, and it doesn’t come from or with full knowledge of your situation and/or the rules, conditions, and requirements which apply to your business.
Recently several early stage companies took the advice of a seasoned entrepreneur. His advice boiled down to tapping into “all available sources of cash” to fund “immediate opportunities”. The companies each have only one project under way from their point of view. The projects are funded by federal grants. The “logical” action based upon the advice received meant (from the companies’ perspectives) pulling down funds from those grants as soon as possible. The projects and the costs associated with the projects are all “grant related” based upon the businesses’ definitions. The businesses, after all, have only one project going, ergo the costs all belong to the grant.
At no point did the seasoned entrepreneur say, “Go out and charge all your current operating expenses to your grant.” And that definitely was not what he was advising. In fact, I’m told the advice was more along these lines. “Get control of your spending. You need to reduce your costs and focus on your technology. Get your market defined, stop all these unnecessary dog and pony show appearances, and get on with the work. Every dollar you have available needs to be generating results, not face time. When you know what you are selling and know you are going to make money, then you can go looking for face time. Until that time you need to be looking for every dollar you can find, stretch them, and immediately tap into it for the technology.”
At least that is the way I’ve heard the conversation really went. There is a big difference between the first interpretation and the replay I was given for how a business is run and the manner in which it is complying with the rules of grant funding.
Tapping into the dollars you have to put them to work for results is quite different from pulling down dollars of grant funding you may or may not be due and which may or may not be related to the grant activity under the terms and conditions of the grant. A project may be the only project a business has and it may have a grant associated with it, but that does not mean the costs are 100% grant covered – in fact it is almost certain NOT to be 100% grant funded – because of unallowable costs, indirect costs which are shared costs, and so on.
This is just one example where the impact of business advice needs to be tempered by an understanding that advice must be adapted to fit the circumstance, factors, and conditions of the specific business. Businesses are not one-size-fits-all. If they were, then every business would succeed and every strategy would fit every business.
The impact of advice, interpretation, and action can have far reaching effects – impacts and implications. In this example, funds drawn down too early, for unallowable costs, for “cash flow” and for non-project reasons can create significant compliance issues for a government grant recipient. These can be viewed as systemic control failures which signal financial issues for the business. The draw down of funds in the grants payment system is one of the easiest places for the government to detect an issue with working capital, financial controls, and cash management. These are the types of problems which lead to audits of the operations and accounting systems.
So take some advice – put all advice in the context of the experience of the person giving it. Weigh the knowledge, experience, qualifications, and expertise of the person as it relates to the areas of advice and your business. Also keep in mind how much specific information you have or haven’t provided to the person about your business and situation. Know exactly what and why you are asking. Weigh the advice well and then apply it judiciously, for it is ultimately your action and not the advisors which will be judged.
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