Are You Happy With Your Accountant?
Gene Marks, a CPA, says there’s nothing wrong with meeting with several, showing them your financials, and challenging them to do more than just prepare your taxes.
Good Morning!
Here are today’s highlights:
Sold! An entrepreneur decides it’s time to get out of the content business.
A coming wave of “AI agents” will have capabilities far beyond those of ChatGPT.
There is growing agreement that 401(k) plans are flawed and should go away.
Startups are raising serious money to try to solve loneliness.
TAXES
Here are some tips on hiring an accountant: “It’s tax season and many small-business owners are probably spending more time with their accountant than they do all year. Like others, you may be using this time to reevaluate your relationship with your accountant. Are you happy? Are you getting the service you expected? Could your accountant be doing more? If you’re thinking of potentially choosing a new accountant, here are a few things to consider.”
“Dayna Carr, who owns an accounting firm in Doylestown, [Pa.], also recommends asking about bookkeeping and part-time controller services. ‘More firms are offering these types of services, particularly if independent financial reporting isn’t required and the rates can be affordable,’ Carr said.”
“It’s become more important for an accountant to know your industry as well. ‘If I’m a construction company, I don’t want somebody coming in who’s never seen percentage-of-completion accounting, or it’s their only construction client,’ [Jerry Maginnis, CPA, a former managing partner at KPMG in Philadelphia] said.”
“It’s also not uncommon to share your tax and financial information with multiple candidates and ask them up front for their recommendations on saving taxes or generally doing things better. Their answers may influence your decision and even help justify the fees they’re proposing.”
“‘It’s good to challenge,’ [Maginnis] said. ‘Ask them to take a look at your financial statements and tax returns and give their observations and recommendations. What did you see? Am I missing anything? Are there tax planning opportunities? What could I do to accelerate my cash flow?’” READ MORE
SELLING THE BUSINESS
Concerned by the rise of AI, an entrepreneur decides to sell his content agency: “After buying out his business partner, Mark Whitman spent 18 months scaling his content writing agency, aggressively expanding its services and client base. He was preparing Contentellect for a future sale, but suddenly he found himself speeding up his timeline due to a major new wrinkle: artificial intelligence. ChatGPT launched in November 2022, leading Whitman to wonder what the rise of AI would mean for his business model. At the time, he had assembled a roster of 40 freelance writers producing SEO content for 60 steady customers, and he feared that AI would threaten to replace them sooner or later.”
“He began to move faster toward a sale and in April 2023 reached a deal with Onfolio Holdings, a company that acquires online businesses from independent entrepreneurs. Onfolio paid $850,000 in cash – so the deal was about 1x his annual revenue of $900,000. ... The company earned $340,000 of adjusted EBITDA in 2022. His biggest expense was his payroll and freelancers.”
“‘I didn’t necessarily think AI would turn all of these content writing agencies into redundant business models, but we would have had to have pivoted our model,’ Whitman recalled. ‘I had just spent 18 months building a massive team, and I just didn’t have the energy to do that.’”
“Onfolio’s CEO, Dominic Wells, isn’t as worried about artificial intelligence. In a recent ‘Ask Me Anything’ on LinkedIn about the acquisition of Contentellect, someone asked him, ‘How is it faring in the face of AI?’ Wells responded, ‘Most clients don’t want to use AI or the output isn’t good enough. Agencies that are struggling tended to run content farms. Also, [Contentellect] has other services that are growing.’” READ MORE
ARTIFICIAL INTELLIGENCE
The New York Times is creating a generative-AI ad tool: “The new technology, which is being created internally at the Times, will deliver a recommendation for where an ad campaign could perform best based on its message or objectives. The tool can also be used to target niche audiences that were previously unidentifiable based on their interests, aspirations, and opinions. For example, a car company looking to position itself as family-friendly might use the tool to align some of its messages with articles about technology and others to pet owners across the Times' site and app.”
“The Times is currently recruiting select advertising partners to participate in a closed beta test that will likely begin early in the second quarter. It's hoping to make the new tool available to more advertisers after it gets results from its first round of experiments.”
“The new tool is also being designed to help advertisers avoid potentially awkward alignments against content that wouldn't fit in with their messaging goals. For example, a textbook brand could align its campaign to run next to education content, but avoid articles related to bullying.”
“More publishers are experimenting with ways generative AI can improve real-time ad targeting amid the broader industry pullback from third-party tracking cookies.” READ MORE
The next wave of AI startups is on the way: “ChatGPT can give you travel ideas, but it won't book your flight to Cancún. Now, artificial intelligence is here to help us scratch items off our to-do lists. A slate of tech startups are developing products that use AI to complete real-world tasks. Silicon Valley watchers see this new crop of ‘AI agents’ as being the next phase of the generative AI craze that took hold with the launch of chatbots and image generators.”
“One of the most hyped companies doing this is called Rabbit. It has developed a device called the Rabbit R1. Chinese entrepreneur Jesse Lyu launched it at this year's CES, the annual tech trade show, in Las Vegas. It's a bright orange gadget about half the size of an iPhone. It has a button on the side that you push and talk into like a walkie-talkie. In response to a request, an AI-powered rabbit head pops up and tries to fulfill whatever task you ask.”
“The web browser Arc is building a tool that uses an AI agent to surf the web for you. Another startup, called Humane, has developed a wearable AI pin that projects a display image on a user's palm. It's supposed to assist with daily tasks and also make people pick up their phones less frequently.”
“Researchers are worried about where such technology could eventually go awry. The AI assistant purchasing the wrong nonrefundable flight, for instance, or sending a food order to someone else's house are among potential snafus that analysts have mentioned.”
A 2023 paper by the Center for AI Safety warned against AI agents going rogue. It said if an AI agent is given an ‘open-ended goal’ — say, maximize a person's stock market profits — without being told how to achieve that goal, it could go very wrong.” READ MORE
MARKETING
Gene Marks tried a digital marketing test, and digital marketing failed: This week, Gene talks about a little experiment he ran recently in which he boosted a post on X, formerly known as Twitter, that was designed to send people interested in his book on customer relations software to a landing page on his website. X reported that the post was a big success. But was it? Gene offers a slightly profane rebuttal. Plus: He also talks about three Jeff Bezos quotes that he believes can change how you run your business, and he explains how companies can commit wage theft without even realizing it.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
HUMAN RESOURCES
It’s possible that 401(k) plans will be replaced by a different type of account: “There has been a brewing intellectual movement to get rid of the 401(k) for several years, with scholars on both the right and left questioning its value. And as the federal government gets increasingly desperate for new sources of revenue, the tax treatment of 401(k)s is a likely target. There are good policy reasons to end it, but the question remains: Will Americans still save for retirement?”
“The first rumblings that the benefits of the tax breaks may be overstated came in a 2014 study of Danish savers. Without tax-advantaged accounts, it found, people just put their money in another kind of account.”
“Subsequent research in other countries found similar results. Not only did the tax incentive fail to encourage more saving; the biggest beneficiaries tended to be the wealthy.”
“Expect more scrutiny in the coming years as more revenue is needed to fund entitlement programs and interest on the national debt. Eliminating the favorable tax treatment of the 401(k) is much less painful politically than increasing taxes directly.”
“Enter the employer-sponsored liquid account. Like a retirement account, it is funded by payroll deductions, but unlike a 401(k), it allows employees to withdraw money without a penalty when needed. As these accounts grow in popularity, they may displace the 401(k).” READ MORE
ECOMMERCE
Consumers love next-day delivery—but not warehouses: “Warehouse developers are increasingly contending with a headache that is all too familiar to residential builders: not-in-my-backyard community opposition to their projects. More local governments are restricting or even banning new logistics hubs that have mushroomed throughout the country to meet the needs of online retailers. After years of national employment growth, many elected officials aren’t as enthusiastic as they used to be for the jobs these facilities created. Instead, they are much more attuned to resident complaints over increased traffic, noise, pollution, and demands on local infrastructure from the large trucks rumbling through their towns to get to and from these warehouses.”
“Construction starts have dropped sharply as higher interest rates increased costs and leasing has slowed in some markets, in part because a building boom during the pandemic produced a space glut. Growing community opposition is the latest hitch.”
“Market participants say expansion will continue as long as consumer appetite for shopping online remains strong. E-commerce requires three times the amount of logistics space as brick-and-mortar retail, according to Green Street. Online sales are expected to keep growing an average 6.5 percent annually the next five years, the firm said.” READ MORE
THE ECONOMY
While inflation has eased, eating is still getting more expensive: Prices at restaurants and other eateries were up 5.1 percent last month compared with January 2023, while grocery costs increased 1.2 percent during the same period, Labor Department data show. Relief isn’t likely to arrive soon. Restaurant and food company executives said they are still grappling with rising labor costs and some ingredients, like cocoa, that are only getting more expensive. Consumers, they said, will find ways to cope. ‘If you look historically after periods of inflation, there’s really no period you could point to where [food] prices go back down,’ said Steve Cahillane, chief executive of snack giant Kellanova, in an interview. ‘They tend to be sticky.’”
“Many diners have said they are going out less frequently or skipping appetizers, while buying cheaper store brands more frequently at supermarkets and seeking out promotions or deals offered via apps. That’s starting to chip away at some sales for food makers and restaurant operators.”
“Food companies said they are feeling pinched themselves. While commodities such as corn, wheat, coffee beans and chicken have gotten cheaper, prices for sugar, beef and french fries are still high or rising.”
“Hiring skilled workers like mechanics to replace employees who retired during the pandemic is particularly expensive, said Henk Hartong, CEO of Brynwood Partners, which owns 17 food and beverage plants that make Pillsbury cake mixes and other products.” READ MORE
DEVELOPMENT
There are a lot of reasons office-to-residence conversions are difficult, but they are not impossible: “Converting a cold, corporate office building into a warm, livable place is mired in challenges. But the recent $100 million transformation of a 52-year-old office highrise in downtown Houston into a 372-unit apartment community offers a case study into how one developer overcame many of the common hurdles. For any office-to-residential project, finding a good building is half the struggle. Only 25 percent of office towers can make successful conversions, according to architecture firm Gensler’s analysis of 1,000 office buildings across North America.”
“Florida-based DeBartolo Development picked the 20-story tower at 1801 Smith because it checked the boxes for a successful conversion: rectangular, narrow floorplates; ample parking; recently refurbished elevators; working mechanical and electrical systems, and a desirable location.” READ MORE
STARTUPS
A new group of startups is trying to solve loneliness: “Last year, U.S. Surgeon General Vivek Murthy declared loneliness an epidemic, ringing the alarm that social isolation was causing mental and physical harm. Teenagers were reporting record levels of sadness. Suicide rates were at a record high. While Covid kept people from their friends, families and peers, there were other factors at play, which Dr. Murthy described in his May 2023 report—namely the advent of smartphone technology and the rise of social media. Once heralded as innovations, these creations of private industry were suddenly the problem. Who better to help than investors and entrepreneurs?”
“Belong Center, a new nonprofit [Radha Agrawal] co-launched in December, is one of several ventures across health, entertainment, and tech aimed at tackling loneliness. Firms as big as Sequoia Capital are backing some of their efforts. Like Alcoholics Anonymous for the Burning Man set, Belong Center has free-spirited vibes and aims to heal ‘mind, body and soul,’ says Agrawal.”
“Agrawal has a track record of getting people in Miami, San Francisco, Austin and New York to show up for the inconceivable—like a 5 a.m. sober dance party—and actually enjoy it. Can she get the masses to come to what is essentially group therapy? ‘I’m really not worried,’ she says. ‘People are so lonely, they are going to find us.’”
“The founders of SoulCycle received $7.2 million in funding from Maveron, the venture-capital firm co-founded by Howard Schultz, for its new wellness center Peoplehood, which runs guided group conversations aimed at improving relationships. Former Tinder CEO Renate Nyborg has raised $4.9 million from investors including Sequoia to make Meeno, an AI chatbot that helps people practice difficult conversations.”
“Lucas Krump, the CEO and co-founder of Evryman, a men’s retreat and online community, says society discourages men from expressing vulnerability, which can limit their ability to form deep bonds as they age. ‘Men tend to create friendships early in life through shared experiences, school, sports, fraternities, first job,’ he says. ‘As life progresses into our late 20s and early 30s, we tend to lose touch.’” READ MORE
THE 21 HATS PODCAST
That Would Put Me Out of Business: This week, Mel Gravely, Liz Picarazzi, and Jaci Russo talk about how they set prices. Jaci explains why she refuses to respond to requests for proposal. “We have not participated in a single RFP in 15 years,” she says, “and we won’t under my watch.” Mel explains how his construction company manages to get work despite always being among the highest-priced bidders (which is why he never gets government jobs). And Liz tells us what happened when she was forced to raise prices because of the tariffs placed on goods manufactured in China. But first, she tells us what she’s thinking now that there’s a possibility those tariffs could go to 60 percent. Plus: we review how the three owners handle employee reviews.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren