Business Eclectic

Business Eclectic

In the last few weeks I have read a number of articles about ethics. I thought I would discuss the subject of ethics with some stories from my experience.
When I was 19 years of age I was hired to work in the accounting office of an architectural and engineering firm that was one of the ten largest similar firms in North America.

Part of their introduction to the company was a description of the firm’s policies and included the comment that, although they would seek to take advantage of all tax law, in no case would they try to cheat on their taxes. The explanation was they could make more money doing what they do best rather than fighting with the tax department. As well, they were a respected firm and never wanted to lose that reputation.

Many years later I was meeting with a loans officer from a major bank. He made the comment that one of the most successful rules he followed in accepting or denying loans and avoiding losses was determining if the potential borrower had lied or had ever cheated. To quote almost exactly, he said: “If he is prepared to cheat someone else, he is prepared to cheat me.”

A third examples is a client who came into my office after having purchased a business in a typical strip mall. Part of the rental agreement she had assumed was any sales over a certain amount resulted in extra rent, determined on a percentage of sales over the base. The vendor had told my new client that she consistently understated her sales to avoid the extra rent and, accordingly, the income was approximately 20% higher than shown in her financial statements. Unfortunately, as you would expect, the truth was somewhat different and sales were pretty much the same as reported in the financial statements and my client had overpaid in purchasing the business.

The basis of this discussion is that although honesty, ethics, morality do not ensure success, the lack of these attributes almost ensures failure or underperformance. A company may fail for many reasons such as not modernising, not having the knowledge required, not having the skills, poor management or a bad location. If a business gets a bad reputation as being unethical, it will almost positively ensure underperformance compared to an ethical business and likely a lack of customers or a lack of financing will be a major factor.

Anyone can get clients by advertising and promotion but if you don’t have the ethics to stand behind your product or service or pride in what you do, your business will be limited to new customers and few will come by referrals and many more will not come because of lack of recommendation. Repeat customers tend to be the most profitable in the long term. It has been said that a negative comment spreads faster than a positive comment. It is very hard to build a business without repeat customers, clients or patients. Most successful businesses have clients that can be traced back to day one, sometimes over generations.

Although, I won’t go so far as to say all businesses are ethical, I will state it is probably easier to succeed as an ethical business than an unethical business. As well, ethical businesses usually do better over time than unethical businesses. It is much easier to be honest than to try to hide dishonesty.

In summation, ethical business practices are not only the right thing to do, they are also the smart thing to do.

Terry Robert B.A., C.M.A., C.G.A.
Robert Accounting LLP
Certified General Accountants

Please note that this column deals with details and circumstances in a general way and comments are meant solely as a guide. For your protection, a professional accountant is recommended and should be consulted before making any decisions regarding anything discussed in this column.