In San Diego, small business is big. With 95 percent of businesses here holding at 50 employees or fewer, America's finest city has become a mecca for small firms.

    Of course, few start-ups want to remain small, but growing wisely is fraught with pitfalls. Fortunately, while San Diego may be long on small, it is equally deep on seasoned savants. With that in mind, San Diego Metropolitan Magazine went to the managing partners of the big six accounting firms to learn ways to think big.

    The focus was on CPA firms because of the many services they offer. These firms are equipped to mentor small businesses through everything they need to know but may not have thought to ask. Need advice on employee compensation, talent identification, foreign markets, buy-outs or even space planning? Such firms provide a one-stop shop for businesses on the way up.

Question: How early in the life of a start-up entrepreneurial business should tax planning occur even though serious profits are not expected for a few years?

Answer: David Down, KPMG Peat Marwick

    "One of the critical steps in tax planning occurs when the owners decide how to organize the business so that they can determine the extent of their liabilities. Whether, for example, a business is formulated as a partnership with limited liability, an 'S' or 'C' corporation has tremendous tax impact. During this initial process, a CPA can advise how to best structure capital resources and the most tax-effective methods to raise needed capital. This is also the time to evaluate the relative tax advantages of operational leasing of equipment, where the asset does not become the property of the business, compared to financial leases, secured loans against the purchase of the asset. As the company grows, the timing of implementing tax planning for each fiscal year becomes critical. It’s useless consulting a CPA for tax-saving strategies in the last few weeks or the final quarter of the fiscal year."

Q: Is the process of budgeting more important than the actual result?

A: Dick Bigelow, managing partner, Arthur Anderson

    "The discipline of reducing something to writing invariably helps owners focus and think through their goals. The budget provides a mechanism to monitor how well the business is performing against projections. So often in small businesses the budget exists only in the entrepreneur's mind rather than on paper. But unless the entrepreneur does everything himself or plans on keeping the business very small, it’s essential to communicate the business objectives via a detailed budget to the rest of the management team so that together they can march in step toward success. Where CPA firms provide assistance is in helping a business develop its budget in sufficient detail so that it really becomes an effective tool to monitor progress and assess the factors triggering variances. Then it’s relatively easy to put corrections in place. "

Q: Is cash flow forecasting separate from budgeting?

A: Ray Dittamore, Ernst & Young

    "Cash flow forecasting should definitely be part of the budgeting process; otherwise, small businesses can get trapped into generating paper earnings in periods of growth but actually be close to insolvency. That's because adding inventory without planning on how it will be paid for can absolutely strap a growing company. A company which hasn't generated sufficient cash flow early on from investors, doesn’t monitor cash flow consistently and isn’t creating enough cash flow from operations will have a host of problems. Such mistakes will force the entire focus of the business to shift away from its original mandate to provide excellent products and services to customers and onto stop-gap measures to raise cash in order to pay bills. And that can trigger the business to fail. Happiness to a small business is a positive cash flow. "

Q: What is the biggest mistake you see occurring in the management of a small business?

A: Bruce Blakley, Coopers & Lybrand

    "The biggest mistakes we see in small businesses occur when the owner either executes a contract or agrees in principle to a transaction without seeking proper advice. Poorly researched decisions unfortunately can have lifelong consequences entirely different from the expectations going in. For example, in selling out, some owners have exchanged shares with an out-of-town company in lieu of receiving cash. Their hope, of course, that those shares have the potential to increase in value, generating liquidity at a later date. Unfortunately, we’ve seen instances where those shares have lost significant value, gravely impacting the local small business owner."

Q: Typically, what transitions are the most difficult for a young small business?

A: Jim Farris Jr., managing partner, Deloitte & Touche

    "A company usually is started by a person with a great idea who has the energy and capability to develop that idea and take it to market. But as this young company evolves, the entrepreneur will face a difficult transition. To grow to where he or she wants to go inevitably will mean relinquishing some control of the business in exchange for financing or even to sell a portion of it. Although this step is crucial to the development of the business, it is nonetheless painful for someone who has made enormous sacrifices to launch a company. To minimize the pain and sense of loss inherent in this experience, it’s wise for the entrepreneur to be aware of this turning point going in so that he or she can plan for it psychologically."

Q: What is the most important advice you'd give a small business?

A: Tom Insley, managing partner, Price Waterhouse

    "Bring a strong financial person onboard as part of the management team right from the beginning. Otherwise, the company doesn’t get the discipline it needs in creating the infrastructure to grow to the next developmental stage. That doesn’t necessarily mean hiring a CFO on a full-time basis, often an impossibility for young cash-strapped businesses. Today, there are lots of creative ways to hire the right talent such as offering a potential hire a part cash, part equity deal or by "renting" a controller part-time through a temporary agency to service the business affordably. However it’s accomplished, the professional's job is to help set milestones for development and redirect the business onto alternative paths should corrections become necessary."