RPF0146-Ryan_Marquez

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00:00:30.460 | You've heard me say lots of times

00:00:32.060 | that financial questions should be easy.

00:00:34.620 | After all, just look at the data

00:00:36.060 | and see what the data says, right?

00:00:39.340 | Well, what do you do if you don't have the data?

00:00:41.940 | That's a problem that many of us face.

00:00:44.000 | So today I'm bringing in Ryan Marquez.

00:00:47.880 | He is an accountant, he has a CPA license,

00:00:51.080 | a master's in tax, and is an instructor

00:00:53.780 | in a master's of tax program at Boise State University.

00:00:56.880 | And he's gonna give us some advice

00:00:58.720 | for how to set up a bookkeeping program

00:01:01.720 | and a bookkeeping system for our businesses.

00:01:06.200 | ♪

00:01:22.040 | Welcome to the Radical Personal Finance Podcast.

00:01:24.340 | My name is Joshua Sheets and today is Tuesday,

00:01:27.580 | February 3rd, 2015.

00:01:30.320 | Today is an instructional class

00:01:33.780 | to give you some ideas for how you can set up some systems

00:01:37.360 | that will help you track your money and,

00:01:39.220 | most importantly, figure out whether you're making

00:01:41.400 | any money or not, and then figure out how much.

00:01:44.760 | ♪

00:01:54.140 | My guest Ryan is a listener of the show.

00:01:56.340 | He reached out to me and he's helped several times,

00:01:58.580 | made some comments and shows and things like that,

00:02:00.680 | and it's been so helpful to keep me on track.

00:02:02.440 | I like having guys like him in the audience.

00:02:04.340 | It helps me to feel confident to know

00:02:06.380 | that I'm being fact-checked as I talk.

00:02:09.220 | And he reached out to me and said,

00:02:10.380 | hey, if you'd like, I'd be happy to help.

00:02:11.860 | And I immediately said, yes,

00:02:13.020 | please help with some information.

00:02:15.500 | One of the blind spots that I have

00:02:17.860 | is having never worked as an accountant,

00:02:20.020 | having never acquired a CPA license,

00:02:22.940 | having never consulted with clients

00:02:24.760 | on their bookkeeping aspects of their business.

00:02:27.840 | I don't have the ability to, I mean,

00:02:29.840 | I have some theory, but I don't have

00:02:31.280 | some practical experience.

00:02:32.380 | I brought in Ryan.

00:02:33.640 | He's got a wealth of practical experience.

00:02:35.040 | He's an expert in this area,

00:02:36.920 | both a teacher and as a practitioner,

00:02:38.820 | which is a useful combination.

00:02:40.480 | And so he's gonna set you straight.

00:02:42.080 | I hope this is use, set you straight in a good way,

00:02:44.080 | not tell you everything you're doing wrong,

00:02:45.720 | but give you some ideas for how to do things better.

00:02:48.000 | But I hope this is useful information for you.

00:02:49.660 | I hope it can help you here at the beginning of the year

00:02:51.600 | to get your bookkeeping system wrapped up

00:02:53.440 | so that you can track your numbers

00:02:56.080 | and we can do some good planning.

00:02:57.720 | Ryan, welcome to the Radical Personal Finance Podcast.

00:03:01.880 | I appreciate you being with me this morning.

00:03:04.200 | - It's my pleasure.

00:03:05.120 | Thanks for having me on.

00:03:06.640 | I'm a listener and I really enjoy the show.

00:03:08.080 | - Yeah, you're a dedicated listener

00:03:09.400 | and I appreciate having listeners like you

00:03:11.920 | with an accounting background to help keep me on track.

00:03:16.400 | It's really tough.

00:03:17.280 | As a practitioner and a former,

00:03:20.000 | and a financial planner,

00:03:21.400 | I think anybody who has a little bit of experience

00:03:25.560 | in any technical aspect of planning,

00:03:28.000 | you have to get very comfortable quickly

00:03:30.400 | with the idea of being wrong

00:03:31.820 | because sometimes you just get stuff wrong.

00:03:33.680 | And so I love having knowledgeable accountants like you

00:03:37.040 | and other, there are financial planners that listen

00:03:38.760 | that email me from time to time.

00:03:40.120 | And I love having you guys to check me out

00:03:42.160 | and fact check me and keep me honest.

00:03:44.140 | So I've been looking forward to this content,

00:03:45.840 | especially with you as a listener.

00:03:47.160 | I wanted to bring some information on accounting

00:03:50.160 | and bookkeeping to the audience,

00:03:52.560 | but I knew that that's not necessarily my area of expertise.

00:03:56.400 | And so I'm thrilled to have you here.

00:03:58.120 | What I'd love to start with is,

00:03:59.480 | share with us a little bit about your story

00:04:01.140 | and a little bit about your background

00:04:02.680 | in the accounting field.

00:04:04.120 | So people, listeners can have some confidence

00:04:07.360 | in our course of discussion today.

00:04:09.940 | - Okay, yeah.

00:04:11.860 | So I'm originally from Southern California.

00:04:14.120 | I was born and raised there in Orange County.

00:04:17.520 | After I graduated with my undergraduate degree

00:04:21.280 | from a small school down there, I relocated to Idaho.

00:04:25.020 | And I've heard you talk in probably quite a few shows

00:04:29.280 | about relocating for a lower cost of living or lower taxes.

00:04:33.380 | And those are some of the exact reasons

00:04:35.480 | that I decided to move to Boise, Idaho.

00:04:38.760 | I've noticed my quality of life is a lot higher here

00:04:42.600 | and I'm able to do some things here

00:04:45.200 | that I wouldn't be able to do in California.

00:04:47.080 | So we were just talking before the show,

00:04:49.720 | I ride my bike to work.

00:04:51.440 | You can do that in bigger metropolitan areas

00:04:54.840 | but it's a little harder.

00:04:56.120 | The area that you need to live in is limited

00:05:00.000 | and a lot of times more expensive if you're working downtown.

00:05:03.000 | And so that's about my relocation to Idaho.

00:05:08.000 | When I came to Boise, I decided to go to Boise State

00:05:11.840 | to get my master's in tax.

00:05:14.480 | And then that was just a one-year program,

00:05:16.820 | really intense program with just a bunch of tax classes.

00:05:21.820 | And then after I graduated,

00:05:23.200 | I went into public accounting at a large firm.

00:05:26.280 | I work with small to medium-sized,

00:05:29.760 | closely held businesses and their owners.

00:05:31.720 | And so I got a good idea of, okay,

00:05:34.280 | what's happening at the entity level for these people

00:05:37.960 | and then how I see that move to their individual tax returns.

00:05:42.040 | I also see kind of what mid to high wealthy individuals

00:05:47.040 | are doing with their money, with what they're interested in

00:05:51.820 | with respect to tax planning.

00:05:54.460 | Are they really interested in $5,500 for their IRA each year?

00:05:59.380 | Some are, some aren't.

00:06:01.020 | And so it's an interesting perspective

00:06:03.900 | to kind of work with a lot of different people around town

00:06:08.720 | but at the same time, be able to still relate to them

00:06:11.300 | as opposed to working either with or at a large corporation

00:06:16.300 | in their accounting department.

00:06:18.820 | It's a different skill set

00:06:21.220 | and it's a different mind frame you really have to have.

00:06:24.620 | We have some clients that if something's off,

00:06:28.380 | I don't know, five, six, $7 million, they could care less.

00:06:31.380 | But the people I work with, really,

00:06:33.660 | a lot of them care about every single cent.

00:06:35.060 | So it's interesting from that perspective.

00:06:38.780 | - I've often thought that would be much more interesting

00:06:42.540 | working as an accountant

00:06:43.980 | to have that type of varied practice.

00:06:46.180 | I've had a few friends that I've known

00:06:47.620 | that work in some large firms here where I live in Florida.

00:06:51.100 | And it just seems like, I mean, if you're an auditor

00:06:53.900 | and all you do all day is audit large corporations,

00:06:55.900 | that just seems, I don't know,

00:06:57.380 | maybe it's a personality type that doesn't appeal to me

00:06:59.620 | but the opportunity to work with different people

00:07:02.200 | at different levels to me would seem like a really appealing

00:07:05.500 | I guess job profile.

00:07:08.420 | - Yeah, it is.

00:07:09.900 | And I enjoy, a lot of my job is,

00:07:12.660 | depending on how much one would know

00:07:15.740 | about the accounting field,

00:07:17.060 | a lot of my job is actually talking and meeting

00:07:19.820 | and discussing kind of face-to-face

00:07:22.300 | either over the phone with these individuals

00:07:24.820 | as opposed to just going through numbers all day.

00:07:27.020 | And so I get a kick out of that.

00:07:29.180 | I think it's funny you mentioned the auditors.

00:07:33.020 | I was laughing the other day on the 529 show.

00:07:35.300 | You got the two emails from the auditors

00:07:37.060 | that wanna switch fields.

00:07:39.340 | And I just kinda chuckled 'cause I was like,

00:07:40.820 | yep, I would too if I was an auditor.

00:07:42.300 | And I'm a tax guy so I can kinda,

00:07:43.820 | I can jab at the auditors just a little bit.

00:07:46.020 | - I wanna ask you a question

00:07:49.020 | about the master's in tax curriculum

00:07:52.060 | 'cause I know that you have a master's in taxation

00:07:54.380 | and you teach in the master's of tax program.

00:07:57.540 | I've thought about setting that out

00:08:00.300 | as a course of study for myself.

00:08:01.660 | I've pretty much decided I don't really have any use

00:08:04.420 | for the academic credential at this point.

00:08:06.140 | Although if I could find a cheap enough program

00:08:08.460 | that I could do self-study, who knows,

00:08:10.540 | I might do it just to,

00:08:12.420 | 'cause the credential can be useful in the academic,

00:08:16.060 | I mean, in the community that I work in.

00:08:18.220 | But I've mainly just been interested in the knowledge

00:08:20.300 | and I've realized that I have a hole

00:08:22.380 | in my personal understanding of finance

00:08:25.820 | with regard to some of the theoretical side of taxation.

00:08:28.900 | I've looked at syllabus,

00:08:30.740 | syllabi for international tax policy,

00:08:34.380 | just different aspects of that.

00:08:35.700 | I've wondered, generally our master's of tax programs,

00:08:39.340 | are they focused on the practitioner,

00:08:42.260 | the ins and outs of the knowledge

00:08:45.020 | that a financial planner or an accountant might need

00:08:47.660 | to accurately apply this credit, this program,

00:08:52.380 | or are they primarily focused on the theory side?

00:08:55.060 | Here's the history of taxation,

00:08:56.420 | here's the theoretical framework

00:08:58.460 | that is applied as governmental policy.

00:09:00.420 | What is your opinion on that?

00:09:01.860 | - So it's interesting you ask the question

00:09:05.620 | 'cause that's the program at BSU

00:09:08.060 | I'm actively trying to work with to make better.

00:09:12.580 | After I graduated and I came into public accounting,

00:09:16.460 | I felt a lot of the stuff I was actually doing,

00:09:19.420 | I never really learned in the program.

00:09:22.940 | To directly answer your question,

00:09:24.540 | a lot of it hinges on the history piece

00:09:29.540 | and then it gets into really academic accounting

00:09:33.580 | and tax knowledge.

00:09:35.100 | And so depending on the type of teacher you have,

00:09:38.300 | they'll either put it in context for you or not.

00:09:42.180 | But a lot of it is very standard,

00:09:45.060 | I think, lifecycle transactions of either a partnership

00:09:49.980 | or an S-corp or a corporation.

00:09:52.420 | But you really miss out on the,

00:09:56.060 | okay, here's this form, how do you fill it out?

00:09:59.380 | Or the tax planning aspects of,

00:10:03.220 | okay, here's this situation

00:10:04.940 | and what would you do with this client

00:10:08.380 | and what would you recommend?

00:10:09.740 | And part of the problem is there's not enough time

00:10:12.300 | in the semester to really,

00:10:14.100 | okay, get through all the basics

00:10:15.340 | of here's what you need to know

00:10:16.500 | and then dive into the tax planning

00:10:19.780 | and other things like that.

00:10:21.140 | And so one of the reasons Boise State actually welcomed me

00:10:26.620 | and picked me up as a professor there

00:10:28.460 | is the classes I do teach are really practical

00:10:31.580 | and they don't have it in their program

00:10:34.940 | or even mention it in any of their classes.

00:10:37.300 | And I know with talking to other students

00:10:39.460 | and looking at other schools,

00:10:41.700 | they have bits and variations of them.

00:10:44.220 | And a lot of the larger schools will have these classes,

00:10:47.540 | but at least here from Boise State, they didn't.

00:10:52.500 | And so my classes are really practical knowledge

00:10:55.540 | that you're gonna use every day,

00:10:58.060 | at least on the tech side of public accounting.

00:11:01.940 | And I'm hoping my one goal for any class I teach is,

00:11:06.540 | okay, I hope to give all of my students

00:11:09.260 | just a little bit of a leg up with all of their peers

00:11:13.020 | when going into public accounting.

00:11:15.160 | 'Cause a lot of it is you spend your first year learning,

00:11:19.660 | maybe even your second year

00:11:20.740 | just learning, learning, learning.

00:11:22.500 | But if I can cut that down for my students

00:11:24.700 | with practical knowledge that they're gonna use every day,

00:11:28.580 | I think that's a win for my classes.

00:11:31.580 | - Awesome.

00:11:32.580 | So let's dig into the meat of our content

00:11:35.440 | as far as the subject that we're gonna be working on today.

00:11:38.300 | And that's an introduction to bookkeeping

00:11:42.420 | as for business owners especially and some best practices.

00:11:46.540 | This is probably one of the areas that is,

00:11:49.360 | it's overwhelming to many people who are new in business.

00:11:53.300 | I remember it was to me as a new financial advisor,

00:11:56.540 | I was, it's a business.

00:11:58.580 | And here I was responsible for tracking everything

00:12:01.340 | and figuring out what can I do, what can I not do.

00:12:04.060 | And my systems were terrible for the first couple of years.

00:12:07.660 | And looking back, I never did go through

00:12:10.180 | and file amended returns.

00:12:11.740 | But now when I look back at what an idiot I was,

00:12:14.140 | and I thought about it, I went through and I looked at it,

00:12:16.180 | but it was okay.

00:12:17.820 | But when I go back through and look at all of the stuff

00:12:20.580 | that I missed due to poor bookkeeping

00:12:23.500 | that would have been in my favor

00:12:25.200 | and not in the IRS's favor for my first few years,

00:12:27.740 | it really made me hurt.

00:12:28.660 | And I tell you, even this is something

00:12:30.620 | that financial planners struggle with.

00:12:32.420 | Most business people, unless they're established,

00:12:34.780 | this is a major question of how do I set this up.

00:12:37.980 | And from what I do, talking about,

00:12:41.100 | from what I do as far as teaching,

00:12:42.660 | here's how to integrate all of this knowledge.

00:12:45.720 | You need records and that starts with bookkeeping.

00:12:47.820 | And as individuals, as businesses,

00:12:49.500 | we really struggle with this.

00:12:50.580 | So let's kick it off with how would you approach me

00:12:54.640 | as a new business owner,

00:12:56.140 | giving me some practical instruction and ideas

00:12:59.760 | on how to establish the bookkeeping side of my business?

00:13:03.860 | - Yeah, so I kind of put together an outline here

00:13:08.900 | of my tips and I have them in five overall categories.

00:13:13.420 | I tried to make it a little easier to follow

00:13:16.800 | and categorize these tips.

00:13:18.920 | And I should say up front,

00:13:22.060 | this isn't an exhaustive list of everything you need to do

00:13:25.720 | or step-by-step detail instructions,

00:13:28.740 | but they're just some basic tips I've seen help

00:13:31.700 | a lot of people and basically like the question you asked,

00:13:34.720 | how I would approach proposing to someone

00:13:37.680 | how they set things up from the get-go

00:13:40.080 | so that all their records and documentation are in place

00:13:43.320 | so that when you get to tax return time,

00:13:45.920 | you're not missing deductions

00:13:47.320 | like you maybe did in your first few years.

00:13:50.800 | And so the first category I have here

00:13:53.800 | is I just wanted to talk briefly about overall theme.

00:13:57.800 | And the first point here is to change your mindset

00:14:02.100 | on bookkeeping and accounting.

00:14:03.720 | I see a lot of entrepreneurs

00:14:05.740 | that don't necessarily think about it up front

00:14:09.360 | and they don't want to because they are,

00:14:12.860 | or they want to be working on their business.

00:14:16.980 | Like I started a consulting practice

00:14:19.520 | to consult people on marketing

00:14:21.080 | or I started a podcast to be a podcaster

00:14:24.720 | and record these shows.

00:14:25.800 | I didn't do that to all of a sudden

00:14:28.120 | have a bunch of accounting and bookkeeping

00:14:29.700 | and tracking numbers.

00:14:30.860 | But you really do need to change your mindset on it

00:14:34.400 | 'cause it is important.

00:14:36.080 | It's important to understand where your business is currently

00:14:41.080 | where it came from, from a financial standpoint,

00:14:44.940 | and where it could possibly be going

00:14:47.040 | or what resources you currently have

00:14:49.100 | in your bank account or what assets you have.

00:14:51.560 | And so if anyone's taken a intro to accounting class

00:14:57.720 | or accounting 101, something like that,

00:15:01.400 | you'll hear every professor talk about

00:15:03.480 | accounting as the language of business

00:15:05.080 | and they make this big deal about it

00:15:06.500 | and how lavish it is.

00:15:07.800 | But to be honest, it really is true.

00:15:11.300 | And if people don't necessarily understand

00:15:14.220 | what I mean by accounting as the language of business,

00:15:17.560 | what that means is essentially you need records.

00:15:21.520 | It's a process of records that essentially

00:15:25.040 | organizes the financial information

00:15:26.700 | into an easily accessible format

00:15:29.720 | so that someone can understand

00:15:32.060 | what's going on with your business,

00:15:33.920 | whether they're in marketing or whether they're in research

00:15:36.880 | or whether they're at the bank or even investors.

00:15:41.880 | But if you don't necessarily understand the language,

00:15:44.720 | it's hard to talk with different entrepreneurs

00:15:48.320 | or even talk with yourself really about your business.

00:15:51.080 | - I think you could expand on that

00:15:53.680 | and even just simply say,

00:15:55.680 | I don't know if this is true or not,

00:15:57.020 | but what comes to mind as I think about that

00:15:59.280 | saying from accounting is,

00:16:01.520 | economics is the language of life.

00:16:03.520 | And the accounting, the specific numerical accounting

00:16:06.680 | is indeed the language of business.

00:16:08.640 | But our lives are governed by economic decisions

00:16:11.840 | at every stage of life.

00:16:13.480 | And what happens is in general,

00:16:16.760 | many people view finance as something that's boring,

00:16:20.060 | that's dry, that's difficult, that's overwhelming.

00:16:23.860 | But it affects every single life and every single lifestyle.

00:16:27.000 | No matter how creative and right-brained the venture,

00:16:31.500 | it's still an economic transaction.

00:16:34.440 | And once you understand the fundamental economics

00:16:37.380 | and economic decisions,

00:16:38.720 | especially the numbers and the accounting system behind it,

00:16:41.200 | you can immediately know what the outcome

00:16:43.180 | of a course of action is going to be.

00:16:45.560 | And so I think it's, frankly, it's criminal

00:16:49.360 | that we don't equip people

00:16:50.740 | with at least a basic knowledge of understanding

00:16:53.960 | to not feel intimidated by the books and the numbers.

00:16:57.740 | So, and with a basic knowledge,

00:17:00.240 | it can free somebody up to really focus

00:17:02.760 | on what they really wanna do.

00:17:04.800 | The creative aspect, the specific business enterprise,

00:17:09.160 | or whatever it is that they wanna do.

00:17:11.480 | If you've got the foundation behind you,

00:17:13.740 | you're actually more free

00:17:15.520 | than if you just shut yourself down to it and say,

00:17:17.620 | "Well, I just don't wanna deal with that."

00:17:19.720 | - Yeah, I think that's exactly right.

00:17:23.140 | And a lot of the, I'll get to it a little later,

00:17:26.420 | but one of the overarching themes of what I do

00:17:31.040 | with bookkeeping and what I recommend to people is simple

00:17:34.240 | and easy to do so that the process actually gets done

00:17:38.160 | and you have more time that's free

00:17:41.960 | to go do whatever you need to do on your business.

00:17:44.560 | And it's interesting, I guess,

00:17:47.200 | two comments I had on what you just said

00:17:50.440 | is I have a lot of people,

00:17:52.920 | or I was talking with a guy earlier in the year

00:17:56.960 | where he was losing money,

00:17:59.600 | but he thought he was making money.

00:18:01.600 | And so once I actually went through his bank statements

00:18:05.640 | and kinda got all the information from him,

00:18:07.940 | I asked him, I was like,

00:18:10.120 | "Do you have an idea of when your business

00:18:12.640 | "is gonna maybe turn the corner

00:18:13.680 | "and you might start to be making money?"

00:18:15.120 | And he had no idea he was losing money.

00:18:17.800 | - Right.

00:18:18.680 | - And then I had the guy who,

00:18:21.200 | I ended up calculating his taxable income and say,

00:18:23.880 | "Hey, you probably need to make this payment to the IRS."

00:18:27.520 | And I told him what his AGI was,

00:18:30.160 | and he was like, "No, that's impossible.

00:18:31.220 | "There's no way I made that much money."

00:18:33.560 | But he actually did.

00:18:34.800 | But he had no idea because he wasn't looking

00:18:37.800 | at the financials or even taking anything into account.

00:18:41.360 | All he did was look at his bank account.

00:18:42.920 | Cash was still there, so life was good.

00:18:45.820 | - I've had this comment so many times on the show

00:18:48.600 | with listeners email me privately,

00:18:50.260 | just simply with the tip that I've given

00:18:52.560 | of make sure that when you create your cash flow statement,

00:18:55.460 | you include your tax liability on there.

00:18:57.980 | And nobody ever does that,

00:18:59.480 | to actually look and say, "Where is my money going?"

00:19:01.700 | But sometimes just including that calculation in

00:19:05.380 | dramatically changes the perspective

00:19:07.640 | of how profitable is my job.

00:19:09.980 | And when you actually go through and you look

00:19:11.740 | and you figure out, "Okay, what's my tax liability?

00:19:14.040 | "What is it costing me to work at this job

00:19:16.420 | "that's way across town for which I have to do

00:19:18.520 | "all of this fancy work?"

00:19:22.860 | If you actually sit down and look

00:19:24.220 | and understand the numbers and say,

00:19:25.320 | "Am I making money?

00:19:26.680 | "How much money am I making?

00:19:28.560 | "What's my hourly rate?

00:19:30.240 | "What are my goals?"

00:19:31.620 | It affects your decisions.

00:19:34.700 | And I've had several listeners email me,

00:19:38.300 | and it's been from both husbands and wives,

00:19:40.820 | and say, "We sat down and we looked at it

00:19:42.660 | "and we decided why are we wasting,

00:19:44.900 | "one of us is going to work, and there's no point in it.

00:19:48.920 | "And so now I, as the husband,

00:19:50.460 | "I'm gonna stay home from work and my wife is working,

00:19:52.520 | "and we've calculated that we're gonna be able

00:19:53.740 | "to live a better lifestyle with less work."

00:19:56.040 | Or the wife, "I'm gonna be able to stay at home

00:19:58.180 | "and we're gonna live a better lifestyle with less work."

00:20:00.860 | But you need the numbers to feel confident in that decision.

00:20:03.860 | - Yeah, and I think that's exactly right.

00:20:07.300 | And part of it too is doing it as you go.

00:20:11.400 | I see a lot of people that wanna calculate it

00:20:13.180 | or figure something out at the end of the year.

00:20:15.820 | And it makes it really tough to put together,

00:20:19.500 | I mean, you can put together some pretty detailed

00:20:22.220 | spreadsheets on, okay, here was my income

00:20:26.060 | for each payroll period, and here's what came out,

00:20:28.380 | and here's where it went.

00:20:29.660 | But it's a lot harder, it's more laborsome,

00:20:32.060 | and you don't get a lot out of it

00:20:33.720 | because it's all way back in the past.

00:20:36.260 | But you can also use it to help make decisions going forward

00:20:42.140 | but I've also noticed if you don't do it as often,

00:20:46.060 | it gets less detailed, at least from a personal perspective.

00:20:50.620 | And then some of these things you're gonna miss out on

00:20:55.060 | that maybe have been there if you were doing

00:20:57.700 | the detail each week.

00:20:59.740 | - So I delivered pizzas for a week

00:21:01.420 | and this was not too long ago, it was about eight months ago

00:21:04.200 | and I was curious to see, I was trying to create

00:21:07.020 | a part-time income at a dead-end job

00:21:10.220 | without any connection and I just was trying to make

00:21:13.580 | about 2,500 or 3,000 bucks a month.

00:21:16.640 | And so I was curious if I could do it delivering pizzas.

00:21:20.020 | And it was also part of an interesting experiment.

00:21:21.980 | But what I noticed is the first thing I wanted to know

00:21:24.840 | was I wanted to know how much money can you actually make

00:21:27.820 | with delivering pizzas.

00:21:29.220 | And so I asked a bunch of people

00:21:30.940 | and I found some information online

00:21:32.500 | that it seemed like it would be in excess

00:21:34.620 | of 20 bucks an hour and I thought this would be fun.

00:21:36.540 | It was always on my list of things that this would be.

00:21:38.300 | And I said, man, 20 bucks an hour, it's not great

00:21:40.820 | but it's enough for a dead-end job, it would be ideal.

00:21:44.820 | But I went and started asking some of the people

00:21:47.340 | who were delivering pizzas and I said,

00:21:48.580 | how much money are you actually making?

00:21:51.340 | Nobody knew the answer to it.

00:21:52.900 | And the very first thing I did was I had a notebook.

00:21:57.900 | I recorded every minute of my time,

00:22:01.840 | of the amount of time that I needed to drive

00:22:04.120 | from my house to the location.

00:22:06.360 | I recorded every single call.

00:22:09.280 | I recorded the number of miles driven every single night.

00:22:12.400 | I calculated the cost of wear and tear and gasoline.

00:22:15.520 | I calculated the hourly rate, the tip rate.

00:22:17.960 | I averaged it out per

00:22:20.640 | per delivery.

00:22:24.360 | I averaged and I started tracking to see,

00:22:26.320 | is there anything that I can do

00:22:28.160 | that's gonna increase the number of deliveries in a night?

00:22:31.360 | Is there anything I can do that's gonna increase

00:22:33.660 | the amount of the tips?

00:22:34.560 | I tried things like calling to let them know I'm on my way,

00:22:36.880 | shooting a text, just different ideas

00:22:38.940 | that I had to deliver customer service.

00:22:41.060 | And in five days, I knew that this was

00:22:43.800 | a complete waste of time.

00:22:45.240 | It was a total dead-end and there was nothing

00:22:47.160 | that I could do and my hourly rate was atrocious.

00:22:50.240 | But as I'm talking with some of the other drivers,

00:22:53.200 | I recognized that nobody was approaching

00:22:56.120 | their occupation from a business perspective.

00:22:59.040 | And it was a fascinating experience to me

00:23:01.760 | because some of them really enjoyed what they were doing

00:23:04.520 | and they'd been doing it for a long time.

00:23:05.820 | And others had a very poor attitude

00:23:07.840 | and it was just like, I can't believe

00:23:08.920 | I have this horrible job.

00:23:10.960 | And I'm looking at it saying, have you sat down

00:23:12.800 | and calculated what it's worth?

00:23:14.960 | And just the simple ability to,

00:23:17.240 | there was no math involved,

00:23:18.440 | but just simply writing things down

00:23:19.800 | and calculating the cost and averaging it out.

00:23:22.720 | Again, I could make a career decision

00:23:24.560 | and I knew it practically the second day,

00:23:28.000 | but I would've said, well, I'll work it through a weekend

00:23:29.900 | and then I'll just see if there's something wrong.

00:23:31.780 | I did it for a week and I knew,

00:23:33.120 | this is an absolute waste of my time.

00:23:35.640 | There's no point in my pursuing this.

00:23:37.960 | But that business, if I could teach

00:23:39.840 | some of the other people that approach,

00:23:42.960 | it would change their mindset

00:23:45.080 | about the opportunities they pursue.

00:23:46.980 | - Yeah, I think that's exactly right.

00:23:51.560 | And it's kind of funny, I guess people working on salary

00:23:55.240 | and public accounting, no one ever wants to,

00:23:57.480 | no one ever wants to calculate their hourly wage

00:23:59.240 | 'cause everyone assumes it's really low

00:24:03.320 | based on the hours put in during your business season

00:24:07.240 | and tax, but I've kind of calculated mine.

00:24:11.280 | I think it's a little higher than what people

00:24:13.880 | actually think it is, but again,

00:24:15.160 | you never know if you never run the calculation, right?

00:24:17.400 | - Right, right.

00:24:18.440 | So keep going, I derailed you,

00:24:19.640 | but I just thought it's important

00:24:21.080 | to have a motivation for this.

00:24:23.760 | And if you can get a motivation and you can recognize,

00:24:27.040 | I don't have to pursue this course of action,

00:24:29.600 | I can pursue this other, or at least if you have a reason.

00:24:32.600 | I have a friend of mine that was,

00:24:33.560 | he was commuting an hour and a half in the morning

00:24:36.080 | and two hours in rush hour traffic home

00:24:38.500 | to go to a mid-level corporate job.

00:24:40.800 | And I sat down and I said, let's run the calculation.

00:24:43.360 | Unless you're convinced that this mid-level corporate job

00:24:46.500 | is actually going to lead to another step

00:24:48.720 | and that's part of your career plan

00:24:50.000 | and you're paying your dues to make this next step,

00:24:53.400 | my goodness, man, quit and go to the grocery store next door

00:24:57.160 | and you'll have a better quality of life

00:24:58.800 | even though you're making $9 an hour

00:25:00.640 | instead of $50,000 a year when you actually look at the cost.

00:25:04.160 | So these economic transactions are extremely important,

00:25:08.160 | but I derailed you from your outline, so keep going.

00:25:11.000 | - Yeah, and so to get back on track,

00:25:14.520 | you were right there basically,

00:25:16.000 | is if you change your mindset on bookkeeping,

00:25:18.200 | actually do it and get a system in place,

00:25:20.480 | you're gonna be able to get some valuable information

00:25:22.600 | out of your business.

00:25:24.680 | To list just some basic things,

00:25:26.160 | things like where do I make the most money,

00:25:28.320 | you know, I have product X and product Y,

00:25:31.440 | you know, product X has a 40% profit margin,

00:25:35.840 | the other one has a 5% profit margin,

00:25:37.680 | well, what can I do to sell more of the higher margin

00:25:41.240 | product and less of the lower one,

00:25:43.560 | and you never know that unless you really

00:25:45.800 | kind of run the numbers on it.

00:25:47.400 | And you can also get a high level picture of which expenses,

00:25:52.360 | which expenses a business has and what you can cut out.

00:25:55.680 | So if you're looking, if you look at your business,

00:25:58.680 | you're like, man, half of my gross profit goes to rent.

00:26:03.520 | Well, what can you maybe do about that?

00:26:06.840 | Do you need a storefront or do you need an office?

00:26:09.640 | Can you work from home?

00:26:11.400 | But again, if you don't run the numbers

00:26:14.320 | and don't actually have it in the system,

00:26:16.240 | you're never gonna know exactly how much

00:26:19.120 | your rent is coming out to be,

00:26:21.160 | and it could be for any expense.

00:26:22.620 | I've only had one person that I've ever worked with

00:26:24.680 | that really, he didn't really keep any records,

00:26:27.400 | but he knew exactly how much he was making

00:26:29.720 | and what was going where.

00:26:31.520 | I think he's just a really smart guy

00:26:33.720 | and really in tuned to how his business worked,

00:26:35.920 | but besides him, I've never seen anyone

00:26:38.760 | that just knew off the top of their head

00:26:41.600 | exactly how much they made

00:26:44.160 | or how much of their percentage was going to this expense

00:26:48.320 | and things like that.

00:26:49.360 | And so when I say to change your mind,

00:26:53.600 | mindset on bookkeeping,

00:26:55.060 | and you kind of need to understand all this stuff,

00:26:57.200 | I'm not saying that everyone needs an accounting degree

00:27:00.300 | or to go out and pass the CPA exam.

00:27:03.040 | It's not needed for the average entrepreneur out there,

00:27:07.120 | but it is important to start to understand

00:27:11.000 | the basics of how your bookkeeping works

00:27:14.320 | and the drivers of your business,

00:27:16.160 | like income or expenses.

00:27:18.360 | - And it can lead to a competitive advantage

00:27:21.880 | where I've worked with some entrepreneurs

00:27:25.160 | that I found I learned a lot from,

00:27:27.600 | and I also have taken some classes from some marketers.

00:27:31.800 | And one thing I remember,

00:27:33.080 | I think it was Dan Kennedy made a big point of this

00:27:35.340 | in one of the courses of his that I went through.

00:27:38.080 | He talked about the importance of understanding

00:27:41.320 | the lifetime value of a customer

00:27:44.200 | so that you can understand how much you can afford to pay

00:27:46.720 | for a client and pay to acquire a customer.

00:27:50.760 | And people, we know this,

00:27:52.480 | you see this, for example,

00:27:53.720 | at something like the grocery store,

00:27:55.040 | and we're familiar with,

00:27:56.440 | you go into the grocery store

00:27:57.840 | and sometimes they have these products that are on sale

00:28:00.020 | at such a low price.

00:28:01.120 | And you say, they're losing money on that.

00:28:03.320 | The example that comes to mind is here,

00:28:05.040 | the grocery store we use

00:28:06.360 | is a Southern regional chain called Publix.

00:28:09.640 | And at Thanksgiving,

00:28:11.240 | you can buy turkeys for 60 cents a pound at Publix.

00:28:15.280 | And you say, that is, they're losing money on that.

00:28:18.480 | Well, they're establishing a loss leader

00:28:20.680 | so that they can make it up

00:28:21.760 | on all of the other ingredients that you buy

00:28:24.160 | to create your Thanksgiving dinner.

00:28:27.520 | And I have a friend that works in the warehouse

00:28:29.060 | and he says, they overbuy the number of turkeys

00:28:31.080 | they need by a massive number

00:28:32.840 | because they will not run the risk of running out of turkeys

00:28:36.040 | but they lose money on every turkey.

00:28:38.040 | So why?

00:28:39.720 | Well, because once you keep that customer,

00:28:41.320 | you make up your profit margin in another area.

00:28:43.360 | And so in something like a business,

00:28:46.200 | a direct mail business was the example

00:28:47.840 | that Dan Kennedy was teaching from,

00:28:49.480 | he will often pay money to acquire a client

00:28:53.000 | if you know the lifetime value of that client

00:28:55.240 | 'cause that gives you a competitive advantage

00:28:56.800 | where maybe your competitor is saying,

00:28:59.080 | well, this customer is only a $10 customer,

00:29:01.040 | only a $100 customer.

00:29:02.560 | Well, if I can pay 150 bucks

00:29:04.800 | to acquire a $100 customer this year,

00:29:06.620 | but that customer is gonna go on

00:29:07.880 | to buy a thousand dollars worth of product from me,

00:29:10.980 | then you can buy up the entire marketplace

00:29:13.760 | with your business, but that only happens

00:29:15.960 | if you have an accounting system

00:29:17.760 | that will accurately show how much money you're making.

00:29:20.880 | It blows my mind in things like services,

00:29:23.680 | for example, cell phone contracts or cable contracts.

00:29:27.440 | Right now I have Comcast Cable.

00:29:28.960 | It is the worst company I have ever dealt with in my life

00:29:31.880 | other than AT&T.

00:29:33.340 | Those are my only two options for internet.

00:29:35.160 | And they are horrendous.

00:29:37.880 | And I can't bad mouth them enough

00:29:39.480 | because the service is awful.

00:29:41.840 | And I sit down and I look at the lifetime value,

00:29:44.040 | where it was the worst.

00:29:44.880 | I finally was able to get away from AT&T

00:29:46.700 | for cell phone service.

00:29:48.080 | But I looked at it and I said,

00:29:49.560 | you give all of these cell phone companies,

00:29:52.280 | and thankfully the market's changing,

00:29:53.560 | but they give so much preference to new customers.

00:29:56.000 | It was always about getting new customers,

00:29:57.440 | new customers, new customers.

00:29:58.960 | And I calculated how much I had paid to AT&T at one point.

00:30:02.080 | And I said, could you not actually be a little bit gracious

00:30:07.080 | with an existing customer

00:30:09.000 | and make me feel like a valued customer

00:30:11.120 | instead of making me feel like all you wanna do

00:30:13.360 | is go out and get new customers and not take care of me.

00:30:16.200 | Do you guys not know how to calculate

00:30:18.320 | the lifetime value of a customer that's a loyal customer?

00:30:21.280 | And it just blows my mind

00:30:22.700 | when you look at some of these big businesses.

00:30:24.800 | And anyway, I'm ranting,

00:30:27.480 | but it all comes back to the accounting

00:30:29.640 | of recognizing the lifetime value of a customer.

00:30:32.880 | And don't, as the scripture says,

00:30:34.080 | don't despise, it's not scripture,

00:30:35.520 | don't despise the day of small beginnings, right?

00:30:37.480 | Don't despise the small client

00:30:39.600 | if you recognize that this small client could grow

00:30:43.720 | and the lifetime value of this customer can be massive.

00:30:46.800 | But that comes back to your accounting system

00:30:48.320 | to know those details.

00:30:49.500 | - Yeah, yeah, that's exactly right.

00:30:53.200 | And the next thing on here,

00:30:55.240 | or the second point for the overall theme section is,

00:30:58.880 | and we touched on it briefly earlier,

00:31:00.280 | that your accounting needs to be simple.

00:31:03.520 | If there's one thing that listeners get out of this podcast

00:31:06.880 | or one rule to follow

00:31:08.500 | is your accounting system needs to be simple.

00:31:12.060 | And there's two main reasons for this.

00:31:14.160 | The first one is that if you have a big, complicated system,

00:31:17.800 | a lot of the times it's gonna provide little value to you

00:31:21.560 | with reference to how much time it actually took you

00:31:24.400 | to put that together.

00:31:25.760 | And so if you're the average entrepreneur

00:31:28.280 | where you don't have a full accounting background,

00:31:32.220 | you don't have a CPA license,

00:31:33.960 | you're just not trained with that,

00:31:35.800 | if you have this big old complicated spreadsheet

00:31:38.240 | or this big old complicated report to look at,

00:31:40.740 | it's not gonna do you any good

00:31:42.680 | because you're not gonna know how to interpret it.

00:31:45.060 | I've seen a lot of CEOs,

00:31:48.220 | the reports and the numbers that they look at,

00:31:51.120 | there's like 10 numbers on them.

00:31:53.360 | But the accounting department's putting together

00:31:55.160 | this entire financial statement

00:31:57.520 | and this entire system of numbers

00:32:00.760 | to track how the business is doing.

00:32:03.160 | But when you look really at the top level,

00:32:05.360 | they're looking at a few metrics

00:32:06.740 | and they want just this simple report

00:32:08.320 | 'cause their time is valuable.

00:32:09.800 | - Right.

00:32:10.640 | - And I don't mean to compare entrepreneurs

00:32:13.320 | to huge company CEOs,

00:32:15.440 | but I think it carries over with the fact

00:32:18.520 | that your time is valuable as an entrepreneur.

00:32:21.160 | You wanna be out there generating business,

00:32:23.320 | you wanna be out there providing content

00:32:26.280 | or making sure your customers are taken care of,

00:32:29.760 | less time worrying about the numbers,

00:32:33.280 | putting them in place and things like that.

00:32:36.560 | And so the second reason is,

00:32:40.880 | oh, did you have something?

00:32:41.720 | - No, just keep going.

00:32:43.780 | - Okay, the second reason is that

00:32:46.340 | if you have a process that's complicated,

00:32:49.000 | it's less likely that you're gonna actually do it,

00:32:52.600 | either weekly or monthly or quarterly,

00:32:54.200 | whenever you do your bookkeeping.

00:32:55.700 | So you might keep it up for a few months

00:32:57.920 | or for a year and a half or something like that,

00:33:00.400 | but the more complicated it is,

00:33:03.720 | the more time it's gonna take to keep the system up to date.

00:33:08.720 | And so at the end of the day,

00:33:10.800 | when you're tired and you just wanna go home

00:33:13.920 | and be with your family or do whatever you do,

00:33:16.940 | if you're staring at three, four, five, six, seven hours

00:33:20.740 | of bookkeeping work 'cause you got this big elaborate system,

00:33:24.560 | you're not gonna wanna do it.

00:33:26.300 | And then all of a sudden you put it off

00:33:28.020 | and then you have 16 hours to do,

00:33:29.500 | then you have 20 and you have 25.

00:33:31.780 | But if you have a simple process,

00:33:34.300 | it's easy to sit down for a half hour or an hour,

00:33:36.940 | just do it real quick

00:33:37.780 | and then you have all the data you need.

00:33:39.940 | And so simple--

00:33:43.100 | - Yeah, that one is my problem

00:33:45.080 | is I tend to overcomplicate everything.

00:33:48.480 | And including with bookkeeping, with everything,

00:33:51.360 | I always, my character weakness is,

00:33:53.880 | and I have to be very careful of it,

00:33:55.040 | that doesn't hurt me,

00:33:55.880 | is to go for the most elaborate system I can come up with,

00:33:58.480 | just 'cause it's fun and I feel cool.

00:34:00.520 | And I have to constantly remind myself, keep it simple.

00:34:03.280 | - Yeah, with working at a public account,

00:34:08.280 | there's a lot of people that are really good with Excel

00:34:10.300 | and they build these elaborate spreadsheets

00:34:12.620 | to do this and do that.

00:34:13.900 | And then I sit down and look at it and I'm like,

00:34:16.540 | well, what's the main point of this thing

00:34:18.620 | and what do we actually need to get to the end system?

00:34:21.820 | And a lot of times it's 20% of the work

00:34:23.900 | that they're actually doing.

00:34:25.940 | And I did the same thing with my own personal finances.

00:34:29.480 | I tried to come up with something that was big and elaborate

00:34:32.580 | and got all the data I needed,

00:34:35.680 | but I ended up just paring it down

00:34:38.860 | to just a simple thing that I can do

00:34:42.200 | for 10 minutes, 10, 15 minutes each weekend,

00:34:45.460 | and boom, I have all the data I need.

00:34:47.260 | I have by month, I have by year.

00:34:50.780 | And so simple, I think, really is the best rule.

00:34:54.100 | It gives you a lot of value

00:34:56.700 | for the amount of time you're putting in

00:34:58.460 | and it'll give you a higher likelihood

00:35:00.620 | of actually doing it week in and week out,

00:35:03.740 | as opposed to doing it for a while and then stopping

00:35:06.520 | and all of a sudden you're back at square one.

00:35:08.640 | - So where do you start as an entrepreneur?

00:35:10.960 | I wanna set up a simple system.

00:35:13.480 | Where do I start?

00:35:14.700 | - So the easiest way is probably,

00:35:21.320 | well, depending on the type of business,

00:35:24.020 | you probably just wanna get it in Excel

00:35:27.200 | and just track everything that you spend

00:35:31.880 | and everything that's coming in.

00:35:33.780 | And so the system, I guess, of recording a transaction,

00:35:38.780 | I have down a little later in my outline here,

00:35:43.320 | but it does kinda lead into the next topic I have here,

00:35:46.400 | which is the first thing you wanna do

00:35:48.020 | is open a business checking account and get a credit card.

00:35:52.540 | And so when you have your checking account

00:35:57.540 | and your credit card,

00:35:58.380 | you only wanna put your business expenses

00:36:01.020 | in that account and on that card.

00:36:03.260 | And you wanna put all of your business expenses

00:36:06.220 | in the account on the card.

00:36:07.580 | And the main reason is segregation.

00:36:11.220 | So you want your personal stuff in one area,

00:36:14.300 | you want your business stuff in another area

00:36:17.580 | so that it's easy to track, easy to follow.

00:36:20.220 | You do not wanna mix the two.

00:36:22.600 | When you start mixing the two,

00:36:23.860 | paying for business expenses out of your personal account

00:36:26.380 | or you're a little low on money

00:36:28.460 | in your personal account this month,

00:36:30.080 | so you're gonna take out of your business account,

00:36:31.900 | starts to complicate things.

00:36:33.460 | And in the grand scheme of things,

00:36:35.060 | it's not that hard to account for it,

00:36:37.460 | but at the same time, for a system as an entrepreneur,

00:36:42.220 | you want something that's easy, almost repetitive,

00:36:44.920 | where you don't necessarily have to think about it too much,

00:36:48.100 | at least with recording the data.

00:36:50.020 | And then when you actually get it nice and organized,

00:36:51.940 | you can start to think about it more and analyze it.

00:36:55.000 | And so--

00:36:59.180 | - I'll add one-- - The reason--

00:37:00.680 | - Let me add one tip to that.

00:37:02.760 | Yes, set up a separate account,

00:37:06.680 | set up a separate business checking account,

00:37:08.240 | but it doesn't actually have to be

00:37:10.440 | a business checking account.

00:37:12.240 | Many banks, the personal checking account is free,

00:37:15.000 | and the business checking account,

00:37:16.700 | they'll charge a fee or you have to maintain

00:37:18.320 | some kind of higher minimum balance.

00:37:21.320 | The primary purpose,

00:37:22.360 | especially just for a simple enterprise,

00:37:24.720 | the primary purpose is to have the account segregated

00:37:27.680 | for easier bookkeeping,

00:37:29.640 | and so that you can simply go back through

00:37:31.720 | and just have everything organized.

00:37:33.440 | And so even at the end of the year,

00:37:34.800 | if you had no other system,

00:37:36.440 | let's say you were mowing lawns on Saturday,

00:37:39.840 | or, and that was just your little thing,

00:37:42.320 | and all you did was just add

00:37:43.680 | a little free personal checking account,

00:37:46.120 | but you use your,

00:37:48.440 | you're not establishing a separate business entity,

00:37:51.280 | you're not, you don't need a formal business checking account

00:37:53.640 | in the name of Joshua's Lawn Service,

00:37:55.720 | it's just Joshua Sheets,

00:37:57.600 | by having everything in a separate account,

00:37:59.120 | you go back at the end of the year,

00:38:00.780 | you look at your 12 monthly statements,

00:38:02.480 | you can go through, and in about an hour,

00:38:04.240 | you can recreate all of your tax records

00:38:06.440 | that you need to file your Schedule C.

00:38:08.360 | So don't let the business checking account

00:38:11.840 | part of it stand in your way.

00:38:13.620 | Just set up a separate personal checking account.

00:38:15.500 | And if you have something where,

00:38:18.020 | for example, you have a small part-time business,

00:38:20.480 | whether it's a hobby that you've decided

00:38:22.600 | to turn into a business,

00:38:23.620 | so now you're pursuing it in a business-like manner,

00:38:25.820 | run everything out of a separate account,

00:38:27.980 | so that you can look back at the end of the year

00:38:30.040 | and decide, what do I do with the income from this business,

00:38:32.680 | what do I do with the expenses?

00:38:34.080 | It's just the easiest, simplest way to run things.

00:38:36.580 | - Yes, that's exactly right,

00:38:39.180 | and that's actually the main reason I had listed here

00:38:41.220 | for why you wanna open a separate account.

00:38:43.860 | It makes everything electronic,

00:38:45.620 | it makes everything in one place.

00:38:47.540 | And so, when everything's in one place,

00:38:49.860 | like you said, it's easy to account for,

00:38:51.440 | easy to recreate statements,

00:38:53.140 | you're also less likely to lose tax deductions.

00:38:56.540 | And so, I have clients that they, I don't know,

00:38:58.860 | go to the post office and mail something for their business,

00:39:02.100 | or they go get gas for their business vehicle

00:39:06.640 | that they make deliveries in,

00:39:08.100 | and they pay it out of their personal account.

00:39:10.140 | And so, when you hand over your stuff

00:39:12.500 | to either your bookkeeper or your tax person,

00:39:14.780 | or maybe even you do it yourself,

00:39:17.420 | you're gonna go pull the account

00:39:19.540 | that's dedicated to business,

00:39:21.380 | and those payments to the post office

00:39:23.780 | and the gas station aren't gonna be there.

00:39:25.700 | And so, depending on how long it's been

00:39:28.300 | since you've incurred those transactions,

00:39:31.300 | you may forget that you actually paid

00:39:34.500 | those amounts for your business,

00:39:35.580 | and so you're gonna lose those deductions.

00:39:37.540 | And one thing about losing deductions

00:39:41.180 | that always kind of gets people to perk up

00:39:43.740 | and actually listen about it is,

00:39:45.260 | if you're in a 35% tax bracket,

00:39:48.700 | if you don't account for $100 expense

00:39:52.980 | that you had for your business,

00:39:54.340 | it's almost as if you're just taking $35

00:39:56.380 | and just lighting it on fire.

00:39:57.860 | Because that's additional tax

00:40:00.020 | you're gonna have to pay to the government

00:40:01.660 | because you didn't record that expense.

00:40:03.820 | And then, also, with the accounts,

00:40:09.020 | everything is gonna be on statements.

00:40:11.860 | And so, like you said, you can go back through,

00:40:15.520 | categorize all your expenses,

00:40:17.260 | and put it on your tax return.

00:40:21.020 | And with the statements, the electronics,

00:40:22.780 | you can email them around easier,

00:40:25.660 | or put them on some sort of SharePoint site

00:40:28.020 | for your tax person or bookkeeper, whoever,

00:40:31.020 | and they can grab them real quick,

00:40:32.500 | as opposed to, I know some people get the paper statements

00:40:35.060 | and you can scan them in,

00:40:35.900 | but at least from my perspective,

00:40:38.540 | electronics is a lot easier to work with.

00:40:40.340 | - Right.

00:40:41.180 | And my reason for mentioning that,

00:40:42.700 | and it's not to say that we don't need business accounts,

00:40:45.340 | you do, if you're gonna be paying,

00:40:47.140 | I mean, there is a functionality to a business account,

00:40:49.340 | and we need to set that up properly

00:40:50.660 | and set up your tax ID numbers,

00:40:52.620 | you do need to do it properly.

00:40:54.180 | But I see so many people that run little,

00:40:57.100 | you know, sideline enterprises,

00:40:58.660 | little part-time enterprises.

00:41:00.140 | Example that I think of, when I was a kid,

00:41:01.780 | I used to raise and sell rabbits.

00:41:03.640 | And something like that,

00:41:05.300 | let's say somebody has a hobby of raising rabbits.

00:41:09.860 | Well, all I needed to do,

00:41:11.460 | if I'd had a little bit better instruction,

00:41:13.440 | is have a checking account for my rabbits,

00:41:16.040 | and that's the business that runs through that.

00:41:18.940 | And now, all of the things associated with that

00:41:21.860 | become deductions.

00:41:23.100 | So the books that I bought on rabbits,

00:41:25.140 | instead of them, you know,

00:41:26.140 | because they were specifically related

00:41:27.820 | to my focus of building that business up,

00:41:30.260 | and I was actively pursuing it in a business-like manner,

00:41:33.680 | now all of a sudden,

00:41:34.660 | every activity that's associated with my rabbits

00:41:37.860 | becomes a business,

00:41:39.860 | and it becomes a business deduction.

00:41:41.760 | And there are many little businesses

00:41:44.300 | that people can set up,

00:41:45.940 | and little businesses that people can run,

00:41:48.500 | and you don't have to pursue a business 60 hours a week

00:41:51.580 | to have a legitimate business.

00:41:53.340 | And it's not that difficult to do,

00:41:55.060 | it's just that most of us, we're taught by employees,

00:41:58.700 | most of our teachers that we have throughout our life

00:42:00.960 | are employees, and so, and very few of us,

00:42:03.860 | unless we have a mentor that comes along and says,

00:42:06.060 | here, let me show you how to set this up,

00:42:08.220 | we don't know how to go through the simple mechanics

00:42:10.140 | of keeping a separate account.

00:42:11.860 | But I think everybody, you know,

00:42:13.820 | is gonna have some, should probably have

00:42:15.900 | some kind of side business, and it's so simple.

00:42:19.620 | Separate account, file a schedule C on your tax return,

00:42:22.740 | and you're basically done.

00:42:24.660 | So correct me if I'm wrong in any of that,

00:42:26.340 | but to keep it simple is very important

00:42:29.620 | to lower the barrier to entry.

00:42:31.500 | I get questions from friends,

00:42:32.900 | well, I need to go and do this,

00:42:34.860 | I need to go and do that.

00:42:35.780 | Listen, even if, yeah, get your taxpayer ID number

00:42:39.220 | if you wanna set that up, that takes you about five minutes,

00:42:41.220 | it's not that tough.

00:42:42.620 | You don't need a bunch of expensive stuff,

00:42:44.300 | it's basically free, it's not that tough.

00:42:46.820 | - Yeah, I think that's exactly right.

00:42:50.060 | If you're running a small-time thing,

00:42:52.540 | especially if you're a minor,

00:42:56.060 | you definitely don't need a separate

00:42:58.140 | business checking account.

00:43:00.060 | A separate personal one would be fine.

00:43:02.740 | One thing that I like about the business checking accounts

00:43:05.860 | and, is that you don't have to use your social.

00:43:09.340 | - Right, right.

00:43:10.180 | - So each entity needs some sort of identifier.

00:43:14.100 | So for us as individuals, we have our social security number

00:43:16.660 | to identify ourselves to the government.

00:43:19.020 | Businesses have what you mentioned in EIN,

00:43:21.300 | an employer identification number.

00:43:23.180 | And so when people, when you're in business,

00:43:27.460 | a lot of people will ask for this sort of stuff,

00:43:29.460 | they'll give you a W-9 or a 1099 or something,

00:43:32.540 | and you need to give them some sort of number.

00:43:34.220 | And so if you don't have that EIN

00:43:39.300 | or that bank account that kind of shows,

00:43:40.780 | like hey, this is my EIN, this is my documentation,

00:43:44.100 | sometimes you have to give it that social.

00:43:45.540 | And I know identity theft has been a big thing

00:43:49.040 | coming up recently, especially with people

00:43:51.820 | filing fraudulent tax returns.

00:43:54.480 | So I don't necessarily mean to or intend to scare people,

00:43:59.220 | but at the same time, it's important to some people

00:44:03.700 | and it's definitely something to be cautious about.

00:44:07.700 | And there are business checking accounts out there

00:44:09.900 | that are free, especially if you have a smaller enterprise.

00:44:13.360 | And so I, at the local credit union here in Boise,

00:44:18.260 | I can have up to 1,000 transactions a month

00:44:22.300 | and not be charged a fee.

00:44:24.700 | And so if your business is having less than $1,000 a month,

00:44:29.700 | you could have a free business checking account

00:44:31.640 | and all the benefits that come with it.

00:44:33.720 | But with the business checking account,

00:44:35.380 | they like to add fees to everything,

00:44:37.500 | so it's harder to transfer money electronically

00:44:40.140 | without having some sort of system

00:44:43.180 | that's a fee from the bank, things like that.

00:44:45.480 | And so that's, I guess, my spiel

00:44:49.420 | on the business bank accounts.

00:44:50.540 | If people want to open one up,

00:44:53.020 | all you gotta do is go down to your bank and say,

00:44:54.420 | hey, I wanna open up a business checking account.

00:44:57.460 | You can open, from what I've seen,

00:44:59.520 | there's no online business checking accounts.

00:45:01.760 | I know some people like the online banking.

00:45:04.180 | I've only seen online savings accounts.

00:45:06.940 | But to open a checking account,

00:45:10.620 | all you need is your EIN from the IRS,

00:45:13.180 | which you mentioned before.

00:45:14.700 | You can do it online, takes less than five minutes.

00:45:17.580 | You can ask for either electronic or paper letter

00:45:19.820 | from the IRS and you'll get your EIN.

00:45:24.060 | And then you probably need some sort of documentation

00:45:27.180 | from the secretary of state.

00:45:28.340 | So each state has a secretary of state.

00:45:31.420 | In Idaho, if you wanna fill out a DBA or an LLC,

00:45:36.420 | you just need to send a one-page form

00:45:38.180 | to the secretary of state.

00:45:39.640 | They'll stamp it, mail it back,

00:45:41.240 | bring those two things into the bank.

00:45:43.020 | And at least in my experience,

00:45:46.300 | that's all you really need to open up

00:45:48.020 | your business checking account and get going with that.

00:45:51.420 | - Right, I agree.

00:45:52.240 | And I will reaffirm your mention of local credit union.

00:45:55.580 | When I shopped for business checking accounts,

00:45:58.580 | I went to the big banks and all just the fees

00:46:00.580 | were, in my opinion, egregious.

00:46:02.380 | But local credit union, completely free, no fees.

00:46:05.780 | Had to maintain a very small balance.

00:46:07.500 | I even forget what it is, but a very small balance

00:46:09.980 | in an attached savings account

00:46:11.940 | at that specific local credit union

00:46:14.400 | and a free business checking account.

00:46:15.860 | Super easy, completely free,

00:46:17.560 | and they will offer you better service over time.

00:46:20.860 | And I like to support local credit union regardless.

00:46:24.860 | - Yep, yep, definitely.

00:46:27.180 | I've had bad experience with larger banks.

00:46:30.380 | Local credit union, I've never had anything happen.

00:46:33.260 | I had an issue once, but they fixed it really quick.

00:46:37.260 | Unlike some other experiences at larger banks.

00:46:42.060 | - Put it this way, I will bad mouth SunTrust

00:46:43.980 | 'til the day I die.

00:46:44.960 | They destroyed me.

00:46:47.020 | That was where my first business checking account was.

00:46:49.660 | I will never again do business with that company

00:46:54.700 | in any way, shape, or form.

00:46:56.520 | It was just a terrible experience.

00:46:58.420 | And there are enough, anyway,

00:47:00.580 | so there, I bad mouthed them publicly.

00:47:02.060 | That's the first time I've bad mouthed them on the show.

00:47:03.500 | I pretty much keep my mouth shut about most companies,

00:47:05.920 | but I'll never do business again with them in my life.

00:47:08.920 | - I have one bank in mind as well,

00:47:12.540 | but I won't mention it on the show.

00:47:15.580 | - All right, keep going.

00:47:17.420 | - All right, so the next tip here

00:47:19.860 | is to avoid using cash for your business.

00:47:24.620 | And I know a lot of people like to use cash.

00:47:26.940 | If people are on the Dave Ramsey budget,

00:47:30.860 | you have your cash envelopes,

00:47:32.620 | and it helps people with budgeting.

00:47:35.020 | Say, okay, I have $80 or $100 or whatever

00:47:38.500 | that I can spend at the grocery store.

00:47:41.300 | I can't buy more than $100 'cause that's all I have.

00:47:44.020 | But for business purposes,

00:47:47.060 | especially when you're trying to do bookkeeping

00:47:49.380 | and get everything ready for taxes,

00:47:51.900 | cash makes it really hard.

00:47:53.420 | And it goes against the simple concept

00:47:55.180 | that I was mentioning before.

00:47:57.540 | The main reason is that cash is really, really,

00:47:59.880 | really easy to lose track of.

00:48:02.420 | And so you could pay for something with cash

00:48:04.460 | and say, oh, that's a business receipt,

00:48:05.860 | but then you lose the receipt.

00:48:07.300 | Or you're not used to keeping your receipts

00:48:09.820 | and you get it for your business

00:48:11.460 | and you just throw it away.

00:48:12.820 | We talked about the segregation concept earlier.

00:48:17.260 | You could pay for something

00:48:18.740 | with the wrong kind of source of funds.

00:48:20.380 | I'm putting that in air quotes here,

00:48:22.760 | with the wrong source of funds

00:48:24.100 | to kind of keep everything balanced at your business.

00:48:27.260 | And there's lots of other reasons,

00:48:29.580 | but the main reason is the most transactions

00:48:33.860 | I see not recorded on a tax return

00:48:36.540 | come from the owners using cash

00:48:39.460 | and not remembering to tell someone about it

00:48:42.180 | or keep the receipt.

00:48:43.500 | 'Cause it's easy to remember that day,

00:48:45.800 | but especially if you're busy,

00:48:46.900 | even the next day it's hard to remember,

00:48:49.600 | oh, I need to make a note about this cash purchase

00:48:52.340 | or the next week or the next month.

00:48:54.100 | You're never gonna figure it out.

00:48:56.220 | So cash is really, really easy to lose track of.

00:48:59.460 | And then some people have multiple businesses going on.

00:49:03.380 | They have multiple Schedule Cs

00:49:05.820 | or if you're into rental properties,

00:49:07.740 | you have your Schedule E.

00:49:09.780 | Just multiply kind of all the things I mentioned

00:49:13.740 | by two or three in terms of complication

00:49:16.340 | and that'll get you how important it is

00:49:18.380 | for the multiple business side.

00:49:20.140 | Because now all of a sudden you got a business expense

00:49:23.880 | that you have to remember,

00:49:24.720 | you have to keep the receipt for.

00:49:25.980 | And then you gotta remember which business it should go on.

00:49:30.980 | And so the people I've seen with multiple business,

00:49:35.260 | it gets tough to remember which business it's for.

00:49:40.260 | It's a lot easier, okay, as I'm doing that transaction,

00:49:43.660 | I pull out the credit card for this business

00:49:45.500 | or I pull out the credit card for the other business,

00:49:47.860 | run the transaction through

00:49:49.660 | and then it'll just show up on that statement

00:49:51.500 | and then it's easy to categorize.

00:49:54.220 | And so, go ahead.

00:49:56.260 | - I was gonna say, cash is definitely

00:49:57.740 | the ultimate discipline factor.

00:49:59.900 | So for somebody who needs discipline

00:50:02.260 | and someone's deeply in credit card debt,

00:50:05.140 | trying to get control of spending for the first time,

00:50:07.780 | building in that discipline factor

00:50:09.820 | of not actually physically being able to overspend,

00:50:13.980 | I think that's a huge advantage.

00:50:16.300 | But once that basic discipline factor is established,

00:50:20.180 | you're exactly right, you've gotta be able to track it.

00:50:22.500 | I've never met someone who is, including me,

00:50:25.860 | who has the personal discipline

00:50:27.900 | to actually record every transaction

00:50:30.580 | and have a proper journal or ledger of their cash

00:50:33.740 | so that they can know where every dollar goes.

00:50:36.340 | Most people, it just seems to slip through their fingers

00:50:39.100 | quicker than anything else.

00:50:40.600 | - Yeah, that's exactly right.

00:50:43.100 | And you can, I mean, you can use cash for your business.

00:50:46.380 | - Right, absolutely.

00:50:47.500 | - You just have to up your game on documentation

00:50:51.060 | and remembering what came from where

00:50:52.820 | and recording everything.

00:50:54.500 | And I'll tell you, even for me,

00:50:55.900 | sometimes if I use cash for my personal stuff,

00:50:59.660 | sometimes I forget to record it.

00:51:00.900 | And it's like, I do this for a living.

00:51:03.420 | - Right, me too.

00:51:05.660 | - So other entrepreneurs, I think there's a less likelihood

00:51:09.980 | of the cash transaction actually being recorded.

00:51:13.200 | And the other thing that cash will do,

00:51:15.520 | we talked about the checking account

00:51:17.780 | and having everything kind of electronic

00:51:19.560 | on those statements.

00:51:20.720 | Cash won't show up on the statement.

00:51:24.860 | And one thing I was gonna mention

00:51:26.940 | with the business credit card,

00:51:29.500 | you don't necessarily need a credit card.

00:51:31.200 | I know some people don't like credit cards,

00:51:32.540 | they like the debit cards, that's fine.

00:51:34.340 | The main reason with a credit card

00:51:35.820 | is you want some form of electronic payment.

00:51:40.000 | And so your debit card,

00:51:42.700 | it's depending on how you think about it,

00:51:45.360 | you could view that as cash kind of being recorded

00:51:47.640 | in your bank account.

00:51:48.720 | But cash will add complexity to the system

00:51:54.600 | just 'cause it's one more thing you have to do.

00:51:56.640 | And we talked about being simple,

00:51:59.120 | having something that's repetitive.

00:52:00.880 | And you could make cash a repetitive nature

00:52:04.960 | in your accounting system,

00:52:05.840 | but it's just, at the end of the day, it's just tougher.

00:52:09.700 | - Yeah, cash speaks.

00:52:11.540 | And there are, I think,

00:52:12.620 | if you can get a discount by using cash.

00:52:15.060 | I recently had a financial transaction

00:52:17.740 | and just one of my things

00:52:19.300 | as a part of just about any financial transaction I can

00:52:21.900 | is listen, can I get a discount for cash?

00:52:24.160 | And the person said yes,

00:52:26.320 | I was able to get a discount for cash.

00:52:28.260 | But I don't have an excellent accounting system

00:52:31.260 | established to deal with that.

00:52:34.260 | So what I did was I made sure to go directly to the ATM,

00:52:37.260 | take out the specific amount of cash I needed

00:52:39.440 | for the transaction.

00:52:40.940 | I got my substantial cash discount

00:52:43.260 | by handing over $20 bills.

00:52:44.940 | I got my receipt and I had a series of ATM withdrawals,

00:52:48.900 | one after the other, totaling the exact amount.

00:52:51.820 | And then that spurred me to have in my mind

00:52:55.580 | the amount of money that I need.

00:52:57.860 | It spurred me to make a note of,

00:52:59.860 | yes, here was the transaction,

00:53:01.660 | it's recorded in my accounting system,

00:53:03.700 | but I was able to get the discount for cash.

00:53:06.220 | Every business might be different.

00:53:08.300 | I gotta imagine it'd be unusual for an accountant

00:53:11.420 | running an accounting practice to be thinking about

00:53:13.940 | how do I go and get a discount on Craigslist

00:53:16.300 | for this certain thing.

00:53:18.220 | But I tell you, there are some businesses

00:53:20.260 | where having a bunch of cash in your pocket

00:53:23.900 | and buying stuff on Craigslist,

00:53:25.580 | that can improve your profitability massively.

00:53:28.060 | So you just gotta set up a system

00:53:29.100 | that's gonna account for your specific business.

00:53:32.220 | - Yep, yep, I have a client that has the same thing.

00:53:35.860 | He goes in SwapMeet where basically everything's cash

00:53:40.380 | and he picks up some really good deals there.

00:53:42.820 | The problem is just trying to record everything

00:53:45.860 | 'cause he'll take out, I don't know, a thousand,

00:53:48.500 | two thousand dollars, go to the SwapMeet,

00:53:50.780 | buy a bunch of things, and it's really hard

00:53:53.060 | to kind of break down what each item costs

00:53:57.300 | 'cause you're not necessarily getting a receipt

00:53:58.900 | at the SwapMeet showing everything.

00:54:01.460 | So if you're disciplined enough, cash can work,

00:54:03.900 | especially if you can get a good deal on it.

00:54:07.220 | I think that would kind of up your game

00:54:09.340 | on the discipline part.

00:54:10.660 | But at the same time, it's tough to track.

00:54:13.900 | So it has its place,

00:54:14.900 | but it's just something to be conscious of.

00:54:16.580 | - My suggestion, envelope, put the thousand dollars

00:54:19.140 | in the envelope, take a pen with you.

00:54:21.080 | When you buy something, write it on the envelope,

00:54:22.980 | what it was, how much it was, put all the change in,

00:54:25.600 | and then just bring that envelope back

00:54:27.080 | and on the front of it, you've got your ledger

00:54:28.860 | and transfer that to your standard accounting system.

00:54:31.860 | It's the best way that I've done.

00:54:32.840 | I do that when I'm traveling

00:54:34.060 | and you're dealing with foreign currency

00:54:35.700 | and a foreign account, and I wanna know

00:54:37.420 | what am I actually spending here.

00:54:38.700 | Just toss the money in an envelope

00:54:39.860 | and write every transaction on the front cover of it.

00:54:42.860 | - Yeah, yeah, I've given him some ideas to track it,

00:54:46.620 | but he's not in tune with the bookkeeping side

00:54:51.220 | of the business, so I just deal with it later.

00:54:54.400 | - So boogie on here.

00:54:57.380 | - Yep, so the next tip here is to use

00:55:01.740 | some sort of accounting software,

00:55:03.660 | and depending on the type of business you have,

00:55:06.780 | you can have a lot to track or little to track,

00:55:09.660 | and depending on the size of your business,

00:55:11.100 | you may have funds to pay for something like this or not,

00:55:14.160 | but the accounting software, something like a QuickBooks

00:55:19.220 | or a FreshBooks, I think those are the two popular ones

00:55:23.980 | out there that I see, it saves you a lot of time.

00:55:29.260 | If you have an Excel spreadsheet to track everything

00:55:32.860 | and record all of your expenses into these categories

00:55:36.260 | and you have formulas and all that stuff,

00:55:38.700 | it's nice to have, but a lot of that stuff

00:55:42.460 | takes a lot of manpower to keep up each week

00:55:47.460 | or each month and record all the transactions,

00:55:50.860 | and it's easy to have user error with those,

00:55:54.340 | and then if you have that, it's tough to find them later.

00:55:58.100 | What I've seen with an accounting system,

00:56:00.260 | a lot of those things, there's less likelihood

00:56:03.300 | of those happening, and the amount of time

00:56:06.340 | you need to record a transaction is just a lot, a lot less,

00:56:09.640 | and so I see a lot of people that are intimidated

00:56:13.660 | by accounting systems, like, oh, I'm not an accountant,

00:56:16.700 | I can't possibly run QuickBooks or FreshBooks,

00:56:19.860 | I don't know what I'm doing, I don't know,

00:56:22.780 | to throw some accounting lingo, I don't know debits

00:56:25.180 | and credits and, I don't know, balance sheets

00:56:28.340 | and cash flow statements and all that stuff,

00:56:30.260 | but I think one thing that's important to know

00:56:33.340 | is mainstream accounting software

00:56:35.680 | is made for non-accountants.

00:56:37.460 | - Right, absolutely.

00:56:38.300 | - So if you're getting ready to send someone an invoice

00:56:41.620 | for some product that you sold them,

00:56:43.620 | and you literally go to a button

00:56:45.460 | and it says create an invoice, you click it,

00:56:47.700 | and boom, up pops an actual invoice,

00:56:49.580 | and you just fill it out with the client, the address,

00:56:52.060 | the item number, and everything calculates for you,

00:56:54.480 | and it literally looks like an invoice,

00:56:56.460 | and all of the income statement accounts

00:56:58.660 | and expense accounts, all that gets recorded

00:57:00.420 | behind the scenes for you.

00:57:02.820 | And so, and I say that, you need to kind of set up correctly

00:57:06.540 | and you can get a bookkeeper or someone

00:57:09.020 | to help you with that decently, cheaply,

00:57:12.020 | but it saves a lot of time and categorizes everything

00:57:16.460 | for you, especially if you're, it's easy,

00:57:19.380 | especially if you're not an actual accountant.

00:57:23.260 | - And another suggestion, because the fees

00:57:27.240 | for QuickBooks and FreshBooks vary,

00:57:29.300 | they've got the upfront purchase amounts,

00:57:31.640 | you can buy the program as an independent software program,

00:57:34.640 | you can also do, for example, QuickBooks,

00:57:36.760 | you can do QuickBooks online,

00:57:38.080 | and then there's simply a monthly fee.

00:57:39.880 | There are advantages and disadvantages for,

00:57:42.080 | I like the QuickBooks online, their app that they have,

00:57:46.400 | which helps, I think, an entrepreneur

00:57:47.880 | to be able to often track their transactions

00:57:50.520 | a little bit more easily, to be able to do things on the go,

00:57:54.060 | right from their phone, pull things up,

00:57:55.700 | see their P&L, their profit and loss statement,

00:57:57.860 | right in the middle of the month.

00:57:59.380 | But there's also the cost for it,

00:58:00.700 | and so some businesses, there may not be the benefit there

00:58:04.940 | of paying for the software if it's a very small business.

00:58:08.800 | A free alternative that I've used

00:58:11.060 | is an open source program called New Cash, G-N-U-C-A-S-H.

00:58:16.060 | I'm not sure if you've ever used it.

00:58:18.620 | It's a little bit, for those who aren't familiar

00:58:21.120 | with accounting systems, just any kind of double entry

00:58:24.000 | bookkeeping system like QuickBooks

00:58:26.400 | is probably going to be a tiny bit intimidating

00:58:28.920 | for some people.

00:58:30.360 | QuickBooks, I think, is pretty doable,

00:58:33.360 | but if you want a free version of it,

00:58:35.360 | where you can have an accounting software

00:58:37.220 | that will go ahead and integrate transactions from the bank,

00:58:40.000 | check out New Cash.

00:58:40.920 | I've used that and found it to be perfectly adequate.

00:58:43.560 | - Yeah, I'm glad you mentioned that.

00:58:47.160 | I actually forgot about that program.

00:58:48.400 | I had a buddy that mentioned that to me a few years ago,

00:58:51.560 | 'cause he was using it for his personal accounting.

00:58:55.040 | He doesn't have a business, but he's using it to track

00:58:57.280 | his wages and his tax withholding and all that stuff.

00:59:00.400 | And he mentioned that, and I totally forgot about it,

00:59:03.680 | but thanks for mentioning that.

00:59:06.160 | - And I think one other just comment that I have

00:59:08.920 | from my own personal experience.

00:59:11.540 | I think it's important to look at the scale of your business

00:59:14.280 | to understand what's actually needed,

00:59:16.400 | and then, as we mentioned earlier,

00:59:18.000 | and then also to look at what is the makeup

00:59:21.240 | of your business.

00:59:22.320 | So in my financial planning practice,

00:59:24.280 | for a time, I tried to use QuickBooks,

00:59:27.360 | but what was frustrating is because I had set it up

00:59:31.540 | and made the mistake of using the bank to,

00:59:35.660 | using the transactions, allowing the software

00:59:40.520 | to automatically import the transactions

00:59:42.600 | from my checking account, that became a major problem,

00:59:45.640 | because I couldn't get it to easily reconcile

00:59:50.280 | the transactions that happened before money

00:59:52.460 | hit my checking account.

00:59:53.880 | And so there were certain deductions and certain expenses

00:59:56.440 | and things that would get pooled before the money

01:00:01.060 | would actually hit my checking account.

01:00:02.940 | So what I came up with that actually worked the best for me,

01:00:05.440 | and the other thing is I wanted a system

01:00:06.800 | that was slightly manual, because I find value

01:00:09.780 | in having a system that's not fully automated,

01:00:12.440 | so that I can question every expense.

01:00:15.640 | So I would keep my checkbook registers,

01:00:18.920 | with physical paper checkbook registers,

01:00:21.560 | and then every few days, I would just sit down

01:00:23.080 | and it would take less than five minutes,

01:00:24.880 | and I kept one ledger in an Excel spreadsheet,

01:00:28.940 | but with codes for each of the different businesses

01:00:31.440 | and returns that I would be filing.

01:00:33.960 | I was filing multiple Schedule Cs.

01:00:36.160 | And so I just had everything coded,

01:00:38.240 | and I'm very good with Excel,

01:00:41.280 | so I was able to have a fully manual system,

01:00:44.680 | where my system wasn't being messed up

01:00:47.000 | by importing transactions, and I was able to fully account

01:00:51.060 | for all of the deductions that occurred

01:00:52.920 | before my pay would hit my account properly,

01:00:56.560 | and I was able to create it that it worked best for me.

01:01:00.360 | So it was free, it kept the level of manual control

01:01:03.580 | that I needed to question the decisions

01:01:06.120 | and make sure that I was being most efficient

01:01:07.640 | with every transaction.

01:01:09.440 | So I was able to make it work with an Excel system,

01:01:12.360 | but that doesn't scale very well

01:01:14.800 | once you get to the point

01:01:15.640 | where you're having lots of transactions.

01:01:17.000 | So I think it is important for someone

01:01:18.280 | to design something that's gonna be ideal for their system,

01:01:22.400 | and my accountant didn't like it.

01:01:24.040 | But I also fired that accountant

01:01:26.640 | 'cause it didn't do a good job,

01:01:28.600 | and I was able to do it more myself.

01:01:30.640 | But anyway, keep going.

01:01:32.760 | - Yeah, yeah, and I know on the bank import thing,

01:01:35.240 | I used to hate that as well,

01:01:36.840 | 'cause I didn't want it to mess up

01:01:38.560 | and I liked to record it before it actually happened.

01:01:43.560 | What QuickBooks Online and some of the other ones

01:01:48.080 | we'll do now is it'll import to like a,

01:01:51.100 | it'll import to an area

01:01:54.000 | that's not really recorded in your system,

01:01:57.680 | and then it'll try and match up

01:01:59.600 | what it's pulling from the bank account

01:02:01.000 | to what is recorded already,

01:02:03.560 | or what you have recorded already in QuickBooks.

01:02:06.440 | And so what I do is I go into,

01:02:10.720 | if I'm going into either my own

01:02:12.280 | or to a client's QuickBooks Online,

01:02:16.760 | I go to the bank area,

01:02:18.120 | and then it has a list of transactions there from the bank,

01:02:20.920 | and then if it's matched up,

01:02:22.560 | it'll have a little green bubble basically,

01:02:25.240 | and say, "Oh, do you agree

01:02:26.080 | "that this matches up with this transaction?"

01:02:28.200 | And you just hit agree, agree, agree.

01:02:30.440 | And if I can't find something, you can manually match it up.

01:02:33.820 | Or if it imports and you haven't recorded it yet,

01:02:37.060 | you can just select the account that it needs to go to

01:02:39.780 | and just hit record.

01:02:40.880 | So that was my main problem before

01:02:43.620 | by I don't want transactions to be doubled up or anything,

01:02:47.340 | but I think they're getting better at it,

01:02:50.860 | especially with the online stuff.

01:02:52.100 | Even a year and a half ago,

01:02:54.180 | the online versions of these accounting programs

01:02:57.660 | weren't that great,

01:02:58.620 | especially if you were trying to track inventory.

01:03:01.660 | But now I've seen them really make a lot of strides

01:03:04.900 | with making them better.

01:03:07.120 | - Do you ever think though about,

01:03:10.780 | I guess, customizing solutions?

01:03:12.520 | 'Cause the software systems are great,

01:03:14.980 | but one of the things I've noticed

01:03:17.300 | as people have asked me,

01:03:19.260 | for example, Mint is very popular.

01:03:22.180 | I know people that just use Mint

01:03:24.180 | and they actually use it to account for their transactions.

01:03:26.160 | It's free, you can do it right on your phone.

01:03:29.500 | But it certainly has major flaws

01:03:32.140 | in that it's a,

01:03:32.980 | I guess we'll throw out the accounting,

01:03:35.220 | it's a single entry system,

01:03:36.260 | it's not a double entry system,

01:03:37.340 | it's not a proper accounting system

01:03:39.980 | that will work for producing your financial statements.

01:03:43.060 | But one of the things I've realized

01:03:44.260 | is that people, by not doing things manually,

01:03:48.380 | oftentimes people don't understand how their systems work.

01:03:51.940 | So do you ever think though about consulting,

01:03:54.660 | especially with a young entrepreneur or new entrepreneur

01:03:57.180 | and saying, let me teach you how to do it manually

01:03:59.700 | for a little while,

01:04:01.260 | and then start working your way

01:04:02.900 | into a technological solution?

01:04:04.500 | Write it down, for example,

01:04:05.620 | keep a paper ledger or something like that.

01:04:08.300 | Have you consulted with clients differently

01:04:09.960 | depending on their different situations?

01:04:12.620 | - Yeah, so I've consulted with trying

01:04:15.580 | to help them understand the process in general.

01:04:19.140 | The main way that I do that is with the different reports

01:04:22.940 | and how the numbers and transactions

01:04:27.940 | will show up in different accounts.

01:04:29.940 | 'Cause it's easy when you're looking at the accounts

01:04:31.460 | to show them the double entry piece of the accounting.

01:04:34.880 | But from my experience,

01:04:38.060 | the manualness of accounting,

01:04:41.020 | I've seen really no interest in from people

01:04:43.780 | because they want a quick, easy, simple solution.

01:04:47.640 | And especially if, I've seen a lot of people,

01:04:50.940 | they like electronic now rather than a paper binder

01:04:54.820 | or something like that.

01:04:56.300 | And so I've seen less of a interest in that

01:05:00.540 | and more of, okay, I just wanna understand

01:05:03.540 | the accounting in general and how it shows up

01:05:06.740 | into these, or how it gets to these different accounts

01:05:10.340 | on your trial balance or your balance sheet

01:05:13.540 | or something like that.

01:05:15.340 | And I've noticed though, after I take people through that,

01:05:18.020 | it helps them start to understand

01:05:20.300 | what the accounting system's actually doing.

01:05:22.820 | 'Cause as we mentioned before,

01:05:24.740 | the accounting system is made for a non-accountant.

01:05:28.180 | And so by doing it that way,

01:05:30.220 | you miss a lot of behind the scenes.

01:05:32.420 | And starting to understand how or where things end up

01:05:37.340 | helps you to understand what the system is doing

01:05:40.780 | and then you can start to get a better grasp

01:05:44.700 | of your bookkeeping system.

01:05:46.220 | - Yeah, it's a real challenge for a nerd like me

01:05:48.460 | to, why would somebody not be interested

01:05:50.500 | in learning it manually?

01:05:51.860 | But you're right.

01:05:52.900 | And I think the next wave is the mobilization

01:05:56.940 | of everything I think is helping.

01:05:58.740 | QuickBooks online, having the app

01:06:00.460 | and having everything fully integrated into the phone,

01:06:02.660 | that helps a ton.

01:06:04.300 | And one of the changes is, instead of just simply,

01:06:07.780 | that I see of huge value,

01:06:09.020 | instead of just simply trying to take things

01:06:11.180 | and apply the desktop computer version to a mobile device,

01:06:16.060 | now by rethinking even the interface

01:06:18.460 | from a mobile perspective,

01:06:20.060 | I think that's helping a lot to have applications

01:06:23.860 | that people can just simply use

01:06:25.260 | and that are more intuitive and less tied to the computer.

01:06:30.260 | I think that's helpful 'cause still,

01:06:32.820 | man, you open up QuickBooks

01:06:33.900 | and you look at the ledger on the computer,

01:06:35.820 | that's pretty intimidating for many people.

01:06:37.660 | But going transaction by transaction

01:06:40.340 | with an automated system right on your phone,

01:06:42.060 | that's not so intimidating.

01:06:43.420 | - Yeah, yeah, that's exactly right.

01:06:45.620 | And I know you mentioned the app before,

01:06:47.500 | which I think is a great idea

01:06:49.300 | and one thing that I recommend to clients

01:06:52.140 | that don't have a lot of time

01:06:53.620 | and stuff that I use for my own bookkeeping for my business.

01:06:58.380 | And the one thing I would add is to what you said earlier

01:07:01.900 | is if you're using the app,

01:07:03.700 | I found a lot of people,

01:07:05.460 | they don't necessarily feel like they're doing bookkeeping.

01:07:09.820 | 'Cause when you think of doing bookkeeping,

01:07:13.220 | you look at it and you sit down and you get on my computer

01:07:15.100 | and you run through all these receipts

01:07:16.380 | and you categorize things.

01:07:18.020 | But if you're on an app,

01:07:19.700 | when you're walking, I don't know,

01:07:21.220 | from a client to your car,

01:07:23.340 | you can pull it up real fast.

01:07:24.500 | There's three things sitting there.

01:07:25.620 | You can hit the certain buttons

01:07:27.900 | to categorize it a certain way and then you're done.

01:07:31.100 | And so when you do it that way,

01:07:32.180 | you don't necessarily feel like you're doing the bookkeeping

01:07:34.780 | or keeping up with all the accounting,

01:07:36.020 | but you actually are.

01:07:37.420 | And so that's kind of an indirect way

01:07:39.540 | to stay on top of it, which I think is really good.

01:07:41.980 | - Right.

01:07:42.820 | And I wanna switch the order up

01:07:44.060 | on the outline that we're working from here

01:07:45.740 | and go to documentation and retention.

01:07:49.420 | And I wanna encourage people,

01:07:52.220 | one of the things that I have found to be helpful

01:07:54.540 | is if you can establish a process for yourself

01:07:57.300 | that you go through.

01:07:58.580 | For example, when I was having

01:08:00.660 | a lot of financial planning appointments,

01:08:02.140 | I would do quite a few meetings.

01:08:06.940 | As a financial advisor, you eat a lot,

01:08:08.580 | you're out to restaurants a lot,

01:08:10.140 | you're tracking the coffee that you bought

01:08:12.420 | for your prospective client.

01:08:13.780 | All these little, little things.

01:08:16.020 | And if you can just simply create a habit

01:08:19.300 | where everything is done all at once

01:08:21.740 | that supports your bookkeeping system,

01:08:23.820 | I think it's a lot less intimidating

01:08:25.420 | than trying to sit down at the end of the month

01:08:27.300 | with a shoebox full of receipts

01:08:28.820 | and figure out here is where they go.

01:08:31.580 | So I developed for myself a checklist.

01:08:33.220 | I read years ago a book called "The Checklist Manifesto"

01:08:35.860 | and it absolutely convinced me

01:08:37.620 | that I need a checklist for anything worth doing.

01:08:40.300 | And so I created a checklist for every meeting.

01:08:45.260 | And over time, I just became memorized,

01:08:47.540 | but I printed it out.

01:08:48.380 | And so I would leave the meeting

01:08:49.820 | and I used a mobile dictation.

01:08:51.980 | So while I would leave the meeting,

01:08:52.820 | I would save the receipt,

01:08:54.100 | I would write on the front of the receipt,

01:08:55.900 | here was the person that I met with,

01:08:57.660 | here was what the business conversation was,

01:09:00.060 | I would make sure the amount was accurate,

01:09:01.860 | that it was clearly written.

01:09:03.260 | Then I could just simply use my phone

01:09:05.220 | and just simply snap a picture of the receipt,

01:09:08.220 | tag that, upload it into my system,

01:09:10.620 | add it to the accounting software.

01:09:15.980 | I used a mobile dictation service,

01:09:19.500 | I used CopyTalk, where I would simply phone in

01:09:22.340 | and I had a detailed, orderly way

01:09:25.020 | of recording client notes.

01:09:26.260 | I met with this person, this is what we discussed,

01:09:28.260 | here were the action steps committed to,

01:09:30.180 | all of those things.

01:09:31.180 | That showed up, flowed right into my to-do list,

01:09:36.980 | into my notes, import that into the client file.

01:09:40.380 | Sounds complicated, but the point was,

01:09:42.420 | by sitting and taking 10 minutes,

01:09:44.660 | sitting in my car at the end of the lunch,

01:09:46.980 | and not rushing off to the next thing,

01:09:49.020 | I would be able to capture everything while it was fresh,

01:09:51.860 | I would be able to capture all of the details

01:09:54.220 | that I needed to substantiate the expense.

01:09:56.620 | I had, if ever audited, I had the notes

01:09:59.600 | for the client appointment, okay,

01:10:01.860 | on January the 15th or January the 20th,

01:10:06.300 | yes, I did have this transaction,

01:10:08.340 | and yes, there was this entertainment,

01:10:10.140 | but here were the notes of,

01:10:12.300 | everything was substantiated.

01:10:13.980 | And so you've gotta build a system for yourself

01:10:16.780 | to do it and stay current on it,

01:10:19.180 | otherwise you walk away from thousands of dollars.

01:10:22.200 | - Yeah, I think that's exactly right,

01:10:25.540 | and that was my main point on the documentation receipts,

01:10:29.140 | is just writing on them.

01:10:31.140 | You can get, there's a lot of value in your head

01:10:35.300 | right after the transaction occurs.

01:10:37.140 | - Absolutely.

01:10:37.980 | - You know exactly what was purchased,

01:10:40.100 | you know exactly what it was purchased for,

01:10:42.300 | if you have multiple businesses,

01:10:43.560 | you know which business it was for.

01:10:45.740 | Like you were mentioning, if you're at a lunch or a dinner,

01:10:48.060 | you know who was in attendance

01:10:50.500 | and what the topic was of the meal.

01:10:54.620 | And so all of that needs to get out of your head

01:10:57.940 | and onto the receipt right after you get it.

01:11:01.100 | It takes, and you don't need a dissertation,

01:11:04.840 | you don't need a big long paragraph about the receipt,

01:11:08.060 | all you need is just certain notes

01:11:10.620 | so that when you're doing the bookkeeping later,

01:11:14.660 | 'cause it sounded like you had a system

01:11:15.940 | that was all right away.

01:11:17.900 | With a lot of the clients that I work with,

01:11:21.580 | they do a lot of documentation at their transaction

01:11:24.300 | and then they go ahead and record it later

01:11:26.500 | with their bookkeeping system.

01:11:29.820 | And so if you have these receipts

01:11:32.460 | that you're looking at at the end of the week

01:11:34.060 | or the end of the month or the end of the quarter,

01:11:36.340 | you can look at 'em right away,

01:11:38.480 | flip it over on the back and say,

01:11:39.780 | oh, this was for Amanda and Todd,

01:11:42.600 | I went to lunch for them

01:11:43.440 | and we were talking about some marketing,

01:11:44.640 | we were talking about a marketing campaign for this product.

01:11:47.600 | Then you have your documentation on the receipt right there

01:11:51.720 | and then you can record it accurately in your system.

01:11:55.840 | And so if you have like a online version

01:12:00.000 | of the accounting software and if your bank imports it,

01:12:02.400 | you can go find that transaction online

01:12:04.380 | and say, oh, this is that receipt.

01:12:06.060 | You can say, yes, indeed, it was for Meals Entertainment

01:12:08.620 | and move on.

01:12:09.600 | And some people don't necessarily like to do that

01:12:14.920 | 'cause they can look at the receipt

01:12:16.100 | and figure out what it was for.

01:12:19.140 | And this kind of goes back to your scale thing.

01:12:23.140 | At the end of the month,

01:12:23.980 | if you're sitting there with 25, 30 receipts

01:12:27.520 | from various different places that were all

01:12:30.900 | for a general same category like Meals Entertainment,

01:12:34.620 | you're not gonna remember which meal was for which purpose

01:12:38.060 | and had which attendees.

01:12:41.060 | And so if you can get it on the receipt

01:12:44.220 | right after the transaction occurs,

01:12:47.100 | it makes it a heck of a lot easier later.

01:12:48.700 | You don't have to rack your brain trying to figure it out.

01:12:52.220 | It saves you time, it gives you more brain power

01:12:54.300 | to be doing other things on your business.

01:12:57.020 | - I think also if you have these records,

01:12:59.620 | and please correct me if you disagree,

01:13:02.020 | but I think if you have detailed records,

01:13:04.260 | you will feel much more confident with your system

01:13:09.260 | in order to be properly aggressive with your tax reporting.

01:13:14.500 | Many times I think people are, they don't know the rules.

01:13:17.900 | And so if you don't know the rules

01:13:19.260 | of what counts as Meals and Entertainment,

01:13:20.980 | what is just me goofing off,

01:13:23.800 | which is a non-deductible expense

01:13:25.140 | versus me having a business meal,

01:13:30.140 | oh, but it's connected to this entertainment expense

01:13:32.780 | and what do I need to know to,

01:13:34.580 | what was this entertainment, was there a business purpose?

01:13:37.180 | And people don't know.

01:13:38.660 | And so then when they don't know, they tend to be vague.

01:13:40.900 | And if you're vague, then you're like,

01:13:42.540 | well, I'm just gonna, you don't keep good records.

01:13:44.660 | I say know the rules, follow the rules very carefully,

01:13:48.600 | and document them like crazy.

01:13:50.220 | Set up a good system because the benefits of doing it

01:13:53.980 | financially are massive.

01:13:56.220 | But you wanna make sure that A, you know the rules,

01:13:59.180 | that you're following them carefully,

01:14:01.260 | and with every transaction,

01:14:03.060 | that way you can substantiate your expenses.

01:14:05.560 | And because you know and are following the rules

01:14:08.180 | and have a good system for accounting them, for them,

01:14:10.800 | you will feel much more confident.

01:14:12.340 | Instead of feeling like the IRS is this big bad bully

01:14:15.060 | that's gonna come and beat you up,

01:14:16.640 | you're gonna feel confident.

01:14:18.080 | I have followed the rules carefully,

01:14:20.460 | I've accounted for them, and I have a system that works

01:14:23.060 | so I don't freak out if I get an email from the,

01:14:25.380 | or a letter from the IRS saying, you know,

01:14:27.700 | our local revenue agent is gonna come for a visit.

01:14:30.200 | - Yeah, I think that's exactly right.

01:14:33.580 | And from a tax advisor perspective,

01:14:36.160 | we are inherently less risky with your tax return

01:14:41.160 | because if something's audited and changed

01:14:44.940 | and you owe more taxes, that comes directly back on us.

01:14:48.060 | And so if you have, and I take a more aggressive stance,

01:14:53.060 | aggressive approach with taxes, you could say,

01:14:57.220 | but if there's not good documentation,

01:15:02.100 | I'm very hesitant to do that.

01:15:03.580 | So if you send me a paper or a Post-it note like,

01:15:06.420 | oh, I gave $4,500 in charitable contributions this year,

01:15:11.220 | me as a tax advisor, I'm not gonna necessarily like

01:15:14.960 | to put that on the tax return because all I have

01:15:18.700 | is basically that you said you had this amount

01:15:21.900 | to go on the tax return and so I gotta go

01:15:23.460 | through the whole spiel, you know,

01:15:24.500 | hey, you could be audited and if you don't have

01:15:28.640 | documentation, this could all be thrown out.

01:15:30.580 | You know, I just wanna verify that you have receipts

01:15:35.100 | for all these expenses on here,

01:15:38.860 | for at least the charitable contribution side

01:15:40.740 | and kind of push it back on them.

01:15:42.720 | But if you have good documentation,

01:15:46.820 | I can see that either as a bookkeeper or as a tax advisor,

01:15:51.340 | I really like that, it makes me a heck of a lot

01:15:52.780 | more confident in the tax return that I'm preparing

01:15:56.540 | or reviewing and you can be a little more aggressive

01:15:59.780 | with the IRS and get the benefits that come with that,

01:16:03.100 | which is essentially a lower tax bill

01:16:05.540 | that you are entitled to because these are actual

01:16:09.140 | business expenses that are deductible under the tax law.

01:16:11.820 | - Right, and a better run business because you'll be able

01:16:14.220 | to know how profitable is my business,

01:16:17.460 | I know the numbers, I have controls in place,

01:16:20.060 | and I know that this is a worthwhile use of my time.

01:16:23.460 | So it's a win all around to set up a good system.

01:16:26.180 | Do you have any suggestions for how to actually

01:16:28.700 | hang onto this stuff and file all the information properly

01:16:32.140 | so that you have it for the needed amount of time?

01:16:35.380 | - Yeah, so I like to scan all of the receipts.

01:16:40.220 | I think it's easier, it gives a lot less clutter

01:16:43.580 | and you can organize it better.

01:16:46.380 | So with a paper file, you can't do a control F

01:16:49.700 | or do some other search through your receipts.

01:16:54.580 | If you have a big box of receipts

01:16:57.900 | and you're looking for something,

01:16:58.740 | you literally have to look through every single one

01:17:00.760 | and hope and pray that the one you're looking for

01:17:02.980 | is towards the top so you don't spend a bunch of time

01:17:06.220 | looking at all these receipts.

01:17:07.860 | And so, and I say scan, but a picture works,

01:17:11.120 | just some sort of electronic receipt.

01:17:16.260 | And so what I do is I, I think I'm a little meticulous

01:17:20.900 | on the documentation side with the receipts

01:17:24.860 | more than a lot of people like to do,

01:17:26.260 | but I like to have each receipt a separate file,

01:17:29.780 | either a PDF or a picture,

01:17:31.340 | and I like to organize it by date, vendor, and account type.

01:17:36.340 | So if I took, if I had a business lunch at Chili's

01:17:41.280 | or something like that, I can do 2015, 20,

01:17:46.020 | or sorry, 2015, '01, '20 for January 20th, 2015,

01:17:51.020 | do a space, do Chili's, another space, Mills Entertainment,

01:17:54.700 | and then when I'm scanning my receipts,

01:17:57.260 | it has all the data I need there

01:18:00.020 | that you'd normally need when you're looking for a receipt.

01:18:01.860 | It has the date, vendor, and expense type,

01:18:04.700 | especially if you're trying to go

01:18:05.900 | from your accounting system

01:18:07.180 | and find the receipt for that transaction.

01:18:10.100 | And I will say on a lot of the apps

01:18:14.460 | or online versions these days,

01:18:16.660 | they have a way to attach a receipt to the transaction.

01:18:19.980 | And so you don't necessarily need to keep a separate folder

01:18:24.140 | either backed up on an online storage

01:18:26.740 | or just on your computer.

01:18:28.340 | You can tag it right there to the transaction.

01:18:30.340 | And so when you're looking at it online,

01:18:32.820 | you can just click it open and boom,

01:18:34.340 | you can see the receipt right there.

01:18:36.140 | Some people will do, they like the paper files still,

01:18:41.140 | and I think it's a viable option.

01:18:44.020 | Again, it makes it harder to actually find something.

01:18:46.180 | But if you're gonna go that route,

01:18:48.300 | I would organize by vendor.

01:18:49.840 | A lot of the times, if you're looking,

01:18:52.780 | especially if you do a lot of purchasing, like inventory,

01:18:56.700 | a lot of times you'll be looking for a receipt

01:18:58.480 | from a specific vendor,

01:18:59.780 | not necessarily from a specific timeframe.

01:19:03.500 | And you can have both,

01:19:04.540 | but most of the time you're gonna be looking

01:19:05.620 | for a specific vendor.

01:19:08.380 | And so it's a lot easier to scan through vendor invoices

01:19:12.960 | that all look the same

01:19:14.100 | when you're trying to look for something

01:19:15.100 | as opposed to a big pile of stuff

01:19:17.380 | that's different sizes and different categories

01:19:20.660 | and different vendor types.

01:19:24.700 | And so, and then another thing on the paper filing system

01:19:31.300 | is I would highly discourage trying to do it by,

01:19:37.380 | well, depending on how many transactions you have,

01:19:39.200 | but I would discourage to do it less

01:19:41.860 | by time.

01:19:44.100 | So what I see a lot of people do

01:19:46.220 | is they'll have a shoebox or something

01:19:50.340 | for each month of the year,

01:19:51.460 | or even for the entire year,

01:19:52.500 | and they'll just throw receipts in there.

01:19:55.240 | Which it's fine from a retention standpoint,

01:19:57.820 | but I guess from a documentation

01:20:00.160 | and trying to find something,

01:20:02.100 | it makes it really difficult

01:20:03.980 | because at any specific timeframe,

01:20:06.860 | there could be a lot of different categories

01:20:08.380 | and a lot of different receipt types in there.

01:20:10.860 | So I would encourage to do by vendor.

01:20:13.100 | I see a lot of people do by year and by vendor.

01:20:15.460 | - Yeah, that makes sense.

01:20:18.260 | Do you, so when you're doing it electronically,

01:20:21.220 | are you just keeping those as PDF documents

01:20:24.860 | in a file in Windows Explorer

01:20:27.580 | or whatever system you use?

01:20:29.640 | - Yep, I do, yep.

01:20:31.660 | I upload it to something like a,

01:20:34.460 | or I keep a folder on my computer

01:20:36.220 | that's synced to something like a Dropbox

01:20:38.180 | or a OneDrive or something like that.

01:20:40.940 | And it's just one folder.

01:20:42.260 | A lot of people like to use multiple folders,

01:20:44.620 | and I don't necessarily like to do that.

01:20:46.900 | I find it tougher to find stuff.

01:20:48.780 | And so if I'm looking for something,

01:20:50.700 | I literally have to click into every folder.

01:20:52.240 | If I don't know where it is,

01:20:53.300 | I have to click into every single folder

01:20:55.140 | to find something as opposed to

01:20:56.460 | if everything was just in one folder.

01:20:58.420 | You can scan real quick.

01:20:59.800 | You can even search by file name

01:21:01.860 | or by date to kind of narrow down the topics.

01:21:07.820 | But yes, it is, I do all PDFs.

01:21:11.220 | Each PDF has one receipt

01:21:13.260 | named with the date, vendor, expense type,

01:21:16.460 | and then it's all in one folder

01:21:19.180 | that's uploaded to the cloud.

01:21:21.300 | - What about Evernote?

01:21:22.500 | Do you ever use that or ever suggest to somebody

01:21:24.260 | they use an Evernote file for their receipt organization?

01:21:27.100 | - Not necessarily for the actual

01:21:31.500 | documentation of receipts,

01:21:32.980 | but I have recommended it before

01:21:36.280 | for taking notes about various transactions.

01:21:41.280 | And so this would be a good one,

01:21:43.660 | like I was talking about before,

01:21:45.100 | the client that goes to the swap meet

01:21:46.820 | and buys a bunch of stuff.

01:21:48.180 | That would be a good one for him to pull it up,

01:21:51.700 | type into his phone what he's buying

01:21:53.980 | and what the cost was so that he can track it

01:21:57.540 | and we can record it later.

01:21:59.620 | But I haven't recommended it

01:22:01.940 | and I haven't seen a lot of people

01:22:03.980 | want to kind of use something like an Evernote

01:22:06.100 | to track their receipts and document them.

01:22:11.100 | - You would certainly need,

01:22:12.940 | I can't imagine how you could do everything with Evernote,

01:22:16.640 | but I've been using it more and more.

01:22:19.080 | And with how good the phone cameras are,

01:22:24.080 | with how good the text speech recognition is,

01:22:27.660 | and with how fast the connection is with a phone,

01:22:32.280 | the hurdle of entry, of data entry,

01:22:35.080 | has gone down so much that I can see,

01:22:37.680 | so I have a way, one of my projects at home,

01:22:41.020 | I have bins that I use in my garage

01:22:45.240 | to store different items.

01:22:46.240 | I like to use bins and the bins are numbered.

01:22:48.520 | And one of the cool things is to know what's in them.

01:22:51.100 | It's super easy for me.

01:22:52.560 | I lay the items out on a table,

01:22:54.600 | snap a picture with my phone,

01:22:56.360 | and then I just use the speech recognition

01:23:00.040 | and speak into it.

01:23:00.960 | And I can say, "Bin number one," for example.

01:23:02.600 | I have an entire bin filled with electrical cords.

01:23:06.000 | And so I can say, "Extension cords,"

01:23:09.480 | all the different types of cords.

01:23:10.880 | I can just look at everything on the table.

01:23:13.000 | I can speak it all into the phone.

01:23:17.560 | Then I can just, at any time,

01:23:19.000 | if I'm wondering where's my generator power cord

01:23:21.400 | to connect my generator to my house,

01:23:23.440 | then I just go into Evernote

01:23:25.080 | and I just type generator power cord and it brings it up.

01:23:27.560 | So one advantage of having everything integrated,

01:23:30.920 | of the way Evernote allows you to integrate

01:23:33.120 | a picture, speech to text recognition,

01:23:37.640 | an audio file, and have everything tagged,

01:23:41.000 | I could see somebody,

01:23:42.440 | and I haven't set this up myself,

01:23:43.920 | although I do it a little bit,

01:23:45.320 | I can see you snap a picture of the receipt,

01:23:47.820 | you hit the speech recognition,

01:23:49.240 | you describe, "I had a lunch appointment

01:23:50.760 | "with John and Jane Smith today.

01:23:52.580 | "We talked about their estate plan.

01:23:54.320 | "We met at Chili's and this was the outcome of it."

01:23:57.360 | And for either free or whatever their minimal cost is

01:24:00.760 | for the premium version,

01:24:02.360 | you can have a system where everything's in one place,

01:24:04.840 | and then if you can set up a way to transition that over

01:24:07.880 | into your accounting system,

01:24:09.620 | I could see an intelligent way to design that

01:24:12.280 | with all that different input.

01:24:13.460 | You can even record a voice memo if you need to,

01:24:15.960 | or append any, or include and attach your PDF file.

01:24:20.080 | I don't know, I'll have to look and see

01:24:22.200 | if somebody's designed something like that.

01:24:23.560 | I haven't fully designed it,

01:24:24.660 | but I can see how to use it in my head.

01:24:26.600 | - Oh yeah, I think that's good,

01:24:29.480 | especially the voice part,

01:24:31.080 | 'cause that makes it quicker, easier, and simpler

01:24:34.200 | for the business owner that's trying

01:24:38.760 | to record all their transactions.

01:24:40.960 | - The voice part is so good now,

01:24:42.560 | and just driving down the road,

01:24:44.420 | you basically have a free dictation service on your phone,

01:24:47.960 | and you can at least have the notes that you need

01:24:51.680 | about what you talked about,

01:24:53.160 | and it might lower the friction of actually entering it in

01:24:56.600 | and having the documentation that you need.

01:24:59.640 | - Yep, that's exactly correct.

01:25:02.520 | And then the last tip that I had here,

01:25:05.920 | we've talked a lot about changing your mindset

01:25:09.440 | and getting your electronic statements,

01:25:13.180 | and getting some sort of software package,

01:25:16.060 | whether it's QuickBooks, FreshBooks,

01:25:18.200 | or I think it was NewBooks that you said,

01:25:21.200 | or NewCash, what was it again?

01:25:23.400 | - Right, NewCash, G-N-U-C-A-S-H, NewCash.

01:25:27.160 | - Yeah, and so now, you just need to get it done, right?

01:25:31.200 | We talked about all these ideas,

01:25:32.720 | and as a business owner, you just need to get it done.

01:25:35.000 | And so if you don't have,

01:25:37.420 | we talked about some on-the-go ideas

01:25:39.920 | that I think are helpful and help minimize the time

01:25:43.000 | that you need to do your bookkeeping,

01:25:45.120 | but I always recommend that people set a specific time

01:25:49.020 | at a certain interval to review their books

01:25:53.120 | and take a step back and say,

01:25:54.960 | okay, do I have everything here?

01:25:57.520 | How's my business doing?

01:25:59.360 | What do I have carrying forward?

01:26:02.960 | What are my business needs in the next month

01:26:07.200 | or quarter or something like that?

01:26:09.320 | And so what I found is if you do not set a specific time,

01:26:14.320 | what I found that works better is,

01:26:16.600 | or the best is either weekly or monthly.

01:26:18.600 | If you don't set that specific time,

01:26:21.840 | the bookkeeping and accounting starts to not get done,

01:26:25.400 | and then all of a sudden, you're in January,

01:26:28.120 | trying to do your tax return,

01:26:29.440 | and you got, of the last year,

01:26:31.120 | you have January, February, March done,

01:26:32.560 | and then the rest of the year needs a lot of work.

01:26:36.240 | - Right.

01:26:37.080 | - And so the point here, basically,

01:26:39.000 | is to set a time, stick to it, to do your bookkeeping,

01:26:43.160 | and it'll help minimize the load

01:26:46.120 | at any specific time throughout the year.

01:26:49.560 | The most, there have been many times

01:26:51.760 | over the last six years of my running a business,

01:26:54.880 | several years, I get to tax time,

01:26:58.760 | and I have to sit down, clear my schedule

01:27:00.880 | for three or four days, and go back through

01:27:03.400 | and reconstruct the records.

01:27:05.880 | And what finally helped, actually,

01:27:09.040 | is I figured out that if I just did a little bit,

01:27:11.760 | just about every day,

01:27:13.080 | if I kept my checkbook registers up to date,

01:27:15.240 | and I would do that, pull open my bank app,

01:27:17.400 | double check, verify my checkbook registers,

01:27:19.360 | everything's reconciled.

01:27:20.320 | If I did it every day or every other day,

01:27:21.880 | it took about a minute.

01:27:23.200 | In the morning, I sit down at my desk,

01:27:25.440 | reconcile my checkbook registers.

01:27:27.440 | And then, if every few days, or at least once a week,

01:27:30.360 | I made sure that everything was loaded into my spreadsheet,

01:27:35.200 | and then, if at least once monthly,

01:27:37.360 | at the end of the month, I would sit down,

01:27:39.480 | and what happened is I would receive

01:27:41.560 | my commission checks bi-monthly.

01:27:43.680 | And so I would make sure to schedule

01:27:45.200 | just a half hour to sit down,

01:27:46.640 | and every time I received the check,

01:27:49.000 | bring everything up to date.

01:27:49.840 | And then, at the end of the month,

01:27:51.040 | I would create my monthly P&L to review with my wife.

01:27:54.920 | And I included on my P&L all of my business,

01:27:59.120 | it was a business and a personal P&L.

01:28:01.160 | I look at them all as integrated,

01:28:03.700 | so we could see everything on one page.

01:28:06.640 | And she is not a numbers person,

01:28:09.000 | and so she could handle about five,

01:28:11.200 | she likes about a five-minute discussion on the numbers.

01:28:14.720 | But at least I was able to say,

01:28:16.080 | here was what our profit margin was last month

01:28:18.680 | in our life, look, here's the trend

01:28:20.440 | of this category of our spending,

01:28:21.880 | or this category, here's what we're doing.

01:28:24.240 | And that kept me on track.

01:28:26.600 | It's fallen apart the last six months that I left.

01:28:29.520 | And so now, I'm recreating,

01:28:32.360 | yeah, I'm recreating and getting back on track

01:28:35.000 | the last couple months to fix my accounting systems,

01:28:37.120 | 'cause they fall apart without regular care and feeding.

01:28:40.160 | You gotta set that time to do 'em consistently.

01:28:43.220 | - Yeah, and from my perspective,

01:28:47.120 | I have a lot of clients that are emailing me

01:28:48.920 | the first two weeks of January,

01:28:50.440 | like, hey, what am I gonna need out of pocket in April,

01:28:53.760 | or what am I gonna be receiving in April?

01:28:56.240 | And I can field a lot of those questions pretty quick,

01:28:58.640 | because most of my clients,

01:29:00.200 | we have a monthly schedule or a quarterly schedule

01:29:03.400 | where we're doing everything,

01:29:05.240 | and so I can give a pretty dang close estimate

01:29:07.560 | the first 15 days of January,

01:29:10.560 | where they're gonna end up,

01:29:11.920 | as opposed to a lot of people,

01:29:13.400 | it takes them into February or even March

01:29:15.280 | to try and get that net income number

01:29:18.920 | from the previous year.

01:29:19.920 | So keeping up on the bookkeeping

01:29:22.000 | and having a set interval definitely has its advantages.

01:29:25.800 | - Right.

01:29:26.640 | I wanna ask you about one more thing.

01:29:29.800 | - Okay.

01:29:30.620 | - Well, actually, two things.

01:29:31.460 | I wanna ask you first about,

01:29:33.380 | we talked a lot about tracking income and expenses,

01:29:35.760 | but I wanna ask you about balance sheets,

01:29:37.080 | 'cause that's on our outline.

01:29:39.000 | And then I wanna ask you for your advice

01:29:40.520 | on working with a bookkeeper and/or an accountant

01:29:44.280 | and how to effectively do that.

01:29:46.440 | But we skipped over the balance sheet section.

01:29:49.120 | Walk us through some tips and reasons

01:29:51.260 | why we should be tracking both the balance sheet

01:29:54.200 | and the income statement.

01:29:55.440 | - Okay.

01:29:57.200 | We talked a lot about tracking income and expenses,

01:30:00.320 | and we mentioned a double-sided accounting system.

01:30:04.480 | And what that double-side accounting system is

01:30:07.880 | is you get the one side on the income statement,

01:30:10.160 | on the other side, you get a balance sheet.

01:30:12.160 | And so I've seen a lot of people

01:30:14.360 | that completely disregard the balance sheet.

01:30:16.960 | Even in your personal lives,

01:30:19.360 | balance sheet can be important.

01:30:21.080 | So let's say that you're with someone somewhere

01:30:25.400 | and you go ahead and buy dinner for everyone

01:30:27.920 | so it's just on one card,

01:30:29.020 | and then everyone is supposed to pay you back.

01:30:32.000 | If you don't have a balance sheet,

01:30:33.560 | you're not gonna know that these people

01:30:37.440 | owe you a certain amount of money,

01:30:40.300 | and that the entire charge that went on your credit card

01:30:44.200 | isn't an actual expense to you.

01:30:46.320 | Your expense was a lot lower.

01:30:47.960 | And if people don't know what a balance sheet is,

01:30:52.480 | a balance sheet is essentially,

01:30:54.080 | it's a report that tracks your assets,

01:30:56.760 | liabilities, and equity in your business.

01:30:58.960 | And so one example I like to talk about

01:31:01.680 | that I think gets across to a lot of people

01:31:03.840 | is putting it in the perspective of purchasing a home.

01:31:07.560 | And so for most people,

01:31:10.780 | homes are, you can't buy 'em in cash.

01:31:12.940 | You need some sort of mortgage to,

01:31:15.460 | for the average person to be able to get into a home

01:31:18.740 | and afford a home.

01:31:19.580 | And so if you're buying a $100,000 house

01:31:23.340 | and you're coming with $20,000 down,

01:31:26.140 | you're gonna pick up a mortgage for the difference,

01:31:28.480 | which is the 80,000.

01:31:30.100 | And so if we're looking at your balance sheet,

01:31:32.380 | you're gonna have an asset worth $100,000

01:31:34.580 | 'cause that's what your house is worth

01:31:36.180 | and you own that house.

01:31:37.560 | And then you have a mortgage against it for the 80,

01:31:40.800 | so that's your liabilities.

01:31:42.360 | And then your equity piece

01:31:43.800 | is the difference between the two in the house.

01:31:45.640 | And so if you turn around,

01:31:47.200 | and we're gonna ignore selling expenses and stuff.

01:31:49.840 | If you turn around and sold that house

01:31:51.920 | in the next month or two and got your $100,000 back,

01:31:54.840 | you're gonna end up with your 20,000.

01:31:57.760 | And so when you look at the balance sheet,

01:31:59.520 | it helps you understand some of those things,

01:32:02.240 | but oh, I got this big old asset over here for $100,000,

01:32:05.320 | but yeah, I don't own all that

01:32:07.340 | because I have this mortgage on it,

01:32:09.920 | so my equity's a lot lower.

01:32:11.560 | And in business, it's really important

01:32:14.080 | to track some of these things

01:32:15.600 | because if you're planning for a purchase,

01:32:19.460 | I need to purchase a new computer system

01:32:22.920 | or I need to purchase a big old piece of equipment

01:32:27.600 | or I need to pay my taxes even in the next month or two,

01:32:30.640 | and you look at your bank account,

01:32:31.680 | and you're like, man, I have 10, 15, $20,000 in there,

01:32:35.400 | you're gonna wanna know what sort of liabilities

01:32:38.040 | are out there that you're gonna have to pay.

01:32:39.800 | And so some of them that come up a lot

01:32:42.600 | are things like sales tax

01:32:45.560 | 'cause sales tax, you collect from customers,

01:32:49.000 | and then you have to turn around

01:32:49.920 | and remit it to the government.

01:32:52.980 | But you need to know what you collected

01:32:55.100 | so that you can turn around and give it to the government.

01:32:57.840 | If you don't have a balance sheet

01:32:59.160 | where you're just tracking your inflows and outflows

01:33:02.480 | from your checking account,

01:33:04.080 | you're never gonna, you're not gonna,

01:33:06.160 | sometimes you may not even know

01:33:07.200 | the sales tax liability's even there.

01:33:09.060 | Another common one is payroll tax liabilities.

01:33:14.720 | When you, if you have employees and you're paying them,

01:33:18.420 | you have payroll withholding

01:33:21.280 | that you withhold from their check

01:33:22.960 | and then turn around and give to the government.

01:33:25.980 | If you don't track your balance sheet,

01:33:27.360 | you're not gonna know exactly what you need to give,

01:33:30.600 | what you need to give to the government.

01:33:31.800 | And then one of the maybe more important things

01:33:34.000 | on the balance sheet is accounts receivable.

01:33:35.560 | So accounts receivable are things

01:33:37.720 | that you've sold to customers

01:33:39.020 | and then they haven't paid you yet.

01:33:40.560 | And so it's important to track who owes you what

01:33:44.640 | and for which invoice and how long it's been outstanding.

01:33:47.860 | So there's a lot of these things in the balance sheet

01:33:50.880 | that are really important for a business owner

01:33:53.520 | to know about that if you are just tracking

01:33:56.960 | the income and expense in the checking account,

01:33:59.940 | you're never gonna pick up

01:34:02.080 | and you're not gonna be able to accurately plan

01:34:04.840 | for the needs of your business going forward.

01:34:07.140 | - It's ultimately also just the balance sheet

01:34:13.080 | is what tells you if you're actually

01:34:15.560 | holding on to your money.

01:34:17.240 | One of the things that I find interesting

01:34:20.280 | is people often forget about this

01:34:22.120 | and often in the online business world,

01:34:25.060 | people crow about how much income they have.

01:34:27.520 | But the balance sheet is what determines

01:34:30.280 | what you're actually, it's not what determines your profit,

01:34:33.760 | but it shows you what you have.

01:34:35.920 | And you need both of them.

01:34:37.880 | I mean, you need all four accounting statements really,

01:34:39.980 | but the two big ones are gonna be your income statement

01:34:43.640 | and your balance sheet.

01:34:46.480 | And those two, seeing how they work from one to the next

01:34:49.360 | and work from one to the next,

01:34:50.920 | 'cause we talked about it,

01:34:53.480 | accounting is the language of business.

01:34:55.080 | That's what tells you the process

01:34:56.960 | and how things are going over time.

01:34:59.600 | And every business will be unique.

01:35:01.240 | Some businesses might be cash heavy,

01:35:03.400 | and so therefore you see that reflected on the balance sheet.

01:35:06.120 | Some businesses might be property heavy,

01:35:09.200 | and some businesses might just simply be equity heavy,

01:35:11.640 | where there's very little cash and you're looking at it,

01:35:13.660 | but we've got a massive shareholders equity portion.

01:35:16.080 | Now, how do we build a plan to get out from that?

01:35:20.320 | And all of this is ultimately the information

01:35:22.660 | that we need to bring back over

01:35:24.080 | into personal financial planning.

01:35:25.800 | And sometimes you gotta figure out,

01:35:27.160 | oh, we just got plenty of cash.

01:35:28.160 | And sometimes, man, we got all this equity,

01:35:30.200 | but how do we divest of this equity?

01:35:32.560 | Whether it's on the massive scale,

01:35:33.920 | that's all an IPO is practically for many,

01:35:36.800 | an initial public offering is for many companies.

01:35:39.200 | It's a way for, the Facebook IPO is a way

01:35:41.940 | for Mark Zuckerberg and his friends

01:35:44.020 | to go from being massive mega billionaires

01:35:48.100 | on their balance sheet with shareholders equity

01:35:50.960 | to being massive mega billionaires with cash

01:35:54.520 | that is not all tied up in the future of the company.

01:35:56.600 | That's what the purpose of an IPO is,

01:35:58.500 | is to allow the owners of the company to cash out.

01:36:01.120 | But people, I think, often don't understand that

01:36:03.640 | 'cause they don't understand how the balance sheet works.

01:36:06.500 | - Yeah, that's exactly correct.

01:36:10.280 | And we've mentioned a lot about, okay,

01:36:13.560 | these are important to track,

01:36:14.720 | and these are important to know,

01:36:16.000 | but I guess tips for tracking the balance sheet,

01:36:19.640 | the balance sheet's a tough one

01:36:20.700 | because it's a very meticulous process,

01:36:24.720 | especially if you have a lot of transactions

01:36:27.000 | and you have a lot of different customers.

01:36:29.160 | You almost need one of those accounting softwares

01:36:33.720 | to be able to track it in a,

01:36:36.360 | putting forth a reasonable effort from yourself

01:36:40.340 | 'cause it could start to be really laborsome.

01:36:43.280 | If you do it manually, you'll need to be able to track,

01:36:49.520 | okay, I sold this thing to this customer

01:36:51.720 | and they haven't paid me yet,

01:36:53.180 | and then when that check comes in,

01:36:54.520 | you have to go back and update that

01:36:56.420 | so that, to show that they don't owe you money anymore.

01:37:01.600 | But a low transaction company

01:37:05.520 | with not a whole lot of either inventory

01:37:10.300 | or customers out there for people that they owe,

01:37:13.960 | if they just get paid as they either do their service

01:37:18.520 | or as the transaction happens,

01:37:22.760 | and if you have a lot of your transactions

01:37:26.080 | that you put on a credit card,

01:37:27.940 | it's easier to do in Excel

01:37:29.700 | because you can just add up the transactions as they occur

01:37:34.700 | and then know at the end of the month,

01:37:37.120 | okay, here's my credit card balance

01:37:40.000 | or here's the sales tax that I collected,

01:37:44.480 | and then you'll be able to zero that balance out

01:37:47.840 | in your Excel file really quick.

01:37:49.640 | But I think for most businesses,

01:37:54.000 | especially if you sell a lot of product

01:37:58.640 | and you have a lot of inventory,

01:38:00.140 | that's where the accounting system

01:38:01.520 | really starts to become important

01:38:03.720 | 'cause for each piece of inventory,

01:38:05.320 | you have different amounts that it costs you

01:38:08.160 | and you have different quantities on hand

01:38:12.100 | that you're selling and then buying all the time.

01:38:16.240 | And so the accounting software on the balance sheet

01:38:19.480 | really, really helps out.

01:38:21.880 | - So that brings us perfectly to where I'd like to end up,

01:38:24.160 | which is talking about scale.

01:38:26.620 | And one of the things that I've tried to emphasize

01:38:29.740 | on my show is applying a little bit

01:38:31.580 | of formal accounting practice to our personal lives

01:38:34.800 | 'cause the reality is each of us is,

01:38:37.440 | in some ways, an individual business.

01:38:40.440 | And even if we are earning a salary,

01:38:44.040 | I still think it's a useful, if nothing else,

01:38:46.760 | a useful mental concept to view ourselves as self-employed

01:38:50.160 | and our employer simply happens to be

01:38:52.360 | our number one customer at this point in time,

01:38:54.520 | whether we have one customer, an employer,

01:38:56.600 | or whether we have multiple, ranging into our business.

01:38:59.800 | But accounting systems can and should and do scale.

01:39:03.440 | So I don't see any particular reason

01:39:06.420 | for somebody who's working as a middle school teacher

01:39:09.880 | to be using QuickBooks and double-entry accounting

01:39:13.860 | to track their financial life.

01:39:18.200 | All I would be doing in that situation

01:39:20.560 | is keeping a checkbook register,

01:39:23.340 | taking out some big categories,

01:39:25.040 | looking at it purely in rough numbers,

01:39:27.240 | and then perhaps every month or every quarter,

01:39:29.920 | making a note of my balances,

01:39:32.000 | how much equity I have in my house,

01:39:33.600 | what the balances are on my debts,

01:39:35.380 | how much are in my accounts,

01:39:37.340 | or even just once a year sitting down and comparing,

01:39:39.720 | well, January 1, last year I had this amount of net worth,

01:39:42.920 | January 1 of this year I have this amount, how am I doing?

01:39:46.180 | It should be simple, and it can be done

01:39:47.720 | completely manually with a pen

01:39:50.340 | and without even a calculator,

01:39:52.000 | although a calculator can be useful.

01:39:53.900 | Now on the flip side, a business like you mentioned

01:39:57.140 | with inventory and, I mean, a large business,

01:40:00.260 | you're gonna need an accounting department,

01:40:05.260 | or you're gonna need, sometimes you're gonna need

01:40:06.900 | a bookkeeper, sometimes you can't.

01:40:08.220 | So you've gotta scale this stuff appropriately.

01:40:10.820 | And I think this is one area where I personally struggle with

01:40:13.680 | is knowing when and how I should scale my systems up.

01:40:17.820 | When you feel something's not working

01:40:19.520 | and I need to change something.

01:40:21.660 | Do you have any advice for how to figure out

01:40:25.300 | where you are in that process

01:40:27.780 | and how to figure out when I should hire

01:40:30.040 | a part-time bookkeeper, when I should hire

01:40:32.300 | a full-time bookkeeper, when I should scale up

01:40:34.380 | to a staff accountant, that type of process?

01:40:37.480 | - Yeah, so I think it's a pretty simple decision.

01:40:41.840 | And for me, if I'm an entrepreneur,

01:40:46.600 | when I don't have enough time to do this anymore,

01:40:49.040 | or I feel like I have a really good grasp on it,

01:40:52.160 | and I guess my time is more valuable doing other things,

01:40:57.160 | I think that's when you really need to start

01:41:00.800 | to think about bringing in someone,

01:41:03.280 | whether it's a part-time bookkeeper

01:41:04.920 | or someone that runs a bookkeeping business

01:41:07.920 | that you can hand your stuff to for them to do

01:41:11.220 | each month or each quarter, whatever you do.

01:41:13.420 | I think that's when you really need to start

01:41:16.300 | to bring people in.

01:41:17.840 | And then, if you're talking about bringing in

01:41:22.320 | an actual staff accountant, I think you really need

01:41:26.080 | a larger business to do that.

01:41:28.620 | Because once you start to bring on a full-time employee

01:41:33.920 | that's an accountant, they can sometimes

01:41:37.960 | start to cost quite a bit.

01:41:39.720 | And so if you don't have your business scaled up

01:41:41.520 | and some hard recurring revenue each month,

01:41:46.520 | each quarter, you maybe not necessarily

01:41:50.400 | wanna bring on someone full-time

01:41:52.380 | to be doing your accounting.

01:41:53.920 | - Right.

01:41:55.840 | Do you think, and this is advice that I have read

01:42:01.480 | from people that are far ahead of where I am

01:42:03.280 | in my entrepreneurial journey,

01:42:05.240 | but I often read CEOs say there are two things

01:42:09.920 | that you never wanna get your hands off of.

01:42:12.560 | You never wanna outsource completely.

01:42:14.800 | And one of those things is sales and marketing.

01:42:17.600 | You need to understand, even if you're not doing it,

01:42:19.520 | you need to understand what is happening

01:42:21.800 | with sales and marketing because that's what drives,

01:42:24.560 | that's what gives you the revenue to run your company.

01:42:27.320 | And number two is the numbers.

01:42:29.280 | You never wanna take your hands off the numbers

01:42:31.560 | 'cause you need to start to identify.

01:42:33.080 | And it's very different to be a CEO

01:42:35.640 | of a billion dollar company and you're basically

01:42:37.800 | sitting with your CFO and just simply looking

01:42:41.160 | at these metrics on a regular basis.

01:42:43.880 | But you need to understand them along the way.

01:42:46.960 | And I see all of this as part of being good business people

01:42:51.040 | is important training.

01:42:53.120 | And I see it as going back and forth.

01:42:55.220 | The training that you need for your personal

01:42:56.680 | financial statements translates over to business.

01:42:58.960 | The training from business should translate

01:43:00.960 | over to your personal statements.

01:43:02.720 | And properly applied will build wealth over time.

01:43:06.500 | I'll give you the last word.

01:43:09.640 | - Yeah, and so I would say if your business

01:43:13.360 | is small enough to where you're working with,

01:43:16.160 | either you're doing the bookkeeping

01:43:17.400 | or you're working with an outside bookkeeper,

01:43:20.180 | a lot of the times, even if you outsource all of it,

01:43:23.080 | you're not really gonna get your hands off

01:43:25.880 | of the financials because there's information

01:43:29.240 | that the bookkeeper needs in order to

01:43:31.960 | accurately account for various items.

01:43:35.000 | But if you're really good with the documentation

01:43:41.280 | and writing on all the receipts and everything

01:43:43.160 | in your checking account, a bookkeeper can do

01:43:45.560 | a lot of the work without necessarily having

01:43:47.640 | to ask you a bunch of questions.

01:43:49.960 | But at the same time, if you're doing all that,

01:43:52.200 | you're probably gonna have a good idea

01:43:54.000 | of what sorts of things are running through your account

01:43:59.080 | and what kind of expenses you have.

01:44:01.280 | And then if you have a good bookkeeper,

01:44:03.360 | they should be providing you with some sort of report,

01:44:06.160 | either at the end of the month or the end of the quarter,

01:44:07.640 | whatever your interval is, and kind of walking you through it

01:44:12.120 | and seeing if you have any questions.

01:44:13.960 | And so you can kind of get back to the numbers that way.

01:44:18.960 | But bookkeeping, I guess to wrap it up

01:44:23.320 | with the final word, bookkeeping is important.

01:44:25.160 | It's the language of business.

01:44:26.640 | It can be really hard or really simple,

01:44:29.360 | depending on the either type of business you have

01:44:32.520 | or what systems you set up.

01:44:34.820 | I'm more of a fan of a simple system.

01:44:36.980 | It provides a lot of value and gives you more time

01:44:40.640 | to be doing other things that probably add a lot of value

01:44:44.920 | to your bottom line with the strategy of your business

01:44:49.020 | or developing content or whatever you do

01:44:52.140 | as an entrepreneur in your business.

01:44:54.880 | - Any useful resources, particularly valuable books,

01:44:58.160 | podcasts, websites, tutorials, guides,

01:45:01.960 | that you like to refer to that would be helpful

01:45:04.080 | for people that need to enhance their knowledge

01:45:05.960 | a little bit?

01:45:07.440 | - Yeah, so that's, YouTube is probably the best resource

01:45:12.200 | out there for basic, either for basic knowledge

01:45:16.080 | if you're just starting out learning

01:45:17.360 | or even to get some more detailed knowledge

01:45:19.760 | if you know quite a bit.

01:45:21.760 | A lot of the stuff out, I haven't found a good podcast

01:45:26.000 | that talks about these things.

01:45:28.500 | And a lot of the, if you can call it a blog

01:45:32.620 | or writing out there is more applicable

01:45:37.620 | to either the practitioner that needs a lot

01:45:42.120 | of detailed information or just really basic stuff

01:45:47.120 | that almost tries to leave it without giving you information

01:45:51.600 | as a sales pitch.

01:45:52.740 | But I've noticed YouTube is very helpful for tutorials

01:45:58.360 | on how to use QuickBooks, how to use FreshBooks.

01:46:02.040 | If you have a certain issue that you have

01:46:04.880 | in your transaction, you can Google the question

01:46:08.200 | in YouTube and probably someone's made a video about it.

01:46:12.000 | But I would point people towards YouTube

01:46:14.400 | if they're getting started with bookkeeping

01:46:16.240 | or trying to increase their knowledge.

01:46:18.800 | - Sounds like you need to create the website

01:46:20.500 | and the podcast and the resource for people.

01:46:23.040 | So get busy, Ryan.

01:46:24.080 | - Yeah, well, I just, I know you did a few podcasts on it.

01:46:28.760 | I did my goal setting and some things back

01:46:31.240 | at the end of December, early January.

01:46:33.360 | And more of an online presence in some

01:46:36.040 | of those materials is on that list.

01:46:38.000 | So through 15 and into 16,

01:46:40.280 | I'm hoping to get some stuff out there.

01:46:42.360 | - Well, keep us in the loop

01:46:43.200 | and we'll help you publicize your info.

01:46:45.240 | Ryan, thank you for coming on and for the information.

01:46:47.780 | Super valuable.

01:46:49.000 | I know that probably for many people can seem a little dry

01:46:51.940 | to go through these things, but it's important.

01:46:54.760 | And this is the level of knowledge.

01:46:57.540 | And even though this is in many ways

01:46:58.940 | an introductory discussion,

01:47:01.960 | these are the factors that drive wealth.

01:47:04.700 | And if you want to become wealthy and stay wealthy,

01:47:09.420 | this is the information that's needed.

01:47:11.420 | And you at least need to be aware of it

01:47:13.360 | so that you can make sure things are being done properly.

01:47:15.500 | So thank you for making the time to come on

01:47:16.980 | and getting up so early to do this interview.

01:47:19.280 | - It's my pleasure.

01:47:20.960 | Thanks for having me on.

01:47:21.780 | (electronic whirring)

01:47:24.060 | - Now you have to get busy and implement the system.

01:47:28.060 | It's one thing to learn about it, one thing to listen,

01:47:30.400 | but now you got to get busy and actually do.

01:47:32.940 | So hopefully you've got enough instructions.

01:47:35.200 | I'm going to post in the show notes today

01:47:37.400 | kind of the detailed outline for our conversation,

01:47:41.420 | the topics that we walked through and that we discussed.

01:47:43.860 | You can see the, it's basically the outline

01:47:46.100 | that Ryan was working from through the call.

01:47:49.460 | And then, you know, thinking about,

01:47:50.820 | I might have him back in the future.

01:47:52.420 | So if you've got tax questions or things like that,

01:47:54.540 | I'd love to set up a kind of a stable of experts

01:47:58.280 | who can contribute when questions are a little bit beyond

01:48:02.380 | what I'm ready to answer myself,

01:48:03.740 | or at least to feel confident in my answer.

01:48:05.280 | So hopefully maybe we'll hear from Ryan

01:48:07.500 | and I'll work to get some other experts on the show as well.

01:48:10.100 | That's it for today's show.

01:48:10.980 | I thank you all so much for listening.

01:48:12.580 | It's been a busy week for me.

01:48:13.860 | I am, I've removed the membership program from the website.

01:48:18.100 | You'll see that is gone.

01:48:19.380 | Irregulars, I will be in touch with you soon

01:48:21.600 | with details and information on what I'm doing.

01:48:23.400 | You'll get it first.

01:48:24.460 | I'm in the process of working on a Patreon page.

01:48:26.740 | So that'll be ready to launch,

01:48:27.700 | hopefully in the next couple of days.

01:48:29.460 | If I can get it out tomorrow, I'll do that.

01:48:30.720 | If I can get it out Thursday,

01:48:31.740 | it's just a matter of getting it done,

01:48:33.140 | which is always a challenge.

01:48:34.420 | But I'm working hard on it.

01:48:35.700 | I'm going to, I've figured out,

01:48:37.320 | I made a bit of a misstep when I set up

01:48:39.260 | the membership program.

01:48:40.260 | And so I figured out how to do it a little bit better.

01:48:42.320 | And I feel good about the direction that I'm going in.

01:48:44.500 | So hopefully, stay tuned for that.

01:48:48.540 | I want to have a great big launch.

01:48:50.200 | But I feel confident in the direction

01:48:51.520 | that I'm taking the show.

01:48:52.920 | I'm learning.

01:48:53.960 | We're all learning together.

01:48:55.440 | Sharing with one another and enjoying the sharing economy

01:48:58.320 | where we can gain as we go through life.

01:49:00.680 | But thank you all so much for your support.

01:49:02.320 | I would normally tell you something

01:49:03.580 | about the membership program, but today I won't.

01:49:05.540 | I'll just simply say thank you for your support.

01:49:07.600 | And I will ask you as we go to do two things for me.

01:49:11.240 | Number one, if you've never told anybody about the show,

01:49:13.640 | would you mind telling somebody?

01:49:15.160 | That is the most effective form of advertising

01:49:18.800 | that I have is for you telling somebody about the show.

01:49:21.440 | So if there's somebody that you know

01:49:23.160 | who you like would like to help with money

01:49:24.840 | or you have a specific topic, would you let them know?

01:49:27.320 | I would sure appreciate that.

01:49:29.320 | Number two, if you would make sure

01:49:31.080 | that you're subscribed on iTunes or Stitcher,

01:49:33.600 | or I've got a brand new app coming any day.

01:49:36.320 | It's supposed to be done by now.

01:49:38.040 | But also make sure to leave a review in iTunes.

01:49:40.600 | If you haven't done that yet, that would sure be helpful.

01:49:42.960 | That matters, and that helps in the iTunes rankings,

01:49:44.920 | which helps people find the show organically.

01:49:47.160 | That's it, I'm out of here.

01:49:49.280 | Thank you all so much, have a great day.

01:49:51.040 | (upbeat music)

01:49:53.620 | Thank you for listening to today's show.

01:50:04.000 | If you'd like to contact me personally,

01:50:06.120 | my email address is joshua@radicalpersonalfinance.com.

01:50:11.120 | You can also connect with the show on Twitter, @radicalpf,

01:50:14.720 | and at facebook.com/radicalpersonalfinance.

01:50:18.560 | This show is intended to provide entertainment,

01:50:21.740 | education, and financial enlightenment.

01:50:25.520 | But your situation is unique,

01:50:27.320 | and I cannot deliver any actionable advice

01:50:31.040 | without knowing anything about you.

01:50:33.240 | Please, develop a team of professional advisors

01:50:37.680 | who you find to be caring, competent, and trustworthy,

01:50:41.920 | and consult them, because they are the ones

01:50:45.240 | who can understand your specific needs,

01:50:48.160 | your specific goals, and provide

01:50:51.240 | specific answers to your questions.

01:50:54.220 | I've done my absolute best to be clear

01:50:56.280 | and accurate in today's show,

01:50:58.400 | but I'm one person, and I make mistakes.

01:51:01.000 | If you spot a mistake in something I've said,

01:51:03.280 | please help me by coming to the show page and commenting,

01:51:06.720 | so we can all learn together.

01:51:08.880 | Until tomorrow, thanks for being here.

01:51:11.440 | - Unwrap the holiday savings at Citadel Outlets.

01:51:14.480 | Shop the early access Black Friday sales

01:51:16.560 | for the best deals of the season.

01:51:18.280 | The all-night shopping party starts

01:51:19.840 | Thanksgiving night at 8 p.m.

01:51:22.000 | Visit citadeloutlets.com for more information.

01:51:25.060 | you

RPF0146-Ryan_Marquez_Interview