Using Technology to Automate Your Business - Offload Work and Save Time (Guest Tess Ball from the Shitty Idea Time Podcast)
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Your Business Finances - 3 Key Things You Need
As you may know, I’m a CPA and am in the middle of tax season. I work mainly with small businesses and when new clients come to me during tax season, I often see the same three issues. Each one of these are intertwined and affect the other. These issues tie directly with today’s topic of automation and using technology in your business. In my line of work, I encounter so many problems where the business owners relied on their bookkeeping software without understanding how accounting actually works. There are several booking software companies out there that claim you can do it yourself, but I’m warning you, if you don’t know what you’re doing you can create a hot mess. It’s cheaper to hire someone to do it right than clean up your disaster later.
Regarding the finances in your business, I want you to consider three things –
Number one – Treat your business, like a business.
Number two - Be Proactive, Not Reactive
Number three – Understand Your Numbers
If you have someone taking care of your books…yesssss…you are on the right track. But for the rest of you, do you find yourself scrambling at tax time. I know thinking about this stuff is not sexy and you might have serious mindset issues around money. I understand. I totally get it. You are not alone. Please do not have any shame around this topic. If you do, put it into an imaginary beach ball and toss it across the room.
I know this stuff can be intimidating and even boring. Your eyes might be rolling back in your head. As entrepreneurs, we like to be creative. That’s great; but I want to empower you to be engaged in the financial side of your business and to do so, I highly recommend you get help in this area. Many of the issues I encounter are caused by entrepreneurs not paying attention to their numbers. But you don’t have to do it alone. When it comes to the finances in your business, invest in help. Hire a bookkeeper. Hire a CPA. If you have mindset issues, hire a money coach. And to secure your future, work with a Financial Advisor.
Whether you file your taxes as a sole proprietor, S-Corp or partnership, these tips will apply to you. Even if you work with a bookkeeper, please consider these three things.
Treat Your Business Like a Business
An area where you absolutely must treat your business, like a business – is compliance. This is about as unsexy as it gets, but totally important, cuz we’re talking about the laws.
Unless you are engaging in a hobby, you need to be compliant as a business. Besides filing your regular taxes, you may have to file other forms, such as payroll, 1099s, personal property, sales tax, etc. I recommend that you have a professional assist you with these. For payroll, I personally love Gusto. I am a certified people advisor through Gusto. If you’d like to check them out, please see my special affiliate link in the show notes, use it for financial perks for signing up through my link. Win – Win, oh yeah. For 1099-NEC, if you have contractors be sure to have them fill out a W9 as soon as they start working with you. If you’re like, what the heck is a 1099-NEC? 1099-NEC is the new 1099-MISC for contractors. Be sure to know the rules or better yet, hire someone who does.
Cautionary Tax Time Tale
aka Don’t Be Gary
If you tend to wait until tax time to figure out your expenses and income, you can be causing you tremendous grief, which could have been avoided. This gets especially bad, if you’ve been commingling your transactions. I prepared a tax return for a new client, let’s call him Gary. He owned a lucrative business. He could have afforded a bookkeeper but instead, he looked at his bank balance occasionally to gauge where he was at. He thought looking at his bank balance was a reliable method. Many entrepreneurs use this method. I am here to tell you that this is a terrible method. Your bank balance is a snapshot in time. You could have $50K in bank when you check it and then 5 minutes later your rent clears the bank followed by payroll. In a matter of minutes, you could go from $50K to $5. Throughout the year Gary would check his bank balance, because it was low, he assumed he did not owe much in taxes. Because he never looked at his bank statements nor kept track in at least a spreadsheet, he had a completely warped view of his business and therefore never even sent in estimates because he didn’t think he owed much in tax. This assumption was wrong. Dead wrong. Remember I told you to NEVER commingle your funds?
Gary obviously never got that memo.
To prepare his tax return, I had to reconstruct the entire year based on his bank statements. Then the shizzle hit the fan. Gary forgot that he used his business credit card to purchase some hefty-size personal transactions. Turns out, he forgot about a ridiculously expensive BBQ grill that he purchased with the company card. Dude, I never knew a BBQ grill could be so expensive. The BBQ wasn’t the only thing commingled; it got worse, there were countless other personal transactions that probably seemed inconsequential at the time, but in total were so unbelievably substantial. Once I reconstructed his financials, we discovered his real net income. Turns out his business was a money maker. That was the great news. But here’s the painful part, Gary hadn’t sent in enough tax to cover this. Remember, he assumed he wouldn’t owe much in taxes and hadn’t sent in any estimates. Ouch! This hurt, because April 15th was right around the corner and now, he was stuck with a huge tax bill that was due all at once, not to mention penalties. Here’s the real kick in the pants. Not only did he have to pay Uncle Sam thousands upon thousands of bucks with his tax return, his estimated tax payments for the current year were due as well. But it gets worse, Gary had not been proactive, he had nothing put away for taxes.
After using what little cash, he had in his bank to pay his taxes, he was now flat broke. In addition, he was unable to make the quarterly estimate, digging himself into a larger hole. So much for all that income he brought in! The irony of this story is that Gary was a financial broker. He was great at handling other people’s money, but not his own.
Don’t be Gary. Get help when it comes to your books. And use software. For god’s sake at least use a spreadsheet. Whether it’s me or someone else, hire a bookkeeper, an accountant or a CPA to maintain your books. It’s one of the best decisions you will ever make in your business.
In this episode, we are joined by Tess Ball, she is founder of the Shitty Idea Time Business Collective (formerly the Small Business Incubator), a business coach and the host of the Shitty Idea Time podcast. Before Tess started her current online community, she spent years in the trenches as a marketer. Her entrepreneurial journey started when she opened a gym for introverts. BTW - She's still a fitness coach.
This is a lively, fun, informative and (sometimes) nerdy conversation, where we discuss using technology to automate tasks. You'll learn about practical ways to offload work and save time in your business. Heather (the host) explains the three big issues entrepreneurs should consider regarding their business finances and books and how to avoid horrible surprises at tax time. FYI - The show contains a few F-bombs. This is not your typical conversation about processes.
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If you call yourself an entrepreneur, then treat your business like a business.
If you commingle your personal and business expenses in the same bank account, please stop right now. It’s vital to your business to have banking and credit card accounts, specifically for your business. These accounts should only contain business transaction activity.
I am seriously waring you, DO NOT commingle your personal expenses with your business. I’ve seen this countless times and it always leads to problems.
When business owners commingle business and personal expenses, their financials get incredibly messy and difficult to fix and worse, the financials are meaningless, unless they’re cleaned up in a timely manner. Uncleaned, commingled books will never give you an accurate picture of the financial status of your business. To run your business, you need an accurate picture of where you’ve been and where you’re going. You can’t make reliable projections if you’re working with garbage.
I have a client, let’s call her Suzie…. When Suzie came to me to help with her books, she was totally perplexed. Based on her monthly sales, she felt like she was making money in her business, but her books were showing the opposite. If you were to just look at her net income, she appeared to be on the skids, spending way beyond her means in her business.
GROSS SALES - EXPENSES = NET INCOME
After digging through Suzie’s books, I discovered all sorts of personal stuff in there. Once I cleaned it out, we were able to see her real income. Turns out she was barely spending any money in her business; she was actually quite profitable. But where did all that money go? Turn out, Suzie’s real problem stemmed from issues around money. Suzie’s mindset caused her to have serious issues around making money, which caused her to spend money like a fiend on shopping and lavish meals. Through money coaching, I was able to help her develop two budgets, one for her personal life and the other for her business. Soon she was able to reinvest back into her business to help it grow
Be Proactive, Not Reactive
This goes with your books, but also taxes. I know we hate thinking about taxes, but you must set aside money for taxes, unless you want to be in a world of hurt come April 15th. How much to set aside will fluctuate based on your situation, but a good rule of thumb is to put at least 30% aside for taxes. Remember, the money you make in your business doesn’t totally belong to you. Uncle Sam wants a piece of the action. Make sure that you understand what your estimated payments should be each quarter to the IRS, your state if applicable and you might even have local taxes. Waiting until April 15th to pay your taxes for the year can get you into trouble. You may end up with a hefty tax bill that wipes out your savings. I recommend that you skim 30% or more off the top and put it into a separate bank account. How often you put this money aside, depends on how loose or tight you are with money and your cash flow. The cadence could be daily, weekly, monthly or quarterly. Just be sure that each quarter you are sending in enough.
Pay Attention to Your Numbers
Surprises are for birthdays, not your financials.
Unfortunately, many business owners don’t pay attention to their financials until tax time. Frankly, if it wasn’t for the need to file a tax return, I’ll bet many entrepreneurs wouldn’t even bother keeping books. This may sound extreme, but I see this all the time when new clients come to me. Their financials scared them; they were afraid to ask questions for fear of looking stupid because their prior accountant used jargon that confused and intimidated them. The fact is, this stuff is confusing. Finding someone who can explain it all in plain English is key.
You want to visit your financials as often as possible, daily, weekly, monthly, quarterly. You need good, clean numbers to avoid an unwanted surprise at tax time. Here’s the deal-io, bank accounts need to be reconciled every month. I mention this to clients and they look at me like I have three heads. But not knowing how to do a bank rec, is totally okay. But you should hire a bookkeeper. I know we’re living in the age of automation, but bank feeds sometimes break, transactions get erased, invoices may not get matched correctly. Therefore, each month books need to reconciled against the bank statements. If you’re not sure how to handle this, then hire a bookkeeper. In fact, you should hire one anyway. This is not the area of your business to get cheap.
