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Tax-Savvy Startup Secrets: From Profit to Protection with Eric & Melissa Broughton | Ep.99
01:01:21
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- [00:00]
Melissa
One of the very, very, very first things that I think every small business owner should do is make sure that they have a savings account for taxes.
- [00:09]
Cody McGuffey
So 20% of the profit, put that into account.
- [00:12]
Eric
If you make a hundred dollars and you spent 50 to get that $100, that means you have $50 in profit. You take 20%, you put it into the account.
- [00:20]
Melissa
We believe that small business owners, or even brand new business owners should have somewhat of the same advantages that large corporations do.
- [00:29]
Cody McGuffey
Welcome to Built online. I'm Cody McGuffey and this podcast is all about one thing. Building the business of your dreams. Selling art, teaching classes, starting a blog, launching a brand. Whatever your passion is, we show you how to turn it into real income. I created everbee to help anyone with a dream start and scale business.
- [00:51]
Eric
Ever be, Ever be Ever be Ever.
- [00:53]
Melissa
Be Ever be ever be.
- [00:55]
Cody McGuffey
We now serve over 800,000 creators all across the globe. On this show, we bring on real entrepreneurs who've done it. They share their secrets, they share their failures, the exact steps that you can take to get started. What if you can get one golden nugget out of today's episode and it's the breakthrough that takes you from just dreaming to actually living a life on your terms. At Ever Be, we believe that every human is a creator and every creator should own a business. Melissa, Eric, welcome. Happy to have you guys here.
- [01:23]
Melissa
Thanks, Cody.
- [01:24]
Eric
Thank you for having us.
- [01:26]
Cody McGuffey
Totally. You guys bring between the both of you a wealth of knowledge about lots of things, specifically about taxes, bookkeeping. That whole world of that creates a whole bunch of fear for so many small business owners trying to go from zero to one, trying to build their businesses. Can you guys tell us a little bit about what you specialize in or what you do? And that way we can kind of set the stage for our conversation.
- [01:53]
Melissa
Sure. So it kind of starts a little bit before that, and it really starts with our philosophy, and that's that we believe that small business owners, or even brand new business owners should have somewhat of the same advantages that large corporations do. And I say that meaning if you have a, you know, if you, if you own a large corporation or even a, a larger business on the, on the small business scale of things, because a small business is considered up to 500 employees, which is huge. In, in, in my opinion, you, you are generally paying, you know, 10, 20, 30, 40, maybe even $50,000 to your tax professional. And, and with that, you get a tax professional that's really dedicated to you. They're working with you maybe throughout the year. And I say maybe because even some clients that have worked with larger tax firms that have paid those heavy fees still say that they don't talk to their tax professionals until after the fact. But in that case, you probably have the, you know, the advantage of an accounting department within your business that's watching your expenses and, you know, somebody on staff like I was in my previous career that was looking out for your best interest internally. And we switched it to now we're looking at small businesses, and you're a small business owner who truly doesn't know what you, what you don't know. And there's this, this looming kind of bad guy. It's like the, the monster that hides under the bed, that's taxes. And you're absolutely right. There is so much fear around it. And what we find when we talk to prospective clients is they don't even know what they're afraid of. They're asking us questions about, well, you know, what about this and what about that and what about this? And sometimes it's things that are, and I don't want to say humorous because of course, we're never laughing at our clients or our prospective clients, but it's obviously something that they heard from like, as far as their parents or maybe grandparents from when they were growing up. And they don't even know why. They're terrified of it. They're just, they're just terrified.
- [03:57]
Cody McGuffey
What's an example of that? What's an example of that?
- [03:59]
Melissa
Like quarterly taxes when you're just a brand new business starting out, there's a lot of misunderstanding around quarterly taxes. And you know, somebody who has known a business owner previously, maybe many years ago, knew that that person maybe complained about having to pay quarterly taxes. And so there's that, that quarterly taxes that stuck in their mind. And they're a new business, they're just starting out. And in some cases it may not even be something that they need to worry about until, you know, a year down the road or until their business has started to at least show a profit. So there's a lot of fear around a lot of different topics when it comes to taxes. And the big challenge that we see is that people like to, you know, they like to Google, educate themselves, right? We talk about that a lot on our podcast. They like to go out there, they type in a question and, and with AI, it's, I'm thinking it's probably just as bad. They type in a question and it's so focused. You know, if, if somebody types in, do I have to pay quarterly taxes. You're going to get probably a whole bunch of different information that leaves you more confused than when you started. So we. We really are on a mission to not only educate small business owners, but to bring educated clients into our doors and to serve them the best as we possibly can.
- [05:30]
Cody McGuffey
Thank you for that. You guys are the founders of Busy Bee Advisors. Just for anyone who's listening to this and not seeing it on the screen here, not to be with Everbee, which you all are familiar with, listening to this, but it's a. No affiliation, but it's a very, very good name. I would say Busy Be Advisors. I might be biased.
- [05:47]
Melissa
I love it.
- [05:50]
Cody McGuffey
And you guys started in 2017. A whole bunch of experience you guys are bringing in the house. And I like having. I really appreciate you guys coming on because I have conversations literally daily about taxes and finances, Especially now during. During this time of year, which is right now, it's time of record 2025. And I'm having friends that are in business, and I'm like, hey, so want to make sure, like, maybe we're talking. They're asking me advice on the business and, like, hey, by the way, like, if you. You're gonna file your taxes, and it may be their first year in business, and they're just like, yeah, yeah. And I'm like, cool. Like, how much will you owe? You know, just how much will you owe? And there's like, well, what do you.
- [06:34]
Melissa
Rip that fan, babe right off.
- [06:36]
Cody McGuffey
Yeah. What do you. What do you mean? I'm like, well, did you profit last year? Yeah, we made, like, this much money. I'm like, yeah, that's. That's revenue, right? Like, what was your profit like? I don't. I don't really know. Pro. And I'm like, okay, so we. What is. What do you think it is, though? Well, maybe like $100,000 in profit. Let's just say I'm like, cool. You. So you, you know, you'll owe, like, minimum, like, $30,000 in. In federal taxes. You. You got cash for that? And they're just like, what do you mean? Oh. What do you mean by oh?
- [07:11]
Eric
I'm like, well, because everybody's been so trained, and they're so used to when they get a job, like their first job that they get, whether they're flipping burgers, washing cars, gas, whatever it is, and they're so used to getting that paycheck, and they see, all right, here was my gross. I. I made. I made $828. And they go down the list and said, why is my check only 630 bucks? It's because, you know, you got taxes that are being taken out in advance, every paycheck by your employer. But when you have your own business, there's no one taking out taxes in advance. And so when you start your own business, there's a philosophy shift that has to change that you need to be aware of what you're doing now with your business, but you also have to have one of your eyes looking forward to what it's going to look like one year down the road. Where are you going to be at and those general practices. I gotta say, I would say the tax bill coming due has spelled the doom for more than one startup business because they go like gangbusters and they make a ton of money and they invest it back into their business or they go and they, they go buy that new car, they do something and they don't realize that, that the entirety of what they made minus their expenses is going to be taxed unless they have a corporate structure for that income to go into. And that causes a lot of new startup businesses to have a lot of problems. Not necessarily in the first year, but after they go and file that tax return. And then now they're in their second year and they're behind the eight ball because now they've got maybe a 20 or $30,000 tax bill and they're like, well, you know, dang it, now this year I've got to make all this money to pay these taxes. Plus I got to start putting money aside because second year I'm gonna have taxes again. What do you do?
- [09:12]
Cody McGuffey
Yeah, how could they avoid that? Let's replay person who hasn't done it yet. Let's save that.
- [09:18]
Eric
If you've got a new business and you're laying out your shop floor and you're saying, okay, these shelves over here are going to have these products. That's you forward planning. You're putting thought into what it's going to look like down the road. Even it is an empty room. You are building your storefront in your mind and you're saying, okay, this is going to go here, this is going to go here and this is going to go here. And you're pre planning do that for your business structure as well. What are you going to look like in your first year if you think that this is going to go off like gangbusters or you have a connection with someone that's going to give you $100,000 worth of contracts in your first year, then you shouldn't be doing it as a sole proprietor or as a base level llc. You should be looking at starting an S corp right off the bat. So if you know you've got some, you know you have something that's going to hit at certain levels. If you know that you're going to be like, if you're a service industry, maybe a mental health professional or you're, you're a tax person, right? Or you're doing something like that. If you are a service industry, you know that your cost to do the business is not going to be very high. So if your cost to do the business isn't very high and you make $100,000, but you only spent 20 to get it, the government sees that that $80,000 in profit is your wage and they tax you on it. And just like everybody else that gets a W2, you've got to pay into Social Security, you've got to pay into Medicaid, and you got to pay into your state disability fund, whatever it is, and you pay for it at the end of a year, not every two.
- [10:57]
Cody McGuffey
Weeks, which hurts because it's a big lump sum. Typically, that many people, if you don't plan thoughtfully, they end up spending already throughout the year because life takes over and they just aren't thinking about that. And so, so many times I've had this conversation lost way too many times. It makes me honestly, frankly sad to like to. When we get to the stage of, hey, you owe $30,000 and they're just like, now they're looking at, I don't have $30,000. And because they've bought the truck maybe, or bought the car, they invested in, you know, in the work vehicles, the work things. And they have to go and now find other ways, whether it's trying to make up for it on a more going to get on a payment schedule with the irs or worse is getting a personal loan to pay for their past year's taxes that are overdue. Is that what you guys see?
- [11:48]
Eric
An interesting thing about the equipment purchases is that in the first year, that actually might save you, right? Because you get to depreciate, you may have some bonus depreciation that's available to you. So in your first year, that might save you. So then you're just kicking the can down the road into year two because you didn't realize in year one you had a problem because it was disguised by all the equipment that you purchased, all the stuff that you invested in. You don't invest in that Same stuff in year two. But you don't think about that now. That stuff's not available for you to write off against your profit. And so then instead of it being a year one problem, it's a year two problem. You're like, well, I've been in business for two years and I, you know, I didn't realize I'd have a tax liability because of this or to the extent that I do. The problem is that, okay, year one, you bought a new truck for your business, you bought some tools, you bought some, you know, maybe bought a new cell phone. Now that's your business cell phone, maybe a laptop, whatever. You bought all of this stuff, you invested in this equipment. The government allows you to write it off. If not in, you know, back in the, back in the COVID days or the earlier days of TCGA where you got 100% depreciation on some things. But now it's a little bit different. So then in year two comes through and you maybe made a little bit more money, you spent a little bit wiser on your expenditures and you had so much more profit and then that, and then you go to file taxes and then it shows up.
- [13:15]
Melissa
So TCJA would be Tax Cut and Job act or Jobs Act. But to take it, you know, we can't go into acronyms. People get lost and then they won't anymore. Now to take it even a step further, and this is kind of an overall, I would say, I don't know, challenge with our industry as a whole is that you then have the business owner who is stuck with a tax system that, and I've done quite a few talks on this and podcast episodes on this, but you have a tax system that's rigged and it's not necessarily rigged in small business owner's favor. And I say that because our system as it is now is, it's a self reported system. So as a small business owner, you of course have the ability to prepare your taxes yourself or to go to a tax professional. Well, even if you're going to a tax professional who you're paying for their services, essentially what they're doing is just taking the information that you provide them with and then entering it into the boxes. So they're acting as, you know, order takers, let's say that are checking the math. Especially if you go to, I'll just say one of the, you know, tax shops that you would see in a strip mall. Let's say you don't have people that are thinking about or pushing you to, you know, did you have any more spending in this area? Did you do anything in this area? They're really taking the information that you as the small business owner, provide them with and putting it down on the tax forms. Well, you again, we're going to go back to the quandary of you don't know what you don't know. So how do we fix that problem? And when, when, when Eric joined Busy bee Advisors in 2018, we really were very mindful that if we were going to develop a tax division, we wanted to start first by educating and then we wanted to work almost exclusively with small business owners to kind of help in our own little way solve that, solve that challenge.
- [15:22]
Cody McGuffey
There's, there's a tremendous amount of people that watch this, are listening to this right now who are starting out, want to start out and maybe going like they've just kind of figured something out. So there's just generating a pretty significant amount of revenue now. But it's kind of like most so on the front end of their business, like chapter one of their business life. I would say there are some people here that are like chapter two, chapter three, and they're scaling and they're growing and beautiful. But first, can we talk to the chapter one business owners? What, what are some things that maybe they're like, they're just getting some revenue. They made their first, they've sold their first maybe a hundred products or ten, you know, a thousand sal online on their e commerce store or something like this. Maybe some things that they should be thinking about right now. Like they're probably sole proprietor. So they're probably like just Cody who set up a website and he's created about a thousand sales and probably generated about $10,000 in revenue. Is that okay for me to be a sole proprietor in that case? Meaning I don't structure an llc, I don't structure any sort of corporate structure. Or do you suggest, hey, no matter what, if you're starting, go and structure an entity. And I know we're not attorneys talking today, but mostly like from a tax perspective, what would you suggest here? What should they be thinking about?
- [16:44]
Eric
There's a cut point. It depends upon what the business is. So this is my general philosophy. If you are a low cost to generate revenue business, then you're looking at like 80,000 is the benchmark of revenue or profit of revenue. Right. Of total of gross. Right. So you, you do 80 in gross. You might want to look at doing an S corp. If you are a service industry where you've got a fairly A higher cost of goods to per, per sale, then you, you're looking at about 120 or 150. Right. Because you're spending money to generate money. Whereas in someone who is a service provider, like a mental health practitioner, they don't have an ongoing cost for their product because they, it's their brain. And so they help people because of their knowledge base, not because they know how to put together, you know, a wooden contraption that they're selling on ebay or something.
- [17:47]
Cody McGuffey
Can you give me an example of a low cost person in this, in this scenario, like would be me selling T shirts on online. Is that low cost in this case? Because there's no inventory, it's all maybe print on demand. So it's like, so that's, that's low cost.
- [18:01]
Eric
I mean there is a cost associated to it. But that is more along the lines of if you spend 30% of what you generate on a sale to make that sale, then that means that you, you get to put 70% of that into your, into your business and then, you know, and pay for things from there.
- [18:21]
Melissa
So consultants would be an excellent example of low cost. You know, no matter what the industry, a consultant generally only has themselves that they're, that they're taking any, you know, sort of pay. They usually don't have a staff because of course payroll can hit, can, can take up a lot of, a lot of funds. Right. But somebody who's in the consultant space, somebody who doesn't necessarily have that cost of goods to contend with. So even as that online presence, T shirt manufacturer who's buying shirts one off, you're probably sadly barely making much of a profit. So in that case, for tax purposes you should be okay. I like to tell people when they hit the $60,000 in revenue, that's when, and so that's top line, that's in money that's been received. We're not even thinking about anything else down the, down the income statement. Right. So when they've collected $60,000 in revenue, that's when the conversation with us or with tax professional, their choice needs to start about the advantages of becoming a corporation.
- [19:37]
Cody McGuffey
Because thank you for that. Yeah, very helpful. And the reason why, it's because people listening to this, they haven't had a lot of these conversations before. They probably didn't even know that there's tax consultant, tax advisors out there at this point. Cause I remember I didn't really know that was a thing when I was very first starting out. And so that 60,000 to 80,000 type of threshold is like, okay, start to. You need to be thinking there's probably some benefits that you can be really be capturing from a tax perspective when you structure, then have that conversation that if you're just getting started trying to get your first sale online, let's probably not worry about the ideal tax structure and all these things for, for people to listen to this at least they probably don't need to be, to be thinking about that yet. And if you were to. Now let's talk to maybe the person who's now in that. Chapter two, chapter three, now they have options. Now they've crossed the 60,000, $80,000 threshold. Now these have, now we're having these conversations. So now they have some options on the table as far as tax structure and entity structure and all this stuff. What are their options? How should they be thinking about these things?
- [20:44]
Melissa
The one thing I want to say, and I think people miss this, is there's never a bad time to have a conversation with your tax professional. Reach out to us, have a free consultation, even if it's just to gain some knowledge. But find a tax professional who you feel that you can have a conversation with. Not somebody who never, you know, is willing to have an appointment with you, is never going to take your call. Because at any point in your journey, whether you're at, you know, the prequel of the book or in chapter five, there's always time and opportunity to course correct and either to recapture maybe money that was overpaid in taxes from deductions that were missed, or to set up that foundation of, let's say that corporation to, you know, to, to help offset things like self employment tax and things like that. The challenge with waiting and this is to go back to what we talked about initially with like quarterly taxes and stuff like that. The challenge and more of why the system is rigged is you can, you can overpay to which the government gets to keep your money interest free, which stinks, or you underpay and then you get hit with a penalty. So there's that sweet spot in between and that's where we really encourage our clients to get to. One of the very, very, very first things that I think every small business owner should do is make sure that they have a savings account for taxes. Is, you know, there's, there's a few different books out there. I don't necessarily want to promote other authors, but there, there are definitely some more people that are starting to talk about this. Just because once you get into the cycle of owing taxes and then Having to set aside money for taxes. I mean, if you. If you look at that equation, you're at like, 60% of your revenue is going towards taxes, whether it's back taxes or current taxes. So as soon as possible, even if it's, you know, today, set up a savings account that's used specifically for taxes and designate a portion of every dollar that's received that goes into that account.
- [23:05]
Cody McGuffey
So how much would that be? I love this tactical.
- [23:08]
Melissa
I'll let Eric answer that, because I. I don't. If he and I have a different opinion on this.
- [23:13]
Cody McGuffey
Just the simple version.
- [23:15]
Eric
The simple version. The simple version is like 20%, right? 20%, right. So. Right. So if you make $100 and you spent 50 to get that $100, that means you have $50 in profit. You take 20%, you put it into the account.
- [23:31]
Cody McGuffey
So 20% of the profit, put that into the account.
- [23:34]
Eric
Because your expenses are going to. Are going to go against your profit anyways, and it's going to reduce your profit line. Or if you want to make it simpler, if you sell 100 bucks, put $10 away, 10%, right. And be saying, well, that's a lot to start with. It is. But if you don't do that, what is it gonna look like in a year where you've got that tax bill that's gonna come down the pipeline and you're still make. You're still generating income at this level, and you now all of a sudden have a, you know, a $15,000 tax bill and so on.
- [24:10]
Melissa
Like, in the simplest way, what that really looks like. And this is speaking to the people who are truly at, like, chapter one, right. Is set up that separate account for. That's a savings account that's specifically for taxes. You're not touching it for anything else on a monthly basis or even on a weekly basis. Look at what's been received as in cash receipts for your business, and kick over 10% into that account. The worst case scenario is that you have this money that's sitting there that maybe is earning a little bit of interest or interest rates are going up for savings accounts. So that's awesome. And if you end up not owing that much in taxes, which you most likely won't, if you work with a good tax professional, then that becomes kind of a, you know, a bonus for you. Right. Or money that can then go into your, you know, your. Your kind of your emergency fund for your business. But, yeah, you don't end up on the hamster wheel. And that is what I see more than anything that can absolutely kill a brand new business.
- [25:16]
Cody McGuffey
I completely agree. So many times I've seen this and I literally love the simplicity of the 10% of gross. Just 10% of top line. I never really thought of it that way. I always did the layer a couple layers below that of like calculate your profit and I kick over 30%, which was always probably a little bit too much. But then I got a little bonus at the end of, you know, at the end of the year of my own money, but it wasn't mine. And so, but I love that because if you're starting today your online business and you created your first hundred dollars in revenue, not all that money is yours.
- [25:49]
Melissa
Absolutely.
- [25:51]
Cody McGuffey
That's kick over 10% of that hundred dollars, put it in a savings account, and that's not your money.
- [25:58]
Eric
Now how do we keep that money as being yours?
- [26:01]
Cody McGuffey
And that's where you busy be advisors and other, you know, you can now, you can read all the books and you can do all the stuff and then you can kind of figure out strategies on how to keep more of that and turn more of that money into yours. And that's where it gets fun. But it's not fun pulling out of your own. At the end of the year, you're like, oh, I owe, I owe 10 grand. And you have to dip into your personal account or your checking account, pull it out, and then send it to the government. It's such a terrible situation.
- [26:28]
Melissa
It hurts. I mean, we, we, you know, we most often will talk to people after they have been hit with a huge tax bill. And there's a few different things that can happen that trigger that event, but they get hit with a huge tax bill. They've just written that check for, you know, 20, 30, 50, $75,000. I mean, Eric talked to somebody yesterday, $75,000 tax bill. And I'm, I'm hearing it in my office and then I hear him say, and how did that feel? And you know, it, it made me laugh a little bit, but it only made me laugh because I know that we can in most cases provide a little bit of hope for those small business owners. There's, you know, there's the choice of do they want to go back and do they want to file an amended return? Because we see potential savings that could be found. We're obviously never going to recommend that they do an amendment if we can't benefit them. But they do have some choices. But it's the, you know, there are just different things that happen that trigger that there's this big check that has to be written. And it's so sad because I think there are still so many small business owners out there that really don't know that they have a choice. And one of the huge triggering events that we've been seeing, and it's becoming more and more relevant, is that if you have a business that accepts credit cards, which, let's be honest, that's most businesses, right, you can't really operate without accepting credit cards. But you can't get around it. If, let's say, you think, oh, I'm going to outsmart the system, I'm not going to accept credit cards, but I'm going to Accept Venmo or PayPal or Cash App, we're going to lump all of those together. So you accept any form of payment other than, you know, a good old George Washington dollar bill, then those companies are required by the IRS to report to the IRS all of the money that's been collected on your behalf or all of the money that's been, you know, paid to you. And then the IRS goes, okay, well, XYZ business is now on our radar because this processing company has reported you've received, you know, $15,000. And the IRS doesn't look at it and say, well, XYZ company probably has deductions. So then they send a notice to XYZ Company and say, this is what you owe in taxes. And then XYZ Company goes, oh, my God, I got a notice from the irs. And they throw it away or they ignore it, and it becomes bigger and bigger and bigger. And, you know, we've had clients that now they do not do that anymore. But they have had their, you know, accounts impounded. They've risked, no joke, what you hear on the radio. They've risked losing their houses, they've risked losing their businesses. And it's, it's really because they didn't know where to go. They didn't know what to do. And they just went, well, I'm just going to keep working in my business and hope that this issue goes away.
- [29:35]
Cody McGuffey
So I've seen that as well. I'm sure you see it all the time. It's. I know people personally that have. Have gone through that and are going through that, and it does give you the sense of this is kind of like the mob, like, they can kind of take your business and, okay, well, if you don't pay attention, if you don't pay, then you're going to lose your licenses. If in your state, sometimes they'll take Your licenses, like they'll kind of take your business from you and then, then you have no means of, of producing income. So it's, it's, it's a very it. All this to be said, I think we can switch from like, okay, here's all the things that people do wrong all the time. Kind of packing this up with a, that's not, here's the fear, okay, now it doesn't have to be so fearful. And now we can move into the, hey, what can people be doing today? It's March of 2025 for this year, or I guess for previous year and also for the year coming. What, what can people be doing today to set themselves up for a smooth, you know, tax, tax return process, tax planning process for the future.
- [30:42]
Eric
I would say. First thing is, is just kind of on your desk, clear space off, you know, take a piece of paper and a trusty pen and write down everything that goes into you making money. Like everything, everything you spend something on. If you need to log into your bank account, log into your credit card that you use for business purposes, look at your expenditures, write them all out. That right there is the first step of the process because you're writing down all of your expenses. You're starting to look at them, okay, this is all the expenses I had for the month. You start writing that down. That is the first that you're just putting down the first Legos now of building your accounting profile, right, Your bookkeeping, you're recording your expenses. By properly recording your expenses and taking a look at it from a big picture, then you can start saying, well, what else can I add in? What household expenses am I already going to pay for out of my own pocket that I use for business purposes that now I can write off? Because a W2 employee can't write off their cell phone, but a business owner can't. A W2 employee can't write off personal vehicle mileage used for business purposes. Like you're driving to work every day. You can't write that mileage off. But if you're a business owner and you're going from your office to go meet with someone, business wise, you get to write that mileage off. So there's, there's a there. The provisions of the tax code are already there for you to take advantage of. You just got to start with a piece of paper and start writing out what it costs you to make that money.
- [32:22]
Cody McGuffey
What are some other opportunities you think that are just not as known about, I guess. And, and out there right now for small businesses to take advantage of that.
- [32:34]
Melissa
Well, I want to answer this one. Yeah, I think the biggest opportunity is to find, you know, of course I would love it if, if a whole bunch of people scheduled consultations with us. Right. That would be fantastic. But in truth, any small business owner out there listening, find a tax professional that you can have conversations with. And it's probably going to be more than one conversation. So find a tax professional that you can have conversations with before the end of the year. So find somebody who's willing to run the race with you, not, you know, kind of throw the baton at you after the fact and say, well, you should have, you know, spent more money on this or done this or done that. And they, you know, they only target the low hanging fruit and that's if they give any advice at all.
- [33:23]
Cody McGuffey
So, so proactive conversations.
- [33:25]
Melissa
Absolutely, proactive conversations. You know, we, we try to, to meet with our clients, especially tax strategy clients. We meet with them four times generally before the year has ended. So that's four different times per year when there could be a variety of different things that are happening in your life and in your business where we're able to talk to this small business owner and in some cases even talk to them before they, you know, make a major purchase or before they do something so that we can advise them on how to make whatever they may be doing advantageous in, you know, for, for tax purposes.
- [34:10]
Cody McGuffey
Beautiful. I, I completely agree. So it sounds like minimum quarterly. So for, for someone listening to this in chapter one of their business life, they, they don't even know that this is the first time they've heard of this. And I remember, and I say that with confidence because that was me and I'm like, oh, you can have multiple conversations with your tax advisor. Like, yeah, oh yeah, that's the whole point. Like you can talk like once a quarter. In fact, you could probably even call them more times and talk to each other and like, and have that relationship. Actually that's built up over time. Hey, should I buy this, buy this thing? Or hey, what do you think about this? And hey, is this an actual business like thing or is this like. And you can start to like understand and educate yourself as a partnership, which I think is really important. What about state specific stuff? Do you guys also handle state stuff? And then meaning because you guys are in California, but what about if someone is in Massachusetts and, or Texas in my case and in other states? How often do you guys work with clients across, across the US Every day?
- [35:12]
Eric
No, that's okay. We've got, we've got clients that are almost every state of the union. Now. I, I really am half tempted to get one of those. I've visited this state, you know, kind of little placard thing to put up on my wall. And as I get new clients and new states, I'm just going to start filling that out because I'd like to collect all 50 if possible. Right. So it's just, if it's someone that's a cpa, it's someone that has, that's, that's a state person. They can't, they can help you on other things, but they really are focused on their state. So when you're looking for someone to help you and you're kind of going online, you know, look for someone that is, that is able to help you no matter where they're at or where you're at is kind of my opinion. Most CPAs focus on 30% of their practices on taxes. Right. So they've got 70% of their income streams that are from other sources. Talking to someone who is a tax strategist or someone that focuses only on taxes is more to your benefit because they're going to be more up to date on the ins and outs of what is currently available to you and that's going to reduce your tax liability. In the end. The IRS doesn't necessarily let you go back in time to fix things in the previous year. So you kind of have to take advantage of it in the year that you want it. So if you're going to do something you don't want to wait, definitely don't do this to your tax professional. If you can help it. Don't ask them when they're filing your taxes what they could be doing to like to, to, to reduce their taxes. Ask them this instead. Can I talk to you in May? Can I schedule a call right now? Can I talk to you in May and schedule a call? I would like to look at my last year's filing and you let me know where I have some areas to develop and, and grow on for conversation.
- [37:03]
Cody McGuffey
Beautiful. I want to ask some questions from, from other people's perspective right now that I've asked many times through like tax advisors and things like this. But I think it's important because one, it's, it's usually different, everyone's at different businesses. But also too it's really unfamiliar with a lot of people listening to this. So typically like you guys services. I'm looking at your guys website right now. Busybadvisors.com, which we'll link to in the show notes below. But you guys, bookkeeping, taxes, outsourced accounting, which also includes strategy, also new businesses, like, it looks like you guys can incorporate businesses as well. All those are correct.
- [37:44]
Melissa
Yes.
- [37:45]
Cody McGuffey
Beautiful. And typically the way that I look at this for anyone listening to this is these are different services or different products, you could say. And so if, if, if you know that you have to file taxes, everybody's familiar with filing taxes. Like typically you pay a one time for that fee, like for that tax filing. And then bookkeeping is something that you need to have if you're a business owner. Like you kind of need to have this ongoing all year. And so this would typically. This is more. My question comes in for you, Melissa and Eric is that's a monthly service type of, type of thing, I'd imagine, right? Or can you confirm?
- [38:22]
Melissa
Yeah, so, so yes, generally bookkeeping would be a, a monthly service. What will happen? You know, and, and kind of the reason why we offer all of these different, as you say, products is what will happen is, you know, maybe Eric will talk to somebody who on the tax side of things has not filed taxes for several years because they just buried their head in the sand and were terrified. Right. So they finally have decided to, we'll say, pay the piper, so to speak. So they talk to Eric. Eric says something along the lines of, you know, how are you tracking your finances? How are you doing your bookkeeping? It goes to crickets from the, you know, the person who he's talking to, because they truly have no answer, they just are silent and he will then refer them to, you know, my side of the house, which is the bookkeeping side of the house. So occasionally we will have, where we're doing projects of back work for the purpose of taxes, where we're doing, you know, large chunks of bookkeeping, maybe a year, multiple years at a time. But yes, in most cases, bookkeeping is, is a month to month service. I will tell you. Oh, go ahead.
- [39:34]
Cody McGuffey
What would someone expect to, to pay or, or how should they even be looking at the cost of bookkeeping on a monthly basis?
- [39:42]
Melissa
Well, you know, I think we could take it a step back from that and figure out if they actually need to hire a bookkeeper. Bookkeeper, right. So there are some businesses where they may not have, and I'm not going to be too industry specific, but there are some businesses where they truly may not have a need for a bookkeeper. They just have the need to be tracking their accounting on somewhat consistent and regular basis. Right. You never want to run the marathon at the end of the year when it's the 11th hour and you're trying to get stuff to your tax professional, you're never going to do your best work. It's like cramming for an exam. You may, you know, gain some knowledge but long term wise, there's no benefit to you. And you'll.
- [40:24]
Cody McGuffey
When, when should they know if they should flip over that threshold of like, ah, I should probably get a bookkeeper.
- [40:29]
Melissa
If they're not doing it consistently on a monthly basis themselves, so they're not.
- [40:34]
Cody McGuffey
Even doing it themselves, then they, someone needs to be doing it. Your point?
- [40:37]
Melissa
If they just feel that they don't like it, they have an aversion around it. It, it at that point is when I say it's, it's worth it to reach out. You know, jump on our website, schedule a consultation. Our, our team will take you through the kind of the questions of are you realistically not doing it yourself? Okay, here's, you know, kind of the price breakdown for us to do it. We try to make it incredibly easy. We do not do, we do not do bookkeeping on an hourly fee basis. Our bookkeeping is all based upon the number of accounts that somebody has that work, you know, that are, that they're using within their business and pricing is based upon that. And then there, you know, of course can be some other services that a client requests and those are charged hourly. But we try to keep it incredibly affordable. So yeah, just a plug. So the, you know, the question of how do I know when I need to hire a bookkeeper is what led me to beginning of last year I actually wrote a book and it's available on Amazon and it's called the four Hour Bookkeeper. I'd love to offer any of your listeners a free copy jump on our website, fill out the comment, you know, form, ask for your free copy. We'll send you an e copy of the book at no charge. You're. If you're somebody that wants to jump in and wants to do your own bookkeeping and just doesn't know where to start, this book will take you from, from start to finish on what you need to do.
- [42:12]
Cody McGuffey
Amazing. Thank you for that. I, I think it's super, super helpful because bookkeeping is one of those things that I didn't really when I first started my journey years and years ago. I, I kind of just in hindsight I'm like, I wish I would have just probably paid someone to do that for me. I just didn't even know that I should have done that. Every year we, my accountants would play catch up and then I'd get a big bill from his catch up anyway. And then I would be like. And I thought that was normal thing. I actually didn't get probably good advice of like, no, no. You could actually just. It's like monthly housekeeping. Like, you've got to keep your house clean all year long and makes everything easier and it's smooth and, and typically, like, for anyone listening to this who's like, okay, cool, but like, what do you think it would cost me? Like Melissa mentioned, there's a threshold, but. Or I mean there's a, there's a scale, but in my experience it could be anywhere from like 200amonth to 1500 dollars a month, depending on how big your business is. But it's usually on the lower end of that. It's usually less than you think. It's usually really worth it. Would you guys agree with that?
- [43:19]
Melissa
Yeah, I would. And so there's, you know, there's that you bring up an interesting point with that because when you, when you utilize, utilize your tax professional who ends up having to charge you extra for bookkeeping work, the bookkeeping work that they're having done is so that they are able to file your taxes, right? So you're paying for this extra service that is a necessity for them to be able to just prepare your taxes. But there's not really any benefit that you as the business owner are getting from that bookkeeping work. If you flip it and you say, okay, so I'm going to utilize a bookkeeper. You, you know that, you know, Cody, you say, Cody, or whatever you call yourself in your head you say, I know I am not going to do my bookkeeping myself. I know that every time I sit down to do it, even though I've read Melissa's amazing book, I know every time I sit down to do it, I'm just not going to do it. There are too many other things that I can be spending time on in my business by having a bookkeeper that's doing your books on a monthly basis throughout the year. There is so much information that you as a business owner can utilize from that, you know, that income statement, even from the balance sheet where you're able to see what your, you know, what your business owes as far as credit card debt or loans or things like that. There's just a lot that can be done with that information. And it has been what I've seen be the easiest way for our Clients to grow their business. Business. So they actually will use their numbers to set goals and be intentional with things and to be able to take their business from where they are now to where they would like to go to. And that's kind of one of the other things that a bookkeeper can help.
- [45:02]
Cody McGuffey
You do for your bookkeeping service, for example, what as a customer, let's just say Cody. And at the end of the, it's the end of the month now, right? And are we just closed up in February? So now it's March 11th. Right now today is recording. And I'm probably expecting. What am I expecting from my bookkeeper today for last month? Like what would be the deliverables, I guess, that I should be expecting as a customer? Would it be an income statement or.
- [45:27]
Melissa
Yeah. So I can't, I can't necessarily speak for all bookkeepers out there. I can say that what we have as our, our deliverables for our clients is they will get a profit and loss, a copy of their, the previous month's profit and loss. So in March, we would be reconciling February. They would get a profit and loss for February. They would also get a year to date profit and loss. So what that would show them is January and February at this point. And then they would get a copy of their balance sheet. I will tell you that most of our clients barely glance at their balance sheet and that's fine. I think the balance sheet is really more for, I'm going to say for tax purposes. It's good to be familiar. It's good to see if there's, you know, things that have kind of jumped over to the balance sheet as maybe owner's pay or owner's equity. Glance at that, see if that number seems to be changing. But really what you're focused on as a, as a small business owner, if you're just starting and just getting used to looking at financials, is looking at that profit and loss and seeing where your business is spending money, you know, and maybe digging into those categories to see if there's ways to wasteful spending. We've got a, a conference next week that's, that's coming up and it's all about does your business need a diet? And really, it's one of the, the key points that we're going to be talking about to this group is looking at those, those reoccurring expenses and looking at creating a budget and how those things can benefit your business. And it doesn't necessarily mean it's you as you know Cody, doing it, it means that these are things that your bookkeeper or your accountant can and should be doing for you. But it's about having that conversation with them to talk about what that means. Because one of the challenges that I would say on both the accounting slash bookkeeping side and tax side is we are only as good as the communication our clients have with us. So if we reach out to you and it's crickets, well, that becomes very difficult because there's only so much we can do. We can make our best guesses at what, you know, certain expenses are for. But if we're not getting information back from you, there's, there's a limitation on what we can do. So if you're somebody that wants to start good, you know, good habits, the two things I would say is set up a separate account just for, just for tax savings. And then I, I definitely see it's always a benefit to have a bookkeeper, but there is a cost, of course, associated. But, you know, talk to that bookkeeper or maybe interview several and, and, and, and just ask the question of how can this help my business? And let them explain to you, you know, how they believe their services will help. That, that is a great way to, to vet, if you will, an accounting professional.
- [48:20]
Cody McGuffey
Beautiful. Thank you guys for that. I think it's a good time to transition over to the rapid fire questions. Are you ready?
- [48:25]
Melissa
Yes.
- [48:26]
Cody McGuffey
What's your favorite business book?
- [48:30]
Melissa
Blue Ocean Strategy.
- [48:32]
Cody McGuffey
Oh, nice. How about you, Eric?
- [48:36]
Melissa
2X is harder than 10x. I have so many.
- [48:39]
Eric
There you go.
- [48:41]
Cody McGuffey
You mean 10x is easier than 2x?
- [48:44]
Melissa
Doesn't mean I'll get the, the title. Right.
- [48:46]
Eric
But yeah, I think mine is how to Pay Zero on Taxes.
- [48:53]
Melissa
Yeah. Publishing that a few years ago, sadly.
- [48:58]
Eric
Right.
- [48:59]
Melissa
Yeah.
- [48:59]
Eric
But the old ones still apply. It's, the old ones are still good. There's nuggets in there. So don't think if you see that used book on the shelf and they, you know, they're, they're saying, oh, you could buy it for a couple of bucks. It's, that's a pretty good investment because you can flip through there and you can still find some, some, some, some bits of wisdom that'll help you reduce your tax liability.
- [49:20]
Cody McGuffey
What's one thing that you wish that you knew before starting your businesses?
- [49:25]
Melissa
That sometimes you just have to pull the trigger and start. I think that I don't, I don't think we're alone in this, but I think oftentimes as, as, as humans, we want everything to be just so and just perfect. And there's opportunity that's lost when we wait. I, you know, I. In August, I launched a course teaching people who are looking for either career change or maybe stay at home moms or stay at home dads on how to start and run a bookkeeping firm. And I wish I would have just pulled the trigger years before. I really do.
- [50:06]
Eric
So paying someone else to do certain services for me. I wish I would have been like, I don't have to do it all myself. If you're spending, you know, two hours on administrative side of your business, that's two hours of non billables that you have. Right. That's two hours that you didn't spend making sales. So then do I want to spend money making sales or do I want to spend my time on the administrative side of it?
- [50:33]
Cody McGuffey
It.
- [50:33]
Eric
Maybe I should pay someone $300 a month to do my bookkeeping and free up six hours of my time. That then comes out to $150 an hour. I'm now making an, you know, right now, at that point, I'd be making an extra $900. Well, that just paid for my $300 bookkeeper.
- [50:53]
Cody McGuffey
Love that. If your family and your friends and your customers all had to get together and they had to write an honest article or a book about you and they had to characterize your traits and kind of talk about who you were as a person. Good things and bad things. Right. Like everything's on the table. What are some things that they would say?
- [51:15]
Melissa
Well, I mean, of course, both of our moms, Eric being the favorite child and me also by default as the only child being the favorite child. Both of our moms would say that, you know, we are absolutely the most amazing human beings on the planet, aside from our children. Right. I think what our clients would say and what we get as far as feedback is I never knew that it could be as simple as having a conversation and that we have helped them to have financial clarity in their business. It would be a super gregarious, I guess gregarious.
- [51:58]
Eric
My family would say, my friends and family would say that I am not the atypical. No matter what I may be doing. I am loud, I am gregarious. I am. I'm very open. And to that extent, like, why not take the opportunity? You're listening to this now. You've heard us say some things.
- [52:18]
Melissa
But I think that that, to Eric's point, it just have the conversation, you know, spend. Spend a half an hour having a conversation with, you know, with Eric or With one of us, it most likely will be Eric. I really do. I don't avoid the phone, but I don't have a lot of telephone consultations myself. But take the time. Have the consultation. You really won't have, you won't lose anything by having the consultation with us. I think what I have heard as feedback from people who have had consultations with Eric or even had consultations with myself is that they, they will say, oh, I wish I would have done this sooner. And then if I do have opportunity, I will, you know, occasionally ask, well, why didn't you? Or what stopped you? Well, I, I felt like I didn't know enough to have the consultation. Well, that's the purpose of the consultation. So we're not going to judge you. I, I will guarantee that. We've probably seen somebody who knows far less than you and we've probably seen people who know far more than you. So you're, you're always going to be right there happily in the middle and, and have the consultation.
- [53:34]
Cody McGuffey
Beautiful. Where can people find you guys? Follow along your journey. Yeah, we said.
- [53:43]
Melissa
Or I. You, you're welcome to go to I needbookkeeping.com but busybedvisors.com and that's the easiest way to get a free copy of the Four Hour Bookkeeper, to schedule a consultation and just to kind of see what's new and what we've been up to.
- [54:01]
Cody McGuffey
You guys also have a podcast too, called the Real Buzz Podcast. Would you guys recommend people jump over there?
- [54:06]
Melissa
Sure, sure. Tons of education. The Real Buzz. Taking the sting out of taxes. We have, we have a lot of fun. We've, we've been very agreeable with each other on, on this particular call, we try to not, you know, make our, our interviewers feel uncomfortable, but there are times where we have different opinions about things. And as business partners and, you know, I, I like to say life partners, but we are married and have been for close to 20 years. So, you know, it's, there is banter that happens and there's. On most things we do agree, but on other topics, there are, there are certain things that we will have differing views on and it's not that we disagree, it's just maybe a different perspective.
- [54:54]
Cody McGuffey
I have a question and this was not thoughtful or wasn't. I wasn't thinking I would ask this, but now that we're here and you just mentioned all that banter stuff, so is there a chance that the IRS will be abolished in the United States of America?
- [55:09]
Eric
Well, it was created and anything that can that was created can also be dismantled. So, I mean, am I thinking it's going to happen? Not likely in our lifetimes, but we're already starting to see that the, you know, the income taxes are starting to become more and more of a focus of the populace. Like, where are my taxes going to? Why am I paying so much? And then you look back to historical numbers and you say, well, you know, they were making this much and only paying this much in taxes. So I think that moving forward, just be aware of what's going on and if you want to become more involved in what's going on with your taxes, then become involved more locally. And do I think the IRS is going to go anywhere? No, not anytime soon.
- [56:07]
Cody McGuffey
Do you think that income. Income taxes will go anywhere anytime soon?
- [56:11]
Eric
Not anytime soon. Do I think that other things are going to start coming into play that are going to make it as an attractive alternative? Yes, there, there was, there was a time when people did not pay taxes individually and they. We may get to a point where we get back to that, or it may be an amalgamite between income and other, other generator, other income generators for our government. So do I think it immediately is going somewhere? No, but never say never, because in, you know, 1905, they didn't necessarily know what income taxes were. Were. Well, we certainly know now what I.
- [56:55]
Melissa
Think is something that would be more relevant today that we would possibly see. And I'm, I'm, I'm not necessarily for it, but would be a flat tax rate system. So a system where, you know, this is the rate that everybody pays and so there's not multiple levels of tax brackets. I think that would be. I think that would be unfortunate if that happened, but that would be the closest thing that I would see as a possibility of happening before, you know, before I would see that the, the IRS would go away.
- [57:31]
Cody McGuffey
Sure. I know it's that we're talking extremes here, and that's okay and we don't need to be right on anything. Yeah, yeah. It's funny, we're wrapped. We should be wrapping it up. But it's like one of those things where it's kind of fun to talk about once in a while, you know, like, um. And something that I talk about a lot about with my, my wife and we kind of talk internally and I'm like, it just. I've. I've always kind of felt this way for years. And I, by the way, I don't think about this that much from like a scientific level or, you know, think about this industry so much. But it always kind of made sense to me of just like why don't we just remove income taxes? This seems really messy. And just why don't you just tax what I buy like in a consumption tax. Why don't we just increase that? If we need to increase something, why don't we just do that? That way everybody's kind of like paying this. The, the wealthier people will buy more stuff so they're going to end up paying more anyway. And then we just make sure that we just take care of the lower income people maybe by not taxing groceries or we, we have certain categories that we just don't tax with the consumption tax. But I feel like that would be, it's most logical in my non tax thinking mind all the time. But it just seems like it makes sense to me now. Can you tell me where I'm probably not thinking or considering something?
- [58:44]
Melissa
I actually think you make a very interesting point and I think that that is, I don't know that it's going to be taking over income tax but I think we are quickly headed towards there being, let's just call it sales tax to make it easier for people to understand. Right. I think we are quickly moving towards sales tax being charged on both services. That would be something that I could see as a, as a possibility. Sales tax being charged on both services and goods. What we are already seeing due to these huge companies like Amazon and ebay and you know, E Commerce as a whole is that there are benchmarks that are set. So if you are, let's say you're based in California and it used to be that if you had a tangible item that you sold to another state, it was not taxable. Am I correct on that, Eric? Okay, well now because of Amazon and again huge companies are what are changing this and states losing revenue because there's not so many transactions happening within state boundaries. There are now thresholds that we're seeing that are creeping in. So if you're a seller and you sell to this state and you have more than, you know, X transactions, it started with that you have more than X transactions, then you need to pay sales tax to this state. Well now it's, if you're a seller and you sell to this state and you have X transactions and meet this threshold that you have to collect sales tax. So what's happening is for some of our clients who were able to be competitive to sell high ticket items to other states, well now they're looking at, they're going to have to sell, you know, start charging sales tax as well. And it creates a different it's it's a different dynamic. And I see there being some changes to that. I I don't see the thresholds going, going away. I see the thresholds getting lower and lower until we're just used to, you know, charging sales tax whenever we make a sale.
- [60:53]
Cody McGuffey
Interesting. Thank you guys so much for coming on. And we'd love to have you guys on again, for sure. Maybe, maybe after the tax crazy tax season, too. And we talk about tax planning or something like this would be fun. But yes, you guys, anybody watching, watching or listening to this, you guys know where to find Melissa and Eric now. And thank you both for coming on again.
- [61:13]
Melissa
Thank you.
- [61:13]
Eric
Cody, thank you so much. Appreciate the time.