Podcast Summary: Money Guy Show – "How to Start a Business the RIGHT Way!"

Release Date: November 20, 2024
Hosts: Brian Preston and Bo Hanson

The latest episode of Money Guy Show, titled "How to Start a Business the RIGHT Way!", features hosts Brian Preston and Bo Hanson delving into the essential strategies and considerations for launching a successful business. Throughout the episode, they address listener questions, share personal insights, and provide actionable advice to empower aspiring entrepreneurs to build their ventures with confidence and financial acumen.

1. Listener Question: When to Establish an LLC and Business Financials

Timestamp: 00:07 – 02:38

Robert's Inquiry:
Robert poses a critical question about the optimal timing for setting up an official LLC and seeks advice on business financials. He asks:

"I would love to hear the money guys talk about starting a business and what the boiling point is to set up an official LLC and give some similar advice…"

Bo's Response:
Bo begins with a compliance disclaimer, emphasizing that they cannot provide legal advice but can offer general guidance. He highlights the uniqueness of each business, noting that the decision to form an LLC or another entity depends on various factors unique to the business's operations and risk profile.

"Every single business is kind of unique, and it's unique in terms of how it operates and the underpinnings of it…"

Key Points Discussed:

• Cash Flow Management:
  Bo underscores the importance of having sufficient operating capital to sustain the business, referencing the iconic "Jerry Maguire" scene as an example of poor planning.

  "Cash is king. It is your friend in terms of making sure that you've saved up enough operating capital to allow you to be able to sustain the business." (02:03)

• Emergency Reserves:
  He advises maintaining an emergency reserve covering 3 to 6 months of living expenses, plus additional capital to account for the business's ramp-up period.

  "You want to make sure not only do you have an appropriate emergency reserve to cover your standard living expenses… but you even have capital to carry you just in case the business itself takes longer to get off the ground than you thought it would." (02:03)

2. Brian's Insights on Financial Planning for Business

Timestamp: 02:03 – 08:43

Brian builds upon Bo's points by illustrating the importance of thorough financial planning using the metaphor of "digging for diamonds." He warns against undercapitalizing a business, which can lead to failure despite significant effort.

"If you don't have enough cash to where you could go that one extra foot… that's what gets a lot of businesses." (02:38)

Structured Financial Planning:

• 3D Glasses Plan:
  Brian introduces the concept of the "3D glasses plan," which involves creating a realistic, detailed business plan that accounts for potential setbacks and growth.

  "Write that business plan out, get the spreadsheet out and actually do the work." (02:38)

• Two Plans Approach:
  He emphasizes having both a "dream plan" (focused on aspirations) and a "do or die plan" (focused on recovery if things go awry).

  "This is the do do plan. This is like, if this thing goes bad, how am I going to recover and get my family back on track?" (02:38)

3. Separating Business and Personal Finances

Timestamp: 08:43 – 10:56

Bo's Advice:
Bo highlights the necessity of establishing clear financial boundaries between personal and business accounts to avoid co-mingling funds, which can lead to accounting and liability issues.

"Set up a separate credit card that is only for business transactions. … you don't want a bunch of co mingling." (05:56)

Implementing Separation:

• Bank Accounts:
  Open dedicated bank accounts for all business transactions to streamline accounting and legal compliance.

• Credit Cards:
  Use separate credit cards exclusively for business expenses to maintain clear financial records.

4. Choosing the Right Legal Structure

Timestamp: 05:54 – 10:56

Bo and Brian Discuss Entity Formation:
The hosts discuss different business entities, such as LLCs and Subchapter S Corporations, noting that the optimal choice varies by state and business needs.

"Subchapter S, I mean, you typically go like single member LLC. And then once your business starts cranking, you turn into a subchapter S." (05:54)

State-Specific Considerations:

• Franchise and Excise Taxes:
  Brian points out that certain states, like Tennessee, impose franchise and excise taxes on Subchapter S Corporations, making them less favorable.

  "They charge you a franchise and excise tax. So you don't see many subchapter S here." (05:56)

Professional Guidance:

• Consulting Attorneys:
  The hosts recommend consulting with attorneys and accountants to determine the most advantageous legal structure for your business’s specific circumstances.

  "You probably have to do your research, figure out what is kind of accepted or reasonable in your state." (05:56)

5. Establishing Robust Accounting Systems

Timestamp: 10:56 – 17:43

Brian's Emphasis on Accounting:
Brian stresses the critical role of implementing a scalable accounting system from the outset to handle increasing complexity as the business grows.

"An accounting system is the backbone of all of that, because you're going to add in… it just starts getting to be amazing." (08:43)

Recommendations:

• Automation Tools:
  Utilize accounting software like QuickBooks, which now includes AI functionalities for easier transaction management.

  "QuickBooks is even adding an artificial intelligence function… it can be that simple." (08:43)

• Future-Proofing:
  Setting up robust systems early allows for seamless scaling and management of additional financial elements such as loans, retirement accounts, and employee expenditures.

Bo's Final Tips on Business Management:
Bo advises entrepreneurs to avoid getting bogged down by minor details (e.g., excessive focus on branding and website design) before validating their business idea through a minimum viable product (MVP).

"Don't focus so much on the idea of having a business… you don't actually have something that another human being is going to be willing to pay for." (08:51)

6. Minimizing Risks by Focusing on Core Essentials

Timestamp: 08:43 – 10:56

Bo's Advice on Avoiding Pitfalls:
Bo cautions against entrepreneurs spending excessive time on superficial aspects like logos and websites before ensuring there’s a viable market for their product or service.

"Don't get lost spending all your time spinning up the website and thinking about the marketing… if you don't actually have the minimum viable product to prove that this business will actually work." (08:51)

Brian's Additional Insights:
Brian echoes the sentiment, emphasizing the importance of building a strong financial foundation before diversifying into other ventures or leveraging.

"Don't skip actually doing the financial order of operations. … you've got to make wealth and then to get to the where you can maintain." (09:29)

7. Second Listener Question: Maximizing Tax Savings on RMDs

Timestamp: 10:52 – 17:43

In addition to business-related advice, the episode addresses a listener named Low’s question regarding Required Minimum Distributions (RMDs) and strategies for minimizing their tax impact.

Bo's Explanation and Strategy: Bo explains RMDs, mandatory withdrawals from retirement accounts starting between ages 73 and 75, which can lead to significant tax liabilities.

"What ends up happening is you kind of have this, I say tax bomb… your income shoots way high up and you lose some control over it." (11:23)

Qualified Charitable Distributions (QCDs): Bo suggests using QCDs as a strategy to reduce taxable income by directing RMDs to charitable organizations.

"You can do a qualified charitable distribution where instead of you receiving your RMD, you can actually opt to give it directly to a charity… you would only show $15,000 of income from your total RMD of $20,000." (14:07)

Brian's Additions: Brian recommends considering Roth conversions during the period before RMDs begin, especially if you anticipate higher RMDs in the future. He also cautions about the interplay between RMDs, Social Security taxability, and Medicare premiums.

"Don't sleep on Roth conversions… you need to make sure you're taking a proactive stance on looking at tax policy, looking at tax rates and seeing if there's an arbitrage for you." (14:07)

Reinvestment Strategies: When reinvesting RMDs, Brian advises linking distributions to taxable accounts thoughtfully, considering state tax implications, and aligning reinvestments with overall financial plans.

"Pay attention to your state taxes as well when you're thinking about the reinvesting… let it just sit in cash. Actually think about it in conjunction with your whole plan." (14:07)

Conclusion and Final Thoughts

Throughout the episode, Brian and Bo provide a wealth of knowledge for both budding entrepreneurs and seasoned investors navigating the complexities of business formation and retirement planning. Their balanced approach, combining practical advice with strategic financial planning, equips listeners with the tools necessary to make informed decisions and achieve long-term financial success.

Notable Quotes:

• Bo: "Cash is king. It is your friend in terms of making sure that you've saved up enough operating capital to allow you to be able to sustain the business." (02:03)
• Brian: "Don’t skip actually doing the financial order of operations… you've got to make wealth and then to get to the where you can maintain." (09:29)
• Bo: "Don't get lost spending all your time spinning up the website and thinking about the marketing… if you don't actually have the minimum viable product to prove that this business will actually work." (08:51)
• Brian: "Don’t sleep on Roth conversions… you need to make sure you're taking a proactive stance on looking at tax policy, looking at tax rates and seeing if there's an arbitrage for you." (14:07)

Final Note:
For personalized advice, listeners are encouraged to consult with financial advisors or legal professionals. The Money Guy Show emphasizes that the information provided is for informational purposes and does not constitute financial, tax, investment, or legal advice.

For further details, visit WinnerOneMoneyGuy.com or contact the hosts directly to receive exclusive resources and updates.