Podcast Summary: The Kate Show
Episode: "How to Pay Yourself as a Business Owner and Avoid Entrepreneurial Poverty"
Host: Kate (Socialite Agency)
Guest: Morgan (Vice President, Business by the Book)
Date: June 10, 2024

Episode Overview

This episode dives deep into the financial realities of creative business ownership—specifically for interior designers, home stagers, organizers, and window treatment specialists. Host Kate is joined by Morgan from Business by the Book, a bookkeeping and advisory firm specializing in the home industry. Together, they demystify best practices in bookkeeping, address common financial mistakes, explain how to pay yourself as a business owner, and introduce new service offerings aimed at making creative businesses more profitable and sustainable.

Key Discussion Points & Insights

1. Choosing Bookkeeping & Project Management Software

[01:13–03:38]

• Morgan distinguishes between financial management software (like QuickBooks) and project management tools (Houzz Pro, Design Files, Mydoma, Materio).
• QuickBooks is the backbone for finances, while Houzz Pro (especially for large firms focusing on new construction/renovation) and Design Files (great for small/medium businesses) handle project tracking.
• Business by the Book serves on Houzz Pro's Advisory Board, giving them a direct line for client-driven software improvements.

Quote:
"We would really consider [QuickBooks] a financial management software. Houzz Pro, Design Files, Mydoma, Materio—those are all project management softwares and they work together.” – Morgan [01:59]

2. Common Bookkeeping Mistakes in the Home Industry

[03:38–06:56]

• Sales Tax Mismanagement: Many fear or ignore sales tax, especially state-specific "nexus" requirements, leading to messy (and sometimes legal) problems.
• Retail vs. Wholesale Purchasing: Designers often purchase retail, losing revenue and complicating sales tax, versus buying wholesale.
• Lack of Financial Confidence: Many business owners lack up-to-date, accurate financial documents, making them unsure of their business’s real position and unable to make strategic decisions.

Quote:
“People come to us with a complete lack of confidence because they don’t have any financial documents...It’s a very Shark Tank thing to know your numbers, but it really is important.” – Morgan [05:24]

3. Fixing Bookkeeping Mistakes: It’s Never Too Late

[07:44–10:33]

• Retrospective cleanup is possible and nothing to be ashamed of.
• Process includes gathering bank/credit card statements and reconstructing accurate reports (aka “retroactive bookkeeping” or “catch up/clean up bookkeeping”).
• Timeline ranges from 6 weeks to 6 months depending on how far back corrections are needed.
• Sales tax amendments and even income tax amendments are possible.

Quote:
“At the end of the day, it’s just numbers...There’s no reason to be embarrassed.” – Morgan [08:24]

4. Financial Management Routines: What to Do and When

[11:23–14:35]

Weekly:

• Update project management system: post client payments, update purchase orders, categorize transactions.

Monthly:

• Review bank/credit card statements, check for unused subscriptions/fraud, reconcile accounts, review financials, send/follow up on invoices, file sales tax if needed, collect W9s from vendors.

Quarterly:

• Deeper review of reports for trends, revisit marketing spend/plans, check quarterly sales tax and estimated tax payments.

Annually:

• Issue W2s/1099s, comprehensive financial review, update business plans/goals.

Quote:
"It’s just going to be important that you’re updating your project management system [weekly]…” – Morgan [11:23]

5. The Importance of Financial Data for Marketing & Growth

[14:35–15:56]

• Financial understanding drives wise marketing spend.
• Lacking financial clarity leads to anxiety and poor decision-making.
• Reports are not just historical—they power your future investments and hiring decisions.

6. Interpreting Financial Reports & Hiring Decisions

[16:16–19:02]

• General payroll target: 15–30% of revenue (higher for service-based businesses).
• Consider all costs of hiring: salary, payroll service, taxes, benefits.
• Advisory services can provide forecasting—reports only show the past, but projections are needed for hiring/expansion decisions.

Quote:
"Payroll costs should be between 15 and 30% of your revenue...For interior design, it’s somewhere between 25 and 35%." – Morgan [16:16]

7. How to Pay Yourself: Escaping Entrepreneurial Poverty

[22:17–26:55]

• Two main methods: owner’s draw (simple transfer from business to personal account) or payroll (especially if S Corp/LLC).
• Pay yourself a consistent amount to demonstrate income for loans (don’t run personal expenses through the business—it's risky and “pierces the corporate veil”).
• Determine your “minimum viable lifestyle" and start with small, regular payments.
• Owner’s draw does not appear on Profit & Loss; use it in conjunction with balance sheets for full understanding.

Quote:
“There are two ways that you can pay yourself: owner's draw or payroll...It's about the same amount every time and on a recurring schedule. What this does is it shows proof of income.” – Morgan [22:48]

8. Why Work With a Specialized Bookkeeper and CPA

[26:55–28:49]

• H&R Block or generalist tax preparers aren’t enough; creative businesses benefit from small business CPAs for nuanced tax decision-making.
• Bookkeepers and CPAs should collaborate—bookkeepers handle compliance, while CPAs advise on tax optimization/strategy.

Quote:
“It’s important that you’re working with the CPA and a bookkeeping team that works together because the roles are different.” – Morgan [28:09]

9. Business by the Book: Services Snapshot

[29:27–33:56]

• Bookkeeping: Financial report prep, QuickBooks management, project management system integration, sales tax filing.
• Payroll Services: Including benefits/401k, health reimbursement account setup.
• Advisory Services: Forecasting, budgeting, KPI tracking, cash flow, big decision support.
• AP/AR Services: Managing invoicing, billing, vendor payments.
• Procurement (Launching 2024): Full-service vendor order placement and tracking for designers—solving a significant industry pain point.

Quote:
"Our bookkeeping services really focus on compliance...preparing your financial reports so your CPA can file your taxes and get you the most deductions possible." – Morgan [29:27]

10. New Procurement Services Preview

[33:56–37:29]

• Responding to longstanding designer requests, Business by the Book is launching a procurement division, placing and tracking orders—freeing designers from the administrative burden.
• Offered as an add-on for existing bookkeeping clients, led by a new hire with deep industry sales experience.

Quote:
“We really just feel like we’re going to be able to take a huge weight off of our clients’ shoulders by offering procurement services.” – Morgan [33:56]

11. Getting Started with Business by the Book

[38:00–39:20]

• Book a discovery call with Director of Client Services, Ashley.
• The process includes a discussion, QuickBooks assessment, defined onboarding phases, and a customized scope of work.

Quote:
“You can go on our website and book a discovery call...It’s very standardized with the different phases.” – Morgan [38:00]

Notable Quotes & Moments

• On past mistakes:
  “At the end of the day, it’s just numbers...There’s no reason to be embarrassed.” – Morgan [08:24]

• On clarity:
  “The past is not a fortune teller, it’s just a teacher.” – Kate [19:02]

• On proof of income:
  “That is not proof of income. That is a terrible habit... Get that out of your business account, pay yourself and buy all that same stuff through your personal account.” – Morgan [23:43]

Engaging Takeaways

• Regular, accurate bookkeeping is essential—not only for compliance but as the foundation of all decision-making in your business.
• Don’t let fear or shame keep you from fixing financial messes; professional bookkeepers have seen it all.
• Knowing your numbers gives you confidence and control, enabling growth, smart marketing, and personal profitability.
• Business by the Book offers a full suite of services, now expanding into procurement to further reduce designers’ administrative burdens.

How to Connect with Business by the Book

• Website: businessbythebook.money
• Discovery Calls: Book directly through the website.

For creative entrepreneurs:
If you want to avoid entrepreneurial poverty, pay yourself properly, and run a business you can sustain, this episode is essential listening.