172. Let's Talk Money: Confidently Handling Your Business Financials with my CFO, Serena Shoup

Whether you’re just getting started as a business owner or you’ve been at it for years, it’s essential to have a firm grasp and a complete understanding of your business financials.

Part of being confident in your brand is also understanding your finances—and there’s no one I trust more when it comes to this than my CFO, Serena Shoup.

I ask Serena, who you might remember from episode 140, has graciously taken the mic while I rest and recover my voice.

Serena is a founding member from our program, The Speaker Society. She is a CPA who runs a virtual bookkeeping business dedicated to helping course creators and online experts manage their cash and make informed decisions based on their numbers when it comes to launching, growing, and scaling.

This episode is short and sweet but is filled with tangible tips that will help you become more profit conscious and be more comfortable around your money. 

I hope you enjoy this special edition take over, I’ll be back next week.

Episode Highlights:

• Bookkeeping basics that every business owner need to know
• Difference between Bookkeeper, Accountant, CFO and a tax pro or a CPA in your business
• Best practices for hiring contractors (or maybe being a contractor for someone else) so you can protect yourself
• Things you need to be aware of if you’re selling physical or digital products  to help you keep compliant 
• Where and when to get expert help 
• Cash flow management system that works with human behavior

 
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Transcript

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[00:00:00] If you're not new to the Heather Sager show, you've heard Heather talk about your voice being your biggest brand asset, and ironically hers is gone so I am taking over the podcast this week. 

My name is Serena Shoup and I am also Heather's CFO and I've been with her for a few years. When we were chatting before this episode when she asked me to take it over, she wanted me to talk about part of being confident in your brand ss also understanding your finances so that is what i'm here to talk to you about today.

I'm really excited to share with you today what I know in hopefully a way that simplifies it for you because nothing pains me more than hearing from clients and other business owners that their accountant or their CPA made them feel stupid for asking a question or not understanding something. 

So I have a 16 year old daughter, and she's been applying like crazy for jobs lately. And I asked her the other day if she just wanted to work for me, we could talk about various opportunities inside of my business. And for me, selfishly, I need some things done and I'm paying for her gas and her food. Anyway, right now I may as well deduct that by employing her. 

So when we sat over, sat down over lunch, that of course I paid for, I asked her if she'd given any thought to what she'd be interested in doing in the business and her first response was not accounting. I'm not good with numbers. 

Have you said these words to yourself? Here's the thing. Money management and bookkeeping really has nothing to do with numbers. How good you are with managing money is more about personality mindset and following a few, lucky for you, I'm going to be sharing some tips that help all money personalities, manage your money better. So, if you have said I'm not a numbers person, I'm bad with, can we make an agreement today, not to say those things anymore. 

I'm going to start with some bookkeeping basics that we accountants want every business owner to know. So if you've been in business for a while, bear with me on this. I work with a lot of business owners who have managed to run a business for quite a long time, without really understanding what is required of them or why we're asking for certain things, because most entrepreneurs didn't take class on tax law or business, and this results in a lot of unnecessary anxiety about the possibility of being audited or extra expense to get things cleaned up and ready for taxes. If that's you, the clock is ticking. Your end is coming. You better find a bookkeeper if you're bind. It might even result in lost business deductions and higher taxes, not to mention the possible extra stress of not knowing where your money is going and not being able make sound business decisions because of this. 

After we cover those money basics. I'm going to talk about hiring contractors or maybe being a contractor for someone else in their business. 

And then I'm going to cover a little bit about e-commerce for those of you who sell physical or digital products. This will help keep you compliant. And then we're going to dive into where and when to get help. Lastly. I'm going to share some tips on managing your cashflow, because I know this is a hot topic, so I'm going to talk about a cashflow management system that works with human behavior that I help my clients through all the time. I will try really hard not to bore you and keep it light. 

But before we dive in, I just want to give you a little bit more of a background on who I am. I am Serena. As you know, I'm a mom of three and based in Prescott, Arizona, and I'm the owner at ofcourse bookkeeping, which is a bookkeeping and consulting firm for online expert businesses and I'm also the founder and mentor at the Ambitious bookkeeper and I’m the host of the Ambitious Bookkeeper podcast. 

I started my firm as a side hustle to motherhood. After I left my corporate controller position to have my second daughter and I built my firm on part-time hours, freelancing through Upwork and I quickly realized how many small businesses could benefit from having the expertise that I had gained in corporate to help them build their businesses and become profit conscious CEOs. 

Much like what Heather does here, I started mentoring others That are building a bookkeeping business, which is what I do through the ambitious bookkeeper brand. One thing that I believe makes me a little different than most accountants is that becoming an accountant was never on my radar as a career path because at heart I'm a creative. 

I always thought that I would grow up to be a musician or an art teacher, but here we are, and I'm able to connect with lots of creative people in my business and also teach what I know to help business owner like you become comfortable around their money so let's dive back into the money stuff. 

Well, let's start with the basics and becoming more profit conscious and this is something that I sort of made up. But it starts with knowing the basics. And like I said, these are the things we wish every business owner knew whether you're a freelancer or you're more of an established business. 

And that number one thing is separating your personal and business finances, even if you're a freelancer. There are programs out there that allow you to link your bank account and just choose whether each transaction is personal or business. But when it comes to getting ready for taxes, you want a really easy way to differentiate the two. 

If you ever have to go back and prove that business so my recommendation is always to open a separate bank account and this might seem pretty basic to some of you if you've already done this, but you'd be surprised at how many people have not done this yet, or they kind of, their business kind of blew up before they kind of made it a real, aa real business, so they don't have these things in place. 

So if you have an LLC, this is an absolute must because when you create an LLC, you're doing so to create separation between your personal assets and your business assets. And if you intermingle the funds, you've now pretty much pierced the corporate veil. If something goes wrong inside of your business, you've now opened up your personal assets to that liability. 

So my favorite bank for our clients, because most of them are online business owners, just like you is Relay financial and it's completely online so you can be set up in five minutes if you have all of your LLC documents handy. If you are just freelancing right now under your own name and maybe you're not an LLC, you can just open another checking account at the same bank you normally bank at just to make things easy, but only use that account for business. 

Now a moment ag, I mentioned proving a transaction was for business and this is why it's so important to keep receipts and those bank statements for your accounts. So the number two thing on my list for your bookkeeping basics is to keep your receipts and bank statements. Many business owners think that the bank statement alone is proof enough, but it isn't. The IRS wants you to keep all receipts or proof of transactions. You can always go to the IRS website and they break down what is acceptable proof, proof of business expenses and revenue. But we typically tell all of our clients to keep all receipts related to travel and meals, right? 

The business purpose on the receipt, the who, and the why and the what, when and where, and how much should already be present on the receipt for pretty much everything else. Anything over $75, you should plan on keeping records for recurring items like software. We of course have a lot of those. we usually just want one receipt on file to establish the purpose initially and then it's the same amount every month so it's easy to prove. 

Another thing to note is a valid business expense. It must be reasonable and necessary. You should not deduct clothes for a photo shoot unless they have your business logo on them because if it could be something that you could use in your personal life. It's not technically a business expense unless you can really prove it. 

And so one of those rules with clothing and things like that is that it's only a business expense if it has your business logo, meaning that you're only going to be using that for business. Also, you can't deduct your wagon lease payments. If you run an online business and you don't have a business where you need to transport clients, that is not reasonable and it is not necessary.

Number three. The IRS also wants you to have a method for record-keeping, whether that's a software, a spreadsheet, or even a paper ledger. If you are doing one-on-one work and have to invoice clients, especially on a retainer basis and you want that to be automatic, I would recommend something like Xero, especially because it will automate the follow-up for any outstanding invoices. You can set things to recur and go out automatically and so anywhere that you can automate things and make your life easier is going to be a win. 

Now number four, lastly. Paying yourself. How do you pay yourself and how much this is? A very common question that we get and the standard account answer is it depends. If you are set up as an S-corp or a corporation, you actually are supposed to be paying yourself a wage through payroll. So for our clients who are S-Corps, we recommend they have a discussion with their tax preparer. We don't prepare income tax, but we recommend they have a discussion with their tax preparer and make sure that they have established a reasonable salary for themselves. 

And they are set up on a payroll service and we use Gusto. If you're a freelancer or an LLC or a partnership. You actually just withdraw the money from your bank and set some of that aside for taxes so it doesn't go through a payroll processor. You can just transfer money from your bank but that obviously doesn't answer the question of how much.

So if you're an S-corp, your tax preparer should be guiding you on what is a reasonable amount to pay yourself based on how much money your business is making and the role that you have inside of your company. 

And if you are a freelancer or an LLC or a partnership that widely depends on. How much cash you have in your business, and how much you can afford to spend? So we're going to talk a little bit later about how to manage that cash and kind of how to figure out that calculation of how much you should be paying yourself so hang tight. 

Now, speaking of paying It's very common to work with other subcontractors or freelancers or consultants inside of our online businesses. So I want to cover a couple of best practices for working with contractors and this goes for if you're hiring others for help, helping inside of your business, but also on the flip side, if you are the contractor or the consultant inside of someone else's business, so that you can make sure these things are in place to protect you as well. 

Number one is to always have a contract and always keep a w-9 on file. So when you hire a contractor, you should be asking them or a consultant to provide you with a W-9 and that information that will give you to file 10 90 nines at year end and report their income. I don't want to go too far into detail, but there have been some logic changes in the past couple of years and so it's actually made it a little bit easier in regards of if you're paying them through a payment processor like PayPal or Stripe or with a credit. The credit card company or the payment processor is actually responsible for reporting that person's income. 

So while you technically won't be sending them a 10 99, it's still a good practice to have a W-9 on file. In the event that you end up paying them through a different method, not through a credit card or PayPal and maybe a check or an ACH or something like Zelle, so there's different payment processors tha, technically are just like writing a check or sending cash, , versus going through a clearing house, like, visa or MasterCard. So the best thing to do is just ask everyone so that you don't have to figure that out at year end. You can just hand it over to your bookkeeper and let them know I've got W-9’s for everybody. You let me know which ones you need to see. 

And then the third thing with contracting is using invoices. Always request an invoice from your consultants or your contractors, and back to the payment processors. I recommend using something legitimate, like Stripe, PayPal business, a check or an ACH or a wire, that way things are more clean and easy. 

Now let's switch gears a little bit and talk about, the e-commerce component. Now some of you may actually sell physical goods and so you might be familiar with sales tax, but some of you may not realize that you might owe sales tax or you might need to collect sales tax on some of your customers, depending on what state you're in or country and what kind of products you're selling because lots of states now have enacted a digital goods sales tax.

Now, without going too far into the weeds, this is something that if you're worried about or confused about, I would reach out to somebody for help. As for the basics, it really depends on where you're based. If your state where you are physically based, requires a digital good sales tax. This also goes for physical goods, but if your state requires it and your buyer or your consumer, or your student or customer, whatever you call them, if they are also based in that same state, you are probably supposed to be collecting and remitting sales tax to that state. 

But there's also instances we work with several clients who have reached certain volume and revenue thresholds in various states and so they actually owe sales tax in multiple states. So this is an area where if you are experiencing a lot of volume, across the United States and a lot of revenue in the 400, 500,000 and up revenue, in total, then you might want to reach out to a tax pro or someone who is well-versed in sales tax to do some sort of analysis to make sure that you're compliant in all of the areas you're selling into, so that's my little spiel on sales tax. 

I do like people to be aware of it because it's a fairly new thing to have digital goods sales tax and each state has their own thresholds and rules on what event constitutes digital goods. Some of them, it's only PDFs or eBooks and some of them include video courses or prerecorded videos so definitely reach out to someone. 

If you're confused or worried about your situation instead of ignoring it and that brings us to when to know if it's the right time to hire a bookkeeper accountant, CPA or a tax pro. And my short answer is always going to be as soon as possible, even if it's a one-time intensive where you hire a bookkeeper to set up your system and train you or your VA on it or an ongoing bookkeeper that can take things off your plate completely. 

And let's talk about the difference between a bookkeeper and accountant and CFO and a tax pro, because this is an area where people call themselves different things. There's a lot of overlap in some of them. One of the ladies in one of my masterminds asked about the difference between all of these. And I was like, okay, this is a topic that people need to understand. 

So the difference between a bookkeeper accountant and a tax pro or a CPA is the bookkeeper will handle your day-to-day transactions and reconcile your accounts. And by reconciling, I mean, making sure everything that appears on your bank statement is accounted and in your record keeping system, whatever you're using, so that is the role of the bookkeeper recording, the day-to-day transactions. 

Now your accountant, we'll compile the information and some bookkeepers do this as well. We call our firm a bookkeeping firm, but we actually do a lot more than just bookkeeping, but we will compile the information into useful reports and analyze it for you. 

And where the CFO role steps in is helping the client understand what the numbers mean and planning for the future. It's more of a forward-looking role. So a bookkeeper day-to-day transactions, reconciling your accountant or your CFO is going to compile the information, interpret those numbers and help you plan for the future. 

And the third role is a CPA or a tax pro and they typically focus on tax prep and tax planning. So in addition to hiring a bookkeeper, it's always very wise to consult a tax pro early on in your business and before your first year end to make sure that you are ready for tax time.

 And every year that you're in business, after that, I always recommend setting up a strategy or a tax planning meeting in Q3 or Q4 to ensure that again, you're ready for tax time, you've estimated your taxes properly, or if you're an S-corp, you've established the right wage, and especially if your business is growing, this is a must to be a meeting with a tax planner before the end of the year to make sure that you're on the right track. 

Not all CPAs are going to do bookkeeping or CFO work and not all bookkeepers or accountants are going to do taxes so it's up to you to kind of figure out what you really need inside of your business, where you need the support and build the team around yourself. 

So my favorite clients are the ones who have us as their bookkeeper and of course we're doing more than bookkeeping. We're also doing  the analysis and the forward looking stuff with our clients. If they so choose to engage us for that and then they also have a tax professional so whether that's a CPA or an enrolled agent, and to put the icing on the cake is when they have this third position or this third advisor in there on their finance team and that's their personal finance advisor because it's really like our businesses are really just a vehicle. Hopefully, this is the way you see it is a vehicle to build your personal wealth, maybe initially it starts out as creating income and just kind of creating a job, but if you are thinking more for the future and about having a retirement, you can really maximize what you're doing in your business by investing that money that you're making and working on building your personal financial wealth, instead of just a business, that's going to make money for a little while, and then eventually you're going to stop and it's just going to go away, especially as a personal brand. 

But let's get into managing the cashflow so that you do have a way to build your personal wealth while also being smart with your money inside of your business. So while I'm all about watching your profit and loss IE or profits, cash is queen. So I'm going to delve more into a cash management system in our business and with lots of our clients, we use a method called profit first which is sort of like the envelope, budgeting method. 

Where you figure out how much of your income needs to be divvied  for your expenses and paying yourself and set aside for taxes and then you create a habit to go into your income account where all of your money is being deposited into and make the transfers that way before you spend anything. It gets divvied up. And now, you know how much you are able to afford or spend because most of us business owners, myself included, we are not looking at our profit before we make a money decision or a business decision. 

When we think that it's a small investment, right. It's only for those really big items where we're like, maybe I should talk to my bookkeeper, maybe I should look at my reports real quick before I make this big decision. But it's all those little decisions that happen throughout the week or the month where you're like, oh, it's just, you know, a $500 consultant. I can afford this, blah, blah, blah, and then they all get compiled together and then you see how much you're actually spending at the end of the month. 

But if you are what type where you're like, I want to invest in this, I want to invest in that. I have the cash, whatever. This will help put those guard rails around it so that you can see a little bit better how much cash you actually could be allocating to this. 

So if you've been in the online business world for a while, I'm sure you've heard of the book profit first. It's definitely a recommended read to dive deeper into this topic, but for an overview of this, you will have five bank accounts. You have your main income account, where you connect your PayPal and your Stripe and your payment processors, and everything gets deposited into one account. And every week or two, you go into your bank account. You look to see what's in there and you divvy it up according to some percentages that you've calculated which again is an area where if you read the book and you get confused and overwhelmed, just hire a professional to help you. 

If you've been in business a while, I would recommend having someone help create this plan for you, because if you're accustomed to spending 60% of your revenue on expenses  we don't want you to jump right into cutting way back. It needs to happen gradually in order to build a successful and lasting habit. So it's, it's kind of like when you make a new year's resolution at the beginning And you're like, okay, I'm going to do this 10 step morning routine. I'm going to get up at 5:00 AM. I'm going to work out for an hour each day and I'm going to do this, that, and the other thing to get my life together and in shape and go on this diet. 

And then three or four days in, you fall off the wagon because that's just not sustainable. It's kind of the same thing zo there are some standard percentages that are in the book. Profit first for a healthy, thriving business, but that's not usually where we all start so I don't even really want to give you percentages on this podcast, because I don't want you to think that you can just jump right into doing those percentages, but other than the income account, we have our four other bank accounts where we divvy up the expenses. So we have number one is the profit account, and this is where you're going to be setting aside a tiny bit of your income every time you do these transfers so that you are actually retaining cash inside of your business and building that asset or using it in the future too. If you have debt, this is the account that you use to pay off your debt. You cannot pay off debt if you're not profitable. 

So we start with profit first and then we moved to the tax account. And if this is the one account that you set up for your business after listening to this podcast, please make it the tax account. No matter what else. You do set aside 10 to 15% of your total income, your revenue into this tax account so that by year end, you are ready to pay your taxes. You have a little tax egg waiting for you to pay your taxes and you don't really have to think about it and you can keep it at a different bank if you want so it's out of sight, out of mind, but this account it is so nice to be able to have this account building all year and knowing, oh, I don't really have to worry about this at the end of the year or when it's time to pay estimates. It's like, it's almost kind of fun ‘cause you're like this was money I wasn't even thinking about because it wasn't mingled with my other funds. 

Then the third account is your owner's pay so this is where you're also setting aside a good percentage of your income to pay yourself. A lot of us go into business and start hiring other people and investing in programs and all these things that it's, it's really fun, especially at the beginning of business when you're learning so much. 

Investing in courses and all these things, but that's actually also eating away from what you are able to pay ourselves. So if you build the habit of even just a little bit paying yourself every couple of weeks, then it becomes easier to have your own consistent paycheck. 

And then, the fourth account is your operating expense and this is the last one because you want to pay yourself first. You want to save for taxes first and you want to retain profit first before you then go and make the decision to invest in that mastermind or that next course or hiring that other person so or you're operating on what is left of your business. 

So, like I said, pick up the book profit first, if this is all new to you, but this will help you get more of a handle on like where your cash is going. And yes, it's a little bit of work upfront to figure out where am I? How much am I actually spending on my operating expenses? How much am I actually retaining in the business? And if this is an area that you're not sure of yet, I encourage you to just reach out to a bookkeeper. 

And as a side note, that's the Sager sidenote, I feel like I have to do that on Heather's podcast. I will be presenting this and going more into depth on how grow your revenue and your profit and, and all of this in her Boujee Biz Retreat in Phoenix next week and I'm super excited and hopefully Heather will be back on her own podcast next week with a restored voice. Thank you so much for listening to the Heather Sager show this week 

In the show notes, we've linked to our website where you can find some of the tools and resources as well as a way to connect with me, if you would like to dive deeper into any of these topics together or see about working together. You can do that at ofcourse bookkeeping.com.