Bookkeeping and Accounting: Understanding the Differences

Leo and Claudine unveil the differences between two very misunderstood areas of running a business: bookkeeping and accounting. Understadning these concepts means understanding the importance of tracking your business's numbers.
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Speaker 1 00:10 Good morning everyone. This is a, you’re listening to business and legal talk with Leo and Claudine. Um, and we have a great show for you today to the a is Saturday, April six. Wow. Title slurs. Can you imagine it’s crazy here praying and that you’ve noticed the flowers and, and, and it’s warming up and it’s getting lighter a little sooner, which I, I hate getting up at five 30 and waiting till seven for the sun come out. I don’t know about you,
Speaker 0 00:39 but you know, I really liked the, um, the non daylight savings time. I only liked you and I know everybody loves that it stays late, um, or stays light later. But I, I feel like, Oh you don’t like that? No, no. I wanna I wanna stop. I wanna I wanna I want a stopping point a lot earlier than nine o’clock, cause we go, go, go, go, go. And the next thing you know, it’s nine 30. You haven’t had dinner yet. You had Russ, right? It happens around June, right? Yeah. It’s 9:30 PM and that’s not 30 PM. And the sun is up. Yeah. Can you, how do people do it in Alaska? I know that I can’t even imagine. I, I think six 30 would be great. I mean, if we can make it one hour this direction or one hour that direction, let’s just pick the time and make it whatever we want. Right?
Speaker 1 01:22 So, um, welcome to today’s show. We’re very excited to have you back, but it just really enjoying, I’m doing Claudina and I really enjoyed doing this show is just realize that we have a lot to say about a lot of topics and that’s what we hear and people are like, how do you guys know so much? Well, we’ve just been doing it for a long time and um, it really, our concern is that you as a business owner have somewhere to turn to, to hear unbiased stuff because we’re not here to sell you anything, but w w we, you know, we want, we want you to find somebody to work with, find somebody to love. Right? Right. And if you don’t have it, we’d be happy to help you. So my name is Leo Lando Verdun. I’m the founder and CEO of green and advisors. We’re a fractionalize accounting is an interesting concept. So we provide accounting solutions to businesses and to CFR advisory, which is, um, rather than hiring somebody full time to be on your team, you can actually take advantage of an accountant, a bookkeeper, which we’re going to be talking about today and, or a CFO or controller at a fraction of the price that you would otherwise, uh, hire somebody. And, uh, that’s a really unique
Speaker 0 02:32 concept. It’s an incredibly unique and incredibly valuable for those folks out there who maybe have a smaller medium sized business or even a micro business, having somebody that you can call and just touch base with and say, Hey, I’m thinking about doing this. I’m thinking about hiring or I’m thinking about growing or I’m thinking about spending money on advertising, which we talked about week before last. Um, you know, just being able to sit down with somebody. Um, and it’s until I worked the corporate nonprofit world, I didn’t realize that the corporations have a CFO, they have an HR person, they have the CEO, they usually have a COO, operations managers. That’s their logistics. And, and all of those people oversee entire departments. Full time controller. Yes. And they oversee those entire departments and then they function to coordinate those departments to achieve the goals. And what small business has that you, you were into your tax person, you run to your attorney, you run to your insurance person all the time. They’re giving you information. That one you may or may not completely understand. And two, it may not be coordinated. And so somebody is telling you to do one thing and then the next person is telling you to do something different. And unless you are really super savvy, have a whole lot of luck on your side and you know, make those decisions without, you know, being scathed. Um, it, you know, that’s why small businesses go under.
Speaker 1 04:00 And you said it, I mean, you said it. And so today’s show we’re going to be talking about demystifying this whole thing about bookkeeping versus accounting, right? You know, a lot of people confuse it to a lot of business owners. I’m not sure what the difference is between bookkeeping and accounting. So you have some personal experience with bookkeeping versus accounting and you can attest to that. So today’s show, um, we’re going to be going over the top 10, um, misconceptions or things that you should know about bookkeeping, um, and the top do’s and the don’ts. And I think you’re going to have a, you know, you’re going to have a great, we’re going to have a great time with, I was ready for this, so, all right, so bookkeeper versus accountant, what comes to mind, Claudine, for you?
Speaker 0 04:49 Okay, so I cheated a little. I cheated a little. I, I did a little because off, you know, initially, and I thought about bookkeeping versus accounting. Okay. But gee, I don’t know, flip a coin. G G , so I’m sure that I’m in, in good, good likes with them. A lot of people who may be listening now and um, the bookkeeping side of it, it really, and this is, this is really what changed in my business when you and I connected. But keeping is incredibly valuable. There’s no question about it. It’s, you absolutely have to have that tracking of everything you’ve done, everything you’ve spent, but that tracking then it can just stay as historical data or it can be used to make decisions. I think that’s where you switch over from bookkeeping to accountant. The accountant’s gonna use that information to look
Speaker 1 05:43 wow there. Did I do? You’re speaking my love language. No, and you nailed it. And that’s it. And I think a lot of people want accounting out of a bookkeeper and they are frustrated with, they don’t get what they think they were going to get. And I think bookkeeping or bookkeepers out there do a great service. And if you work with a bookkeeper, what you should expect, is it reconciliation of your accounts of your, uh, bank account. If you have a bank account, if you have more than one bank account, you should have a fully reconciliation of them. And what does the mean? Well, your account, your financial statements are nothing more than a collection of your source documents, which is, you know, your bank statements, your credit card statements, your loan and anything to actually you get a statement on thrown in together to make sense of it into a set of financial statements.
Speaker 1 06:42 That’s all there is. And now you can use a fancy accounting software you can use. There are many, you know, I’m not married to one, I work with a lot of them, but the most common or the most popular here in the U S it’s QuickBooks of course, right? So there is QuickBooks and there is QuickBooks desktop, there’s enterprise, there is um, uh, and there’s different in between. And there is QuickBooks online, which is really the world. Um, the entire world is moving to a SAS model, which is software as a service. And then there is a, the other big company out a year called zero and there is a host of other online accounting softwares. What you use it, it doesn’t matter, but you have to have in accounting software. So what a bookkeeper does. They take that, they use the technology to reconcile your bank accounts.
Speaker 1 07:29 Now it feels like when I speak on this subject, I usually like, um, I usually, you know, pull the audience and I tell them, Hey, when was the last time you reconcile your personal checking account? They go like, what do you mean we don’t do bank balance spending? Why is it so? Right? So what people do in their homes, right? Well if you, if you really think about it, it takes time to, so when you get your bank statement, whether you, you know, you get it through, um, as a PDF or you get it at home, you know, some people still get their back. Same is mailed to their home. So you open it and your checkbook should match the ending balance of your bank statement for that day. That’s what he means. So if the bank statement says that you should have $5,000 in the bank and your checkbook, it’s just have the same, how often does that happen now then? So then I asked the audience, raise your hand if you enjoy that process of finding the difference. No. Or actually reconciling it. Okay. Okay.
Speaker 0 08:41 So this is bringing up like this is bringing up high school and college nightmare memories of the algebra problem that was wrong. And you had to go back and find out why, where you went wrong. And there are many, many, many of us who never wanted to do that. Didn’t care why it was wrong and honestly, truly it was just torture having to go back and go through each and every step again. And I, I see that as the bank account reconciliation, right? Where is that? $15
Speaker 1 09:11 so you’d rather, so he has who would rather have a root canal or balance your checkbook? Right? Some people would say, give me a root canal because I don’t want to balance my checkbook. Right. It’s, it’s the, it’s the most horrifying thing if you’re not used to do it. But this one, people that love doing it, bookkeepers love doing that. So, so that is the most fundamental, but that doesn’t just apply to your bank accounts. It had blasts, your credit card accounts, it applies to your church. If you have a charge card and that you use for your business where you use only for gas, it must reconcile to the statement. Then you have a loan as you, so you have a business loan, then you have a line of credit. There are businesses that we work with to have 15 to 20 accounts that need to be reconciled every month. Get your head around that. Yeah. Okay. So that’s what a bookkeeper does. And we’ll come back. So you’re listening to business, illegal talk with Lee and Claudine. We’ll be right back.
Speaker 2 10:01
Speaker 1 10:36 Hey, what’s up everybody? Welcome back. Listen to business and legal talk with your Claudia. And I have my gracious cohost, Claudine Sharon from Shannon law, uh, that come here with us. And, uh, we were having some fun at the break. Yeah. And I will just leave it like that. So I got a little sidetracked. So, um, so what, what do we do? So we’ve talked about bookkeeping versus County, but there w there’s a lot more that goes into that that we’re going to get in in length. But if you just joined the show right now, you want to know who we are and what we do. And so I, I get it. So, um, I let I let you go first.
Speaker 0 11:07 absolutely. We are, um, the Sharon law firm and we are a business and real estate firm. We are located in Turlock, currently looking for space in Modesto. Um, we are growing and excited about that opportunity. Um, we are here to help clients survive, um, survive the business climate in California and stay, um, stay up and going and developing and growing. Um, we are also here to help you resolve any real estate issues that may come up. We deal with everything from evictions to complex title issues. Um, and you can find us on the web at www. Um,, and that’s S H E R R O N dash.
Speaker 1 11:48 Hey, by the way, I got an email from somebody who right that somebody just went the info my website because they, they’ve heard the show. I’ve got to give you some details. So that was very exciting. And so on our, on our side, we help businesses scale profitably go if you, if you’re the kind of business that wants to go however, it about half a million to a million and I haven’t figured out how to actually go from one to 10 million and you have the dream to do so we can help you with that. Yes. Because the point is we can help you scale right out of the profits of the business, right? And, and there’s a way to do it. So if you’re looking for help growing and scaling your business, you need to go to and you can call our office (559) 207-3148 we serve the entire central Valley.
Speaker 1 12:36 We’re really from Sacramento to LA and everything in between. So today we’re talking about bookkeeping in the do’s and don’ts, uh, in bookkeeping versus accounting. So we talked about the bookkeeper is the one that reconciled these two books and the account is the one that actually thinks about what your books mean to you. That translates that Claudine, from what you see, a fully reconciled, which really don’t mean anything, right? It’s a bent. It’s a feature of, of just having your stuff reconciled. So when you submit it to the IRS, they’ll match, right? But what does it mean to you on a day to day basis means that I’m really glad that we have a bookkeeping service through you and Greenland takes care of all of our stuff and um, you know, we can do our business, we focus on what we do and you focused on what you do, but you are good.
Speaker 1 13:24 Thank you. And the , but this is with the accounting. Just this is where he goes to the next level, right? As accountants, not only do we think about fully reconciling, so we call it in our world, making sure that our numbers are real. That is called the acid test. Your most important financial statement within your three financial statements of the PM, the profit and loss, the balance sheet and the statement of cash flows. It’s your balance sheet. Your balance sheet is this is a descendant of your net worth. So you look at, you know your assets equals liabilities plus equity. So if you have all assets and not liabilities, which means that your assets equal your net worth, right? Which is what you can lose, you can quickly lose if you don’t know what you’re doing. Right? So running a business on the is is, is understanding the relationship between your assets and your liabilities, which is so where, where the ends as where we begin, we understand is okay, great.
Speaker 1 14:24 You know you have some assets and you have some liabilities. Are the, are the ratios properly adjusted? Right? If you want to get a loan from a bank, no bank is going to give you a loan unless your current ratio, which means your current assets that you know versus your current liabilities is at least one and a half to one. What does that mean? That you have at least one and a half times assets, then you do liabilities. Right? Now, if are shopping for a loan, you’re going to need. Another thing too is your debt service coverage ratio, which is the ratio between your net income and the debt service. There has to be at least 20% more and talk about desert debt service and that service, right? So the D, well, the D when you make a payment on a loan, right, not the whole thing actually hits your profit and loss only the interest portion, right?
Speaker 1 15:15 But the debt service coverage ratio looks at, you know, your your net income divided by your debt service and that it has to be at least 20% and people forget that the bank is going to want you to be profitable so they can get repaid. And here’s another thing that they look at. It’s your debt to equity. Now what a bank wants to see is at least two to have to have your debt not to exceed two and a half times your net worth. Now that’s if you really think about it. So you can have $2 and 50 cents of debt out there for every dollar of equity. Would that make you feel? No. Comfortable? No. It seems like a lot. It is a lot now. I think that that banks do that. They just, because they spread the, the, if they do the analysis and they’re there, right?
Speaker 1 16:02 They can live with it. If you’re very, very profitable. But if you started going North of three to one, then at some point you’re got to have more liabilities than you do assets. The minute you hit one to one, you’re on your way out. So let me say that again. The minute that your current assets equals your current liabilities, you should start prepping for the running for the Hills. That’s when you know it’s going down. That’s when you know he’s going be one, one slip-up. But how do you know that? How will you know? Well, you have your books done, you have your books down and you have somebody whispering and telling you every month, Hey, this are your numbers. You know, this is your, you start with a profit and loss. You start, okay, you know what are your sales and in the you to give, this comes to your clients.
Speaker 1 16:50 So that serves you. It takes away from the sales and becomes a net sales. Now in your business you don’t give a lot of discounts, but some people do get a little bit of a discount. So that is goes your, your, your, your billing minus any discounts is going to give you a net sales. And do you have cost of goods, which is the cost associated with producing the and your business a little bit, you know, some core filings. But the good thing about having a business that is a professional service business like yours and anybody who is white collar, you know, a chiropractor or a medical doctor or anybody that pro provides a professional services, they will have a very healthy gross profit margin, which is the difference between your sales and your cost of goods. And then you have our operating expense. Now hopefully haven’t lost you. No, no, no. I, and I think it’s so important that that the one, the, the understanding, the difference between bookkeeping and accounting is so critical because many people have their books done and you just go through month after month and the book or
Speaker 0 17:50 they send you by email a copy of your core leaders. Yeah. And, and when you don’t know what you don’t know, you don’t know what questions to ask. So you have no idea what those ratios are until you become an accountant yourself. And most of us are out doing our own businesses and are not really trying to become accountants. And so it’s so important to work with. Number one, I think it’s so important to understand what you need and you need to be able to know what questions to ask. And if you don’t know what questions asked, you need to work with somebody who will tell you this. Proactive.
Speaker 1 18:25 So if you’re out there, if you’re driving around today, if you just joined the show, you’re listening to business illegal talk with Lee and Claudine, we’re talking about bookkeeping versus accounting. There’s this huge misconception that an a bookkeeper knows it all. And, and a lot of them are been doing it for 25 years. They know a lot, but they don’t know everything. They’re not charged with helping you run your business. Right? An accountant in particularly what we do a Greenland is we actually drive alongside with you proactively. You proactively, Hey look, you know, it’s, it’s, you know, I always talk about him, you know, and, and just about every show I talk about this analogy of driving right? When you’re driving, can you imagine driving without a dashboard, right? You don’t know how fast you’re going. You don’t know where are, they ain’t check engine light is on, right? You can, you imagine not knowing if he, if you’d like 10 miles away from running out of gas, right? Or you’re, there’s an electric failure about to happen and then there is nothing to tell you that or you cannot over-correct and there is a police officer, you know, calming down the highway. You can, you don’t know how fast you’re going. So if you get pulled over, you couldn’t, you couldn’t speak to what people do. So the accountant builds the information that goes in the dash before the business owner does that. Now you understand?
Speaker 0 19:39 Absolutely. And it’s a little similar in our business in that you don’t know what you don’t know and you think you’re doing it right. You think we’re going along doing the right thing. And if you, if you are really committed to growing your business, if you’re really, really seriously committed to achieving the goals that you’ve set, you need to get with some advisors who can help you navigate.
Speaker 1 20:01 And that’s what we love to do. So we love to just sit down with the business on the end, really give him intelligence and we just, we start with this whole thing about a baseline analysis, you know, uh, from the Island or where you are to the promised land where you want to be. And there’s a chasm in the middle, right here you are in this little impoverished Island and you want to go to this beautiful Island with the grass is green it and it looks beautiful in volcanoes and, and, and, and waterfalls and there’s hammocks and there is unlimited everything. But there is this huge body of water that you need to swim through. Well, we help you. We are the boat that can get you there with the information that we provide and it’s actionable and it’s real time what accountant provides versus a bookkeeping is real time versus historical, right?
Speaker 1 20:49 So that was number one. I thought we were going to cover 10. So we better get going, right? So number two is you got to know that we help you understand the rules that affect your business from a tax. And um, there are, well, there’s two things that are for certain, right? Death and taxes. Well, we help with its tax part of it. Good. So, you know, we’re not gonna help you with the other thing. So, but there are, um, if you’ll self-employed and then your minute that you hire your first employee, you got responsibility with the state, right? In their pay roll taxes that are, get associated with that. And honestly, we know enough, Claudine and our business to do payroll and choose not to. Right? Because it’s an overwhelming responsibility if you miss out on the quarterlies. Right? You know that the, the, you know that the, the, the penalty for the business owner on a late quarterly filing is no, I had no idea.
Speaker 1 21:48 It’s almost a hundred percent of what is do I have, let’s do that. Sounds like wait time Pelosi waiting time penalty. It’s done on purpose. It’s a punishment. It’s a punishment. Right. And I mean we, it’s punitive. We have the, okay, so, so imagine that if you’re making that mistake with your payroll, chances are you have made some sort of a mistake with calculating that, Hey, then you get into the wage and hour and we have the same thing on our time. What is owed to the employee times 30 up to 30 days for every day that you haven’t paid them correctly. But then it’s those, this domino we w you call it the stacking, right? Right. Of penalties on top of, but it all starts with the men or you hire your first person, you have the responsibility and I wouldn’t go at it alone, but we help you as an accounting firm discern that.
Speaker 1 22:36 And also there are other, not, speaking of taxes, there are more taxes. So if you sell anything within the state or within the jurisdiction you in, if you withhold sales tax, you got pass. It’s a sales tax is a pass through tax, right? It doesn’t belong to you. Right. You know what a lot of business owners do, they use it as float money. So they collect this. Restaurants are notorious for that. Really? Yes. That’s so dangerous. Very dangerous business. So if, can you imagine a restaurant with $1 million worth of money cycle cycling through in sales, right? And you use the POS software, can you imagine how much sales tax your pot it passing through your system at what average? Seven anywhere from 7.75 to 8.25 right. Of sales. That is the swing of money that you actually owe. Then you have to pay and you know what and the gut, but the government knows that and you don’t get the privilege of filing quarterly until you earn a privilege. But most after you’re going to be, have to be paying monthly or prepay it. Oh, prepay it, who’s going to do that? Do you have the time to do that? Know who has the time to do that? But if you’re a business owner, you’ve got to worry about that. Then you have to do the estimated tax payments and the government agents are quickly to level your bank
Speaker 0 23:45 accounts. So that’s number two. So number one we talked about you’ve got to know your options, whether you need a bookkeeper or an accountant and you most likely are going to need an accountant. If you want to build a business that is going to scale. And if you have a business that requires capital, you absolutely are going to need an accountant from day one because a, your angel investors, your funding sources, your VCs are going to want proforma work and they’re going to want it looking forward. No, bookkeeper’s going to be able to do that. So let’s talk about performance for a minute. Yes. Because those are really, a lot of people are not familiar with them. But those are are your projections projection and they are to some extent theoretical, but they should be based on real facts. Real, real numbers. But if you’re a new business, and I, I’ve dealt with clients who, you know, in highly regulated industries where they have to provide proformas because they are paying the city or the County or the state based on sales. Similar to you. Right. That’s true. So before you are able to get licensing, they wanted to have an idea of what your three year performance look like. All right, so you can’t just randomly make up numbers. Awesome. Well stay tuned. We’ll come in, we’ll don’t go anywhere. We’ll be right back. You’re listening to business illegal talk with Lee Claudine
Speaker 2 25:13 .
Speaker 0 25:26 All right. Don’t you love it man. We are talking about helping you succeed in business and who doesn’t want to succeed. everybody who starts a business has great, great, like a pioneering attitude and they have great dreams and these ideas. And then you get in there and about the third year and you’re like, Oh, for heaven’s sakes, I have hangover. Right. Right. But there is help out there. Understand that, that, and I think that that’s probably the hardest thing for small and medium sized businesses to one know where to go, to have the confidence to choose that advisor. Um, and if you’ve chosen the wrong one, it’s okay. Keep working at it. Because oftentimes you don’t know until after you’ve made the choice. Right. Right, right. So I’m just looking at the picture that you send me. I really look scared and actually that’s it.
Speaker 0 26:15 That was a picture of you looking at what I was looking like. Right, right. So before the break, you were talking about perform a work. Yes. And some industries now want it, they won to you, give them a forward looking statements. Right. So let’s talk a little bit more about that. So, and so, absolutely. I think, answer a question for me, how differences the proforma versus a budget, um, because I always look at them as somewhat of a budget, but then I go, it’s theoretical. You know, we, we don’t have to necessarily adhere to it, but it does set a goal. It does give you an idea of what you’re going to be looking at next year, maybe the following year. So
Speaker 1 26:55 fourth. So I’ll tell you what I, the best way for me to explain it, a budget, it’s a rolling 12 months. It’s, it’s, it’s, it’s, it’s really the next calendar or fiscal year. It proforma deep dive is multi year. So think of it is the ripple effect of your business on year one. So because you’re closer to the action. So if I’m looking at your 2019 which you and I, you and I put together a budget, right? Right. For 2019 on the premise of the numbers from 2018 so because it’s so closely watch and because we’re watching her, it’d be, I’d be very surprised if you, while SHA underperform or over-performing against your budget because there’s a lot of thought that goes into that. So for all practical purposes, for the first 12 months of the year it did, budget will be your performance. Okay. Beyond year two and three and Def, anything be over two is definitely forward-looking.
Speaker 1 27:59 Is beyond a budget. Does that help a year or less budget a year or more performer work? Okay. So it’s important though that are, there could be a pie in the sky and anybody who is going to be investing in all the, there are employees now that are very um, educated, you know, particularly if they’re in technology or some industries they’re going to want to know to tell me about where your company is going. Well, you’re looking to hire an employee. It goes both ways. Do you want to get to know them? But they also want an, do you want to be able to paint a picture of the future? So if you say, you know, um, we grew 20% from last year and we expect to grow 100% this year and we expect to be a $10 million company with an annex five years and we expect, you know, 400% growth, a very profitable and want to make the strategic investments. If you’re an employee looking to be part of a great company, you’re going to be paying attention to that.
Speaker 0 28:51 Absolutely. And how many people you know, in the tech industry, I mean, I know people that have that, you know, being from the Silicon Valley, um, I know people who started off at some of these tech companies as receptionists and you know, um, clerical staff and we’re getting very low wages but got stocks in exchange and ended up being worth a lot of money.
Speaker 1 29:13 You know what, I was on the way here today. I was listening to a podcast. Um, you know, cause I love real estate and you know, we both love real estate, right? This guy who was a software engineer, um, at the boom, you know, actually in San Francisco who, um, was part of a pre IPO company. Actually the company didn’t go IPO. They basically got bought out by a larger competitor funded by VC money. He had stock options. So, and the company
Speaker 0 29:42 was doing so well and he had bought into the dream that you made so much money from it that he could have started. He wanted to be the CEO of a software company. What he did instead, he actually got involved in commercial real estate. He went from zero to 150 units in three years. That’s a whole nother podcast for another day. Right. But if you are a discerning employee, you will care about the future of your feet, where your boss is going. Right. So proforma work is very important for a lot of reasons. You want an, you know, beyond a proof of concept. Do you want to work for a company that is flat year over year and it hasn’t grown? Well, no. And I think so many employees are afraid to even ask. It’s so far outside of the normal boundaries. The boo. Yeah, it’s very taboo.
Speaker 0 30:25 There’s nothing illegal about wanting to know or, yeah, absolutely not. And there’s, there’s actually great theory in a owner’s sharing that with their employees because this is the, we’re all growing together attitude. We are going to grow at, we in part of a team, this idea too big too, you know, too big to crash. It is nonsense number one. But we’re, our strength is our employees. Our strength is our devotion to our budgets and our numbers and our accurate forecasting. Um, and so there’s a whole business side on top of doing the business that you do. So if you just tune into this show, we’re talking about accounting versus bookkeeping and none of this stuff that we’re talking about in the last 10 minutes after they needed to do with bookkeeping pro forma work and basically help you navigate the business. You’re not gonna get that out of a bookkeeping engagement.
Speaker 0 31:16 It’s, you know, I’m a CFO and I provide that kind of work and evaluating growth in N what would the end in mind, everything that you do as a business owner has to be with the end in mind. Why are you doing this now? If you want to grow, it behooves you to know where your business is going because you also going to be able to anticipate the capital needs. Well, and, and whenever you set a goal, and I mean you’ve heard it from every motivation speaker ever has said, you know, write your goals down. Once you put them down on paper, something happens and you start to really kind of in a very subconscious way, start moving towards those goals. And the next thing, you know, three years later, wow, how did I get here? Oh, that’s because three years ago I actually wrote down the goal and it’s kept in my mind and I’ve kept thinking about it and I think forward and it’s what I do.
Speaker 0 32:09 It’s part, it weaves into the part of the fabric of your everyday existence. It’s what you talk about. It’s the decisions that you make. And I think budgeting, we so many people think of budgeting, like dieting. Like it’s a restriction, right? I, I have to deny myself. I can’t just go buy that stuff because it’s not in my budget or, you know, the, this expensive thing that I wanted to get. Or maybe we, you know, I really want a $300 new office chair because I’m sitting in this old office chair hour after hour, but you know, it’s not in the budget. So
Speaker 1 32:40 we look at it as a restriction as opposed to being freeing, freeing, right? And it’s, it’s so, um, gosh, it’s, it is absolutely liberating to have a budget and recognize that if I meet all of those goals that I put down in that budget and I look at it as a goal, not a restriction, the next year, my budget is going to change. Well, I look at it in terms of goals. I ask business owners, what do you want? Right? Why are you doing this? Because if you don’t have a goal, any goal will do. Right? And you were saying something a few weeks ago that really resonated with me is that you bring it into life. Whenever you think about a goal, and I don’t want to get hokey and you know, and this is not a kind of a talk show, but there is power in visualizing what your business is going to go.
Speaker 1 33:30 Budgeting and forecasting, which, which is kind of go together. Budgeting and forecasting, which is anything into the future. Beyond today, you have to, to be a good captain of your ship, you have to know where you’re going. If you just get on a car and you start driving, you don’t know where you’re going and what’s the point of driving, right? Right. So if you’re a business owner, you have to have a budget. So I, I know we’re supposed to be covering 10 items. So number one is know your options and you know, you either you hired a bookkeeper or how you’re an accountant by now are hoping that, you know, the difference. Number two is you need to know the rules and regulations. You need to know when to pay tax and to whom. Right? Um, there is a state, there is the County, there’s the city, there’s a federal government, there’s the payroll tax.
Speaker 1 34:10 There is all kinds of, you’re probably gonna pay half a dozen taxes. If you’re in business. You need to know when to pay him and you need to have somebody responsible for that, whether it’s in house or our house or outsourced. Number three we talked about creating a budget and sticking to it. Number four, we talked about it already. It was reconcile. Everything. Reconcile in is the process of matching external records with your books, which what I talk about is source documents, source documents and units. Are those receipts, the little receipts that were supposed to keep? Yes. Okay. By the way, you should keep your receipts even if it is throwing them in a box. Now, if you’re listening to this show right now and if you get anything out of it, anything that you do that you use your business, debit your, anything, any card, debit card, credit, car, anything, anything they use where money’s pulled out of your business account, keep that receipt.
Speaker 1 35:00 So doesn’t your bank statement act as a receipt though because it shows that you spent it at maybe struggles you can actually, I’ve seen, I’ve been part of audits which an IRS agent, it really depends. The it goes from agent. The agent is trained to ask for the source documents. So some of them are just too obvious, right? If you’re looking at it and it’s the same mobile 76 station, right? And you’re using your car as you’re actually using the actual expenses of your car for your business. And it’s the same every week around four o’clock, you’re going to have a six, say $65 charge against your debit card, right? And it’s the same every week for 52 weeks, right? Chances are it’s going to be a business and it’s your car and it’s your truck. You can argue that, right? But there are some expenses that are not going to be so easy to justify, okay.
Speaker 1 35:49 Now this whole thing about, I talked about before that I can never stress enough as commingling. No, I cannot mingle. Both of us will stay, not commingle. We will say it together in stereo, do not come to come, do not come mingle. And co-mingling is when you’re using your, per your, your business as a, your own piggy bank account. Particularly if you are, um, an LLC or a corporation, whether an S Corp or C Corp, the type of information that doesn’t matter, but please don’t do it if you’re a corporation. Because the reason why we as attorneys put you in a corporation is to give you a legal protection from lawsuits and protect your personal assets. Well, you put computer, you could Pierce your corporate veil for one thing. It’s called piercing the corporate veil. That’s exactly what, that’s exactly what it’s called. And any plaintiff attorney is going to attempt it.
Speaker 1 36:38 They’re going to attempt it every single time. So don’t be surprised that somebody attempts it. But the question is, is are we going to have enough ammunition to fight back? Now here’s the thing. You will make mistakes and there’ll be the occasional time that you thought you had in your purse or in your wallet, the business, and you had the personal or vice versa. And you happen to go in and ain’t no. And then an occasional mistake will happen. But what would the IRS is looking for? This pattern of conduct. That’s correct. So if a pattern emerges, you’re going to pay the price for it. Because what happens is all those expenses that you run through the business will be excluded. And the difference is going to be more net income, more tax than we put you into a different bracket. Now what we do as accountants, we anticipate and we look at the patterns of behavior of the different businesses that we work with. And if we find that the, the, we’ll tell the owner, Hey look, you, you gotta watch out, you know, uh, save Mart or you know, there’s, there’s a lot of oversight now on meals and entertainment and what used to be an expense is no longer what the meals used to be on the road. 100%. Yeah. So, Hey, I hear that we need to go on a break, so stay tuned. I hope you haven’t find this. We’re talking about booking versus accounting and here at business and legal talk with Leo and Claudine. We’ll be right back.
Speaker 3 37:59
Speaker 1 38:29 we are having so much fun. I can’t believe it. It’s almost over. So business and legal talk with Leo and Claudine, we are helping you scale profitably with a sustainable business. And this is what Lee Claudina and I do. And today we’re talking about something that is very near and dear to your heart. Req. Latina. Yes.
Speaker 0 38:48 Bookkeeping. Thank God. Thank God God made bookkeepers. right. But,
Speaker 1 38:56 but most people go to bookkeepers, they don’t think about it.
Speaker 0 38:59 Accountant. That’s correct. And I’ll, I w when you start working with an accountant, it changes everything. It changes the dynamic completely because now you’re looking forward to getting that information. You now collaborate with somebody about what that information means. And you know, even if that information is, is a little bit, maybe, I don’t want to say alarming, but perhaps alarming and it’s like, Hey, we kind of really need to get, get our act together and you know, and get these sales and gear or whatever the case is. It is, um, it, it helps you sleep at night. It helps you understand your business. It helps you figure out that how do they do it? There’s people that we know in every single industry, no matter who, who’s listening, whatever industry you’re in, there’s somebody that you know who has been successful, who has, has, you know, hit that place where you want to be and you look at them and you think, ah, how do they do that? You know what, like what was their center? Oh well maybe they are, they started their business 20 years ago and they’ve got different workers’ comp rates or they, they did this or they had, and somehow do you tell yourself that it is not duplicatable and that’s just not the case. You just haven’t found the resources yet. Doesn’t, it’s so hard to find people you trust. That’s true because this, it’s,
Speaker 1 40:20 you know, when you don’t know, like I love the phrase that you always use it with confused people do nothing. And if you’re, if, if you’re walking away confused, you won’t do anything and you’ll do nothing.
Speaker 0 40:30 For years I took the reports that were sent to me, my quarterly stuff from the bookkeepers and I just put them in a file in my drawer for years.
Speaker 1 40:41 Oh, you using them to light up the wood for it?
Speaker 0 40:44 No one never burned them. Nope. Nope. Never burned them. Never burned them. You know, look at the bottom line and you go, okay. It’s kind of like checking the bank, the bank bounce. Okay. It looks like, you know, fine, I suppose. But you know, until you start working with that right advisor, that person that can help you understand the things that you don’t know, you don’t know what you don’t know. Um, it completely revolutionizes your business. And somehow, sometimes people are really good with the numbers. So we may be talking to people who are thinking to themselves, Oh yeah, I’ve got this handled. I love my numbers. I sit with them and I play with them. And I, you know, massage them all the time, but just like a real person, they, you know, is, sometimes you look at it that way, but then the other half of it is what they don’t understand. The nebulous side of the legal side. And the legal side is very nebulous. Nothing is scientific, nothing is
Speaker 1 41:34 concrete. It’s an art, not a science. Um, and it’s, you know, how well can you protect an and argue it. So let’s keep going. I’m ha I have a goal that for the next, what, seven minutes as if I can get through five more items. And number five is we’re going to keep it clean and we’re going to create a useful chart of accounts. You know, I’m just going to quickly read it cause I want to get to number six where you’re going to love, um, don’t delete stuff. Okay. This is very important. So business owners that do their own bookkeeping, right? Um, and you can, you don’t have to hire an outsize, uh, outside, um, you don’t have to outsource it. You could do it in house if you happen to have the time to do it. I think some people should do it just to even learn what it feels like.
Speaker 1 42:21 But some, I see some people entering an invoice and QuickBooks say, and they delete that invoice and he loses the sequence. So all your invoices, QuickBooks or your accounting software is strained to number, each invoice uniquely. So we’ll start with a thousand and in a one-on-one one or two, one or three, one or four, one right? There’s a sequence. You can pull those reports. But what some people do, they make a mistake and they will delete an invoice. So they will go 0410510710 nine one 11. And then you lift to wonder what if you actually deleted a real invoice, right? And they make up another invoice. I know you’re looking at w you don’t do that. So, um, but business owners should just void it. Okay? When you void something, it lives in, imprint it. Ill say that something was here. Okay. Um, and then we don’t lose the sacred soil.
Speaker 1 43:21 It’ll be one Oh five and then voided one Oh six and then one Oh seven is important information. So don’t delete anything in your software. You don’t have to worry about that in anybody that we work with. We actually help them with that. We don’t like deleting anything because you delete the history and the audit history. Um, this is very important and as important as you grow is you need to have, uh, I encourage business owners to understand, uh, they having a standard operating procedure for different departments, including the accounting department. It’s very important as you grow to in case somebody like if somebody, you, if you have somebody in your office doing the invoicing, right? No, I don’t. I do it myself, but we’re starting to call. You’re going to start and then you have, because what happens if you are unable, right, that bill and needs to get done by the end of the month, right?
Speaker 1 44:08 We know we say bill and bill and bill then by the end of the month, and I’m obsessive about that because I’ve seen way too many business owners leave money on the table, right? You know, and some of the money that is left on the table will astound the average person. Um, I had a company one time that, uh, they were doing an average $100,000. They, they thought they were doing $100,000 a month in billing. So they’ll put you on track to do 1.2 mil, except that they were living about 20 to $30,000 worth of unbuilt stuff. And they did a for like three months in a row and billed unbilled or they were they like billing on the time or like invoice product. Okay. No Lord, I hope they were okay with products. So $100,000 worth of invoices. Right. And then they thought they were done. There was no way to, for instance, you have your billing software, right?
Speaker 1 44:57 They use and you keep track of time. Right? Right. So you know that if something doesn’t jive with the accounting software, you note that you have a way to go back and compare. It’s called acid test in the revenue. Right. They did it. So if a customer, they just put it under a desk and you put it on, that’s what he did is to be invoiced. There was no software, there is no way to track to do project management that they would just all in their heads. So this customer is done, we need to invoice him for 20 grand. Yeah, I know. It’s crazy. Right?
Speaker 0 45:26 You know that that brings to mind this a similar, um, situation that happens a lot in construction is job costing. Job costing is not not going back and costing your jobs out and to see where did you, where did you land when you, when you sent your estimate and you began the project, you thought, okay, it’s going to take me, you know, $80 in material and I’m going to bill $100 and I should make 20 and that going back and double checking that that happened,
Speaker 1 45:53 you want another number, one reason why construction companies fail. They don’t drop costs, they don’t job costs or they don’t do it. Right? Right. And then the whole thing about whip reporting, you know, the work in progress, it’s super critically important. I think some industries should have an accountant from day one, right? Because what, so imagine I just told you about that example of a company that left 20,000 for three months. I left 60 grand on the table. And by chance we started doing an, we just, there’s something that didn’t feel right because we were on the outside, we were not in a company. We were told, okay, bill, bill, bill, this. But then we started asking questions and then because we’re being incurred on that ghostly invoice, meaning that related to that $20,000 Eva’s, there were company was fronting costs. Oh, okay. Not only do you leave 20,000 on the table, you spend money that you cannot be, that you haven’t built against a recipe for disaster. You know, w w
Speaker 0 46:55 business owners make these without even thinking we’re just trying to take care of the customer. Or it’s just trying to .
Speaker 1 47:01 Right. And you do in yourself wrong. Even if you think you’re doing things right, you gotta, you gotta charge what you’re worth and you gotta charge it on time and you should not apologize for done. And I haven’t done a well job in asking for payment. Right. You shouldn’t apologize. But a lot of business owners do apologize. Yes. Why? I feel badly about this invoice that I’m about to send you. Yes. Well then you should have probably be in business.
Speaker 0 47:23 Well it’s, it’s a difficult thing to do. A lot of people, um, are just genuinely nice.
Speaker 1 47:28 So six, know your numbers now. This is to me the most important for you. Probably as you got to know the financial status of your business at any point in time, you should be able to look at the quarter, the month, the last year and compare those against each other. Um, the year over year comparison, the key financial indicators are your business, whatever those may be. If you are a restaurant that will be different than a construction company that will be different than a software company. And for you, uh, as you know, there are so key performance indicators that a law firm will have to understand the health or that and um, and you know those by heart, you know, we need to make sure that everything gets billed, that there is a ratio of hours billed against hours paid. There is a ratio of accounts receivable. There is a ratio, even rant against sales. All those metrics that call, because when it Matt, there are times that you’re going to need that information and you won’t have it, right? And you will be able to make decisions. So,
Speaker 4 48:31 Mmm.
Speaker 1 48:33 You know, and you, you gotta understand also the trends. So for instance, you think, so say you’re profitable. Wow, what a concept, right? You going into business, you could actually be actually started making money, but how do you know that that’s what you should be making? For instance, some companies I happy, you know, the average business in the U S be lucky to have 10% earnings. That is 10 cents of every dollar for every dollar that you sell. Now you think if I’m doing 10 million, that’s $1 million worth of it. Not may be fine. But what if your average competitor is actually pulling in 15 cents?
Speaker 4 49:10 Yeah.
Speaker 1 49:10 So then does that mean that you’re, what does that mean to you? Right? So you need to understand not just what things that pertains, you should be a student of your business. And that’s what I keep telling. Uh, if you’re listening to this show, you need to set time aside every week to work on your business and you get away from working in the business and work on your business because you will become a millionaire and you become super wealthy if you learn how to work on your business rather than in your business. Yes. And that, and that is probably the most difficult thing that um, business owners, um, tried to deal. So, wow, eh, you know what, I didn’t do a justice, we didn’t finish. So cash is King. Collect money that is owed to you, value your inventory and keep a separated. That’s a whole nother topic for another day. We’re going to have to do a part two of this. So we are, we had a great time and I hope you have a great and fantastic Saturday. Remember tune in every Saturday. And where do we go for you, Claudine at www Sharon dot [email protected] and go to www dot Greenland HQ, like the country of Greenland, Greenland, and email us, and if you have any questions, we’d be happy to give you a complimentary review. Uh, thank you so much. Have a great weekend. Everybody.