Financing Your Business
show me the money. I'm from Missouri The Show me state. So I think we need to show me the money if blue steel is ever going to have a chance, Lorenzo with making any money. It's got to start with a little bit of money. Where are we going to get it in order to finance our business? We got to either give some money to it or go get some money for it you ever get. And so it's this concept of debt or equity. Now, these are two words gonna learn a couple definitions debt of course, is money that we borrow that we have to pay back. Equity is our investment in our business. We can invest in our new businesses. When we get into quickbooks with cash, cash is king, right? Everybody knows that the cash can pay bills. Cash can pay vendors, cash can pay our album companies. But guess what? Cash? Can't take pictures unless you take that cash and convert it into a what? But what if we have a camera, Lorenzo? Let's take our existing cameras and let's invest our existing cameras in our business. So ever...
ybody asked this question how I've just been doing this on my own. I'm going to start this business. How do I get my equipment into the business to I write myself a check. No, it's all going to be an accounting entry when we get into quickbooks. So that would be an example of our equipment being an equity investment into our business. Right? So it's a piece of cake we can use if we have a set of studio lights, a computer, a laptop, car, camera, equipment, uh, signage, sample albums. We can put all of that into the business is our initial investment. And that gives us equity in our business and that goes towards capitalization because if our business has equity, if we have cameras that we have equipment that can be used as collateral to go to a bank to borrow money on. But until we can show the bank what equity is in our business and what that equity consists of, they're not gonna loan us any money borrowing for creative businesses as we talked about yesterday is hard to impossible. Any funding usually has to be allocated against all this stuff that's gonna lose money. So if I am a bank loaning money on land, banks can predict the value of land in the event that they have to go take it back and sell it to get repaid. Um, funding sources. I like this one. Don't be afraid to borrow from mom, dad or grandma. Uh, some people don't want to do that, but family is a great source to borrow some money to start up a business. There is a rule of relativity relativity that I I follow in my practice of law. Jim. You know what that is. Don't do business with relatives. Yeah. I have the same. So Craig's rule of relativity governs this private debt placement with mom, dad and grandma. Be careful because it can tend to sour relationships. You can also, if you have a good relationship with commercial banks, they'll let you borrow money, but you'll have to personally guarantee it. So you'll have to have to personally promise to pay it back. If you're serious about getting started, you can check out available programs through the federal government, the small business administration or various state programs and grants. But check this out if you are a woman or a member of a minority group and you want to do work for the government. You have a competitive advantage because if you qualify with the S. P. A. Is a small disadvantaged business. You get first place preference in some government contracting work. All right. What is accounting? And why do I care? Look at this guy, he's having a it's a snoozer. He's already transitioning to the iphone, he's transitioning to the iphone right now. Accounting is important because it's the language of business. It's how we keep score. I'm gonna run through this really quickly. But just by way of introduction it's how we know if our business is healthy. It's how we know if we're meeting our goals. It's how we know if we even understand what our business plan is. It's it's how we know if we're actually doing what we're in business to do. It facilitates making informed business decisions. Um let's say that uh I've had my my packaged pricing change for 12 months and uh I can go back and I can look at my sales of that package for last year, I can look at my sales of that package from this year and I can look at the number down on the bottom which is the uh gross revenue from the sale of those packages. If my gross revenue has gone down and I can look at that on a sales report then when my package was priced less, did that price change work out for me? No it didn't. I'm making less money because I changed my prices. But you wouldn't be able to know that unless you've entered all of your information into an accounting program and you were able to print out a report to actually look at your sales data. You can't make an informed business decision. And the mistake that I see photographers make time and time and time and time again is they say, well, I'm going to make this change because I feel like I'll make more money doing it. Or my absolute favorite jim, I'm gonna make this change because I hope I'll make more money after I do it. And again, hope is not a not a strategy, a strategy whatsoever. And again, people think that accounting only has to do with your tax return at the end of the year. Nothing nothing could be farther from the truth. Yes, we have to account for our profits and losses, but things mean different for tax purposes versus accounting purposes. And so accounting is not just for the tax return. It's how we keep score. It's how we know if we're winning or losing. So it is super important. And a quick note, what is accounting? There's this concept of double entry bookkeeping. There's this thing called the generally accepted accounting principles and it's a written group of accounting policies and procedures about basically this is the right way to do things. And if accountants use the gap G. A. P. Um when they do their accounting it's uniform across the country. Remember these little small startup companies like Enron? Um And some of the other folks that had two sets of books and they were keeping things off the books and they were had their own creative accounting methods. They weren't following the generally accepted accounting principles. And what happened to some of those folks, they went to prison and the company folded. Right. So they generally accepted accounting principles are kind of important. You don't have to know what they are. Quickbooks implements those principles and concepts in the software. So it will allow you to do it the right way. All right. We've got two different ways to account for our money cash basis and an accrual basis. Cash basis means we don't make entries until cash comes in the door. Accrual accounting means we make entries when we have an obligation to do something, we're gonna be cash basis. Taxpayers. This is kind of a fine point. We can talk about it for a whole day in uh accounting. Classic college cash is king. Right, stick with cash. But in quickbooks we have to tell our reports to run in cash basis. Not a cruel. So it's important. You know what to look for. It's important uh to know if one is better than the other for you, but cash for a service based business generally were at work just fine. There's a lot of resources available that are out there. We've got to do it yourself software like Excel. Um You can use cloud based services. Either limited cloud base or like Wave or full cloud based like uh 99 beans dot com. You can hire a local bookkeeper and just take them a shoebox full of receipts and invoices at the end of the year. They love that. Um you can hire a local accountant which is going to have a bigger skill set than a bookkeeper or you can hire a local CPA who's going to be able to give you tax advice. Do you see the difference here? Like master photographer, Cannon, Explorer of light, you know, uh local accountant, pretty skilled working at it full time bookkeeper kind of uh no In it to win it, keep you organized but not not as qualified as the other two. Now the software that we can do is Quickbooks has stand alone and cloud based services, peach tree has stand alone I think in cloud now 99 beans written out is cloud based the wave apps dot com. Cloud based shoot Q. Is another one that has some accounting features but it's not it's not fantastic. Uh So let's set up. If you do get your software we're gonna have to set up a chart of accounts because we have to the chart of accounts. That's this kind of stuff. Guys like equipment, um Your automobile account, your meals and entertainment account, your other income account. Different packages. We can set up cool charts of account including income and expense items. You're either going to have an income item and expense item or an asset item, income, expense or asset. Those are the basically the three things that accounting turns on income, expense and assets. Mhm. And again we're gonna have some recurring things every month. We're gonna pay our rent every month, we're gonna pay our internet. It's always gonna be the same. It's due on the same day every month. We can make the accounting software make automatic entries. But we have to implement a workflow in order to make this work right? If you like some people that speak on creative life, that procrastinate don't do really their accounting entries every week. You have a lot of work at the end of the month if you're trying to play catch up. Remember my uh my fancy rainbow bright filing thing, drawer one is bills to pay drawer too is um checks to deposit. Right? So what happens when you pull out drawer too? And I got a bunch of un deposited checks from the last four weeks and my managing my cash flow very effectively. No, you're an idiot. Why are all these checks there? Get them into your account so you can pay the bills and drawer one. So you know you need to set up a strategy where you're gonna make weekly progress. We've got to keep our receipts. I'm bad about this too. If you don't have a receipt for something you can't deduct it. If you don't have a receipt you can't deduct it, you can pretend you can deduct it you can actually deducted. But when your audit comes and the audit hammer comes down, if you don't have a receipt for it you're out of luck. Um So the I. R. S. Is very clear. You have to have the receipt, you have to save them for three years. So develop a system and don't be like me do not procrastinate.