Legal Survival Guide

Lesson 18 of 27

Financing Your Business

 

Legal Survival Guide

Lesson 18 of 27

Financing Your Business

 

Lesson Info

Financing Your Business

Showing the money from missouri the show me state so I think we need to show me the money if blue steels ever gonna have a chance lorenzo of making any money it's got to start with a little bit of money where we going to get it in order to finance our business we got 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 air 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 cash can pay bills cash can uh hey 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 lesson vestar existing cameras in our business so everybody asked this question how I just been d...

oing this on my own I'm going to start this business how do I get my equipment into the business too? 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 it if we have a set of studio lights, a computer, a laptop ah car um camera equipment uh sign age sample albums. We can put all of that into the businesses our initial investment and that gives us equity and are in 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. It's difficult to know what uh uh cannon one d mark three is going to bring if I take it to my bank and offer tio uh, put it up as collateral to loan me two hundred bucks, so they're probably not likely to loan me money on my assets so service businesses are notoriously hard to finance um funding sources uh 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 relative elit relativity that I follow in my practice of law jam you know that isthe don't do business with relatives yeah I have the same same month so craig's rule of relativity governs this private debt placement with mom dad and grandma be careful because it contained two sour relationships you can also if you have a good relationship with commercial law 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, 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 ah competitive advantage because if you qualify with e s p a is a small disadvantaged business you get first place preference in some government contracting work. In addition, if you are a woman business enterprise and you also have some preferences for government work and states the individual states have different programs that give preference to minority and women owned businesses as well so it would bear looking in get in your business plan when you start to talk about advantages and disadvantages, consider whether or not if you're a woman or a minority whether or not this designation might work for you if you were going to go do government work uh the reality is a lot of photographers that air entering the market place right now are not men they're women s o this this particular tool might be advantageous for a lot of the new photographers um a quick note about psycho mingling when we talk about our personal assets zoe just like you separated your business assets from your personal we're only going to be talking about accounting for our business money today keep your personal money separate um and and don't pay for your personal expenses out of your business account um it's just not a good idea uh co mingling can cause you to lose the protection of your corporate veil remember we talked yesterday about the corporate veil and how it protects our personal assets. If we treat our companies like our personal piggy bank, bad things will happen and if you lose your protection you won't know that you've lost your corporate protection until um you've injured somebody and they come after your car, your truck or you know your house or things like that all right, what is it counting? And why do I care? Look at this guy saying 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 going to 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 dio it facilitates making informed business decisions let's say that, uh, I've had my my packaged pricing change for twelve months, and I could 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 could look, look, 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 chains 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 in 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 going to make this change because I hope I'll make more money after I do it and again hope is not a thing, not a strategy, not a strategy whatsoever um and again people think that accounting on lee 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 accounting khun do a lot of things for us to accounting can help us price our prince and packages accurately weaken tell whether or not we're selling too cheaply or too expensively weaken know instantly instantly instantly, if we're making are losing money, you can know what your cash flow needs are and the longer the short term and again you can calculate the sales tax that you owe daily. Now let me ask this question, doria, how do you do? You collect sales tax and if you don't don't admit it on tape here were could be used against you in a court of law. I do collect sales tax. I am I shot I aa hockey event, where about forty girls came in. I did the headshots of all of them, and then they worked with a couple other photographers. We did on eyes, shots of all the girls and they bought packages. And so I collected sales tax, but I don't know how to give it teo. All right, so have you registered in your state? O okay, this is great. This is great. Have you registered in your state to pay the sales tax yet? No, we're going to do that first, and they will tell you where to send the check. They make it very easy to pay at once you register. But my question for you was how difficult or or easy was it to calculate the amount of sales tax that you owed using your excel spreadsheet method? It was fairly easy because you had how many jobs what happens when we multiply that across the whole quarter of working fairly regularly? You'd have a lot more calculations to do in the opportunity to make a mistake it becomes bigger and that's where we can use quickbooks to know the sales tax that we owe on a daily basis. Also, we can calculate any payroll taxes we do quickbooks will also print out the ten, ninety nine automatically for you for your vendors. So for your second shooters or your bag carriers or whoever you're goingto a ten ninety nine two at the end of the year instead of going back through your checkbook register looking uh you know who did I pay six hundred dollars to and then having to add it up? You know um quickbooks doesn't automatically it makes the end of the year book keeping very easy. You can also track your cash investment in your business and that's your skin in the game your skin in the game is your your equipment that you put in the business or your cash and we can track it. So you know if this business goes under right now well for I know this is what I can take back out that comes back to me as my investment in the business and everything that you put into your business cash and equipment wise it comes back out if you quit tax for or during the year even if you're going along and you need to take some cash out of the business if you've invested thirty thousand dollars into your business let's just throw that number out there how much can I take out not have to pay tax on it thirty grand because the thirty grand that went in the texas presumably had already been paid on it anyway so being able to track your cash investment in your business your capital your capitalization super duper important so again accounting in tax it's kind of a yin and a yang we go along with that they go along with one another but they're different we account for things a little bit differently for tax purposes and uh 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 ah written group of uh accounting policies and procedures about basically this is the right way to do things. And if accountants used the gap g a p when they do their accounting it's uniform across the country remember these thes little small start up companies like in iran uh 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 but you have to understand some basic things there's this thing called a balance sheet who has never heard of a balance sheet you all have heard of a balance sheet who is seen a balance sheet but I look so ugly have you seen one everybody's seen a balance sheet? I need somebody that hasn't so we play play along I may have seen one I'm not sure what it would look like all right it looks like this we're putting words into your mouth and you're getting married. Here comes a balance sheet on this side go our assets on this I go too things are liabilities and are in call it owners equity that's your investment in the business okay lorenzo let's invest some money in blue steel photography how much money do you want to put in? Uh let's g o give me thirty let's go thirty now when I make an entry over here double entry bookkeeping means I have to make an entry on this side of the sheet every entry over here gets another entry over here makes sense here in here what we're gonna buy with it okay first of all let's let's do when I once I make that entry because in the capital account they were here I've got an account for cash let's say let's just make it simple I got an account for equipment where's my thirty thousand go on this side first or it could be uh let's say I bank it first bank of washington I could have a bank account over here let's put it in a bank account and this is an actual account will set up in quickbooks how much do I put into the bank account done that's one accounting entry let's go shopping I go to be an h photo in new york city I'm having a good time you ever been there rock it iss I'm not taking anything away from manorama but see those belt conveyor belt going overhead moving stuff going all over the world it's fantastic um let's buy some cameras let's see just buy a five thousand dollar camera blends package that could get us a uh thirty dear ah five d mark three and uh seventy two hundred what do we need to do that six grand yeah six two point eight so what decade let's let's create an account what account do we put cameras in cameras and equipment cameras and equipment what account we put cameras on equipment in equipment now double entry means I have to take something away from here and put it in here how much do I take away from my bank account so that leaves me with twenty four and now what I have here there's a formula that everybody has to understand it's called assets equals liabilities plus owners equity assets equals liabilities plus owners equity this side of the sheet has to always add up to that side of the sheet what's this sheet called ah balance sheet and if this side adds up to that side it's in balance if your balance sheets not in balance you're out of balance and if you're out of balance you got a problem that means you've made him a steak with one of your accounting entries and you have to go back and hunt and find and fix it quickbooks keeps you honest it makes sure that everything stays and balance all the time so here six plus four equals thirty and my owner's equity equals thirty so is my sheet and balance you bet. Okay, so what do we do next? So now we bought some camera equipment. All right let's borrow some money. How much do you think we could get from grandma? Two grand grandma is goingto loan us two grand right? So here we've got loans payable and grandma gives us how much two and we deposit it where and now our balance sheet at the bottom what's it add up to thirty two thirty two thousand on each side these are just very simple bookkeeping concepts, but do you see how our balance sheet balances? And when I enter something here I enter it here and if I take away something here I've got to change it here. Um, you know what? I need to go on vacation and I need to take I don't recommend taking money out of your company to go on vacation, but if you were to take two thousand dollars out of your bank account to go on vacation and write yourself a check, you decrease your bank account by two but then you'd also would you decrease the loan account by two or would you decrease your capital account by t lorenzo the capital owners equity account, right? So now your company's worth less because you've suck some of its its assets out of it, right? So there's also this account um, this concept of your expenses right, we track our expenses not on the balance sheet. We track our expenses on the profit and loss sheets so our expenses get tracked over here on the expense account. But when we pay expenses were to our expenses come out of bank right? So as we pay expenses, are bank accounts going to go down? We also have an income account on our profit and loss statement when we get income where's our income go into the bank right and is our bank account goes up let's say that we have income today guys let's make some money at blue steel uh we just went out and we shot a big gig big fashion shoot big fashion shoot a lot of stylists we made five thousand dollars. Okay, a couple good two three days work what's our bank account go up to thirty one thousand now we're not in balance our way. Yeah, yeah now I'm up to thirty seven on his equity has to go five thousand two now how much money can? Well, actually that is that's this is an income account. This is my this is not an individual investment that's actually earned income. We did that a little bit wrong. It goes into my income account. This is a capital account. It just has to go into a separate account because this one's taxable now balances, doesn't it? So we've done some simple double entry bookkeeping assets has toe always equal liability plus owners equity and retained earnings and quickbooks is going to do that for us over and over and over and over again. 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 going to be cash basis taxpayers this is kind of a fine point. We could talk about it for a whole day and, uh accounting classic college cash is king right? Stick with cash but in quickbooks we have to tell our reports to running cash basis not a cruel so it's important you know what to look for it's important to know if one is better than the other for you but cash for a service based business generally were world worked just fine there's a lot of resource is available that are out there we've got do it yourself software like excel you can use cloud based services either limited cloud base or like wave or full cloud base like ninety nine beans dot com you could hire a local bookkeeper and just take him a shoebox full of receipts and invoices at the end of the year they love that you could hire a local accountant which is gonna have a bigger skill set than a bookkeeper or you can hire a local sepa who's going to be able to give you tax advice do you see the difference here like master photographer can an explorer of light you know, local accountant pretty skilled working at it full time, uh bookkeeper kind of uh no in it to win it keep you organized but not, uh not as qualified as the other two now the software that weaken dio quickbooks have stand alone and cloud based services peach tree has stand alone I think in cloud now ninety nine beans written out eyes cloud based the wave aps dot com cloud based shoot q is another one that has some accounting features but it's not it's not fantastic eso 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, your automobile account, your meals and entertainment account, your other income account you never different packages weaken 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, our asset, those air, the basically the three things that accounting turns on income, expense and assets 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 uh 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 and 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 pay play catch up remember my uh my fancy rainbow bright filing thing drawer one is bills to pay door too is cheques 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 him into your account so you can pay the bills and door one so you know, you need to set up a strategy where you're going to make weekly progress. I got rainbow bright because I intended to visit with those drawers every week so I need to I need to glove on rainbow bright and make some weekly progress to pay my bills to make my deposits and then also to send out invoices and statements and you need to be organized about it unlike nothing. I mean, I always feel so stupid we have to call my clients up like last week hey, uh red I appreciate doing the work that I did for you hope you like it by the way I've lost your check for six hundred dollars could you see me make sure I haven't deposited it um and if I haven't deposited it, do you mind sending me another one I mean, I'm just telling stories on myself, this could happen to you. We just a zit could happen to me. Don't worry, I'm just keeping it real, so stay organized. Uh, 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 deduct it. 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 irs is very clear. You have to have the receipts, you have to save him for three years, so develop a system and don't be like me. Do not procrastinate.

Class Description

Ready to turn your creative side project into a thriving business? Join Craig Heidemann for an introduction to the business and accounting principles every creative professional needs to know. 


In this class, Craig will take you step-by-step through the process of setting up, running, and growing a small business. You’ll learn how to use QuickBooks to manage your finances, including managing client contracts and invoices. Craig will also help you navigate the potentially-confusing tax, legal, and copyright issues surrounding small businesses. You’ll also learn how to contract and/or hire people to do the tasks you can’t do yourself. 

Whether you’re just starting out as a business owner or you’re a longtime entrepreneur ready for a refresher course, this course will give you a roadmap to business success.

Reviews

a Creativelive Student
 

I'm literally fresh off the boat, as the saying goes, having moved back to the US after decades of living abroad. I have the photography down (in some measure due to the instructors and courses here at CL), but being new to the business of photography in this environment I was rudderless. This course helped answer all my initial questions and put me on the way to getting established in my region... and beyond! Craig makes legal issues almost fun with his jocular, engaging style. Thanks so much to Chase and the people at CL for knowing what courses real working photographers need.

Andrew V Gonzales
 

This class is amazing (as is the Instructor). Funny, real, and to the point, Craig has a great way of making these aspects of business MUCH less intimidating. Still very applicable even in 2016. Loved it!