Overview of Business and Beyond
I am going to try to tie a bunch of stuff together in the most effective way to do it is on the slides. Okay, I'm not gonna go through all the slides. I'm gonna click on some of them, so if we could go ahead and go up and I know it's not ideal. I'm gonna leave this here just because I'm gonna quickly go through these and it's not full screen and it doesn't look is professional, but it's an effective way to do it. Okay? Way back in the way back machine. I'm not gonna hit on all the slides, but I am gonna hit important points that I really wanted you to get at a class. If I have time, I'm going to do some or stuff here, But I'm just gonna play it by ear and see what happens. I was the whole the way I opened the course. Waas. I know we're excited about when we get when we get new business. OK, we're excited about it, but don't let organization fall to the side of the very beginning because we've seen throughout this course the negative effects of not getting yourself organized when your b...
usiness gets busy. So we go from excitement to the need to organize. I know it's boring. I know you're not making any money organizing yourself. You're not making any money learning QuickBooks necessarily. But that was the my opening sort of grabber, if you will. I highly recommend if you haven't done it, that you go online and take a 60 100 question Myers Biggs for free. And find out your strengths and your weaknesses, which relates to who you need to go out and get to help you with this business. Maybe you don't need anybody. Maybe you have the self discipline to do this all by yourself. I don't know. You could. Okay, because the real challenge is you can do to orders a month and be disorganized. But can you do 200 orders a month? Can you answer 20 mils day rather than to you know, you want to say things? Accumulate paper, e mails, text with clients, photos your product. Not only that, you give to a climb, but that you have to file and store your bank transactions. Your bank statements, the QuickBooks records yourself, which I would urge you to print off in spite of backing it up online on the cloud. So my goal is to keep the crepe the paperwork from piling up. I'm going to go through these questions cause I think they were good and just in my producer Help me write these questions. And we threw these in at the last minute and I thought there was a great idea. What are your Margarets for? Measuring success for your business? Now we've brought up today. Jackie brought up your your goal made may not be completely, and I would suspect it's not for most people in creative field just making lots of money. You want to, you know, you have a mission. It's not just about money. It's about creating a good product. It's about helping people. It's about doing something for your community. It's about social justice, on and on and on. So your success may not be just all monetary one more time. This seemed like we did this 100 years ago. Done it. Assets minus liabilities equals equity, and it always stays in balance. And this was the starting point for talking about the whole debit credit discussion and talking about posting activity, assets or stuff you use in your business like the pizza parlor uses the ovens and the tables and the chairs. And there's two groups of people that have a claim on those assets people that you owe money to for the accounts payable or the bank loan is a liability. All owners are the other people that have a claim on some of those assets. So liabilities or money that you owe somebody the payable the bank loom equity. My best definition. If you sell all your assets in the pizzeria, the oven and the furniture in the building and you got a pile of money and you take the pile of money and you pay off all your liabilities, the accounts payable in the bank loan, you got a pile of money left that is, equity ownership. Equity means ownership. Now. I also mentioned that that is sometimes referred to as book value. That does not exactly match up with accounting definitions, but you hate. You may hear the term book value, which is fine. I'm okay with that. Revenue or sales again, those terms are used interchangeably. Please don't be confused. Your company generates less your expenses is your net income or profit. Net income and profit are the same. Revenue and sales of the same one of the top five most important things from the courses. The cruel method. Okay, matching the revenue you create with the expenses you incur for that, regardless of when the cash moves. This relates to the whole cash discussion earlier today where I said, If you're going to doom or business in February, you're gonna have more cost in February. You do more, even more business. In March, you get even more costs in March. They relate. They relate. Don't forget about the cost for doing a whole bunch more business again. Why? Who cares? The only way to truly match sale in one period with the related expense in another period, I used the example. The photographer who flies to New Zealand to take pictures in July may not even have a customer to sell it to, but they think the pictures are gonna be of such high quality that somebody will buy it. Okay, The reason you spent money in July is so eventually you'd sell the pictures. It so happened. Just fill him in December. I promise it's the last time you'll ever have to hear me talk about double entry accounting promise. Each entry has two sides. I like tea accounts because they visually explain the process. When you buy the video, rewind it and go to those times when I didn t accounts on the flip chart. Pause it. Go to QuickBooks. Make an entry, debit and credit. Okay, that makes sense. Watch the video. What was going on there? Oh, yeah. Go into QuickBooks, Debit and credit. You can post your entry even when I die. Debits and credits are always on the left credits debits or left Kretzer on the right. And remember that everything is in balance. When I was in QuickBooks several times, I mentioned if you look at the bottom of a journal entry, if this QuickBooks system forces you to have debit equal credits, they have to equal again. I like the questions that we created. What is your impression? QuickBooks. I hope you got a little more comfortable with QuickBooks and specifically the reason I went through that review. Waas. If you could just open QuickBooks and have some sort of feel for where things happen and there is the challenge that you can do a lot of stuff on the left side column that you can also do by hitting that X prop that X create doubt dropped down on the top. So the left column matches a lot of stuff you could do on the create drop down, and I get that, and that causes confusion. But I hope that you got a little more comfortable, which is in the way. I hope that you got a little more comfortable. Waas. I did the accounting, debit and credit stuff on here and on here. Then I went to QuickBooks because if you didn't have that basis, it wouldn't have worked, because the first time I would have started doing debit career like way. What, uh, what you got explaining over here first, how does your current profit compare with others in your industry or your creative field? I know it may seem like a bit of a distraction or excuse me. You know something that's time consuming and not necessarily money making. But take a look at others in your field, and it's an effort for me to try to read and stay on top of things. I look at Entrepreneur magazine online, for example. I try to look at it. I try to read other markings, e mails I get from Hub Spot. I don't always get to it, but try to make that effort to find out more about your field. Okay, Profit margin. This is an easy one to remember and think about. For every dollar you sell, how much profit does it generate for every dollar you sell, how much profit does it generate? And, for example, this is a 15% profit margin. You sell it for 300 you profit $45. 15%. Is that good? Depends on your industry. Depends on your industry. When should my business become probable? Well, for many of you and creative we talked about you've got low costs. It's project based. So when you get the order to do the first project, Jackie mentioned that I don't even carry any inventory. That first order might be profitable because you have very low fixed costs, if any. But for a larger business, you may have started costs that require you to operate at a loss for a period of time, and we had a conversation. I don't remember. It was on camera. I think it was where there are. You need to talk to your accountant about the issue of being in a business and losing money for a year or two and how that's perceived from a tax standpoint. And I'm gonna leave that for an accountant to talk about. Start a restaurant, for example. You're gonna leased space the build out to change the physical design of the building, advertising costs, furniture and equipment. If it totals $200,000 how long would it take you to earn back that 200,000? Or, in other words, to recover your costs? Well, you'd have to do two million in sales at a 10% margin. cents. You don't do two million in sales at a 10% profit to earn back the 200,000 much of the 200,000. Though, if you look at the bottom, the last sentence represents assets invested in the business, and they're not immediately expense. So the oven and the build out those air assets you used, and they're gonna help you make money over the long term so you don't expense, you don't expense them. The catering example was about a particular client being profit when we talked about the idea of some clients you want to do business with even if they pay you late, even if there may be a little demanding. This was the example of you got a catering business. You have a set menu. You charge people 50 bucks. You charge a client 50 bucks a person, $30 cost of food, $10 for the staff in the travel to $10 profit. It's a fixed menu. However, Two of your clients don't behave. Don't play well with others. They don't behave labour. One client says. I want everybody to stay and clean my house and you say, Well, wait a minute. Our understanding is that we wiped down the tables and put away stuff and we leave. Okay, Client expects you to stay longer. Your people stay because they don't know what to say. And you end up paying more labor costs for your step, your catering staff to clean their house. That was not the deal. On account of guess you expect 20 people to show up. 30 people show up. You've got, Oh, get Mawr materials, cook more food, run back to the house with it and oh, by the way, because you had to buy all this food at the last minute to cook. He probably paid more than he otherwise would, right? So the solution to this how to resolve it is to explain this to them in advance. Hannam, a document that says, Here's what we do and explain it to him. We're happy to wipe down your tables and pack up everything and leave. We spill something we're cleaning up, but otherwise that's all we're doing. That's all we're gonna do. Another question we talked about was business formation. How would you structure your business if you brought in a partner? And we went onto the slide that mentioned Sole Proprietorship Partnership Inc. Remember that sole proprietorship in partnership? The taxes flow straight through the owners, while corporation is taxed to to levels That corporation files a tax return and face tax, then they can pay a dividend to shareholders that's also tax. So the corporation has double taxation. Please consult with an attorney about the legal liability of being in one of these forms or another and we had a conversation that Candace brought up getting liability insurance for yourself to protect yourself. Secretary of States have made it pretty easy now to form Ah, business in a state pick a fictitious name. Taxes flows straight through. The partnership again is defined as two or more people could be thousands and that the partnership agreement for most states can say whatever you want it to say. Whatever you wanted to say. Specifically, the share of ownership as a percentage can be different from the share of profit and loss so you can have somebody with a lot of assets. He puts in 90% of the money and owns 90% and another person who only owns 10%. But they work in the business every day and in exchange get more of the prophet. So the owner sits back and his attitude is I put in and I own a lot of this company, and I am willing to just, you know, get some income from this business. But I don't have to work in it. General Partners, Bottom bottom, right, have unlimited liability for the actions of other partners. Very, very important, and I mentioned several situations where classic case one partner is the guy who's doing the business. He's out there presenting the product, billing clients, finding business and the other partners. The guy was doing everything else in the office, okay? And one person can make big mistakes and not communicated to the other person and put the clock and put the company at risk. Maybe the guy who's out selling really drops the ball and doesn't deliver a product or service to a client in their harm by it may be the guy and the other in the office completely botches the accounting records and you get an audit. Okay, you got to communicate with each other and be clear in a partnership agreement. Who does what? Who's responsible for what? How we're gonna hold each other accountable partnership if you eventually want to grow a big business. I mentioned the corporation is the easiest way to raise capital because you can just about raises much money as you as you can get investors for with a corporation, because you can just about issue as much stock as you want to with a corporation. But you have the disadvantage. Top right of taxation. If you imagine that bucket again, the profit goes into the bucket. The corporation files a tax return and pays tax on it, and then they cut a hole in the bucket and they pay a dividend to a shareholder. And that's taxable to the shareholder. It's tax twice in the corporate bucket and in the individual bucket as a dividend. So I have bottom right dividends, taxable of shareholders. So that was our conversation about business formation, one of the challenges with keeping your personal and business activities separate. I tried to set up the business formation discussion first to help me make the case as to why you needed to keep business and personal records separate and again from the very first slides of the course. Don't get off track by keeping business and personal together separated tomorrow. Get that taken care of. Get the bank account set up for the business tomorrow. Separate the records tomorrow, please. Why they need to separate. There's a tax issue again. I've talked to people who have been here creativelive where they need to get their taxes done, and now you've got to kind of think about well where all the records and how did I record? Um, etcetera. It's kind of scramble. There is legal liability. Need to check with an attorney about this whole. If you co mingle your personal business records, you may be considered that you and the business of the same thing and your personal assets are a risk for liability. Another reason to go out and get insurance. Talk to an insurance agent. Well, the better reason to separate your records is toe look professional. Okay, if you have a potential investor, if somebody, if you want to take out alone in a commercial banker or some type of finance company wants to see your records. If you want to take on a business partner, you want to be professional. That includes having separate business and personal records. It's the step. It's a hassle, but to the step you have to make for long term business planning. Another theme of this course is I'm asking you to do all this work. Not for tomorrow, but for five years down the road, when things have gotten complicated and busy and you have employees and you have a lot of activity going on and you say to yourself, I'm glad I set this thing up when I did not. Whether it's me or somebody else getting you there, set this stuff up now, please. Okay, All right. Segregation of duties, which I explain, I think was the second or third most important thing in the course. The duties that we separate custody over the assets. Who has the checkbook? You can have an assistant have the checkbook in their drawer. You can have the assistant have the keys to the equipment closet where you keep all the film equipment. That's OK, as long as number two. You're careful with who has authority to sign a check and who has authority toe access your equipment. And the last one is who can record transactions. And this becomes an issue when you hire an employee, particularly when you hire that first employee. I can't tell you the number of times that has run off the rails. We talked about fictitious employees. I won't go through the whole thing again, but again, to prevent theft, you need to control the building process. You need to send out the invoice you need to account where all the invoices are you need to check those deposits coming in, as we did in QuickBooks earlier today, and match that deposit with the invoice. Which invoice are they paying? You need to do that. You need to always reconcile your bank account. And, for goodness sakes, don't ever let an accountant have authority to sign a check. That's a big no, no, I've told clients that many times. Could you just do this? And I'm like, Now you don't want me signing checks? Bad idea. So you're gonna control the M voicing and you're gonna control the accounting process, The accounting process, T accounts we already covered posting entries we've covered. For the most part, I am going to make that distinction again between capital accounts, which is for sole proprietor and partnership. I say at the top here, Silva, Pride and Partnership equity equals the sum of all the capital account. So it's mole. Larry and Curly is the partners Mosaic capital, Larry's capital, cetera. The some of those capital accounts is the equity or ownership in the business. That's for a sole proprietorship. A partnership. Okay, those accounts get increased. When those partners, when those sole proprietors or partner put money in the business with their cash or equipment. It's reduced when they take money out. It's on the screen there, increased by capital contributions and profits decreased by payments, toe owners and losses. This is the number one thing that accounting friends of ours deal with. The tax time is figuring out what the capital account balances. Because now everybody's scrambling through the checkbook. Wait, I think I you know, I think I wrote a check, and I can't remember. Well, then I took money out, But let me find that check, and nobody knows where this stands at tax time. You got to keep this straight. Got to keep this straight. I'm gonna skip through that. I highly recommend that you, um, get somebody else to do payroll. It's not very expensive. Even if you just have a few employees for the reasons that are listed in the slide, there's a lot to do with payroll. You get to calculate the deductions, you got forms to fill out. You've got deposits to make. Jack. You know what I talked about? Well, you know what? If I want to know the total I've contributed to for a one K or the total insurance premiums I've paid out of my pocket as the employer and I suggested that Look at your vendor statement. So go to the investment companies statement to get the 401 k total. Go to your insurance company's statement to look at the benefits you paid. It gets a little tricky to look at the payroll company statement because it's their long and they're hard to read. What's your biggest costs you'll incur in the next 12 months? I think Josh and I kind of had a discussion about that about machinery. I can't remember something about me. I think way may have talked about machinery. How do you plan for that cost? How do you plan for that cost? How are you going to use that thing that you buy that new film camera to make money? How long will that film camera be useful to? You remember the difference screen current and long term, we essentially said that a current asset or liability is something that you use up. It's gonna be converted to cash within a year of It's an asset. It's gonna be paid in cash if it's a current liability long term asset you're gonna use for more than a year. Maybe the camera long term debt is that bank loan. So if you're looking, QuickBooks is a distinction between current and long term matching principles so important. I know I've been on it here pretty good. Prepaid insurance was an example of an asset, because if you pay the premium in advance, that's money you don't have to pay later. And we said that's an asset. The bottom of the screen way talked about unearned revenue or customer deposit. We talked about it again when we did cash. Today in QuickBooks, it's a liability account because if you don't deliver the product or service the deposits owed to the customer, think about a magazine subscription where you pay for a whole year in advance until they start sending you the magazines. That's unearned revenue because they don't have the money back. Have you ever turn business away and why? And we've talked about this at length, break even Formula One last time sales. Let's variable costless fixed costs. You set the Prophet the right hand side of the equal signed a zero because Step one and businesses cover all your costs. Remember that fixed costs do not change. Yes, Josh. Sir, shouldn't you factor in taxes in this? Um, when we do that, we normally factored into the profit. So let me go to target net income. So the way to figure in taxes is to make the profit large enough. So you get the profit that you want after taxes, so this number would be higher. That's a really good question. So target net income took the break even formula. And we added in a profit. And we can make that profit number higher if we want to look at it after tax. That's a good question. Uh huh. There's some math. You guys go back and look at it with dazzling algebra that I did. My fingers never left my and, well, I did that. Did you notice that? Never. I did not pull a rabbit out of my hat while I was here. I probably should have done that. We're trying to leverage our fixed assets, were trying to use the fixed asset and get the most we can out of it. If I own a television camp. A film camera. When he was many jobs I can if I'm drying. Driving the pump plumbing truck I want to fix is many people plumbing as I can I told you about when my transmission fell out of my old car on the highway side of the highway and the Triple A guy came, he said. Those guys were using those triple A trucks 300,000 miles driving those trucks. They're going a lot of income out of one asset. It's a lot, a lot of miles. I have a lot of miles on me. It's in a way how much cash you need to run your business. Besides segregation of duties, maybe the second most important thing I talked about invoice your clients make payment easy. Use Elektronik Bill your client. When you deliver the product or service, don't wait. Reconcile your checking account within five days of getting the bank statement. Be cautious. Point number three of adding clients that don't pay you on a timely basis. Consider asking for a deposit so they have some skin in the game to see if they're gonna pay it carefully. Consider how you use your cash if you're going to go into a new area of business you don't understand or know about fully and consider. Well, you know, if I if I really get held up and I get a lot of money that I'm owed, I'm slowed up. How does that affect the other business that I'm in? Okay, so I want to mention that I'm gonna just bust through here really quickly, because if we're gonna get done with this course by Sunday, we better hurry. I've said that I've said that in a teaching situations. People just go What? I'm not standard. Okay, well, new clients pay me quickly. Quickly, Critically important. Make that training manual for your staff. Please write it down. Please do that. Not only so you could figure out if that's your secret sauce so you can improve your procedures. That might be your secret sauce.