Latest / Your Money, Your Rules | Financial Mastery, Wealth Mindset, Leadership Principles, Intuitive Decision-Making, Human Design / 209 | Tax-Ready Doesn’t Mean CEO-Ready

Transcript

209 | Tax-Ready Doesn’t Mean CEO-Ready · Your Money, Your Rules | Financial Mastery, Wealth Mindset, Leadership Principles, Intuitive Decision-Making, Human Design

• 0:01
  Erin Gray: Welcome back to the podcast.
• 0:03
  Erin Gray: Today I want to talk about a topic that's a little bit more in the weeds with our business, and that is our financials, specifically our chart of accounts.
• 0:10
  Erin Gray: A lot of founders think that because they have good financials, because they were set up by the bookkeeper or the CPA, that they are categorized correctly.
• 0:17
  Erin Gray: And more often than not, they are.
• 0:20
  Erin Gray: And also that there is a huge difference between setting up your financials for your accountant or your bookkeeper and setting up your financials that are actually useful and provide you information that you can make decisions on and you can see where money moves in and out of your business.
• 0:38
  Erin Gray: You know, your bookkeeping or your CPA, you know, that all exists for taxes, but your financial reporting that should exist for you.
• 0:47
  Erin Gray: And that's data that you need to know so that you can make better financial decisions and make decisions from a leadership perspective.
• 0:56
  Erin Gray: And those two things are very different.
• 0:58
  Erin Gray: So let's dive in.
• 1:01
  Erin Gray: So let me start by saying that most bookkeepers, or if you have a CPA that set up your chart of accounts, they create, when I say generic chart of accounts, when you set up in QuickBooks, if you use QuickBooks, there's just a basic place where you say what kind of industry you're in, and then it sets up a very general chart of accounts that technically works and it's totally fine.
• 1:26
  Erin Gray: And it's going to satisfy it from a bookkeeping and a tax reporting perspective.
• 1:31
  Erin Gray: But it doesn't necessarily give you the information that you need as a CEO to make financial decisions.
• 1:38
  Erin Gray: Questions like, you know, where is my revenue coming from?
• 1:41
  Erin Gray: So if you have several different offers and you aren't splitting that up, how are you supposed to know where your revenue is coming from?
• 1:49
  Erin Gray: If you are, you know, wanting to know, like, where are you spending your marketing dollars, or which employee group is driving labor costs, or like I said, with the marketing, like which marketing is actually paying off?
• 2:02
  Erin Gray: If you just have advertising as your chart of account, which then when you pull your PL, you're just gonna see advertising costs.
• 2:09
  Erin Gray: You're not gonna see whether you did, like, let's say if you did mailers or you did social media or ads, or if you did SEO, you aren't gonna be able to see how much money is going to which category or which account.
• 2:23
  Erin Gray: And so I always like to look at it from the place of, you know, the books are for you.
• 2:29
  Erin Gray: Yes, we give our books to our CPA to do our taxes for us, but being able to read your financials, understand your financials, understand where money moves in and out of your business.
• 2:40
  Erin Gray: Like I worked for my family's construction business, I was very detailed.
• 2:43
  Erin Gray: And the joke was with the CPA, she was like, Erin, your chart of accounts ledger is so big.
• 2:47
  Erin Gray: And I'm like, I know.
• 2:48
  Erin Gray: And I did whittle it down when I got on and I really started to piecemeal and like what do I want to see?
• 2:54
  Erin Gray: But you know, we basically had two businesses in one business.
• 2:58
  Erin Gray: We had the construction side that did big construction projects from anywhere from like weeks or months to a year.
• 3:03
  Erin Gray: And then we also had the service side, which were, you know, go out on a daily service call and then it's done and an invoice is sent.
• 3:11
  Erin Gray: And so I wanted to track each department, you know, the service department as well as the construction department.
• 3:17
  Erin Gray: And even deeper in than that was, you know, inside the construction department, we had a mechanical and we had an electrical.
• 3:23
  Erin Gray: And then sometimes the service guys would go work on the construction job sites.
• 3:27
  Erin Gray: And so it was really important for me to be able to see where was the income coming from, what were the costs of goods sold and the expenses and like where was the money moving in and out of the business?
• 3:38
  Erin Gray: And when you have very general or generic chart of accounts or categories, you know, think of your chart of accounts as just kind of like your file folder, right?
• 3:46
  Erin Gray: Like you're gonna have income and then you're gonna it's gonna be broken down into the types of income, and then you're gonna have costs of goods sold, and that's gonna be broken down, and then the expenses are gonna be broken down.
• 3:55
  Erin Gray: And so when you just have generic categories that have been set up from either your CPA or your bookkeeper from a like, let's set this up from a tax perspective, not from an understanding how money is moving in and out of your business perspective, your chart of accounts are gonna be very different.
• 4:13
  Erin Gray: So, first and foremost, I want to say that the mindset shift that you need to have first is your books are for you.
• 4:19
  Erin Gray: Yes, it may make be more work for your CPA to actually do the, you know, chart of accounts or to do year-end taxes for you.
• 4:29
  Erin Gray: And yes, it might be a little bit more, but my question to you is how important is it for you?
• 4:35
  Erin Gray: Because you are in your books every day or every week.
• 4:38
  Erin Gray: Your accountant is in your books maybe once a quarter, maybe a little bit more, depending on where you are.
• 4:44
  Erin Gray: So they're in it four times a year.
• 4:46
  Erin Gray: And then obviously when tax season comes, you're in it like once a week, 52 times a year, if not more than that.
• 4:52
  Erin Gray: So I would set up my books for myself, right?
• 4:55
  Erin Gray: Running my business, and the same goes for you.
• 4:57
  Erin Gray: Set up your books that are going to benefit you and then let your CPA work around that or your bookkeeper work around it, not the other way around.
• 5:05
  Erin Gray: I want to recommend two different books here.
• 5:06
  Erin Gray: If you have an online business, that's gonna be one specific book.
• 5:10
  Erin Gray: If you have a brick and mortar business, that's a different book.
• 5:12
  Erin Gray: So the online business is Profit Pillars by Parker Stevenson.
• 5:17
  Erin Gray: He breaks down the four different types of pillars and then he puts in there the chart of accounts that need to go under each pillar.
• 5:24
  Erin Gray: If you have a brick and mortar business, that's a little bit different in terms of what kind of chart of accounts or categories, I should say.
• 5:32
  Erin Gray: You're everybody's gonna have a chart of accounts, but it's the categories that go in your chart of accounts.
• 5:36
  Erin Gray: So for your categories, if you have a brick and mortar business, you could check out the book Profit First by Mike McAllowitz.
• 5:43
  Erin Gray: It's a little heavy and like sometimes it felt a little like too much overkill.
• 5:49
  Erin Gray: And this goes back to like, you're gonna have to trust your intuition and what feels good for you.
• 5:54
  Erin Gray: I would also, if I had a brick and mortar, and I would do this also if I had an online business, is I would just Google with Chat GPT, like this is the type of business that I have.
• 6:02
  Erin Gray: What are the types of categories that I would want in my chart of accounts?
• 6:05
  Erin Gray: And then start from there and like see the way that the categories are set up and then what is specific to your business.
• 6:12
  Erin Gray: Like for our construction business, you know, we didn't pay for marketing because we were what 40 years in and we were primarily referral-based.
• 6:20
  Erin Gray: So advertising was something that was just one line item, you know, we had very little advertising.
• 6:26
  Erin Gray: But what we did have was like I broke apart like the payroll into different classes or categories for the mechanical guys, for the electrical guys, for the service guys.
• 6:35
  Erin Gray: Like I wanted to see how much was going to each department.
• 6:39
  Erin Gray: And so the second thing that I would say is like use your judgment.
• 6:43
  Erin Gray: Some things we don't need 400 categories, but there are maybe some categories that you are going to want more of, maybe because you have you want a more detailed information, maybe about obviously your income, certain expenses.
• 6:55
  Erin Gray: And then some expenses or cost of goods may not be, you know, that you may not need to be that detailed.
• 7:00
  Erin Gray: The question that you have to ask yourself is is this information going to help me make a better decision?
• 7:06
  Erin Gray: Or am I going to get even more clear on how the money is moving in and out of my business if I get more detailed with this specific category?
• 7:14
  Erin Gray: And if the answer is yes, then set it up the way that you want to.
• 7:18
  Erin Gray: If the answer is no, then don't do it.
• 7:20
  Erin Gray: It's not like just because we should have, you know, specific categories that we that we need to do that for everything, but there are specific things that when I talk to clients about, when I ask questions, they don't have the answer for me, which is not a problem.
• 7:34
  Erin Gray: It just shows us where do we need to get a little bit more detailed with our financial reporting than what we currently are.
• 7:40
  Erin Gray: So I'll put those two books, the links in the show notes for you.
• 7:43
  Erin Gray: Profit um pillars by Parker Stevenson.
• 7:46
  Erin Gray: That's for online.
• 7:47
  Erin Gray: And then Profit First by Mike McAllowitz.
• 7:49
  Erin Gray: I don't think he really talks too much about chart of accounts in the book, if I remember correctly.
• 7:54
  Erin Gray: He just more so talks about profit first, which is the same thought process that Parker Stevenson talks about of like making sure that you allocate for profit, but he does kind of help you with the chart of accounts.
• 8:06
  Erin Gray: So if you have a brick and mortar business, just go online, Google and see what you get for your chart of accounts, and then really look pull your chart of accounts, have your bookkeeper help you, or if you know how to do it, pull your chart of accounts and see actually what you have.
• 8:19
  Erin Gray: And then what do you want to be more specific about?
• 8:21
  Erin Gray: You know, and the goal and the big picture that I'm always trying, because I'm always thinking about it from a 30,000-foot view.
• 8:27
  Erin Gray: The the big picture that I'm that I want you to take away here from is your numbers tell a financial story, right?
• 8:34
  Erin Gray: When you look at your PL, when you look at your balance sheet, it's not just numbers, right?
• 8:39
  Erin Gray: You should immediately be able to see like where money is moving in, where money is moving out, like what is changing, where is cash going, what is working, what isn't working, like where are the margins?
• 8:50
  Erin Gray: Like you should be able to easily see and decipher.
• 8:54
  Erin Gray: And I know we joke, you know, we used to joke with the CPA about how my chart of accounts were kind of hefty, but I could go into the banker and I could have conversations with him because I knew exactly where the money was going.
• 9:06
  Erin Gray: I knew exactly where it was coming from, I could tell, I could see patterns.
• 9:09
  Erin Gray: Um, the same thing with the bonding agent, right?
• 9:11
  Erin Gray: Like the reason why we had such a beautiful relationship, obviously, because there was that relationship there, but he trusted me because I knew what I was talking about, because I knew my numbers.
• 9:23
  Erin Gray: I knew and I could forecast and I could explain things.
• 9:28
  Erin Gray: And for the 3D world people of like the bankers and the insurance agents, and if you do bonding, you know, all of those types of people that aren't necessarily in the 5D spiritual world, they like those concrete answers.
• 9:42
  Erin Gray: And when we can give them concrete answers because we really know and intimately know, like I always joke, like it's time to get intimate with your money.
• 9:49
  Erin Gray: When you can intimately know where your money is coming from, where it is going, how it is moving inside your business, it makes those people that like all of that concrete, you know, number 3D stuff feel much more at ease.
• 10:04
  Erin Gray: And so when you're able to really be so clean and clear on where the information that you are receiving in your business, which is all coming from your financials, which all ultimately comes from, you know, the chart of accounts and the data entry.
• 10:19
  Erin Gray: And I didn't even mention this, but like the data entry has to be legit.
• 10:23
  Erin Gray: Like I have looked at so many financials from people, from clients, and I'm like, we'll just spot check things.
• 10:29
  Erin Gray: And I'm like, why is this here?
• 10:31
  Erin Gray: Why is that here?
• 10:32
  Erin Gray: It's like it's one of those things of like you want to trust your bookkeeper, you want to trust your CPA and also verify just because they are doing that work for you doesn't mean that you get to be hands-off with, you know, your company.
• 10:43
  Erin Gray: You still need to look at on a monthly basis where is like the data entry part too.
• 10:49
  Erin Gray: Like, and you don't have to go through every single category in your PL, but just spot check and just see like where is stuff going.
• 10:56
  Erin Gray: And that is also something that we as business owners need to teach our bookkeepers.
• 11:02
  Erin Gray: I think, you know, one of the things that I'm always saying is like, I'm teaching people how to think and the way that I think, not necessarily like you have to think the way that I think, but like, you know, when you have a bookkeeper, you want them to be thinking the way that you're thinking in terms of like, where would she put?
• 11:19
  Erin Gray: What is important for her?
• 11:21
  Erin Gray: What does she want to see when she looks at these reports?
• 11:24
  Erin Gray: So you really have to teach the people that you work with how you think so that they can begin to think like that, so that they can then provide you the information that you need.
• 11:35
  Erin Gray: You know, one of the things that I see over and over again with clients and their financials is that they accept or they bring me the chart of accounts and their financials of whatever their CPA or their bookkeeper set up.
• 11:48
  Erin Gray: Because it's almost like when I asked them, like, well, how did you get to this place?
• 11:51
  Erin Gray: Like, why do you have it like this?
• 11:53
  Erin Gray: The answer almost always is, well, that's just the way that the CPA set it up, or that's the way that, you know, the bookkeeper did.
• 12:00
  Erin Gray: And I want to say this here because I didn't say this when I was talking about specific categories.
• 12:04
  Erin Gray: Like I was so specific as in like, let's say, you know, your assets, like with your bank accounts, I would literally put like primary checking and then with a parentheses, like the last four of the checking account number, you know, primary savings with the last four of the account number, like payroll account with the last four of the account.
• 12:20
  Erin Gray: Like I was so specific, you know, if you have assets, like if you have equipment, I literally would put the last four of the VIN on the chart of accounts.
• 12:28
  Erin Gray: So I could easily identify when I looked at my balance sheet, I could see what I knew what those specific accounts were, what those assets were, what the liabilities were.
• 12:39
  Erin Gray: Like I didn't have to go to my depreciation sheet to figure out what it was or anything like that.
• 12:45
  Erin Gray: Like that's what I'm saying when I say specific.
• 12:47
  Erin Gray: And you're gonna have to play with this and see like what works best for you.
• 12:51
  Erin Gray: But I'm always like, more information isn't going to be an issue, right?
• 12:56
  Erin Gray: It's like when we don't have more detailed information is when we get a little fuzzy or unclear.
• 13:02
  Erin Gray: So I'm always on the air or the side of like, okay, let's just do more data and then we can pick and choose what we want.
• 13:09
  Erin Gray: So going back to what I said with, you know, asking clients, like, well, how did you get to this place or why don't you have this?
• 13:15
  Erin Gray: Or it's the answer, like I said, is almost always like, that's just what was set up for me.
• 13:19
  Erin Gray: And so we take this, the stance of like, this is what the CPA did because that they're the expert versus questioning, you know, where one of the things I always say to CPAs is like, I'm not questioning your intelligence or your brilliance or your authority, but I want to understand how you got to this decision or I want to understand how you got to this way of thinking.
• 13:40
  Erin Gray: And so it allows me to understand where they're coming from.
• 13:44
  Erin Gray: And then for me, if I want to push back on that line of thinking and say, well, what about this?
• 13:48
  Erin Gray: Or have you thought about this way?
• 13:50
  Erin Gray: Or, you know, the tax law says this.
• 13:52
  Erin Gray: And so I just want to encourage you and empower you that if you are someone who is like, well, that's just what the CPA did, or that's just what the bookkeeper, like, it's your business.
• 14:02
  Erin Gray: You get to go back and say, hey, you know, I want to have more detailed information.
• 14:05
  Erin Gray: Can you help me do that?
• 14:06
  Erin Gray: And like pay them for their time to do that.
• 14:08
  Erin Gray: Like they are the, if you want to call it experts in bookkeeping and accounting and taxes, but you are the expert in your business.
• 14:14
  Erin Gray: You know, your financial report should be built around you.
• 14:17
  Erin Gray: Like you spend 52 weeks or 52 times a year, if you want to say it that way, if not more, if you're looking at your financials more than once a week, you spend 52 times or more in your financials.
• 14:27
  Erin Gray: Your CPA probably spends four whatever with taxes.
• 14:31
  Erin Gray: You know, a well-designed chart of accounts becomes more than just an accounting tool.
• 14:35
  Erin Gray: It becomes more than just something that got set up when you started your business.
• 14:39
  Erin Gray: It becomes a decision-making tool, a leadership tool, something that you can really look at, lean on to make financial decisions.
• 14:48
  Erin Gray: And the more detailed that you, you know, are with your chart of accounts and your categories, the more intimately you are with your books, the easier the, I don't want to say quicker, but the quicker and the more confident that you can make decisions.
• 15:03
  Erin Gray: So this week, pull your chart of accounts, pull a report, have your bookkeeper do it.
• 15:09
  Erin Gray: Who, you know, if you have a CFO, have them do it.
• 15:12
  Erin Gray: Look at it.
• 15:13
  Erin Gray: I'll put those two links in the show notes for you.
• 15:16
  Erin Gray: If you have an online business, look at that one specific book, Profit Pillars by Parker Stevenson.
• 15:21
  Erin Gray: If you have a brick and mortar, then either Google or Chat GPT categories, as well as you can read the book Profit First by Mike McAllowitz.
• 15:30
  Erin Gray: Like I said, it's a little overkill.
• 15:32
  Erin Gray: And I think Parker in his book Profit Pillars kind of talks about that without naming it.
• 15:37
  Erin Gray: But there is helpful information in there and it will give you some more, yeah, detailed specific information for you and your business if you have a brick and mortar business.
• 15:45
  Erin Gray: But go Google, you know, different categories for you and spend some time to write out like where is my income coming from?
• 15:52
  Erin Gray: What are the expenses that I, you know, use on a consistent basis?
• 15:56
  Erin Gray: And, you know, if you are doing advertising and you have an SEO manager and you have, you know, maybe you pay for ads or whatever it might be, like you might want to actually separate those out to see where they are.
• 16:10
  Erin Gray: So that's all I have for you this week.
• 16:12
  Erin Gray: And I will see you in the next episode.