Latest / The Inspired Stories Podcast / Understanding Your Wealth Type: Financial Strategies with Dan Nicholson | Fractional C-Suite Series

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Understanding Your Wealth Type: Financial Strategies with Dan Nicholson | Fractional C-Suite Series · The Inspired Stories Podcast

0:04
Welcome to another edition of Inspired Stories, where leaders
0:07
share their experiences so we can learn from their successes,
0:10
how they've overcome adversity, and explore current challenges
0:13
they're facing. Welcome to another edition of
0:18
the Inspired Stories podcast where leaders share their
0:21
experiences so we can learn from their successes and be inspired
0:25
by how they've overcome adversity.
0:27
My name is Anthony Cotis Bode and today's guest is Dan
0:30
Nicholson, CEO of NTH Degree Cpas, a team of financial
0:35
experts that help you pay the minimum amount of taxes required
0:39
all year long while optimizing your business or personal cash
0:43
flow. His LinkedIn profile proclaims
0:46
he is a not boring finance guy helping purpose driven
0:50
entrepreneurs achieve financial certainty.
0:54
We'll learn more about something called the Augusta Loophole and
0:57
hear about how he helps visionary business owners stay
1:00
in their lane while helping them take advantage of different
1:03
legal strategies to minimize their tax burden.
1:06
We'll also hear about his book called Rigging the Game, How to
1:08
achieve financial certainty, Navigate risk and Make money on
1:11
your terms. And we're going to hear about
1:14
the five wealth types and a free assessment that you can take to
1:17
find out your own wealth type. Before we get into all the good
1:21
stuff, today's episode is brought to you by my company,
1:24
Add Back Benefits Agency, where we offer very specific and
1:27
unique employee benefits that are both great for your team and
1:30
fiscally optimized for your bottom line.
1:33
One recent client was able to save over $900 per employee per
1:37
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1:40
Results vary for each company, and some organizations may not
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1:49
Now back to our guest today, the CEO of NTH Degree Cpas.
1:53
Dan, I appreciate you making the time to Share your story today.
1:56
Yeah, thanks for having me on. OK, so Dan, let's just start
2:00
with, in your own words, telling us what does NTH degree Cpas do
2:04
and how did you first get started with it?
2:06
Yeah, so I was very much that cliche kid growing up scheming
2:10
on business ideas, mostly bad business ideas, and ended up
2:14
getting an accounting degree and a information systems degree,
2:16
just thinking the combination of the two would be the best skill
2:20
set to be an entrepreneur. And then I went arguably as far
2:24
away as you can go from entrepreneurship, which is I did
2:26
a fellowship at the board that writes all the US accounting
2:29
standards, and that put me down a very specific path.
2:32
I worked on this derivatives and hedge accounting standard.
2:35
Most people kind of begged me not to tell them more about that
2:40
headline of it, But that sort of put me down this path where I
2:43
was working in capital markets, mostly Fortune 500 companies
2:49
that had $100 billion or more in investable assets and was kind
2:56
of miserable doing it. So I moved around a little bit.
3:00
People kept hiring me because they'd see my resume and how you
3:04
did this fellowship. It's sort of the accounting
3:06
equivalent to if you were to graduate law school and clerk
3:10
for the Supreme Court. So like, oh, this guy's probably
3:12
pretty smart. And so I had a couple people
3:16
hire me. I work for a Warren Buffett back
3:18
company getting ready to go public work for this guy, Steve
3:20
Loudon, who and became CFO of Roku and took them public.
3:25
And in the back of my head, I would always think you probably
3:27
should not hire me. There's going to be like 90 days
3:32
where I'm going to be your best employee.
3:34
And then I'm going to figure out how to do the minimum and still
3:38
meet or slightly exceed expectations.
3:41
But I'm going to be kind of bored because ultimately I
3:44
should be self-employed. And so I had this like, kind of
3:47
nagging conversation in the back of my head about this.
3:51
But I kept kind of moving jobs, like maybe a different place.
3:54
I'll feel more fulfilled. And finally, 15 years ago or so
4:02
to get to the specific question you asked, I realized that
4:06
there's an opportunity to do something different in the CPA
4:08
space, which is taking the expertise that I had from
4:13
working in a bunch of different disciplines up to that point and
4:16
providing that to the small business owner primarily in the
4:20
context of showing them how to minimize their tax exposure.
4:23
The time there really wasn't any other firms that were leading
4:27
with tax planning in the small to mid market space.
4:31
So if we weren't the first, we're one of the first to do
4:34
that in the last kind of 1515 years or so.
4:37
And so that was kind of the the thing that gave me permission to
4:42
finally become a a full time entrepreneur is marrying all
4:47
that experience on the accounting and finance side and
4:50
taking it to the small business. Owner And so when you were
4:54
working for these bigger companies, I presume then that
4:57
the services that you were providing them was basically on
5:01
how to legally minimize their their tax liabilities.
5:05
Is that right? The last place, the last firm
5:09
that I worked at, that's what I did was on the tax side.
5:13
Prior to that, I've kind of done it all in the finance and
5:18
accounting space. So I worked at Deloitte where I
5:21
was on I, I was, I got the fortunate opportunity.
5:25
If anyone knows anything about BIG4 opportunity just means
5:28
significantly more hours per week where I got to be on both
5:32
the financial audit team and the IT audit team all around capital
5:37
markets. So like, hey, we used to have
5:39
four people doing this, but you've got this IS degree.
5:43
And so like we'll just have you do all of it and it'll be really
5:46
good for your career. And it was good experience, but
5:52
a burnout and, and hours and all that was pretty high.
5:56
So I did the financial audit, IT audit.
6:00
Then I moved into a role in more of an internal accounting role
6:05
where we were. Part of what was pitched to me
6:08
was we were going to convince Warren Buffett to change who is
6:11
managing the investment portfolio for the business.
6:16
Warren was a primary shareholder in this insurance and investment
6:20
business that had spun out from Safeco Insurance.
6:23
What they didn't tell me was that he owned the investment
6:26
company that we were trying to fire.
6:28
So Needless to say, we were not successful in convincing him to
6:31
fire a company that he he already owned.
6:37
It's a tall mountain to try to climb.
6:39
Yeah, yeah, it's sort of a it's like a being on a escalator, but
6:45
it's a never ending escalator. You're never getting to the top
6:48
of that mountain. So internal accounting.
6:52
Then I worked in strategic finance with that guy Steve
6:55
Louden, and then I worked in tax.
6:56
So if you sort of got this mixed bag of I've done all the the
7:01
sort of accounting finance stuff, most of my competitors or
7:06
contemporaries, they've worked in one specific domain for their
7:13
for their career, maybe because they're less of a masochist than
7:16
I am, I guess. I like it.
7:19
So as you made this transition from big corporations and right
7:24
it did one portion of your career you're, you're doing tax
7:27
related work. Did you find that that work and
7:30
the knowledge that you had in big corporations then applied
7:34
pretty easily and evenly to the smaller businesses that you
7:37
started to work with? In in some ways, yes, a lot of
7:42
the tax strategies that we might employ with a big corporation
7:46
can work for a small business. There's a bit of a misnomer that
7:49
you have to be a big corporation or sophisticated investor to
7:53
access certain strategies. But a lot of what I learned in
7:58
Business School and what I learned in those big
8:01
corporations just doesn't work in the small business space.
8:05
It took me a number of years to figure that out.
8:09
I would have clients come to me and they're like, hey, I really
8:11
want these forecasts and key performance indicators.
8:14
I want all these kind of traditional finance tools.
8:18
I build them for them. I'd check in with them.
8:22
And after 60 to 90 days, like, hey, how's it going?
8:25
Like, oh, we don't look at that at all.
8:27
What do you mean you don't look at it at all?
8:30
Like, well, yeah, we built it all out, but it was all based
8:34
off kind of BS numbers. We were kind of, we don't have
8:38
any actual data. We just wanted to grow by 40%.
8:40
So like, yeah, OK, that makes sense.
8:45
And it was those kind of repeated conversations where I
8:48
realized that in Business School and a big corporation, But let's
8:53
talk about Business School. You really learn one thing.
8:56
It doesn't matter what your major was, accounting, finance,
8:59
marketing, whatever. You learn how to maximize
9:02
shareholder value. That's what they're preparing
9:05
you to do. When you're an executive at a
9:08
publicly traded company, you have a fiduciary responsibility
9:11
to maximize shareholder value. So it makes sense why Business
9:15
School will prepare you for that.
9:17
At a small business or medium sized business, you don't have
9:21
the resources to maximize. Maximize is about half the most,
9:24
most amount of clients, staff, etcetera.
9:27
Small business owner resources are even more scarce.
9:31
You can't maximize, you have to optimize.
9:34
Optimize is a totally different framework.
9:36
Optimizes about how do I get my number one or top two priorities
9:40
and put all my resources towards that.
9:43
And so once I realized that that I need to build tools to help
9:47
small to medium sized companies optimize instead of maximize,
9:51
that's was sort of the domino that then led to a bunch of
9:55
unlearnings and kind of new approaches to better support
10:01
those business leaders. Anthony Tallulah
10:40
Oh man, it's technology conspiring against me today.
10:44
Dan, can you hear me or see me? I can hear you now.
10:48
OK, OK. So we'll just go with my my
10:52
question, which was, hang on, what were we just talking about?
10:57
I lost my train of thought. I was talking about the maximize
11:01
versus optimize and. I don't know.
11:03
Yes, I did. Yep, got it all loud and clear.
11:07
So Dan, say more about maximize versus optimize because those
11:11
sound like synonyms to an outsider.
11:15
But it seems like this was a big revelation for you.
11:17
So I'm I'm curious to understand it better.
11:19
Yeah. So maximize is about having the
11:24
most, most amount of clients, most amount of revenue and you
11:30
have to, you have to maximize shareholder value because you
11:33
couldn't possibly meet with each individual shareholder, find out
11:36
what their goals are, their priorities and then tailor the
11:39
business around each individual shareholders wants and meets.
11:44
That's what optimizing is. There's a saying, first we
11:47
optimize, then we maximize, optimize getting really clear on
11:51
the the priority, the top one or two priorities and then
11:55
allocating all your resources to achieving that.
11:58
But as a small to medium sized company, that's exactly what you
12:00
need to do because that business can be customized to your wants
12:06
and needs. You are the owner.
12:08
And I believe that for most small business owners, their
12:13
business exists to serve them in living the life that they want.
12:17
That's what I mean by purpose driven entrepreneur is that your
12:20
business, your assets exist to serve you and living the life
12:23
that you want. And so we can optimize, We can
12:26
get clear on what we really want out of our life and from the
12:30
business and then allocate resources towards achieving
12:33
those one or two priorities versus trying to simply just
12:38
maximize everything constantly 10X every area of your business.
12:43
So that's sort of the contrast between maximize and optimize.
12:48
And you mentioned that you helped to build some different
12:51
tools for your clients and you kind of had to adjust the types
12:54
of tools that you were building as you understood the difference
12:57
between maximize and optimize for smaller to medium sized
13:01
businesses. Can you give us examples of what
13:03
some of those tools look like? What?
13:04
What a purpose do they suit? Yeah.
13:06
So the the first step is helping the small business owner get
13:10
clear on what I call their solvable problem.
13:13
And what I mean by that is that typically speaking, an
13:17
entrepreneur has done or is has an idea in their brain of this
13:22
sort of vision board. Have you have you done one
13:24
before? I have, but why don't for our
13:27
audience, Why don't you explain a little bit about what that is
13:29
the. Vision board as you're taking
13:31
your, your goals or what you want out of your life, your
13:34
vision for your life. And you're taking these images
13:36
and you're putting them on on a big piece of cardboard or big
13:41
piece of white paper. And you put in all these images
13:45
up and the antenna. And then you hang it over your
13:48
desk or somewhere that you're going to see all the time.
13:50
And the idea is that by imagining the life that you
13:54
want, that's going to help compel you to, to creating that
13:58
outcome. Does that sound consistent with
14:00
the way you think about a vision board?
14:02
It does. Yeah.
14:04
And my experience with that is that it's really helpful when
14:09
you first do it because you get a bun, you feel really good.
14:13
You get this big rush of dopamine.
14:15
You're like, I'm going to have a six.
14:16
I'm going to have not just a six pack, but I'm going to have an 8
14:19
pack. How do I know that?
14:20
Look at this, this picture of someone with an 8 pack that I
14:22
put on this piece of paper and I'm going to be an amazing
14:25
parent. I'm going to have this cars, the
14:27
2nd house like you, you get all this dopamine rush.
14:31
Did you have that experience similar to that?
14:33
I have yes. And then I, I stopped looking at
14:37
the visionary board, the vision board and I stop referring to it
14:40
And I, I, I get distracted that that's my personal experience,
14:43
but. Absolutely.
14:45
You, you teed me up perfectly with that.
14:47
Because my experience and talking to hundreds of business
14:51
owners is that it's you get the big dopamine rush.
14:54
Of course, after big dopamine hit, you have a big crash later,
14:57
but maybe you're getting up earlier for a couple weeks and
15:01
you're just putting in a lot more effort, which is kind of
15:04
what I call maximizing. And then it can't be sustained
15:08
because anytime we have a, it's called a rigid chaos model.
15:11
Anytime we go from chaos, a bunch of undefined things to
15:15
something very rigid, typically not sustainable.
15:19
So then we go back to chaos anyhow, we can't sustain it.
15:23
And that's because it's not what I call a solvable problem.
15:26
By putting these images up on the board, it doesn't tell you
15:30
how much each of those things cost.
15:33
It doesn't put a date to it. I want the six pack absin 12
15:38
months, six months so there aren't dates and it doesn't tell
15:42
us what our resources are currently.
15:46
So it's it's like saying X + y + Z = 100.
15:51
What is Z like? Can't answer that.
15:53
I have too many undefined variables.
15:56
So the vision board has a bunch of undefined variables.
16:00
It's sort of the equivalent of do you have a vacation
16:03
destination you really want to go on?
16:06
I still owe my wife a trip to Paris.
16:09
OK, so you want to go to Paris and be like you, you put that
16:13
into Google Maps or you put it into Expedia, probably going to
16:17
fly to get there, but you put it in and you don't put a date to
16:22
when you want to get there. You don't put a method of
16:25
transportation in and you're just like calculate and tell me
16:29
how to make this a reality. It's like it can't Google Maps
16:32
if you put in a destination but you don't tell it your current
16:34
location and if you don't select I'm going to walk or I'm going
16:38
to drive or any, it can't. Calculate too many unknown
16:41
variables. Too many unknown variables.
16:43
That's the same thing that we're doing with what we want out of
16:46
life. We have all these unknown
16:48
variables and then we just default to maximizing or kind of
16:53
just a bunch of effort. We can't figure out the most
16:56
efficient path. I think there's some parallels
16:58
to what you mentioned your ad about maybe the way you work
17:01
with clients. Maybe we can connect the dots on
17:05
that in a moment. But once I have a solvable
17:08
problem, I know what I actually want.
17:10
I have the targets and dates, and I know my current resources,
17:14
then I can calculate the difference.
17:16
Hey, you want to have $15 million in the next five years?
17:20
You got 5 million. Now we can calculate how much
17:24
more you need to make per year to make that a reality.
17:27
Once you know how much more you need to make, now we can solve
17:31
for that through the context of the least amount of effort, the
17:35
least amount of risk, and the least amount of obligation.
17:39
Now, I don't say no effort, no risk, no obligations.
17:43
But part of the success in business and when you you study
17:48
these things in the extreme is that if we suck up all of our
17:53
bandwidth in these activities or things that we're doing, it
17:58
doesn't leave any space for the actual home run opportunities
18:02
that are going to fund our solvable problem overnight,
18:06
right? We don't have the bandwidth for
18:07
it. Some great opportunity comes up.
18:09
We can't invest in it. We don't have the bandwidth to
18:11
participate because we're redlining as it is.
18:15
So once we know the shortage and the timeline, then we can
18:19
actually start to solve for what is the most efficient path to do
18:22
that. A lot of times the most
18:25
efficient path is to recover resources.
18:27
So stop paying unnecessary taxes that you can legally avoid.
18:31
Stop. You mentioned in your ad about
18:34
the $900 per employee. Maybe you can elaborate more on
18:40
that too. But it's hey, if I could recover
18:43
all these resources, that might be sufficient for me to now fund
18:47
the life that I want and the timeline that I want.
18:49
That's the actual starting point before we add more on top of
18:52
that. That's helpful.
18:56
And so you, you, that was a great description of sort of
18:59
this more holistic viewpoint and approach that you take.
19:02
And then are there actual, when you talk about tools, I sort of
19:06
envision like are there software tools especially like given
19:08
your, your background in IT and IS or are these are these more
19:13
like systems and processes and frameworks in which to think
19:16
about things? Yeah, so both.
19:18
So I I built a tool to help people calculate their solvable
19:23
problem and it's called the Certainty app.
19:25
It's only open for private clients right now, but it's
19:28
basically Agps for them to see how their decision making is
19:32
getting them closer or further away from that solvable problem.
19:37
With that, I've developed this proprietary algorithm that I
19:42
call readiness, and it looks at several different variabilities,
19:47
the volatility of your business, and gives you a score out of 100
19:51
to tell you how ready are you to actually take on more risk.
19:55
And when I say take on more risk, some of that might be a
19:58
new business endeavor. A part of taking on more risk is
20:02
can I take off the two weeks to go to Paris without my business
20:05
imploding? Am I actually ready to do that?
20:09
And so the conventional tools don't necessarily give you any
20:15
like a budget and a projection. Are not what's called a
20:20
preventative control in a small business.
20:23
So a budget does not prevent you from overspending.
20:27
In a publicly traded company, it would because the accounting
20:30
team develops the budget and then if you want to spend
20:34
against the budget, you submit a purchase order and they check
20:37
against it and they tell you proved or not, or they give you
20:41
a certain spending limit that's within that budget, right.
20:44
So that's actually preventing you from overspending.
20:47
But the typical small business owner doesn't have those systems
20:50
in place or the person managing their personal finances.
20:54
They find out after the fact. They spend and then later they
20:59
put it into Quicken or QuickBooks and they compare it
21:02
and they go, oh shoot, I overspent.
21:05
It's detective. It told you after the fact.
21:07
Now for a lot of the things you buy in a business, you can't
21:10
return it. You can't take it back to Target
21:12
or Amazon's too late. So we, the existence of a budget
21:18
or a forecast does not prevent you from performing better.
21:23
It might give you more awareness so that you're thinking about it
21:27
more regularly, but it's fragile.
21:29
It's a fragile structure. So we need different tools like
21:34
a readiness, like our solvable problem.
21:38
And I can give you a list of, you know, several, several other
21:41
types of tools that I've built as well on top of that if you
21:43
want. And these are all tools that are
21:45
available only to your clients, is that right?
21:49
Currently, yes. Yeah, OK.
21:51
Let's talk about one of the the tools that is freely available
21:55
to the public. We referenced it in the intro.
21:58
Tell us about the five wealth types and where people can go to
22:03
learn about their own wealth type.
22:05
Yeah. So the conventional finance and
22:08
recommendations will bucket you as someone you're a saver or a
22:12
spender. Have you heard that before?
22:15
And they'll have to say, well, you get married, one of you is a
22:17
saver and one of you is a spender.
22:19
And intuition tells you that that's the generalities are
22:26
often true, but also often wrong.
22:28
Because the person who's a saver might also be a spender on
22:31
something that they really like or their circumstances or
22:34
context that change their behavior back to this sort of
22:39
all or nothing type thinking that we're subject to So often.
22:44
My experience in serving the small business owners and kind
22:47
of doing the research is that there's five ways, five what I
22:52
call wealth types. There's the hustler, the
22:55
gambler, the optimizer, the saver, and the outsourcer.
23:02
And this is there's no right or wrong.
23:05
There's no judgment about what type you are.
23:08
In fact, I believe that we should play to our strengths,
23:11
but based off your wealth type will dictate a large degree
23:15
about how you're going to make financial based decisions and
23:18
where you might also blow yourself up.
23:21
And so there I built an assessment.
23:24
It takes about 5 minutes to answer these scenario based
23:28
questions on how you behaved in the past.
23:30
And then it gives you your wealth type and then it tells
23:32
you the five things tools that I would recommend that you
23:36
implement now so that you can both play into that, lean into
23:39
that style, but also not blow yourself up.
23:42
Which one of those do you fit most into?
23:45
So most people since I'm ACPA would assume I'm an optimizer,
23:48
but I'm a gambler. Is that right?
23:51
Yeah, that is surprising. That would have been the last
23:53
one I chose for you. Yeah.
23:56
So it's it is a blessed thing. Like I said, there's upsides and
24:01
downsides to both of these. So I have some of the things
24:04
that I've built knowing that I'm a gambler is how do I make sure
24:08
I'm only making bets where there's significantly more
24:10
upside than downside because I know I want to make bets.
24:13
Now, I don't actually gamble in a casino.
24:15
I don't sports bet, but I I believe that business is also
24:19
gambling. We make a ton of bets.
24:22
Now, if we left our day job and we told our family or
24:25
significant other we're going to become a professional gambler,
24:28
we get a bunch of scrutiny and are you OK?
24:32
So when you, yeah, go ahead, when you say you're a gambler,
24:36
yeah, you don't mean a gambler in the traditional sense.
24:39
You make calculated, you take calculated risks on yourself and
24:43
on your business. Yep, Yeah, The gambler, this
24:49
sort of wealth type is also prone to making bets that aren't
24:55
calculated, that it can be based off their intuition or they're
24:59
going to, they're going to follow their gut.
25:04
And so there's a blessing and a curse to that.
25:08
They may find themselves with a bunch of windfalls, but they may
25:12
also find themselves a financial ruin.
25:15
So they need to implement some structures to make sure they're
25:18
only making bets that are calculated and have significant
25:21
upside. Gotcha.
25:23
OK, Is is there anything more interesting to say about these
25:26
different wealth types before we move on?
25:28
Feels like there might might be some threads to pull at here.
25:32
I mean, I have, I have a lot of different directions I could
25:37
take that. But one thing I'll say is if you
25:39
understood your spouse or business partners wealth type,
25:45
that would significantly improve your communication.
25:48
I've done workshops where I take the whole audience through this
25:52
exercise and they take their wealth type and then we break
25:55
them off into groups based off their wealth.
25:57
And I give them a scenario and they share and it falls in line.
26:01
The hustlers always finish first and they got to let everyone
26:04
know that they finish first. They got to antagonize everyone
26:07
else. Like it follows this, but then
26:09
we ask people to reflect. It's like, well, my, I'm a
26:14
hustler. My business partners here,
26:17
they're an outsourcer. Those are the most, those are
26:21
two polar opposites. And so and I break down the what
26:25
the characteristics of each and they are OK, now I realize why
26:29
we have these conflicts because we're making decisions with a
26:34
totally different framework. And so here's how we can support
26:37
each other better. So it works well for business
26:40
partners and spouses to kind of understand how they make
26:42
financial based decisions. If you understood your clients,
26:47
your prospects wealth type, you now understand how to sell to
26:50
them differently, right? The way that the gamblers going
26:54
to buy versus a hustler is different than a saver.
26:58
So you can use it to sell to your prospects better.
27:01
You can use it to inform your marketing approach in a
27:05
different way. So there's a bunch of different
27:06
utilities. That's interesting.
27:09
Let's talk about that one for a second.
27:10
How would I go about putting a client or a prospect through
27:15
sort of this evaluation process to know how to better speak to
27:18
their their wealth type? Yeah, well, right now the whole
27:23
wealth type assessment is it's completely free.
27:26
Anyone can take it. Is go to wealthtype.com, they
27:29
click on the assessment button and so one could make that part
27:34
of their onboarding or hey, before we get on this sales
27:38
call, I'd like you to take this wealth type assessment and just
27:42
let me know what type you are. Eventually we may make this more
27:47
open source where someone could build it directly into their
27:51
kind of marketing funnel where they're not going to my
27:53
independent site. I've had a bunch of people
27:55
who've asked me about licensing it up to this point, but we're
27:58
not quite ready for that. So you can have them go through
28:01
that report back to you and then, you know, OK, they're,
28:04
they're hustlers. So they're going to want to,
28:06
they want to know how we're going to, they assume effort,
28:13
doubling down on their effort is the answer to solve a lot of
28:17
their problems. So how can I aid them in that?
28:21
If I give them a bunch of details and it sounds like a
28:26
bunch of work that's going to distract them from what they're
28:28
doing, they're probably not going to be interested.
28:32
You have to make it manageable. Dan, tell us, what is the
28:35
Augusta loophole? Why should people care about
28:37
that? Yeah, so the Augusta loophole
28:40
has been around for years and years, multiple decades.
28:43
And it basically says that you can rent your home to your, you
28:49
can rent your home out up to 14 days per year completely tax
28:52
free. It gets its name from Augusta,
28:54
GA, where the Masters golf tournament is really good
28:57
lobbying efforts by the folks there.
29:02
Huge population swell. People come in, they want to
29:05
rent out their home administratively burdensome to
29:08
have to try and track all of that for tax purposes.
29:12
So that's what created this structure.
29:15
Now the context for a business is that a business can rent
29:18
their home. You can rent your home to your
29:23
business up to 14 days per year for certain purposes like board
29:30
meetings as an example, certain calls with your clients, certain
29:33
events where you maybe you have staff or employees over and the
29:38
business is going to pay you rent.
29:39
Equal to what it would cost to rent a local conference room in
29:43
your area, which can range from 500 bucks to several $1000.
29:49
And so you can do that 14 times per year.
29:52
Business takes a tax deduction for the rent.
29:55
Let's say it's 20 grand business, it's a tax deduction
29:59
for 20 grand. That 20 grand went to you
30:02
personally so you paid yourself and that's non taxable.
30:06
So basically you got tax free. So let me play out a couple of
30:12
scenarios here. I did host a meeting at my
30:16
dining room table with some folks that came in town to talk
30:18
business. I've got later this summer.
30:22
That was that was one day that we did that.
30:24
I've got later this summer, like six or seven days where my kids
30:28
are done with summer camp and their school hasn't opened yet,
30:31
so I'm going to need to work from home.
30:34
Do both of those situations qualify for what you just
30:38
described? So the the business meetings
30:42
qualify, Working from home is kind of a separate part of the
30:49
tax code. So you can still claim the Home
30:51
Office and do the Augusta loophole.
30:53
So those days that you're working from home may be more of
30:55
the Home Office type scenario. The Augusta loophole is is for
31:04
events, board meetings, things like that, where you would
31:09
generally or be commonplace for a business to use a conference.
31:14
Got it. That's a helpful delineation
31:16
there. That's a, that's a fascinating
31:19
loophole to understand. Let let me ask you, Dan, what
31:21
are some of the most common mistakes that you see business
31:25
owners make as they come to you as a new client?
31:29
So the, the from on the financial side, the, the most
31:34
common thing I see from business owners is that they want to
31:36
divorce business decisions from financial decisions.
31:40
So it's like, hey, I want to hire you so you can take care of
31:44
all my financial problems because I don't, I just want to
31:47
grow the business. OK, well, that doesn't work
31:52
because every decision you make is a financial ramification.
31:56
So I can't just miraculously save you money on taxes or
32:02
improve your cash flow if we're not going to have an ongoing
32:05
conversation and you're going to be part of the process.
32:08
So that and it gets perpetuated where a lot of times people will
32:12
label themselves as a I'm a visionary and I need an
32:16
implementer. So I'm a visionary.
32:18
I just want to go do the big picture stuff and you take care
32:21
of everything else. But if you're, it's like the
32:24
equivalent would be I want you to give me a six pack because
32:29
you're a trainer and nutritionist, but I'm going to
32:33
eat and drink whatever I want. And I'm expecting that at the
32:38
end of these six months that because I hired you, I will have
32:41
a six pack, right? It's like, you know, if you're
32:44
going to be irresponsible with your and not exercise or
32:48
irresponsible with your diet, I can't help you get the outcome
32:53
that you want. So this sort of like I'm going
32:55
to go play business but not be responsible for the outcome
32:59
doesn't work. That's the number one thing.
33:02
Part of that, if I can give a second one if it's OK, is being
33:10
able to properly compare apples to apples.
33:14
So there's something called the mental accounting bias, and it
33:18
shows it by labeling things significantly impacts the way
33:22
that we make decisions, which is why simply separating your money
33:25
into different accounts, so you put money for investments in a
33:30
different account from money you have for taxes versus operating
33:33
expenses, why people will make better decisions.
33:36
It's just simply by labeling it allows you to see things more
33:40
clearly. So I will regularly have someone
33:43
come to me and, and we'll talk about tax planning and I'll say,
33:48
hey, I could, you know, from everything you've shared so far,
33:50
we can save you $100,000 a year. And they go, how much does that
33:56
cost, cost. Oh, wow, that seems really
34:01
expensive. Well, they're comparing us to
34:03
maybe the one off CPA firm or H&R Block.
34:07
OK, hold on real quick. You, you just told me you, you
34:14
have $1,000,000 a year business with 10% margin.
34:18
So 1010% of $1,000,000 and 100 grand.
34:22
I'm just making up numbers here. Just an illustrative.
34:26
How much would you pay to generate $1,000,000 guaranteed?
34:32
I could guarantee you I'm going to generate $1,000,000 for you
34:36
the next month. You can guarantee me $1,000,000
34:40
in revenue in the next month. Like I'd pay half $1,000,000
34:44
right to get that $1,000,000 in revenue for the 100,000 in
34:48
profit. So you'll pay a half $1,000,000
34:52
to get $1,000,000 in revenue. But if I tell you it's 10 grand
34:56
to generate a plan that guarantees you $100,000 in
34:59
savings, you know, like that seems like way too much.
35:04
Does that help them? Does that help them wrap their
35:06
head around it differently? It's a mixed bag on that, to be
35:10
honest with you. I have it depends on it's like
35:13
the anchoring bias, like how much are they?
35:15
But you're an accountant. Accountants cost this amount of
35:19
money like, well, I am doing something different than than
35:26
I'm a profit Center for you. I'm not preparing tax returns,
35:30
but it's sort of like I'm anchored to what this person
35:33
does. And that's different than
35:35
generating revenue. And I put a higher value on
35:38
revenue than cash flow. And that's why 82% of small
35:42
business owners fail. They fail or 82% of small
35:47
business owners fail because of cash flow problems.
35:51
They're not doing the proper comparison.
35:53
They're trying to divorce themselves from financial
35:55
decisions. And that's why small business
35:58
owners have seen a decrease in their net worth over the last
36:01
five years, rather than the increase in their net worth.
36:07
Ten What would be an example or two of some low hanging fruit?
36:12
If every business owner just did this one or two things, they'd
36:16
be in a better spot. Pretty.
36:17
Quickly, so I have a methodology we created called the four
36:20
levels of tax planning. The 1st 2 levels are what?
36:24
And you can't Google that and find anywhere else because we
36:26
made-up this. We created this methodology over
36:27
the last 15 years. Level 1 and level 2 are what I
36:32
consider to be low hanging fruit strategies.
36:35
Level one are things that you qualify for but someone didn't
36:38
tell you about it. Level 2 are small adjustments
36:41
that you can make to turn something that isn't currently a
36:44
deduction into a deduction. So Augusta Loophole is a perfect
36:48
example of a level 1 strategy, which is you're already using
36:52
your home for the central conferences.
36:55
You didn't know about it, so you weren't paying yourself that
36:58
rent. You're paying yourself probably
36:59
distributions. Let's reclassify those
37:02
distributions as rent. Now it's a tax deduction.
37:04
You still get the funds too. So we have about 30 or 40,
37:10
closer to 40 these days. Level 1, strategies of things
37:13
that people aren't aware of that they, they miss, miss out on
37:17
regularly. Level 2, again, low hanging
37:21
fruit. How do we turn things into a tax
37:24
deduction? Common one that's out there
37:26
these days is paying your kids. So kids cost money.
37:30
You don't get a tax deduction for all the sports and things
37:32
that you pay for. But there are legal ways that
37:35
you can put them on payroll. You pay them essentially $15,000
37:39
per year or less. That's going to be completely
37:42
tax free to them. You're going to say that your
37:45
tax rate may be up to 40% and the money that you pay to them
37:49
can be used to then pay for the expenses that you already have.
37:54
So that's that's an example, but there's other things like the
37:58
federal research and development tax credit, there's changing the
38:02
accounting method that you're using to either increase the
38:07
deductibility of things or defer revenue.
38:12
So there's another 20-30 kind of level 2 strategies.
38:16
That's before we get to Level 3, which are our home run
38:18
strategies. How do you reduce your taxes by
38:20
30 to 100%? Wow, that's fascinating.
38:24
And, and all of these strategies, these are the the
38:28
strategies and the steps that you take your clients.
38:30
Through. That's right.
38:31
Somebody, somebody signs up with you.
38:33
You kind of start at the top of the list and you start working
38:35
your way down. Exactly.
38:37
Yeah. So we're going to take all the
38:38
level one and level 2 strategies.
38:40
These are low hanging fruit. They're typically range from 60
38:44
to $100,000 in deductions, sometimes more than that.
38:47
That's so we take your income, we take that off the top.
38:51
Now we have a remainder, then we get into the home run
38:54
strategies. How can we reduce that the the
38:58
remainder of the way potentially with the ultimate focus on
39:03
showing you how to grow your net worth.
39:05
A lot of people are familiar with being an accredited
39:07
investor, but they're not familiar with the advantages of
39:10
being a qualified client or a qualified purchaser.
39:14
Those are SEC designations that are liquid net worth tied to and
39:19
that gives you access to different types of structured
39:22
investments that have more tax benefits.
39:26
That's the level 4 strategies. How do we make your future
39:28
income non taxable? Is there anybody else out there
39:34
who's listening to this that is just on the edge of their seat
39:37
dying to know what those Level 3 and level 4 tax strategies are,
39:42
knowing how to reduce your your taxes by 30 to 100%.
39:46
I mean, that's, that's, that's pretty intriguing.
39:49
Let me give you one if if we have time.
39:51
Sure, absolutely. So historically, foundations
39:58
forming a foundation doesn't make sense unless your net worth
40:01
is somewhere above 20 million and maybe even more than that.
40:04
But about 20 years ago, Google launched this program where they
40:13
give $10,000 a month grants to nonprofits.
40:17
And once you get approved by Google, as long as you stay in
40:22
compliance, you get those $10,000 a month in perpetuity.
40:28
This is like an ad credit, like a credit to apply towards
40:30
advertising. Yep.
40:31
Yeah. That's right.
40:33
And you can use those credits for fundraising for your
40:35
foundation or for educational purposes.
40:38
So, and most foundations, the way they work is when they
40:42
provide education is that they don't fulfill on those services,
40:46
right? They don't.
40:48
If you're up to something near and dear to my heart, a board
40:51
that my wife is on around infertility support, they give
40:56
out grants to folks in need of funds so they can go through the
41:01
infertility journey. But they're not doctors.
41:04
They're not giving the fertility treatment.
41:06
They're just giving the education and treatment.
41:07
They if you need help, they have vetted a bunch of preferred
41:12
providers that they would refer you to.
41:13
So there's a hand off. So you can do the same thing.
41:17
You can form a foundation, apply and get it approved.
41:21
So you're getting $10,000 a month in Google grants in
41:25
perpetuity. And you could provide, for
41:27
example, financial education to small business owners and that
41:32
found and give away free information, maybe give them
41:37
whatever it may be related that your core business provides.
41:41
So you're doing social good, you're helping provide the
41:43
education, all of that's being funded through again, these
41:49
Google grants. And then if somebody wants to
41:52
actually implement any of the information, then they get
41:54
handed off to your for profit business.
41:57
So essentially the Google grants funds the whole and then some,
42:03
the whole creation of this foundation.
42:06
And again, you can do some social good but also grow your
42:14
business simultaneously. What, what would be a specific?
42:18
Sorry, go ahead. Yeah.
42:19
Go ahead, I was. Just going to ask, what's a
42:21
specific example of maybe a a, a nonprofit that's set up that is
42:27
then funneling business to a for profit?
42:30
I'm kind of curious to see how those dots connect.
42:34
Well, if you think about like the Leukemia Lymphoma Society as
42:37
an example, they provide a lot of resources and education
42:40
around treatments and diagnosis. They're not the actual doctors
42:45
who would provide any of those treatments.
42:48
So they hand off, they provide all the education and support,
42:52
but they're going to connect you with doctors, which are for
42:56
profit businesses that fulfill on that.
42:59
Got you. That's helpful.
43:00
Kind of example of work, mainstream non profit.
43:05
Just to illustrate the point that you could.
43:10
For example, I have a client who is working with neurodivergent
43:15
kids. There's so much need to help
43:18
educate the parents on finding resources for kids who are
43:22
neurodivergent. So she does coaching and
43:26
one-on-one for profit business, but can also have a foundation
43:33
that provides the education and free resources to help these
43:38
parents and collect their e-mail address and give them the free
43:43
resources. Now if they want actual
43:45
one-on-one help, her for profit business would be the
43:49
recommendation to tend to those folks who want the one-on-one
43:57
so. That was helpful.
43:58
Thank you. So essentially the it's a home
44:01
run to me because you get $120,000 a year in Google Ads.
44:05
That more than funds the initial cost of to justify forming the
44:10
foundation and now you have a foundation where you're allowed
44:13
to. You can contribute to that
44:15
foundation and take contributions to a private
44:19
foundation that you control up to 30% of your income per year.
44:23
You can take as write offs and contributions to a charitable
44:28
foundation. Can this strategy be applied to
44:31
most businesses or is this somewhat limited in its scope?
44:36
Like, could you use it to help drive, you know, new awareness
44:40
and new business for for your own practice?
44:44
Yes, yeah, Financial education for small business owners.
44:48
I mean, there's a bunch of nonprofits, SCORE score.org is
44:52
an example where they provide resources to small business
44:54
owners for education. They're the ones who publish the
44:58
research. Around 82% of small business
45:00
owners failed due to cash flow issues.
45:05
So there's already some existing examples of nonprofit providing
45:10
small business resources. And so, you know, I could do the
45:15
same thing, for example, with wealth types.
45:17
It's free resource providing education, and I may move that
45:21
under a foundation. This is fascinating.
45:25
I've learned so many new new things here, new strategies to
45:28
think about. Dan, I want to make sure we get
45:31
some time to talk about your book, Rigging the Game.
45:35
You're a busy guy, lots of clients.
45:37
Why take the time to write a book?
45:39
What was the inspiration behind this?
45:41
Yeah, just a forcing function to get it out of my the concepts
45:45
out of my brain and onto paper in a way that that I could then
45:51
train my staff better and kind of get clients on board with how
45:56
we how we are tackling these issues with clients.
46:01
And I used my own principles I teach in the book to develop the
46:08
book. So I have a concept called micro
46:11
steps, basically this idea of risk wave.
46:14
So the tendency is just to go out and build something.
46:17
And then it's like if they if you build it, they will come.
46:20
But if you've been in small business for long enough, you
46:21
know that's not true. You can spend a lot of money and
46:24
they don't cut and they're like, where are they?
46:26
I was, I built it. Maybe I need to spend more.
46:32
So micro step is what's the smallest action you can take to
46:35
get data to inform your next decision?
46:37
So I took a step, said if I were to write this book, would anyone
46:42
be interested put people onto a list.
46:45
Now I know people vote with their money, so they might go on
46:48
a list, but it doesn't mean they're going to buy.
46:50
So I one of my other principles is set rules in advance.
46:53
So I said I need at least 100 people that say yes to this.
46:58
All right, I think he said I need 500 people who say yes and
47:01
go on the list and need 100 people who are going to
47:02
pre-order. If that happens then I'm going
47:06
to take the next step. Ultimately at the end of the day
47:11
I pre sold 5000 copies before I start writing the book and.
47:17
How'd you do it? Through that process of micro
47:20
steps and getting feedback and and then combining it with a
47:28
certification program and the the solvable problem app that I
47:32
kind of mentioned before. So essentially I combined the
47:35
book with the certification, a couple other things and the pre
47:40
sale of the book funded creating the app and creating the
47:43
certification program. That's pretty slick, Dan.
47:48
I'd like to shift gears here for a second.
47:50
And, you know, every entrepreneur in the course of
47:54
their career, they've had a personal challenge, a
47:58
professional challenge, something big that, you know,
48:00
really knocked them down. But coming through the other
48:03
side, there were some powerful lessons that were learned.
48:06
I'm curious to hear if you can think of any examples of of of a
48:10
life experience that you've been through like that.
48:14
Yeah, it's a great question. And I share these anecdotes of
48:17
these strategies and, and selling all those copies from
48:22
Rigging the Game and everything in that book.
48:26
And all those strategies come from me screwing something up,
48:30
getting punched in the face or feeling like I got punched in
48:32
the face and then having to reflect and go, well, how did I
48:36
how did that happen? So the book has these 12
48:41
principles. So there's at least 12 failures
48:44
just from the book that led to these principles.
48:46
But to give you an actual specific example, so years ago I
48:52
bought a smaller CPA firm practice and they were in the
48:58
same building in downtown Seattle.
49:00
They were like we're on floor 3, they're on floor 10.
49:03
And I bought this practice because he had a group of
49:07
clients that I had exposure to in the previous firm that I had
49:11
worked out. And, and so we work out all the
49:18
the deal and he's like, OK, I wanted this little transition
49:20
period. I'm going to be around for three
49:22
months or so. Can I have a little space in
49:25
your office just so I can put a couple of things and I'll have a
49:32
space. So if and when you need me to
49:34
meet clients, I'll be available. Sure, no problem.
49:37
Like I said, he's in the same building.
49:39
It's like I'm going to move a couple things in over the
49:42
weekend. I give him a key, I come in, he
49:46
now has brought in these huge bookcases, sofa, massive desk.
49:52
It looks like an office from like the 60s or 70s, big old
49:58
desks, like complete opposite. And it was, he put it in the
50:01
corner conference room. So now he has the big corner
50:05
office like three times the size of my space.
50:08
He's filled this entire thing and he has message to all of the
50:15
clients that we've acquired that essentially like he merged with
50:23
our firm. So it kind of contradicted the
50:26
letter that we had sent out. So everybody had the impression
50:32
that he was the managing partner of this newly formed firm and he
50:40
had a just show up when you want to show up policy with his
50:43
clients. So for the next four months,
50:47
people are just showing up whenever like, Hey, where's my
50:50
tax return? I, you know, when I, whenever I
50:52
dropped off my stuff before you, he'd have it ready in three
50:55
days. I didn't know any of this.
51:00
So it came to a critical junction in my career where I, I
51:05
thought about giving up and how did I possibly end up in this
51:11
situation and ultimately had to kick him out of the office And
51:19
on his way out, he's like, well, you bought my firm.
51:22
So you bought everything. All that stuff in the corner
51:24
office is, you know, your, it's like, well, actually in the
51:28
agreement, I just bought your clients.
51:30
I didn't buy the entire tax code from 1983.
51:34
I don't even know why you still own that in paper form.
51:36
Like it's 40, almost 40 years stale.
51:40
So a lot of lessons on deal structure, on setting
51:47
boundaries, on realizing how much of A people pleaser I was.
51:51
It was a kind of period of self crisis and a lot of, again,
52:00
unlearning that I had to go through and not repeat that.
52:02
And it was probably a difficult conversation to eventually have
52:05
with him to say, hey, this, this is it.
52:07
You got to go like you got to, you got to get out of here.
52:11
It got to one of those points where you put yourself in a
52:14
position where you feel like a victim for long enough or you've
52:16
been people pleasing where it turns to anger.
52:21
So instead of having a productive, healthy conversation
52:24
around boundaries and and reassessing that I needed to
52:28
have the day I came in and he had the corner office.
52:31
Instead, it was a more of a you got to get out of here right
52:35
now. I'm tired of this.
52:37
You'd reached a breaking point at that.
52:39
At that point, the the months of suffering had been enough and it
52:43
was it was just the natural conversation to.
52:45
Have exactly yes, it's like anytime you leave that critical
52:48
conversation and you put it off for too long and then it then
52:52
you then you have a meltdown and you you overreact when in
52:58
reality is because you put it off for way too long.
53:02
So it did expose all of these people pleasing nice guy
53:07
tendencies that I've had to had to work on.
53:12
Dan, I've just got one more question for you, but before I
53:15
ask it, I want to do 2 things. If you're listening today and
53:18
you like today's content, please hit the subscribe, like or share
53:21
button on your favorite podcast app.
53:24
Dan, I want to tell people how to get in touch with you.
53:26
What's the best way to make that happen?
53:28
Yeah, 22 paths. One, you can go to
53:30
nthdegreecpas.com and learn more about our CPA services or go to
53:37
wealthtype.com and take your free assessment and there's ways
53:41
that we can get in touch that way.
53:44
OK. Last question for you, Dan, how
53:46
do you see your industry, the space that you operate in
53:48
evolving in the next five years? What do you think the big
53:51
changes are that are coming? So 75% of Cpas have hit
53:55
retirement age. That happened a couple years
53:59
ago. Accounting enrollment depending
54:03
on the program is down 30 to 50% and enrollment in the CPA exam
54:08
is down 20 to 30% and first time pass rates are down two to three
54:14
percentage points, which is another roughly 20%.
54:17
First time pass rate has historically been 12%.
54:20
So we are at a kind of critical, critical junction as a
54:24
profession at Cpas around the staffing shortage.
54:29
And that as a profession, young people don't want to join the
54:33
profession. So in some respects, AI and and
54:42
machine learning and some of those automations come for us at
54:45
a really important time because staffing shortages we're going
54:50
to have to really get have a, as a profession, a heart to heart
54:57
around how we treat people in terms of the industry is pretty
55:03
known for long hours staff feeling unappreciated by
55:07
clients. There's a lot of kind of
55:11
systemic issues that have to be addressed and there aren't a lot
55:17
of easy answers to it because it's gone on for so long.
55:22
But one of the reasons why our our vision as a as a firm is to
55:29
redefine the accounting industry and a lot of why we lead with
55:34
planning and why we've developed some of these other tools is
55:38
because of the trends in our industry and that we're going to
55:43
have to rely on being able to work with clients without
55:47
necessarily having everyone be ACPA.
55:52
Dan, I want to be the first one to thank you for sharing both
55:55
your time and your story with us today.
55:58
I really appreciate it. Yeah, my pleasure.
56:00
Yeah. And thanks for putting up with
56:01
me all the the tech challenges I had before this that the
56:04
audience didn't see. So thanks for letting me go from
56:07
my my webcam in my office instead of my normal setup.
56:12
I appreciate it. As far as we're concerned,
56:14
nothing ever happened. Well, folks, that's a wrap on
56:18
another episode of the Inspired Stories podcast.
56:21
Thanks for learning with us today.