The First Step to Scaling (A Financial Reset for Small Business Owners) with Leah McCool | 319

WEBVTT
00:00:11.627 --> 00:00:17.146
Welcome back to Making Good, the podcast here to help you do better marketing so you can make a bigger impact.
00:00:17.446 --> 00:00:21.736
I'm your host, Lauren Tilden, and this is episode 319.
00:00:22.336 --> 00:00:23.657
Here is some tough love.
00:00:23.806 --> 00:00:29.356
You can't build a sustainable business, one that supports the life you want to live and gives you peace of mind.
00:00:29.646 --> 00:00:44.106
Without understanding your numbers, and I know that can feel overwhelming, trust me, this is somewhere I have found myself far too often, overwhelmed by my numbers, but today's guest is going to make it feel doable, practical, and honestly kind of empowering.
00:00:44.676 --> 00:00:46.567
My guest today is Leah McCool.
00:00:46.756 --> 00:00:52.487
Leah is the owner of Orca Accounting where she provides done for you bookkeeping and accounting for small business owners.
00:00:52.906 --> 00:00:58.786
What makes Leah different is that she deeply cares about the emotional side of managing money as an entrepreneur.
00:00:59.176 --> 00:01:06.557
She has created a judgment free supportive approach that makes the language of business feel accessible instead of intimidating.
00:01:06.986 --> 00:01:15.807
Her background includes helping in her dad's small business, working at a corporate accounting firm and in the startup world, all of which shaped how she serves her clients today.
00:01:16.466 --> 00:01:26.337
In this episode, we talked about why having clean, accurate books is the foundation for everything else in your business, especially if you want to scale the bookkeeping starter pack.
00:01:26.637 --> 00:01:30.897
How to set things up right from day one or get things in order if you've been winging it.
00:01:31.376 --> 00:01:35.216
The most common bookkeeping mistakes small business owners make and how to avoid them.
00:01:35.557 --> 00:01:42.846
How to decide whether to DIY, your bookkeeping or outsource it based on the time, cost, and complexity of your specific business.
00:01:43.387 --> 00:01:52.777
How to reframe bookkeeping as self-care instead of something scary or stressful and much, much more if you've been putting off getting your finances in order.
00:01:52.846 --> 00:01:59.477
If you've been avoiding your numbers or wondering if it's time to bring in professional help, this conversation is for you.
00:01:59.927 --> 00:02:07.917
Leah breaks down exactly what you need to know to build a solid financial foundation, whether you are DIYing your bookkeeping, or you're ready to hand it off.
00:02:08.276 --> 00:02:13.977
This is one of those unsexy but totally essential topics that can completely change how you run your business.
00:02:14.037 --> 00:02:19.567
And Leah makes it feel approachable, doable, and again, way less scary than you might expect.
00:02:20.046 --> 00:02:23.347
Even if bookkeeping has always felt confusing or intimidating.
00:02:23.407 --> 00:02:26.347
This conversation starts at square one and it builds from there.
00:02:26.953 --> 00:02:35.323
Now before we dive into my conversation with Leah, I wanna talk about a tool that makes working with a bookkeeper or managing your own books so much easier.
00:02:35.742 --> 00:02:41.173
I've been using Xero for my bookkeeping since day one of my business way back in 2017.
00:02:41.548 --> 00:02:46.978
I have done the bookkeeping myself, and I've outsourced it to a professional depending on the phase of my business.
00:02:47.057 --> 00:02:50.407
And one of the things I love most about Xero is how well it works.
00:02:50.407 --> 00:02:58.387
Whether you're doing bookkeeping yourself or working with a pro like Leah Xero is accounting software built for small business owners like us.
00:02:58.627 --> 00:03:02.497
If you're working with a bookkeeper, they can access your Xero account in real time.
00:03:02.551 --> 00:03:06.812
No more emailing files back and forth, or wondering if you're both looking at the same numbers.
00:03:07.231 --> 00:03:09.122
And if you're DIYing, your books.
00:03:09.361 --> 00:03:17.637
Xero makes it manageable with bank feeds that make reconciling transactions effortless, and a dashboard that shows you exactly where your business stands.
00:03:18.467 --> 00:03:29.687
What you'll hear in today's conversation is that getting your finances right is foundational to everything else in your business, and Xero is the tool that makes that actually achievable no matter which route you choose.
00:03:30.076 --> 00:03:35.866
I have recommended Xero for years, way before they reached out to sponsor this podcast for a reason.
00:03:36.294 --> 00:03:39.204
It is a simple, powerful tool that grows with you.
00:03:39.503 --> 00:03:45.593
Whether you're just starting out or you're ready to scale, it adapts to where you are and supports you in getting where you want to go.
00:03:46.104 --> 00:03:56.604
Check out makinggoodpodcast.com/xero to learn more, and the offer at the time of making this podcast episode is 90% off for six months using that link.
00:03:56.633 --> 00:03:59.813
So again, that's makinggoodpodcast.com/xero.
00:04:00.153 --> 00:04:01.443
XERO.
00:04:01.864 --> 00:04:04.623
Huge thanks to Xero for supporting this podcast.
00:04:04.683 --> 00:04:07.264
And now let's get into my conversation with Leah.
00:04:08.862 --> 00:04:09.552
Hi Leah.
00:04:09.552 --> 00:04:10.752
Welcome to Making Good.
00:04:11.022 --> 00:04:12.853
Thank you so much for having me, Lauren.
00:04:12.853 --> 00:04:13.902
I'm so excited to be here.
00:04:14.549 --> 00:04:16.949
This is going to be such a good episode.
00:04:16.949 --> 00:04:18.358
It's so perfect.
00:04:18.358 --> 00:04:23.338
I think in terms of timing, it's gonna be coming out toward the end of 2025.
00:04:23.338 --> 00:04:30.538
So a really good and important time for people to be thinking about finances and accounting and bookkeeping.
00:04:30.538 --> 00:04:31.918
Topics that I know aren't.
00:04:32.473 --> 00:04:35.413
Hugely sexy to a lot of small business owners listening.
00:04:35.413 --> 00:04:37.454
But I hope that we make our case.
00:04:37.454 --> 00:04:40.033
I know we're gonna make our case today of how important they are.
00:04:40.644 --> 00:04:59.394
I wanna start with sort of your philosophy around finances and bookkeeping and the work that you do, which is around creating a judgment-free, supportive, and warm experience, which I think is so in contrast to how many people feel and experience finances.
00:04:59.394 --> 00:05:01.283
So why is that so important?
00:05:01.283 --> 00:05:02.663
Why is that part of your approach?
00:05:02.663 --> 00:05:06.384
Tell me about how that sort of philosophy came to underline the work that you do.
00:05:07.403 --> 00:05:09.473
So I think you're absolutely right.
00:05:09.473 --> 00:05:15.204
I think it's so in contrast to how a lot of people approach, or at least their relationship with.
00:05:15.978 --> 00:05:18.139
Their finance professionals that they work with.
00:05:18.619 --> 00:05:31.728
I think from my personal experience just working in the corporate finance space, I was often met with sometimes a less than warm experience when it came to just being in a corporate setting.
00:05:32.088 --> 00:05:42.259
And I also think that just generally it's stereotypically sort of judgey like you feel even if they aren't intending to be judgemental, you feel a little judged for maybe not knowing.
00:05:42.684 --> 00:05:47.574
Exactly what they are trying to communicate to you and what their expertise is in.
00:05:47.574 --> 00:05:56.723
And so I have always operated under with the, just with the philosophy of I wanna leave people in a better place than when I found them.
00:05:57.204 --> 00:06:04.043
Not saying I'm going to drastically change their entire life, like saving their life, but I definitely, even if it's just.
00:06:04.374 --> 00:06:11.033
Giving them a smile or making them feel in some way that they are welcome and they belong here.
00:06:11.363 --> 00:06:20.303
That's really how I approach doing my business and offering just accounting support and working with small business business owners in this space.
00:06:20.353 --> 00:06:31.894
Yeah, and I think just the experience of trying to handle your finances from a place of like warmth and no stupid questions and This can be fun.
00:06:31.894 --> 00:06:41.343
Even like that experience and approach is so different and will probably make people more likely to actually be interested in learning about it and spending time on it.
00:06:41.343 --> 00:06:49.334
So I think, yeah, it makes you feel better, but it also probably makes you more likely to actually wanna spend time with your numbers and all of that stuff.
00:06:50.384 --> 00:06:57.134
I want this to be, or at least this section of the episode, I want it to be a little bit of like a bookkeeping slash accounting 1 0 1.
00:06:57.314 --> 00:06:58.124
So let's.
00:06:58.798 --> 00:06:59.879
Go back to basics.
00:07:00.358 --> 00:07:02.038
What is bookkeeping?
00:07:02.639 --> 00:07:04.769
What are the main pieces of bookkeeping?
00:07:05.759 --> 00:07:07.798
What does it mean to do your bookkeeping?
00:07:08.699 --> 00:07:13.619
And then I guess a second additional question there is like bookkeeping and accounting.
00:07:13.619 --> 00:07:15.358
Like what are the differences between those two?
00:07:15.358 --> 00:07:17.848
Let's start with bookkeeping versus accounting.
00:07:17.939 --> 00:07:19.408
Let's distinguish the difference there.
00:07:19.769 --> 00:07:21.209
And then what is bookkeeping?
00:07:21.269 --> 00:07:22.408
What are the main elements?
00:07:22.408 --> 00:07:24.269
What does doing your bookkeeping actually mean?
00:07:24.538 --> 00:07:32.038
Yeah, so the terms, bookkeeping and accounting, a lot of people will tell you are interchangeable, and I think to a degree they're right.
00:07:32.488 --> 00:07:41.668
However, how I consider bookkeeping and accounting are typically bookkeeping is just the core sort of data entry.
00:07:41.728 --> 00:07:51.478
Making sure that everything is reconciled, just making sure that your business's books are at least all the data that has happened is there.
00:07:51.538 --> 00:07:58.108
And accounting in my mind, also plays into the strategy bit of it that can be.
00:07:58.798 --> 00:08:15.278
Implemented once the bookkeeping is done in the accounting industry, that is also how it is termed as well, where bookkeeping is kind of for, like I said, the data, the minimal data entry accounting plays into more strategy that also can include.
00:08:15.684 --> 00:08:22.314
Tax and any sort of tax strategy that you are hoping to implement for your business or your personal life.
00:08:22.704 --> 00:08:22.994
Okay.
00:08:23.153 --> 00:08:23.303
yeah.
00:08:23.389 --> 00:08:23.689
Got it.
00:08:24.033 --> 00:08:39.333
But then when it comes to bookkeeping, so really what bookkeeping is, is the process of recording and categorizing financial transactions for a company, and the goal is completeness, accuracy, and timeliness.
00:08:39.394 --> 00:08:39.754
So.
00:08:40.474 --> 00:08:50.583
always say that every company has an accounting department, no matter how big or how small, it just matters for, if you are a small business, then you might be your business's accounting department, or
00:08:50.813 --> 00:08:51.234
Mm-hmm.
00:08:51.394 --> 00:09:00.724
one other person that helps you out, but it's just the smaller your businesses, the smaller your accounting department is, and, but the processes are generally the same.
00:09:00.933 --> 00:09:02.778
And so what this is, is.
00:09:03.693 --> 00:09:05.193
Categorizing transactions.
00:09:05.193 --> 00:09:06.124
I'll kinda give you a list.
00:09:06.124 --> 00:09:17.943
So, categorizing transactions, maintaining receipts and documentation, bank reconciliations, making any adjusting journal entries, reconciling any other balance sheet accounts that are on your balance sheet.
00:09:17.943 --> 00:09:26.293
So like loans, credit cards, inventory, maintaining any sort of, other documentation related to vendors like w nines.
00:09:27.014 --> 00:09:32.198
Preparing financial statements and then also reviewing financial statements for management decisions.
00:09:33.739 --> 00:09:34.028
Okay.
00:09:35.323 --> 00:09:36.854
Most of that's pretty clear to me.
00:09:36.884 --> 00:09:45.844
Reconciling, I know what this means, but I feel like it's a bit of a, big word for people who aren't, you know, in here, don't have a background in, in finances.
00:09:45.844 --> 00:09:47.884
So what exactly is reconciling.
00:09:48.583 --> 00:10:03.458
S So reconciling it is such a big term that some, a lot of times it's easy to gloss over, but with reconciling, essentially what you are doing is you are making sure that you are accounting for every transaction that has happened on.
00:10:03.788 --> 00:10:05.318
A bank statement, for example.
00:10:05.318 --> 00:10:08.168
So you have your starting statement balance.
00:10:08.168 --> 00:10:15.308
You have your ending balance, and then there's everything that happens in between, like the credits, the debits, maybe you've paid checks.
00:10:15.609 --> 00:10:21.668
You are making sure that all of that information is accounted for in an accounting software in spread.
00:10:22.479 --> 00:10:31.719
It's categorized to the correct account within your chart of accounts accounting software to make sure that it's going in the right place in your financial statements.
00:10:31.719 --> 00:10:42.219
But really what you're trying to do is just make sure your ending balance is matching up with what your statement is saying so that you know that you've covered everything that has happened in that period.
00:10:44.428 --> 00:10:45.149
Excellent.
00:10:45.389 --> 00:10:47.308
And you mentioned accounting software a little bit.
00:10:47.568 --> 00:10:50.389
I mentioned at the top of the episode that this episode is
00:10:50.389 --> 00:10:51.979
actually sponsored by Xero, but
00:10:52.028 --> 00:10:59.408
it's funny how that came to be because Leah had already been in the works and we've been planning this interview for, for months now, actually.
00:10:59.408 --> 00:10:59.798
So,
00:11:00.168 --> 00:11:02.418
I know that Xero is one of the tools
00:11:02.418 --> 00:11:03.168
you use.
00:11:03.769 --> 00:11:06.979
What are bookkeeping softwares for?
00:11:06.979 --> 00:11:10.639
Obviously this, this all could be done by hand in a spreadsheet.
00:11:10.639 --> 00:11:11.239
That's how it.
00:11:11.658 --> 00:11:16.818
Was done back in the day, but most people now use some kind of tool for their bookkeeping.
00:11:16.818 --> 00:11:19.278
So what is, what is a bookkeeping software?
00:11:19.278 --> 00:11:20.058
How does it help you?
00:11:20.754 --> 00:11:21.274
Absolutely.
00:11:21.274 --> 00:11:37.234
So the goal of a bookkeeping software is organization and automation to, to, long story short, think in general, like you said, this could all be done on paper and essentially the effect at the end of the day would be the same, but the entire.
00:11:37.578 --> 00:12:00.859
Motivation that a lot of people do use accounting softwares for is just to have some place to be able to access your financial data and do the bank reconciliations within this software and be able to automate any sort of invoicing and bill payments, or just preparing the financial statements instead of trying to piece all these pieces together within Excel.
00:12:01.563 --> 00:12:04.053
You don't know how to put together them already.
00:12:04.443 --> 00:12:10.504
This software is essentially just a shortcut and a living space for all of this.
00:12:11.778 --> 00:12:17.719
Accounting information that your business really can just use as a foundation as you grow.
00:12:18.058 --> 00:12:18.538
That being
00:12:18.813 --> 00:12:19.303
Awesome.
00:12:19.739 --> 00:12:34.558
many people do use spreadsheets, but I am so partial to using accounting software and then Xero itself because it makes life so much easier and for the time spent that you would need to on spreadsheets and doing it manually.
00:12:35.668 --> 00:12:36.239
the minimum
00:12:36.239 --> 00:12:39.119
subscription cost for Xero honestly makes it so
00:12:39.119 --> 00:12:40.769
worth it, and I would never question it.
00:12:40.769 --> 00:12:44.038
It's, it's just one of those expenses that it's just a no brainer.
00:12:45.058 --> 00:12:45.479
Yeah.
00:12:45.778 --> 00:12:46.288
Love it.
00:12:47.068 --> 00:12:51.658
Let's talk about, some of you mentioned reporting and running different statements.
00:12:51.999 --> 00:12:55.599
Some key financial statements that I know you recommend.
00:12:55.599 --> 00:13:00.999
We are keeping our eyes on things like profit and loss, a balance sheet and a cash flow statement.
00:13:01.359 --> 00:13:10.208
So can you briefly tell us about each of those and what each one says about our business or why it's relevant to kind of keep an eye on these?
00:13:10.599 --> 00:13:11.259
Absolutely.
00:13:11.259 --> 00:13:16.328
So I'm big on analogies and so I will say this with relation to
00:13:16.403 --> 00:13:16.813
Love it.
00:13:17.798 --> 00:13:21.099
relation to kind of a high school, uh, period of time.
00:13:21.099 --> 00:13:22.688
So high level.
00:13:23.063 --> 00:13:40.703
A profit and loss shows revenue minus expenses, and you end with your net income, which is everything that's left over, or your net loss, which is what you've lost How this relates to a high school situation is perhaps a report card showing how you've performed over a semester.
00:13:40.854 --> 00:13:49.524
And so for this specific class, this is the grade that you got based on your attendance, based on the assignments that you turned in and just your overall effort.
00:13:49.884 --> 00:13:51.624
So with the balance.
00:13:52.538 --> 00:13:58.149
is saying at a point in time, this is how, what your position is and how, what your performance is.
00:13:58.149 --> 00:14:06.129
So this shows your assets, which are what you own, your liabilities, which are what you owe, and your equity, which is everything that's left over.
00:14:06.489 --> 00:14:14.438
And how this relates to that same analogy is an, like a, a balance sheet could be seen as your college application.
00:14:14.469 --> 00:14:19.808
It's saying, okay, what is your GPA over these, you know, three to four years saying.
00:14:20.259 --> 00:14:24.499
What has everything that you have done in your high school career, whether that be.
00:14:25.808 --> 00:14:26.948
extracurriculars.
00:14:27.188 --> 00:14:33.788
How does this all present in A GPA that you are now presenting to the colleges that you're applying to?
00:14:33.879 --> 00:14:36.278
And it gives it in a specific moment in time.
00:14:36.278 --> 00:14:39.548
So it's not saying, okay, freshman to sophomore year, here's your GPA.
00:14:39.548 --> 00:14:43.089
It's saying, okay, junior year, when you're applying, here's your GPA.
00:14:43.119 --> 00:14:44.594
Here's kind of everything with your.
00:14:46.078 --> 00:14:46.859
that sort of thing.
00:14:48.028 --> 00:14:54.269
with the cashflow statement, um, this one, I'll digress a little bit from that analogy just'cause it doesn't match up exactly.
00:14:54.538 --> 00:15:01.109
But really what this is, is saying, okay, here is where your cashflow has been and where it is allocated to.
00:15:01.168 --> 00:15:09.568
And the three main sections of this statement are operating activities, investing activities, and financing activities.
00:15:10.823 --> 00:15:21.094
is day to day what you're spending money on, money coming in, money coming out related to any sort of sales or specific core business, like materials, costs, that sort of thing.
00:15:21.094 --> 00:15:23.254
Paying vendors, paying employees.
00:15:23.673 --> 00:15:35.974
Investing is if you buy a big new piece of equipment that helps you produce maybe the products that you're making in a more efficient way, but it's a significant upgrade, say like$2,500 or more.
00:15:36.274 --> 00:15:36.703
That's when it's.
00:15:37.249 --> 00:15:39.349
Considered part of this section.
00:15:39.798 --> 00:15:43.308
And then financing is anything to do with debt payments.
00:15:43.308 --> 00:16:01.879
If you're taking owner's draws or contributions you're making to your company, that's where this sort of cashflow lives because it's not really operating because it's related to debt, but then also it's still needs to be captured in a place where it shows, okay, this is where you're investing in the financing part of your business.
00:16:03.514 --> 00:16:03.933
Got it.
00:16:04.173 --> 00:16:05.964
Love that analogy.
00:16:06.563 --> 00:16:22.193
So we've so far been talking about a lot of the sort of bookkeeping basics and reports and different terms that may not sound that exciting to people listening, but I think when we can sort of draw the line of.
00:16:22.749 --> 00:16:28.509
Here's how your finances relate to actually your business achieving its goals.
00:16:28.509 --> 00:16:31.318
That's where people might start to get a little more interested.
00:16:31.708 --> 00:16:34.889
So how does bookkeeping relate to business goals and why?
00:16:34.948 --> 00:16:39.063
Why are they something that we should be, you know, reviewing these reports and paying attention to the numbers.
00:16:40.019 --> 00:16:42.658
On an ongoing basis versus just at the end of the year.
00:16:42.658 --> 00:16:45.359
And I just wanna raise my hand and say, I'm so guilty of this.
00:16:45.989 --> 00:16:50.399
This has been a real struggle of mine, is like actually paying attention to my numbers.
00:16:50.399 --> 00:16:54.658
I, it's very easy for me to ignore them all year until I absolutely have to.
00:16:54.658 --> 00:17:01.139
So, convince me and convince our listeners, like, why is this something to pay attention to on an ongoing basis?
00:17:01.139 --> 00:17:03.178
And how does it relate to achieving our goals?
00:17:03.568 --> 00:17:04.229
Absolutely.
00:17:04.229 --> 00:17:07.769
I love this question because I always love.
00:17:08.489 --> 00:17:16.048
When I am talking about any sort of complex accounting knowledge, and then peop, my clients will look at me and say, okay, what does that all mean
00:17:16.108 --> 00:17:16.709
So what?
00:17:16.828 --> 00:17:17.759
Yeah, like what?
00:17:17.788 --> 00:17:18.538
Why do we care?
00:17:19.199 --> 00:17:19.769
Mm-hmm.
00:17:19.979 --> 00:17:23.429
how I try and break it down is into two parts.
00:17:24.044 --> 00:17:27.794
And the first part is saying, how does it relate to our business goals?
00:17:28.003 --> 00:17:42.344
It relates to it because at the bare minimum, compliance is your first goal, and making sure that completeness and accuracy, making sure that you have the documentation related to your business all in one place.
00:17:42.703 --> 00:17:48.074
This is what really makes tax time and just decision making, that's your foundation.
00:17:48.344 --> 00:17:51.044
And just having that in place is.
00:17:51.419 --> 00:17:53.489
First of all, just such a stress reliever.
00:17:53.729 --> 00:18:03.269
But then second of all, you have it for the second part of this, which is the foundation for when you are actually setting goals and strategy based on what your current numbers are.
00:18:03.419 --> 00:18:07.409
And you can look forward and see, okay, what do I want my business to grow to?
00:18:07.439 --> 00:18:13.828
Where do I wanna be in at the end of the year, in a few months, in two years, in three years, in five years?
00:18:14.159 --> 00:18:15.838
And you can't have one without.
00:18:16.594 --> 00:18:18.814
you can't have the second one without the first part.
00:18:19.084 --> 00:18:29.644
And really it's, it's such a thing where when you sit down and you do it, and I'll talk about specific strategies on how I advise people to do it.
00:18:30.034 --> 00:18:41.104
If they have, if they're out of routine or they just need that support, then you can just make a routine for yourself, it helps you so much and it just helps you feel better about.
00:18:41.503 --> 00:18:44.834
Your numbers and you know where the pieces are.
00:18:45.163 --> 00:18:52.094
And so it's definitely something where I get excited about when it comes to both steps, but definitely it's, it takes the
00:18:52.138 --> 00:18:55.138
Just the peace of mind element for you is a big one.
00:18:55.499 --> 00:18:55.888
Yeah.
00:18:56.729 --> 00:19:02.519
Having worked with small business owners, what are some of the big mistakes that you see them making?
00:19:03.179 --> 00:19:12.449
I'm predicting that the one I just raised my hand for is probably one of them just kind of ignoring it all year until you absolutely have to get everything in order and then it's the mad scramble.
00:19:12.449 --> 00:19:16.288
But share some of the mistakes that you see small business owners making.
00:19:17.054 --> 00:19:30.763
I would definitely say that some of the things that I see are mixing business and personal expenses, and what I mean by this is just not having a separate business bank account or credit card account, and rather.
00:19:31.229 --> 00:19:50.348
On one day you buy groceries for your household, and then the second purchase on that is maybe you buy a bunch of materials and inventory and that by itself may seem in the moment easy to discern from, but then when you look back at an entire year, then it may be a little bit harder to.
00:19:51.253 --> 00:19:51.943
Piece together.
00:19:51.973 --> 00:19:54.673
Okay, I went to this store, what did I buy again?
00:19:54.703 --> 00:19:55.933
Okay, I need to go find the receipt.
00:19:55.933 --> 00:19:57.794
It just makes that process more difficult.
00:19:58.193 --> 00:20:02.663
I would say also just waiting until the end of the year, which is completely common.
00:20:02.663 --> 00:20:05.124
And so you're definitely not alone there.
00:20:05.124 --> 00:20:10.223
And so many business owners do this because it, it happens and it's natural.
00:20:10.523 --> 00:20:20.183
But I would say that with doing this, the potential for missed deductions and just having inaccurate data is more likely and.
00:20:20.574 --> 00:20:24.503
Having a more consistent schedule does give you that peace of mind, like I said.
00:20:24.503 --> 00:20:28.673
And it also helps ensure that you're getting all the deductions that you need in your business.
00:20:28.673 --> 00:20:35.513
And we know, more deductions mean, you know, a lower tax bill at the end of the year, and.
00:20:35.733 --> 00:20:39.243
Also just not keeping track of receipts, bills and invoices.
00:20:39.243 --> 00:20:41.673
A lot of times people will think, oh, okay, I bought this coffee.
00:20:41.673 --> 00:20:42.753
Do I really need to keep it?
00:20:43.114 --> 00:20:50.013
My answer is always err on the safe side and at the bare minimum, I say Put it in a shoebox and tuck it somewhere.
00:20:50.013 --> 00:20:59.433
But there are so many strategies where you can digitize it and keep it in a management software online and just makes it so much easier at the end of the year.
00:20:59.854 --> 00:21:00.604
And also.
00:21:01.778 --> 00:21:26.048
little nuanced one is when you have any sort of business loan, you are not recording the principal and interest payments in a separate line on your financial statements, it can look like your principal balance on your books is actually lower, and so making sure that you're breaking out, looking at the statement and just making sure that you're recording that as it should be between those two items.
00:21:27.308 --> 00:21:27.818
Love it.
00:21:27.818 --> 00:21:33.548
I'm sure many folks are going to hear themselves in those mistakes and I think like, yes, they are mistakes.
00:21:33.548 --> 00:21:34.778
Let's try not to make them.
00:21:34.778 --> 00:21:40.239
But also just knowing that like if you are doing some of these things, you're probably in pretty good company.
00:21:40.584 --> 00:21:41.394
Absolutely.
00:21:41.818 --> 00:21:48.013
I wanna do a little tiny talk about special things for product-based businesses these days.
00:21:48.104 --> 00:21:50.354
Not all of my listeners are product-based businesses.
00:21:50.354 --> 00:21:55.784
In the early days, basically everyone was, and now it's closer to 50 50 or even less than that
00:21:55.919 --> 00:21:56.038
Oh
00:21:56.054 --> 00:21:57.193
are product-based businesses.
00:21:57.193 --> 00:22:02.199
So I don't wanna talk too much, but I know from having had two different types of businesses, a.
00:22:02.713 --> 00:22:14.534
A couple product based businesses and now pretty much almost exclusively an online business, that there's some extra things that are a bit of a pain in the butt, at least in my opinion, when you have a product based business to deal with.
00:22:14.804 --> 00:22:22.453
And that's mostly just around all of the physical stuff, like inventory goods that come with having a product based business.
00:22:22.618 --> 00:22:22.933
A hundred
00:22:22.993 --> 00:22:27.193
So let's talk a little bit about that, about managing inventory.
00:22:27.574 --> 00:22:29.523
What do you have to say to our product based businesses?
00:22:29.523 --> 00:22:30.634
What should they be thinking about?
00:22:31.669 --> 00:22:32.118
Absolutely.
00:22:32.118 --> 00:22:40.278
So I would say the first thing to think about with your products are, do you have an inventory system in place?
00:22:40.278 --> 00:22:49.608
And that doesn't necessarily need to be a separate software, but at the very minimum, are you keeping track of the products that you have in stock?
00:22:49.969 --> 00:22:51.318
Do they have.
00:22:51.378 --> 00:23:09.199
Separate identifiable numbers like it's called the term, it's called SKUs, and are you keeping account on a month to month basis or just on a yearly basis of items you have purchased, what the cost has been at that time.
00:23:09.409 --> 00:23:17.749
And then also making sure that you are doing a count to make sure that you are seeing what the influx versus outflux is.
00:23:19.308 --> 00:23:24.558
Really when it comes to how to reflect this on your financial statements.
00:23:25.278 --> 00:23:31.068
You wanna make sure that your cost of goods sold or cogs is being recorded accurately.
00:23:31.368 --> 00:23:41.778
And what this is, it's calculated in the way, and this what I had just mentioned previously about the counts and costs and everything that helps this equation in your financial statements.
00:23:42.169 --> 00:23:51.618
It is cost of goods sold equals the beginning inventory count, plus the purchases of inventory minus the ending balance of inventory.
00:23:52.429 --> 00:24:08.659
If you are taking a look at your, let's say like Etsy shop or something, if you have at the beginning of the year, 10 items and you're, and that's a really small amount, but just for clarity, 10 items, you purchase five, and then your ending balance is seven.
00:24:08.929 --> 00:24:21.169
The difference would be your cost of goods sold because then you would be able to see how much has been sold and therefore what the expense should be for those products that you have.
00:24:21.169 --> 00:24:21.679
Then.
00:24:22.098 --> 00:24:22.638
Sold.
00:24:22.638 --> 00:24:24.499
And so you're taking the selling price.
00:24:24.499 --> 00:24:25.729
Mice is the cost.
00:24:25.729 --> 00:24:29.028
It produces your gross profit, and that really helps you see.
00:24:29.689 --> 00:24:35.388
Then why you should care is how were these specific products profitable?
00:24:35.449 --> 00:24:40.848
How much do I have leftover after the cost it took to buy or make these products?
00:24:40.878 --> 00:24:49.759
And that can really help you understand now what's left over for other operations, marketing costs, anything else that is included in your business.
00:24:50.874 --> 00:25:05.933
Yeah, and I am really embarrassed to say that even as someone who like studied economics and considers myself very quantitative, I actually in the very beginning did not understand that there's a difference between cost of goods sold and an expense.
00:25:06.294 --> 00:25:10.973
And so can you just articulate that for anyone who may be kind of in the same.
00:25:11.403 --> 00:25:12.334
Territory is me.
00:25:12.334 --> 00:25:16.773
'cause these are treated very, very differently from like a financial and bookkeeping standpoint.
00:25:17.044 --> 00:25:20.854
So what is an expense versus a cost of goods sold?
00:25:21.199 --> 00:25:21.828
Absolutely.
00:25:21.828 --> 00:25:27.078
So how I'll define an expense as something that when you.
00:25:27.693 --> 00:25:37.473
For example, for a marketing expense, you are paying for it and it is recorded as an expense in the period that you paid for it with cost of goods sold.
00:25:37.564 --> 00:25:51.364
It is a very common practice actually, which is incorrect, to just expense any big purchase of materials or products that you are buying in the month that you have purchased them.
00:25:51.663 --> 00:25:57.153
But what this does is it misrepresents actually throughout the year what your total costs are.
00:25:58.324 --> 00:25:59.703
to a given month.
00:25:59.913 --> 00:26:05.253
So for example, if you buy a ton of inventory in the beginning of the year.
00:26:05.943 --> 00:26:08.013
then you don't buy any else for the rest of the year.
00:26:08.284 --> 00:26:14.134
Your actual profit margin on a monthly basis is going to look vastly different.
00:26:14.134 --> 00:26:22.413
You might show a huge loss in January, let's say, but then in February, March, April, may, because you haven't bought any more inventory,
00:26:22.413 --> 00:26:26.223
your cogs would be Xero, and it's just making
00:26:26.223 --> 00:26:27.423
you look more profitable.
00:26:27.483 --> 00:26:29.374
Profitable in the following months.
00:26:29.763 --> 00:26:35.953
Compared to what you actually are, cost of goods sold is saying in a given time period.
00:26:36.763 --> 00:26:53.084
With direct relation to what you have sold and what the selling price, what your total overall sales is here is what the cost of the goods you have sold are, and that should link up directly to the period that you have sold these products.
00:26:53.114 --> 00:27:02.054
And so therefore, in a given month, you're not just seeing, okay, here's what I purchased way back in January, but you're actually seeing here's what the cost was.
00:27:02.394 --> 00:27:05.334
For this month for the products that I've sold.
00:27:05.483 --> 00:27:17.844
And it gives you a cleaner picture of actually what your profitability is, and it looks less scary at the beginning of the year, and it, it just gives an overall clearer, more accurate picture of what your operations are doing.
00:27:19.723 --> 00:27:21.344
That's a great explanation.
00:27:21.703 --> 00:27:47.713
And I think from a standpoint of like, okay, I'm sitting in my accounting software going through items and trying to figure out what they are, it's just really important that if it's, I mean, correct me if I'm wrong, but if it's, it's important that when you look at something, if it's a material that is used to make your product that is allocated as cost of goods sold, if it's something that just is a cost of doing business, like paying for.
00:27:48.449 --> 00:28:10.278
Facebook ads or um, Google Drive or a networking dinner or whatever, if it's just an, an, an expense that isn't a material used to make your product, I guess it's, it's important that you're classifying these things correctly because that's gonna create, it's gonna result in these numbers that you're talking about when you're pulling reports and having that clear picture.
00:28:10.548 --> 00:28:11.419
Absolutely.
00:28:11.419 --> 00:28:13.848
And you said it way more concisely than I did.
00:28:13.848 --> 00:28:15.439
So that was, that was great.
00:28:16.203 --> 00:28:16.423
And
00:28:16.429 --> 00:28:16.939
No, no, no.
00:28:17.723 --> 00:28:18.144
and it
00:28:18.288 --> 00:28:21.618
Hard earned experience from like a lot of mistakes.
00:28:21.798 --> 00:28:27.439
When I was first setting up my bookkeeping, I kind, I had a little help, but I mean, I made every mistake you can make.
00:28:27.769 --> 00:28:36.019
So it's really, I mean, this would just be a plug, I guess for getting some support, at least when you set it up initially with like.
00:28:37.068 --> 00:28:40.189
The, the different accounts that you classify things at?
00:28:40.239 --> 00:28:55.689
If I could go back, I would just make, I, I'm not sure that everyone needs a bookkeeper day to day doing reconciling every transaction, but setting it up in the beginning, just getting the basics organized I think is, that would be a priceless thing to invest in some support with.
00:28:55.689 --> 00:28:59.528
Or if you've never done it and you feel like it's a mess, just having someone comment and kind of clean it up.
00:28:59.818 --> 00:29:00.749
Absolutely.
00:29:00.808 --> 00:29:08.038
I love, I love when people, kind of like you just said, they don't need the day to day, but having that.
00:29:09.229 --> 00:29:21.858
setup and just a little bit of guidance is priceless because then not only are you getting started, but you don't have to go through the overwhelm of, okay, I need to figure all of this out by myself.
00:29:22.098 --> 00:29:26.749
You have a clear first step, and then after that you're setup for success.
00:29:26.749 --> 00:29:27.933
So I completely agree.
00:29:29.433 --> 00:29:29.834
I love it.
00:29:30.773 --> 00:29:31.134
Something.
00:29:31.134 --> 00:29:41.903
Thing that you mentioned when we were kind of getting organized, leading up to this is viewing bookkeeping as self-care rather than punishment, which is such an interesting reframe.
00:29:42.354 --> 00:29:43.618
Can you just expand on that a little bit?
00:29:44.423 --> 00:30:01.493
Yeah, so I mentioned in the beginning, I came from a corporate career that I was very lucky with the coworkers I had, but I think that it generally is a little bit of an intimidating space, and so it's natural when you're getting started to think, okay, I have to.
00:30:02.243 --> 00:30:12.413
this caught up, or there's a lot of negativity around how you are talking to yourself surrounding your finances and whether you're procrastinated or that sort of thing.
00:30:12.413 --> 00:30:29.064
So really how I like to talk to people about this is you are just investing in a different part of your business, and it doesn't have to be a shameful thing because you are taking action now and with anything that you have maybe put off or.
00:30:29.398 --> 00:30:31.709
Just have, it's giving you anxiety.
00:30:31.979 --> 00:30:40.104
Oftentimes the solution is to just get started with that initial first step, and so I always like to tell people it doesn't have to be.
00:30:40.824 --> 00:30:46.614
This huge ordeal where you're gonna sit down and in two days you're gonna figure all of it out.
00:30:46.913 --> 00:30:55.374
It can be starting small with 15 minutes on the first day, and just really taking inventory of where am I at and where do I need to be?
00:30:55.733 --> 00:31:04.163
And I'm huge on just creating an environment where it feels fun to do and it feels relaxing and.
00:31:04.628 --> 00:31:06.278
Really going with that.
00:31:06.278 --> 00:31:10.749
I always make myself a big cup of tea whenever I'm sitting down to do my own books.
00:31:10.749 --> 00:31:12.909
It just, it's just a ritual at this point.
00:31:13.298 --> 00:31:20.358
But the more little things that you can do, like maybe lighting a candle or playing some music or I know people that even.
00:31:20.759 --> 00:31:23.669
Especially if they're neurodivergent and maybe have a DHD.
00:31:23.669 --> 00:31:32.669
Their brain actually works better if they have like the radio on or a podcast on in the background, and so they're not just focusing on the anxiety of the task.
00:31:32.729 --> 00:31:41.189
And so definitely something that I always love to just encourage people that it doesn't have to be super, super scary and overwhelming.
00:31:41.398 --> 00:31:42.479
Just take 15 minutes.
00:31:42.479 --> 00:31:47.159
Anybody can do anything for 15 minutes, and it's just, just about getting started.
00:31:48.604 --> 00:31:48.973
Yeah.
00:31:49.064 --> 00:31:53.834
I love that and I love the, the tips to sort of make a ritual out of it.
00:31:53.834 --> 00:31:53.923
Make.
00:31:55.568 --> 00:32:07.298
If you're not viewing the bookkeeping itself as a treat or something fun to do, like realizing you can sort of design the environment to make it more entertaining or enjoyable.
00:32:07.558 --> 00:32:10.318
Yeah, light a candle, have tea, go to a coffee shop.
00:32:10.318 --> 00:32:12.659
Like there's so many different ways that you could think about.
00:32:13.183 --> 00:32:14.894
Making it a treat for yourself.
00:32:15.463 --> 00:32:19.273
I think it was in the book, we Should All Be Millionaires by Rachel Rogers.
00:32:19.354 --> 00:32:31.144
I don't know if she calls it a money date or money church or something like that, but she recommends a similar thing where it's like once a month sit down, glass of wine, coffee, like whatever it is, it's a treat for you.
00:32:31.144 --> 00:32:38.284
And like really take some time with it and like make it, try to like rewire yourself to, to learn how to look forward to it instead of dread it.
00:32:38.284 --> 00:32:39.364
So I love that.
00:32:40.144 --> 00:32:44.733
Anything else you wanna say on like, just making bookkeeping feel less overwhelming, less stressful?
00:32:45.604 --> 00:33:06.723
I would say really some, just some other ideas that come with this kind of going off the previous suggestions were overall you are investing in the integrity of your business when you do your bookkeeping, and I don't mean for that to sound scary, but at the end of the day.
00:33:07.114 --> 00:33:07.173
No.
00:33:07.203 --> 00:33:08.854
No one is perfect.
00:33:08.943 --> 00:33:14.253
Even if you are a gigantic company, there are going to be some errors and so it's okay.
00:33:14.253 --> 00:33:22.384
The goal is not absolute perfection, but definitely the goal is making sure that you are investing in that.
00:33:23.074 --> 00:33:37.054
Those accurate numbers so that at the end of the day, not just for the IRS or the departments of revenue that your state has, but also so that you as a business owner can see those numbers and know that you can make decisions based off of them.
00:33:37.054 --> 00:33:51.094
And that really plays into that self-care piece where you're investing in your future future, you are investing in having reliable financials so that you can then use those for whatever way that you want to.
00:33:51.544 --> 00:33:52.114
And.
00:33:52.473 --> 00:33:55.834
Also just some other little practical ways and just other thoughts.
00:33:55.923 --> 00:33:57.903
I love using a planner.
00:33:57.903 --> 00:34:00.364
I am a self-proclaimed, I love paper planners.
00:34:00.364 --> 00:34:05.763
I love just setting things up so that I know and feel organized and I know what I'm doing.
00:34:05.854 --> 00:34:14.673
And so it can also happen with spreadsheets if you are having spreadsheets that you're doing your inventory on or that sort of thing, just making them cute.
00:34:14.673 --> 00:34:15.063
I don't know.
00:34:15.063 --> 00:34:20.373
I use a lot of colors and it's just so fun and it makes it feel just.
00:34:20.688 --> 00:34:36.318
If you're someone like me and I get very overstimulated sometimes when something's looking too just cold and boring, just make sure that you are making it feel enjoyable and it can apply to a spreadsheet as, as silly as that sounds, but anything that
00:34:36.409 --> 00:34:37.309
Totally agree.
00:34:37.639 --> 00:34:38.088
anything
00:34:38.239 --> 00:34:38.329
Mm-hmm.
00:34:38.478 --> 00:34:41.838
really get you to the point of, okay, I'm excited to look at this.
00:34:42.018 --> 00:34:47.748
That is something that really just listen to your intuition and see where you're feeling and kind of go with that.
00:34:48.958 --> 00:34:49.278
Yeah.
00:34:49.818 --> 00:34:56.443
I love that we talked a little bit about, maybe having someone come in and clean your books up for you.
00:34:56.474 --> 00:35:03.704
Let's have a bit of a bigger discussion around making the decision on who is going to do your bookkeeping and your accounting.
00:35:03.733 --> 00:35:04.603
Is it you?
00:35:04.903 --> 00:35:06.164
Are you gonna outsource it?
00:35:06.494 --> 00:35:08.438
How do you suggest people make this decision?
00:35:09.954 --> 00:35:29.773
Definitely considering a multitude of things, but at the very minimum I would say you consider the opportunity cost of your time and how to frame this as are you a cost saver where you are wanting to save on money?
00:35:29.773 --> 00:35:33.673
Maybe the budget is tight and you are actually wanting to.
00:35:34.034 --> 00:35:47.594
Spend your own time learning how to do it in the correct way, and that is completely normal for many small business owners who are starting out or have a lean startup and they wanna learn how to do it correctly.
00:35:47.594 --> 00:35:54.974
That's where something like a setup can be really helpful because not only are you not doing ongoing, but you have a good foundation and then you go from there.
00:35:56.083 --> 00:35:58.184
Off on the other side, there's the time saver.
00:35:58.184 --> 00:36:14.414
So that is when a business owner has gotten to the point where they are wanting to invest their own time in other areas, say that their hourly rate is higher than what it would cost to pay someone to do the books using the time that they would need to spend in order to do it right.
00:36:14.833 --> 00:36:21.793
And that's where they can then see, okay, is my time more valuable spending on the bookkeeping or is it more valuable?
00:36:22.003 --> 00:36:33.014
Investing in other opportunities and areas of my business that can potentially help me grow more in whether it's revenue, but then also just wanting to take time away from the business with this aspect.
00:36:33.414 --> 00:36:45.414
And really I think just a general, I know that I think in terms of numbers and just a ballpark of kind of what you can consider is when I, I'll typically see this with my clients.
00:36:45.728 --> 00:37:00.338
If they are making around a hundred thousand dollars or more a year in gross revenue for their business, that's a time where I typically see them starting to err on the side of, okay, I actually wanna spend my time elsewhere and not on the bookkeeping.
00:37:00.588 --> 00:37:04.369
That's not saying for everybody, but that's what the pattern that I've seen.
00:37:04.969 --> 00:37:10.489
And generally, if you are completely lost on the bookkeeping and you have no idea what you're doing.
00:37:11.518 --> 00:37:15.028
You just, you think that it's, you're doing things wrong.
00:37:15.329 --> 00:37:22.438
I would say that's also generally a time to start thinking about maybe just a cleanup, maybe just getting some training, doing your own research.
00:37:22.469 --> 00:37:27.298
Even just taking some courses out there to help your knowledge.
00:37:27.329 --> 00:37:34.259
That's when I would start to think, okay, are you currently at with your knowledge and how can you build upon this?
00:37:37.338 --> 00:37:37.429
Love.
00:37:39.199 --> 00:37:48.259
One thing I would add to that, just having had different types of businesses is I feel like different types of businesses have different bookkeeping complexities.
00:37:48.474 --> 00:37:48.693
Yes,
00:37:49.009 --> 00:37:51.349
So my online business is like.
00:37:51.963 --> 00:37:54.454
So easy to do my transactions.
00:37:54.454 --> 00:37:56.974
It's like all these different online subscriptions.
00:37:56.974 --> 00:37:59.943
I have my podcast tool, it's so easy.
00:37:59.943 --> 00:38:01.324
It takes me just a few minutes.
00:38:01.563 --> 00:38:05.454
When I owned a retail store it was so involved.
00:38:05.454 --> 00:38:06.954
It was so much inventory.
00:38:06.954 --> 00:38:15.054
It was so many transac, like individual transactions, you know, with a store being open all day, like there's so much more.
00:38:15.054 --> 00:38:16.884
And, and for me there was like.
00:38:17.213 --> 00:38:20.333
No way that I was gonna have the time to do it myself.
00:38:20.333 --> 00:38:24.414
So you might also just consider like, what does your business actually look like?
00:38:24.414 --> 00:38:36.764
Some types of businesses, the burden of doing the bookkeeping is just so high that like, I, I can't imagine it's a good fit for many people who own retail stores to do their own bookkeeping.
00:38:36.793 --> 00:38:37.963
Having had one myself.
00:38:37.963 --> 00:38:39.943
So just another thing to throw in there.
00:38:40.454 --> 00:38:42.614
What does it look like to work with a bookkeeper?
00:38:42.614 --> 00:38:45.793
So let's say you've decided, you know, I want my time back.
00:38:46.184 --> 00:38:48.014
I'm gonna hire someone to help me with this.
00:38:48.014 --> 00:38:52.449
What does that generally look like in terms of how you work together on that?
00:38:53.278 --> 00:39:00.478
Yeah, so really what it looks like is with the list that I read off earlier with what is included in bookkeeping.
00:39:00.478 --> 00:39:10.373
So just generally overall, making sure that your banks are reconciled, making sure that the receipts are on hand making journal entries to know that you are.
00:39:11.009 --> 00:39:26.188
Financials are organized correctly and preparing financial statements and also explaining and going over those, those financial statements, those are all pieces that working with a bookkeeper month to month can look like, or just in general quarterly cleanup.
00:39:26.429 --> 00:39:39.838
They're making sure that all of your financial information is organized in a way where based on the information that they have, they can get it all done for you so that you don't have to be involved in the day-to-day of it.
00:39:40.528 --> 00:39:50.639
always say that it's fantastic when a bookkeeper will sit down with you and explain the numbers and really make sure that they're addressing any questions that you have.
00:39:50.639 --> 00:40:04.588
Because as I've said before, a lot of this can be overwhelming and just overall, there's just a lot to look at, and when you have a place to start asking questions, then you have more.
00:40:05.384 --> 00:40:10.634
You have a better platform to then continue asking questions and getting to know your numbers a little bit more.
00:40:10.664 --> 00:40:20.443
And a bookkeeper can really help bridge the gap with that without just, and also just beyond doing the day to day of it and taking it off your plate.
00:40:22.373 --> 00:40:24.798
Love sounds great.
00:40:24.798 --> 00:40:32.688
I'm, I'm currently without a bookkeeper and I feel like I can handle it, but it was really nice to have someone helping with all this.
00:40:32.688 --> 00:40:41.028
It was, it was so good, so highly recommend for anyone who's in the position of being able to, and I want that time back like.
00:40:41.958 --> 00:40:45.378
It's a good early thing in your business to outsource.
00:40:45.378 --> 00:40:47.958
Like, as your business grows, you'll probably outsource more and more.
00:40:47.958 --> 00:40:50.809
And bookkeeping would be one of the things I'd do on the early end.
00:40:51.478 --> 00:40:53.998
Unless you just love it like some people do.
00:40:54.208 --> 00:40:55.139
Uh, not me.
00:40:55.809 --> 00:41:00.643
I wanna talk a little bit about finances and strategy as we start to start to wrap up a little bit.
00:41:01.704 --> 00:41:07.224
When we think about bookkeeping in particular, that's a lot of like tracking what's already happened in your business, right?
00:41:07.224 --> 00:41:12.534
Like, I spent this, I spent this, or this money came in and allocate, you know, getting that all tied up with a bow.
00:41:13.344 --> 00:41:24.324
But I know that the reports that you mentioned and just having this kind of clear financial picture, this can help us with decisions for moving forward and thinking ahead as well.
00:41:24.324 --> 00:41:25.134
So how do.
00:41:25.764 --> 00:41:35.483
How do we use our finances and our reports and what we know about what's happening financially to make decisions about the future of our businesses?
00:41:36.414 --> 00:41:50.543
I love this question and really I'll draw it back to how every business at the end of the day has an accounting department, and that also is true for every business has a finance department and in the corporate world typically.
00:41:51.023 --> 00:41:54.864
It's organized where you have the accounting section and the finance section.
00:41:54.893 --> 00:42:00.173
Accounting is everything historical, and then finance is everything future focused and.
00:42:00.954 --> 00:42:06.864
So once you have the bookkeeping, the accounting records solidified and that is all done.
00:42:06.864 --> 00:42:07.884
Everything's reconciled.
00:42:07.884 --> 00:42:15.534
Say you are so up to date and you have everything up to date on a month to month basis, that's when you can start to implement this sort of strategy.
00:42:15.534 --> 00:42:21.233
When it comes and the terms that come to mind are budgeting, forecasting, and projections.
00:42:21.563 --> 00:42:24.648
That is really saying, okay, you're able to look at the current.
00:42:25.043 --> 00:42:31.193
Spend the current earnings and assess what should I plan for?
00:42:31.193 --> 00:42:32.514
What should I budget for?
00:42:32.693 --> 00:42:37.853
Is this something where I can expect this performance over the next few months?
00:42:37.853 --> 00:42:39.114
Is there seasonality?
00:42:39.324 --> 00:42:46.614
You can make a budget to really know what you are to be earning and spending over a period of time.
00:42:47.574 --> 00:42:53.574
based on these numbers, once you have that budget in place, not only can it help with current spending and just making sure you're not.
00:42:54.039 --> 00:43:08.798
Over doing it in certain areas, can then implement forecasts where you're taking those budgets and saying, if I perform in this way over this month for the next few months, where will I be in?
00:43:09.744 --> 00:43:27.934
months from now, 10 months from now, and really use that data to understand and have a visual aspect of here's where I'll be, based on where I currently am, and really just help you make those decisions of what if I can increase my sales by 20%?
00:43:28.143 --> 00:43:34.264
This plays into the projection side of where you're playing with, okay, based on these variables, how can I alter?
00:43:35.028 --> 00:43:43.759
How much I'm expected to do, how can I implement these variables and play with these numbers a little bit to see if this happens?
00:43:43.759 --> 00:43:45.858
What if I increase my sales by this month?
00:43:45.858 --> 00:43:48.619
What if I implement cost savings by this percentage?
00:43:49.639 --> 00:43:55.668
really see where you want to be spending your energy on going forward.
00:43:55.728 --> 00:43:57.378
And this can be visualized as.
00:43:57.679 --> 00:44:03.739
If you are wanting to see a bigger increase in sales, maybe you just do a huge marketing push and really invest in that part.
00:44:04.009 --> 00:44:13.309
That's just a one example, but having that finance aspect can really get you excited about, okay, this is, these are the steps that I'm gonna take next, and here's how I'm gonna get there.
00:44:14.293 --> 00:44:15.278
I love that answer.
00:44:15.518 --> 00:44:21.463
One thing I used to do at the store is I would have a day by day.
00:44:21.824 --> 00:44:30.583
So in retail stores especially who sell gifts like November, December, are like you do 30% of your sales in those months.
00:44:31.094 --> 00:44:40.483
So I would have a day by day sales number from each of the past, like three years that I would be looking at side by side with like, okay, this day last year we did this much.
00:44:40.483 --> 00:44:45.914
And like that would help me figure out like how much inventory I needed and how much.
00:44:46.634 --> 00:44:50.143
I could expect to sell, and what the numbers might shape up to look like at the end of the year.
00:44:50.143 --> 00:44:52.844
So I think, yeah, numbers are powerful.
00:44:53.583 --> 00:44:58.534
What is one financial metric or number that you think every small business owner should be paying attention to?
00:44:59.403 --> 00:45:08.494
I would say at the end of the day, your net income, which sounds very straightforward, but I would really say that number is so.
00:45:08.824 --> 00:45:13.623
Instrumental to understanding if your business is growing or if it is shrinking.
00:45:13.963 --> 00:45:16.298
Will you define how to calculate that?
00:45:16.298 --> 00:45:17.018
Just really briefly?
00:45:17.018 --> 00:45:17.048
I.
00:45:17.393 --> 00:45:17.903
Yes.
00:45:17.934 --> 00:45:21.954
So net income is revenue minus expenses.
00:45:21.983 --> 00:45:29.123
And so when you're looking at your profit and loss, this is your bottom line number at the bottom of this statement, and this is saying.
00:45:29.588 --> 00:45:30.728
Is it positive?
00:45:30.789 --> 00:45:50.139
Do you have a profit that money can be reinvested into your company, whether it's, you know, carrying over to the next month, doing a marketing push, anything that you would want, or is it negative and you're actually spending more than you are earning, which can really just be, it doesn't even need to be a cause for concern.
00:45:50.168 --> 00:45:51.458
Like you said, with seasonality.
00:45:51.458 --> 00:45:58.539
I think there are swings and it really depends, but it can really give you insight into not only just trends, but also.
00:45:58.914 --> 00:46:02.784
A real time assessment of should I reduce my spending here?
00:46:02.784 --> 00:46:06.264
Are there any unnecessary expenses that I can cut out?
00:46:06.353 --> 00:46:26.603
And so really understanding your net income on a month to month basis will really help business owners understand exactly what their margin is of profitability and therefore be able to know where to put their energy on whether it's increasing sales, reducing expenses, really help them make those decisions.
00:46:28.458 --> 00:46:39.893
I love it if someone is listening and I imagine there will be more than a few who are like, okay, I am, I have a lot of work to do when it comes to getting all this cleaned up.
00:46:39.893 --> 00:46:44.364
I'm feeling overwhelmed or like, I know that things are a bit of a mess and.
00:46:45.173 --> 00:46:46.583
I need somewhere to start.
00:46:46.583 --> 00:46:56.454
What would you say would be the first thing that you would tell that person when it comes to starting to get to where we wanna be with, with our bookkeeping and our finances?
00:46:57.338 --> 00:47:00.188
I love this and I actually have.
00:47:00.619 --> 00:47:06.978
A term for this that I kind of just created and, and now reference when I talk to new business owners.
00:47:07.818 --> 00:47:11.929
was a term called a starter pack when back on social media back in the day.
00:47:11.929 --> 00:47:16.068
And it really was just saying it was a, it was a meme that showed a snapshot of an
00:47:16.244 --> 00:47:18.103
You can see like they don't fully
00:47:18.259 --> 00:47:19.789
of redefined this as in a
00:47:19.923 --> 00:47:20.594
understand.
00:47:20.778 --> 00:47:21.858
it's just the essentials.
00:47:21.858 --> 00:47:26.449
It's just the basics that you need in order to start understanding and implementing something.
00:47:26.929 --> 00:47:29.179
So really what this is, I would say.
00:47:30.083 --> 00:47:39.184
Start off, do you have a separate LLC set up or, and do you have an EIN will prompt you to be able to open a business bank account?
00:47:39.184 --> 00:47:46.293
And like I said, keeping business and personal separate is like one of the huge first steps that I would advise anybody take.
00:47:46.983 --> 00:47:49.923
would also say, what is your current accounting system?
00:47:50.728 --> 00:47:53.798
using a software like Xero or QuickBooks Online,
00:47:53.809 --> 00:47:59.958
or are you using spreadsheets or paper methods and really just assessing, okay, here's where I'm currently at.
00:48:00.438 --> 00:48:02.809
With the same thing with the document management system.
00:48:02.809 --> 00:48:07.128
Like for receipts, are you using a shoebox or are you recording them at all?
00:48:07.128 --> 00:48:08.239
Are you keeping them at all?
00:48:08.418 --> 00:48:18.318
There are other softwares out there like Hubdoc, which integrates with Xero, and then also just Google Drive is another option where you can just store them digitally so that they're not floating around.
00:48:19.278 --> 00:48:24.318
Additionally, having a spreadsheet software is such a good investment.
00:48:24.349 --> 00:48:24.829
I think.
00:48:25.639 --> 00:48:43.728
Microsoft Excel is maybe$15 a month, and when it comes to downloading reports from your bank or from any sort of other software that you are using to record sales, it makes it so simple to be able to utilize this or you can use Google Sheets and really having just somewhere where you.
00:48:44.193 --> 00:48:55.233
Record spreadsheet numbers and maintain that, and then also understanding what reconciling bank accounts means and how to do it within your software or within spreadsheets, whatever method you're using.
00:48:55.443 --> 00:49:07.893
Because at the end of the day, that is the first step that anyone will take when doing a cleanup or a catchup of your books, is really just making sure that you are reconciling the accounts that they're able to be reconciled.
00:49:08.184 --> 00:49:13.224
All the information is in there because that's the first step when it comes to creating your books.
00:49:13.284 --> 00:49:25.704
So that would be definitely the assessment of what I would take when just doing any sort of inquiry with a client or anyone that has questions about where should I even, like, what do I even start with?
00:49:25.733 --> 00:49:27.143
'cause there's so much out there.
00:49:27.443 --> 00:49:33.983
And definitely a good area where you could do a self-assessment and not even need to talk to someone.
00:49:34.043 --> 00:49:36.833
Uh, where it comes, when it comes to doing your bookkeeping.
00:49:38.509 --> 00:49:41.478
I will make sure we have the starter pack.
00:49:41.909 --> 00:49:47.668
We'll have it in the show notes, we'll have what you just described, and of course all the places you can find Leah as well.
00:49:48.159 --> 00:49:54.188
Leah, thank you so much for being so, um, open and generous with your knowledge.
00:49:54.878 --> 00:49:56.918
Let's start to wrap up.
00:49:56.918 --> 00:49:57.608
I want to.
00:49:58.023 --> 00:50:00.393
I wanted to ask you the questions I get to ask everyone.
00:50:00.634 --> 00:50:03.728
The first one is, how do you approach doing good through your small business?
00:50:04.974 --> 00:50:07.853
I, so I do this in two main ways.
00:50:07.853 --> 00:50:14.873
So at just from basically a numbers perspective, I make sure to donate 3% of my profits in my business.
00:50:15.188 --> 00:50:16.869
To local animal shelters.
00:50:16.869 --> 00:50:18.188
I'm a huge animal lover.
00:50:18.219 --> 00:50:26.588
I have three rescues, I donate 3% of my profits to both animal shelters and then also to local L-G-B-T-Q-I-A initiatives.
00:50:26.798 --> 00:50:34.869
That's really important to me because I believe that spreading any sort of profits that I have.
00:50:35.268 --> 00:50:38.748
And allocating some of those towards causes I truly believe in.
00:50:38.838 --> 00:50:45.978
I am hoping to build a world where I feel that I believe in, and that's definitely part of how I do that.
00:50:46.349 --> 00:50:59.608
Secondly, I also am part of a young professionals council here in my local city of Eugene, and that is just investing in the networking and connection opportunities among the young working people in Eugene.
00:50:59.938 --> 00:51:03.929
And it really is something that I'm passionate about and I love volunteering for because.
00:51:04.228 --> 00:51:13.134
As a young person in business, it sometimes can get a little lonely and just in business in general, it can get a little lonely, so I love helping promote that sort of resource.
00:51:14.724 --> 00:51:16.219
Okay, love, love, love.
00:51:16.789 --> 00:51:17.208
Um.
00:51:17.418 --> 00:51:20.298
What would be one book you would recommend?
00:51:21.063 --> 00:51:30.994
I would recommend to anyone who is either thinking of starting a business, who definitely might be using your podcast as just gathering knowledge and getting ready.
00:51:31.643 --> 00:51:34.884
I love the book Two Weeks Notice by Amy Porterfield.
00:51:34.943 --> 00:51:46.164
And what this is, is really just diving into all the conversations about starting a brand and doesn't actually dive too much into the accounting aspects of it, but maybe that's'cause I love it so much.
00:51:46.164 --> 00:51:56.574
I, I loved reading everything that had to do with creation and just really visualizing what type of business do you wanna start and create and run.
00:51:57.588 --> 00:51:58.068
Hmm.
00:51:58.159 --> 00:51:59.208
That's a good recommendation.
00:51:59.208 --> 00:52:05.568
I have not read it, but I've known of Amy Porterfield for so many years, so great recommendation.
00:52:06.108 --> 00:52:08.478
What would be one small business that you admire?
00:52:09.184 --> 00:52:17.673
So there is this small business in my hometown in Roseville, California, and it's this CPA firm actually, and I.
00:52:18.603 --> 00:52:19.443
this business.
00:52:19.443 --> 00:52:21.034
It's this one woman and she has
00:52:21.083 --> 00:52:21.204
I.
00:52:21.393 --> 00:52:27.304
employees, and really what her approach is, they're, they're very, very full of clients.
00:52:27.304 --> 00:52:31.353
And so every year they have new clients asking if they have room.
00:52:31.414 --> 00:52:39.574
And throughout the tax season, this is typical in tax season where you're kind of just hunkered down and clients will come in and oftentimes it's stressful.
00:52:39.574 --> 00:52:42.693
So sometimes people will be rude to one of the staff members.
00:52:43.083 --> 00:52:45.934
They keep this whiteboard in the back office.
00:52:45.934 --> 00:52:51.628
And they essentially keep a running tally of, okay, what did this client do?
00:52:51.628 --> 00:52:56.789
Something that essentially just pissed you off or made you feel uncomfortable.
00:52:56.909 --> 00:53:02.699
And then at the end of the year, because they are so full of work, they will go through as a team, all women.
00:53:03.289 --> 00:53:08.329
Making sure that they are assessing, are we happy with the people that we are doing business with?
00:53:08.539 --> 00:53:10.128
Do we need to make some clients go?
00:53:10.188 --> 00:53:22.789
And I just love that because I think it's such a solidarity thing across the whole office, no matter how much money they're bringing in, it just really speaks to, are we happy working with this person and do we need to continue it?
00:53:22.789 --> 00:53:23.478
And I think that that's
00:53:23.588 --> 00:53:23.809
Hmm.
00:53:24.228 --> 00:53:25.639
stance on doing business.
00:53:26.719 --> 00:53:29.329
It's like the opposite of desperation, you know?
00:53:29.329 --> 00:53:31.489
It's like we're not just gonna work with anyone.
00:53:31.548 --> 00:53:36.619
We're gonna work with people who treat us well to treat women well, who deserve to have a spot on the roster.
00:53:37.219 --> 00:53:37.759
Love it.
00:53:38.809 --> 00:53:41.148
Um, Leah, this has been so.
00:53:42.364 --> 00:53:43.264
Valuable.
00:53:43.264 --> 00:53:48.153
So action packed and we will make sure we have some good notes in the show notes.
00:53:48.153 --> 00:53:50.943
But also folks, go check out Leah.
00:53:50.974 --> 00:53:58.699
So Leah, tell everyone listening where they can find you, learn more about your work, potentially get in touch about working together, all those things.
00:53:59.403 --> 00:54:01.954
Yeah, so you can find me on my website.
00:54:01.954 --> 00:54:04.563
My business name is Orca Accounting, and that is.
00:54:04.983 --> 00:54:07.083
Orca accounting.com.
00:54:07.384 --> 00:54:11.673
You can also find me on Instagram at orca Accounting, all one word.
00:54:11.943 --> 00:54:20.059
And I am often trying to get better at LinkedIn, but I'm not gonna lie, I'm not very consistent, but to be determined on if I'm showing up there more often as well.
00:54:21.253 --> 00:54:23.208
Okay, we'll link it regardless.
00:54:23.688 --> 00:54:24.889
Leah, thank you so much.
00:54:24.889 --> 00:54:27.784
This has been awesome and super excited to share it with everyone.
00:54:28.088 --> 00:54:28.579
Awesome.
00:54:28.628 --> 00:54:29.858
Thank you so much for having me.
00:54:30.530 --> 00:54:35.601
I loved talking with Leah about all things, numbers, bookkeeping and finances.
00:54:35.931 --> 00:54:42.291
The big thing I know that I'll be taking away from this conversation is that our finances truly are the foundation for everything else.
00:54:42.590 --> 00:54:45.501
We can't make smart decisions about hiring, pricing, or scaling.
00:54:45.976 --> 00:54:47.626
Without understanding our numbers.
00:54:47.956 --> 00:54:50.266
The good news is that it doesn't have to be complicated.
00:54:50.356 --> 00:54:51.315
Start where you are.
00:54:51.315 --> 00:54:55.036
Use the right tools, and don't be afraid to ask for help when you need it.
00:54:55.485 --> 00:54:58.695
Be sure to go connect with Leah and check out that starter pack.
00:54:58.936 --> 00:55:06.746
You can find links to her website as well as everything else mentioned in this episode at makinggoodpodcast.com/319.
00:55:07.085 --> 00:55:10.505
If you enjoyed this episode, I would so love to have your support.
00:55:10.655 --> 00:55:16.905
Take a screenshot of your podcast player while you're listening and tag me on your Instagram stories@laurentilden.
00:55:17.286 --> 00:55:19.865
I would be so grateful and excited to connect with you.
00:55:20.556 --> 00:55:28.686
Thanks again to Xero for making this episode possible to learn more about how Xero can help you build that strong financial foundation for your business.
00:55:28.775 --> 00:55:31.626
Head to makinggoodpodcast.com/xero.
00:55:32.016 --> 00:55:33.155
XERO.
00:55:33.786 --> 00:55:37.715
Thank you for being here and for focusing on making a difference with your small business.
00:55:37.806 --> 00:55:38.976
I'll talk to you next time.