 So as I'm always open about my business I get a lot of questions about taxes and accounting and how we're set up So I figured I'd do this video so I can quickly respond to those questions with how we're set up and how we're structured as of May of 2018 which I don't forget what day it is doesn't matter May of 2018 and we've been this way Actually now this is our 15th year in business and this is the 15th year that we have still been an S corp Now I'm not going to get into an entire debate about the finer points of this because I'm just not that knowledgeable about it I hired a good accountant so my first advice to you hire a good accountant find someone you trust find someone who's really passionate about Accounting understands the laws and this is specifically a business accountant not just a tax preparer. There is a difference so you want a proper business accountant who has experience with business and It's the same as the guy who fixing your computer comparison versus the corporate enterprise Development company very different. So there's differences in systems for the people who just do computer repair and the people who understand Servers networking and enterprise level stuff. There's different levels of accountants and taxes are complicated Taxes are confusing and anyone who has a systems background It is used to very Process-oriented things will probably find yourself infuriated if you actually spend a lot of time reading the tax code It's it's like legacy system stacked on top of each other with a lot of weird stuff in between So I'll give you this short of it though. We are an escort now It's important to have a separate corp And it's important to have a separate setup and the reason why is you don't want your Money flowing through from your personal and then have to separate it all out I've known people personally have gotten in trouble for this I've even seen other youtubers who've talked about how they got themselves in trouble because they got big on YouTube And they never separated a personal versus business and now they have a tax mess on their hands has sorted all out of what was a business expense What was a personal expense? Having everything as a separate entity with separate bank accounts is the first Clear separation so there's never any confusion about that and the last thing you ever want is to be Have a confused IRS agent at your door They will sort out confusion and it usually can cost you a lot of money and having an attorney Represent you also cost a lot of money. Nobody wins. Well, there is is gonna win and you're gonna lose a lot of money So make sure you set things up properly Brief advantages of s corporations a limited liability for management shareholders I own this company. So I am considered a shoulder Unlimited number of management no-state residency requirements So these are just some structural things of how you can set this up and how you refer to us as officers of the company as Entitled officers whether you have a chief financial officer or or that and even when I was starting out small because I was a essentially work consultancy business and when you look at it from in terms of Structure of the company or how it works people ask us to do stuff Well, there's not always a lot of hardware involved There's most from money comes from typing on keyboards and setting up firewalls and things like that Especially we a lot of times we're just configuring customer provided equipment for deals They got with the stuff so the equipment doesn't even always pass through us. We're just doing the labor portion of it That being said S corp offered some advantages in terms of the way that is taxed And this is just one of those little nuances and it may not be the same for you And it may be especially if you're outside the US there's other entities You need to explore but that's why I start with get a good accountant and you can start to understand these things So a few things that we do are our s corp owns vehicles our s corp owns lots of Assets that depreciate which are good things to have in terms of s corp because you can write those things off It's not good if you are trying to use it for investments and appreciating assets at least according to this article once again That's as much as I'm gonna say about it is go find a good accountant read a lot of this stuff So at least you're on the same terminology page is them and then have them a decision once you understand your business model of how you want to do things and Then make a go of it from there All right So we're gonna get off this topic But I wanted to let you know I am an s corp These are some of the reasons because I've said this before and immediately someone says why not why didn't she switch to an LLC? Because that's what I want to do. I'm really not the most qualified person to ask based on the conversation I have with my accountant s corp was what works for me and it's been working for me for 15 years We are profitable and things are working Now here's what I really wanted to cover today Was the question comes up a lot about how we do our accounting for not using quick books or you're using some open source product And does it work and blah blah blah? Yes, it actually works quite well. We've been using a couple tools for a while So specific tool that I'm talking about here is it software called came my money. It's stupid name It is available This is version 5.00 It's been around for a while. You can get this at camemymoney.org. It's free. It's under genie public license and It's available in windows. So you can use this in windows or linux It's actually works really really well for managing ledgers now We do not do any invoicing from this We only use it to manage our ledgers and let's describe a little bit that I know some of this is blurred out But we'll cover kind of what the ledger is and how we do the accounting each month and how we lost $8,000 in April of 2018 so I've done a whole tutorial on the functional ways that this program works So you can grab QIFs from your bank account QIF I think it's quick and quick and interchange format or something It's a downloadable format that most of your bank support, but this also supports CSV So if however, you're getting your accounting data We do all of our accounting data in real time off of what they would kind of call as a cash basis But it's not actual cash money. It's just the term they use there's cash accounting in a cruel accounting For this talk and what I'm talking about this part here. We do cash accounting The shortest way to explain it is Cash accounting is when you recognize the revenue when it came into you So I build you $100. You paid me $100. I recognize that $100 when I was paid not when I sent the bill A cruel accounting is I have $100 because I sent you a bill for $100. Well, you don't actually have it until The bills paid So this is just something think about of how you do the accounting And when you get to the be at the larger scale of accounting You almost have to go a cruel accounting and I'm not gonna get to the finer details of that But those are two terms you may want to read so you understand a little bit how that works Do some googling just plenty of information out there about it And talk to your accountant about the final decision how you set things up once again differing to the count and sound not So let's go over income expenses. So when we look at our income of How we got the money in so once we sort all these things out into categories this software smart It remembers previous categories for things for example Cell phone payments are made to the same company every month The building lease goes to the same person every month Lecture can gas goes the same place every month insurance goes the same place every month So it actually auto categorizes lots of things QuickBooks does this very well as to I'm not a QuickBooks user, but you can do this in QuickBooks that being said what your P&L is each month is All the money in all the money out and then summarized So we're just running from the top on down and like I said the numbers aren't actually all that relevant Maybe you're curious about how much I make so the relevant net aspect, but they're not relevant in terms of this talk here This is just to kind of show you the structure of how we do it and how we do it in this piece of software to understand our position Now my a cruel position I could say if I looked at invoice engine right now is people owe me X dollars This is about what dollars I have in the bank and what my cash position change was so here's all the different income categories We have I have the generic Deposits versus express checkout payment versus interest versus PayPal here these categories and this one's going away This was credit card. We just got rid of our credit card company Last month, but these are all final deposits. They gave us we moved actually over to PayPal here Which is their in-store system that we're using we're actually saving money as much as people say that the credit card companies Are such a pain in a butt because you have all these what I call creeping little fees that they add on there Like oh our rates only this we only get you know 2% on rate and PayPal's 2.9% and I'm like, yeah But by the time I have all these little fees that you added on top. I was paying effectively 4 and a half percent you argue with them and this happened before they reduced the bill and Then they finally add these little fees and stuff like that And they're kind of a shady business as far as I'm concerned PayPal's always very upfront. We charge this right now I know I can save money if I use some of these that are larger credit card processors But the reason we don't bother is because it's actually like a very small amount of money because this is for our in-store Charges our in-store charges are very small. We just don't do that much retail anymore nature of retails kind of Faded away in this area quite a bit. Most of the retail stores that had computers around here closed This there's not as many people with General computer stuff and a margin for selling computers directly is really really small So we got out of that all together So then the deposits are all the checks written to us that come in from everywhere or a CH's and generally how clients pay And this also a subcategory of this but I don't break it out separately because there's not really a need to is Income I receive from Google for ad revenue we get from the YouTube channel here express checkout payment That's the PayPal name for money coming in That is from online bill pay So that's another payment source that we have this is just you know when we do out-of-state work or remote work And people use our online payment system That works very well and we separate that out interest is interest earned on money that sits in Some of the other bank accounts because if you have a pile of money put it in somewhere that earns interest or Earns some type of return on investment rather than just leaving your checking account So we have to account for that money that comes in there And there's payment pay about here So these are the summaries of the total income that comes into the company And like I said, this is all built off those QIF files and the bank statements import so we import from our local bank and we import from a PayPal bank and Shuffle up all the incomes now here comes all the expenses This is all the expenses that go out each month first one is that you see here is shareholder loan payment And you may have heard me say that I own the company I do and a shareholder loan payment is because I'm the shareholder and you may loan This is part of the reason it's important to have your personal versus your Business separated is you may loan your company money and then you can then set an interest rate and be the person who loaned the money Now taking loans This is a very small amount of money that goes back and forth that you know, I know it's blurred but You can Give your company money and then pull the money back out based on an interest rate that you set in agreements As you actually have to sign with yourself essentially I won't get into the finer details of it Make sure you have a good accountant who can structure all this properly for you But this is one of the ways that you loan the company money and then you may want the company To pay you back that money. They owed you sometimes they call it a promissory note I just have a category called share a loan payment. So it pays me back money I loaned it from long ago in very small amounts So that can also be loan payments. You've got from banks and things like that I'm a better person to loan money to my company than I think a bank So it's just thrown it out there. Then you have all those little fees that get attached to everything Bank fees credit card fees PayPal attaches the fee for Transactional fees and percentages and my accountant isn't free So there's an accounting cost that go in there to my business and that's what that's the category for those So I understand where all my fees are Advertising fees are what they are, you know when we buy ads on paid buy iPads on Facebook or wherever we buy ads from Google Those are all advertising fees I've wondered if hot sauce should go under there, but I'm not sure yet Building expenses things that the building needs we do lease the building But we still are responsible for it based on our lease for things we need if something You know need this need that we bought a lot of stuff There was a whole lot of this building expense when we built out this new location But those are where those categories go building lease That's a fixed amount every month. We write the landlord to check. So that's where that goes Sell phones that the company owns that's where that payment is Now this is where the variable costs are and now I didn't break these out But sometimes you'll see P&L's broke out to variable costs and then your fixed costs So you have your operating costs and then you have your direct job costs is how I refer to them I don't break I break them out a little bit We do job costing on a job-by-job basis to make sure are profitable This is like the overall cash Christian the company and how we look at it each month So direct job costs are parts that went out and I Generically called it computer parts because it's never changed the name of the ledger But it's really anything it's network equipment It's anything that was needed for that job or jobs in general go in the computer parts contractors We use contractors from time to time. So whether we use a subcontractor for some little aspect of something we don't do That could even include things like we built a website. They needed some special copy written from someone So we hired someone to write that copy. That is a contractor used to write copy On a job. So it's a direct job cost. It's gonna be a part of my variable cost so we sum those up so we kind of understand where things are for the jobs that are going and They kind of relate to You can break them on in percentages This is for when you're doing some big picture thinking about where your position of the company is You look at your total income and your direct job costs and you try to figure out Okay, this is how much percentage I'm making on this and then you look at your operating expenses But in terms of that I'm gonna jump all the way down to payroll. You also have to figure out how much you spend on employees Which also kind of go into that direct job cost depending on the category of the employee and then you then it gets even finer detail Of is that an administrative employee who does administrative things in your office? Or is it a employee who directly works on client stuff? So then you can see how this can be really fine Detailed when you need it to be For most part I don't need it to be Other than when we're doing projections and really thinking about things in a big picture of where the company is going and overall profitability of it You may have noticed that there is food and entertainment and food for clients One is expenseable at one rate. One's expenseable at the other rate. I don't know what those rates are My accountant does so I break them out into categories because ultimately this and the transactions related to it get handed to the accountant So they understand What category things go in? All luxury can gas those are valid expenses. Uh, it's got to pay to keep the lights on Insurance that's an important thing Please have liability insurance on your company. That's important But there's also things like because the company owns vehicles that pays for the insurance on those vehicles So that all gets lumped into that category Office supplies well, we don't buy a lot of those but when you do they go in that category You know paper things like that payroll is going to be at least when a service-based company Your biggest expense because the biggest asset you have in the company is really good staff But to have a good asset, they're not cheap. Um, and I'm fine with that. So that's part of Um, the payroll is you know, all the people I pay that do the stuff So that's going to be percentage wise That always is one of the biggest expenses you have because mostly what we do people call in They had a problem fixed. I have people on staff that fix those problems Most of my money is not spent on the software that we use so people You'll get real fine and know I know about this or that and we start breaking out the annual costs of things like the software You use much smaller number than the payroll it takes for Paying people to sit in front of computers to use all that software I bought That's where you're when you grow your business and you have a bunch of people That is always where your expenses come in people Smart people are expensive. Um, that's just part of it and a big thing that goes on I'd break out taxes, but taxes are kind of a result of payroll just so you know, so Based on the effective tax rates if you pay someone 80 90 thousand dollars a year You don't directly pay them 80 90 thousand dollars a year You pay them whatever that is less the taxes and in a separate category is you write the chat taxes somewhere else So it's not like I give them the money and then they pay the taxes That's what a contractor does though when you're doing payroll you end up writing two checks you write the Check for the amount of the payroll less whatever the taxes are By the way, I use my accountant to do all the payroll and that's important because The accounting payroll is there's a lot of nuances to taxes that I don't understand that I don't want to Waste my time trying to understand I have an accountant that does understand that when I Give people this much money this much taxes are owed based on the law changes And when the law changed again here in 2018 It actually affected what the payroll checks were very slightly based on the new tax laws You need someone keeping up with that or you need software that does some payroll software or payroll companies will do that for you My accountant is full service. They do my accounting and they do my payroll They actually write all the checks for my staff and the nice thing is the accountant lives down the street So in passing they just drop the checks off here really convenient. They actually write them for me and have them all filled out by the way my accountant also writes my tax checks for me So the taxes that go out they have authorization to write these checks with my signature And they just send me copies of them and makes it really easy to do the accounting Then we have travel expenses, which you know the general travel expenses for parking and things like that those go into a category So my staff does not if they go out to detroit with one of our company vehicles They park it somewhere. They also get to expense that back to the company and it's a valid write-off Then you have web hosting inet which is my generic catch-all for Things like solar winds that we pay and other software expenses comcast cable and all those things that take kind of Functionally take to keep the business running and like I said doesn't cost much as payroll now when you sum all this up This is how we understand our cash position at the end of each month Now the way it worked out we took in quite a bit of money And we put out a little bit more money than we took in because of that big project Some of you that follow the channel seen the video on there. So we got a deposit for that We did not get all of the payment It is a very large sum of money that we have invoiced to them that is not paid yet It actually some of it actually is paid because it's May and this is April So a bunch of money landed in the account the other day, but as of april We actually lost $8,000. So and we didn't lose it per se We know exactly where it went because we're doing our accounting here But these are the things you have to think about in business Now you can have a business line of credit or you can keep some cash in a bank for us We keep cash in a bank. So doing a loss at the end of a single month of $8,000 means our cash position changed to $8,000 less than it was the previous month. So When your cash position changes that just means there's that much less in the bank account That does not mean we went negative. That just means there's that much less from what there was So this is how you track that information This is an important aspect of accounting is make sure you track that from month to month and see where it is So previous months we'd actually made money and put A positive cash position than other times it's a negative now That is the ability that you need to have in your company Like I said, you can do this with a line of credit or by keeping cash in a bank So you can control the float for one client's pay you or on the wonderful chance that And i'm saying that ironically of course or with air quotes wonderful times when clients go, you know I just don't have that $10,000 for that invoice I'm know I said I'd pay it on the 15th. I'm gonna pay it on the next 15th So at any given time people owe us a certain amount of money and Occasionally things happen You have to be very much on it. We're very much on the collection side of things all the time Well, I'm not Marvin is and we're making sure that all the money coming in in being billed Is being collected But these are those those things that come up in business and this also changes your cash position because you Uh thought you were getting paid and you didn't this is also why we work everything on a cash basis In terms of the instead of a cruel basis because if I look at from a cruel basis and I invoiced out all these jobs That numbers weigh the other way, but actually there is indeed The end of april less money in the bank account than there was at the beginning of april Because we had a cash position move of less because of the money went out And of course that's what's really important because you got to know where your cash position At all time to make sure if someone says hey, can you do this under project? You know, you got to buy parts. I know I got to make payroll I can look at the bank account. I can understand my cash position to move over to that So these are the things you think about and a few people have asked me How long does it take me to do this accounting and how do I do it in terms of when I use came my money For all the transactions all the bank accounts all these fees that add up to all these transactions here I spend Two hours a month on it. That's it. It really doesn't take much So once a month, I do this profit and loss or income and expense Look at the total income coming company and Sum it up. Now the fun thing is I love statistics and data I've been using this software for years. I think since 2011 or 12 So that gives me seven eight years of data in here to look at trends Look at month to month what months overall over the last five years that we see more money in And that's kind of fun part about this once you get all this in the system You then can play with the data to look at it in different ways to make predictions or make understandings of things So this is just an overview of people who always ask me how do you do the accounting? How do you know you lost money? What does it mean you lost money or you're going out of business? What does it mean you made money? And this is the tool by which I do it and because I do this monthly the year end one is actually really simple Once I do december's I just summarize the year change the date range. It's already done for the year So my end of year accounting becomes very very simple because I do it once a month every month and make sure everything matches Then once I do december Done. I have my year end. I know the overall position of the company. Did we make money? Did we lose money? Where are we at with things? And like I said, this is Important it's important understand and from a business owner's perspective You want to know where your money's at you want to know where it's going You want to make sure you have money in a bank so you can keep making payroll But also predict those trends if you start losing month to month to month you better think about what you're doing Do you have too many expenses or your contract or expenses too high? And this is where I'm not going to lay it all out because I gotta blur out more stuff at it that You can look at your money over time and see where your money's coming from and see what the trends are for it um Real side note too is people may want to know like how much money I make and things like that I'm not going to disclose exactly how much money I make but I will disclose Um, how you have to pay yourself once you have an escort It is important that once again the bank this company is not a piggy bank for you You just pulled money in and out randomly I do get a payroll So all money that comes into this company and all the money that goes out of this company is documented We use nothing but credit cards to pay things for the company This means we don't have to keep all these receipts laying everywhere receipts Just go in a box or most of our digital now Go into an email thing called receipts. I got a folder for it. I just dump everything in there But I don't have to look at receipts and key all this stuff in I use a credit card For each one for paypal and for that so that lists the name of the place I went And then that's how these categories get here I'm not having people submit a bunch of personal expense reports I even give the staff company cards to pay for things So everything gets documented the same thing with all the money is out You can't just go make a withdrawal because iris to go. Where'd you do with that money? So all the money coming out gets documented with checks or gets documented on a payroll sheet So all money is out is accounted for which is very important because if you want to have trouble with iris Have a bunch of unaccounted for money that came in that you don't know where it went and money that went out that you're like I just needed some That is that it will get you in trouble. I've had friends that have had so much trouble with this stuff Just don't just do everything in a very documented way use credit cards for everything Don't pull a bunch of cash out of the bank and distribute it You will just find yourself in all kinds of trouble and probably owning a bunch of money and taxes because you couldn't properly account for A legitimate expense because you decided to use cash And that also raises red flags of just seeming suspicious at least here in america I don't know how it works elsewhere, but document everything So that's my quick overview of accounting and what we do here just Um and answer the question a lot of times of well, how do you handle the accounting? 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