Episode Transcript
[00:00:00] Speaker A: Welcome to Legal Talk. I'm John Mitchell and today we're uncovering the legal insights and strategies that help you protect what matters most. You're watching now Media Television.
[00:00:10] Speaker B: Well, hello there, everybody. Welcome to Legal Talk. Thank you, thank you. Thank you so much for being with us on the big show today. Man, oh man, I have got some great stuff for everybody today.
So excited, happy that everybody's with us and you know, buckle, buckle in. It's going to be a great ride today. We're really excited, overflowing with joy today. This is Legal talk. Of course, you know, you watch the show, this is where we make complex things into simple things, right? Break it down, make it nice and bite sized chunk for everybody so everybody can understand and get the most, you know, most value out of the show that we can possibly give for you. Now today I'm excited to have a very special guest. Very special guest. You can't see it on camera, but we've rolled out the red carpet. There's, trust me, there's actual red carpet. And we are here today with Mr. Harsh, Harsh Jadaf, right. CPA, CGMA, CFE. I think that stands for certified Fraud Examiner, I believe, if I'm not mistaken about that. So he's a partner at my profit gurus. He's worked within the irs, you know, fellow former IRS guy and he's held roads with brands like Ernest and Young, Deloitte, Intel, American Express. Oh my gosh, that is just a wonderful, wonderful resume right there. Harsh. So congratulations, congratulations on all that. So I wanted to start off first of all saying welcome to the show.
[00:01:41] Speaker C: Thank you, John. I'm really glad to be here. Thank you for inviting me, right?
[00:01:45] Speaker B: Yes, sir. Absolutely. Well, we're going to bring some good stuff for everybody out there today.
So I want to start off where entrepreneurs sometimes we're rolling along just fine, everything.
It's a happy Copacetic Tuesday and all of a sudden, boom, you get blindsided, right? So they think they're doing just fine until some kind of notice shows up or maybe cash starts to get t.
So let's talk about profit leaks, you know, as I like to call them, and compliance mistakes that can create some real risk for folks in their business, right?
So in this segment we're going to connect the dots between the everyday bookkeeping habits, right? Very important stuff. Keep, you know, keep doing the basics is what I tell people, right? So bookkeeping habits and then outcomes that business owners fear like audits, penalties, sudden cash crunches, all that good stuff.
So what we want to do is we want make people's business audit proof. Right. That's not just a vibe. That's documentation, control, smart decisions.
And it's on an ongoing basis, not just once or twice a year. Right.
So before we get technical, how did your path from roles connected with IRS to working at Detroit, Ernest and Young intel and all the rest, how did that shape the way that you advise small business owners?
[00:03:07] Speaker C: You know, John, it's interesting. You know, I feel like through all my experience working, I develop sort of a 360 degree view of money. Believe it or not, you know, with my origination, starting with the irs, I learned pretty much what taxpayers should not do. Right. They need to keep good records, they need to have defensible types of positions when they're taking deductions under return. They need to be organized, they need to be, you know, they can actually be legally aggressive. Right. We don't want them to be too conservative. They don't need to be. We want to take the maximum legal deduction. So I learned about that aspect of it when it came to working with the irs. Then when I moved into industry working for Deloitte Ernst and Young Intel, I learned how the best in class businesses actually did it, what they did. Right.
So now I'm able to kind of combine that and that gave me sort of a lick of different view. So I'm not just looking at as an advisor, but I'm looking at it more as a strategist or even as a regulator, being able to step in those shoes, being able to really understand how we can package and provide our clients with the best service from all those different perspectives. So I think that's really where my background came in really handy.
[00:04:12] Speaker B: Yeah. So you got basically a Venn diagram going on with different types of experience. And I think that's very important.
I try and do the same thing for my clients.
Just use all of that, all that sum total of all that experience and all that knowledge and people really appreciate that. So you get to be congratulated. I think that's a wonderful, you know, wonderful way to go about it. Absolutely. Yeah. So listen, you hold rare credentials, right? Like not everybody has that many letters after their name, right? So cpa, we know what we know that one. Cfe. I got that right. Ding, ding, right. Certified Fraud Examiner. What is a cgma, by the way?
[00:04:56] Speaker C: That is a Chartered Global Management Accountant. So they really focus more on cost accounting, believe it or not. And I think when we deal with our clients, they've got the financial side but oftentimes they're trying to make good business decisions, and that comes through cost accounting, really understanding how that income statement and balance sheet convert into making really good business decisions. So I think that's where that credential comes in handy for me.
[00:05:18] Speaker B: Oh, my goodness. That is well rounded. Absolutely. Yeah. So you also do some teaching, I understand. Right. UC Berkeley, Menlo College. Right. Is that right?
[00:05:28] Speaker C: That's correct.
[00:05:29] Speaker B: Let's see.
So what's the one belief that you teach the most to entrepreneurs and, you know, kind of focus on what people kind of get wrong about taxes?
[00:05:40] Speaker C: That's a great question. And I think, you know, like, especially for my students, you know, as they're getting prepared for their career, some of the things I talk about is that, you know, we want to be legally aggressive. You know, we don't want to ever cross the line. But there's nothing wrong with being legally aggressive and being able to maximize the deductions for our clients. As a matter of fact, I think that's our responsibility as CPAs and other tax professionals. I think when it comes to my students, they sometimes feel a little bit uncomfortable because they feel like I don't understand all the tax laws. How am I going to really be able to represent my client very effectively? I sit down with them and I explain to them that nobody really will understand that book of tax laws. It's a big book. Right. But we have to do the best we can. We learn the basics, we grow with experience, we get better with time. And as we start to deal with more and more clients, we get much, much more effective. Ultimately, we want to do the best job for our clients.
[00:06:27] Speaker B: And that's why, by the way, it's really kind of important to niche down, get your area of specialty kind of dialed in right 100%.
[00:06:37] Speaker C: And I really liked your background with tax resolution and tax controversy. I mean, that's a very, very unique field to get into and huge, huge value for many clients.
[00:06:45] Speaker B: Yeah, well, we do our best to bring value to those clients, don't we?
Yeah. So anyway. All right, so let me ask you this question. This dovetails right in. Right. So let's say you're looking at a small business for the first time, right. They call you up harsh, shows up on the, you know, on the ground, ready to rock. And rol, what are some of the patterns that you see that you can kind of point out that would help people to kind of break free of those patterns and do better?
[00:07:13] Speaker C: It's surprising, and it's a great question because you Know, I don't think people understand or maybe recognize the fact that operational effectiveness actually has a lot to do with taxes. You know, they go hand in hand. And oftentimes when you talk about tax savings, a lot of it is built in how you operate your business.
So even simple things like, for example, being able to differentiate your personal expenses from your business expenses, something simple like that can add to significant cash leak if you're not actually capturing all the business deductions appropriately.
[00:07:45] Speaker B: Man, oh man, you know, that rolls right into my next question for you, right? And I think we understand and know the term reasonable compensation, right? So if I'm a founder of a business, right, And I'm paying myself just, I don't know, whenever there's money, right? Some days there's. Some days there's not money, right? So you pay yourself whenever there's money. So what's the cleanest way to kind of structure older pay so that it doesn't kind of create chaos within the business?
[00:08:14] Speaker C: That's another really great question. I think we run into it, especially when somebody has an S corporation, that the reasonable compensation becomes a much more important issue. But I think the way we structure it, once again, on the operational side is especially when they develop a certain level of profit, you're not talking about revenues, but really profit, we can sort of stabilize how much that normal salary or compensation should be taken. Then as they start to do better, we can take some more distributions out, rewarding the business owner for doing well, but still managing it within our realm. So we don't want to be. We don't want to have a situation where when business is good, you have a great month, all of a sudden you take a lot of money out, and then the next month you're suffering. And now you're like struggling to find money. So we really want to be able to measure and do that. And you brought up a great point about reasonable compensation. That is actually one of the top areas that the IRS is focused on. And really doing the study and doing the study, I think that gives you a really defensible position. So the IRS really has.
You have a strong enough argument to battle with the irs.
[00:09:12] Speaker B: I think I've done those reports for folks. And one of the kind of hidden things that people don't think about is avoiding penalties on the written advice of a tax professional.
I tell people, they say, well, John, why am I going to pay you $1,000 to, you know, determine what my pay should be? And I'll be like, well, wait a minute, you Pay me, I give you a report. Then if the irs, even if the IRS comes back and undoes it, you still have that report in your back pocket. At least you can get rid of the penalties, right?
[00:09:44] Speaker C: Absolutely.
Great point.
[00:09:47] Speaker B: Yeah. Anyway, so is there any other kind of magic, magic incantation you can give us? Right, like what kind of things do you see people misclassifying most? When we talk about expenses.
[00:10:00] Speaker C: So I think one of the big ones actually is like meals and entertainment expenses. You know, with meals and entertainment, you know, sometimes it's really hard to differentiate between a personal dinner and a business dinner. I mean, imagine a situation where your client is both, they're both your friend as well as they're your business client. When does it cross the line where it becomes a business type of expense versus a personal expense. So that's usually something that comes into play and, you know, comes down to documentation at the end of the day, right? Documenting the amount, documenting the purpose, documenting when it would actually occur, the date. Those are all things that would actually help us when it comes to substantiating in front of the irs. So that's when it comes to mind for sure.
[00:10:40] Speaker B: Yeah. Yeah. Perfect. Harsh. Oh, man, this is such good information, man. I'm sure people are just, they're like sponges out there just soaking up all the good info, man. I really appreciate it. This is going to be a great show for everybody. So anyway, this is going to kind of wrap up the first segment for us. And so we're going to take a little quick break for everybody. Everybody can stretch their legs, get up, you know, get your hot or cold beverage of your choice, right? And then come right back. Because when we get back, we're going to talk a little bit about how, how we can shift from fear to control and we can build a monthly cash flow system that makes taxes predictable and makes your decisions as a business owner and easier. Right? So don't go anywhere. Stay with us. And we'll be right back.
[00:11:25] Speaker A: We'll be right back. We'll be right back with more practical, real world legal guidance. This is Legal Talk on NOW Media Television. And we're back. I'm John Mitchell and you're watching Legal Talk on NOW Media Television. Let's continue the conversation.
[00:11:39] Speaker B: Well, hello everybody. Welcome back. Welcome back to Legal Talk. We are here today giving you some, you know, some good, good information with one world class CPA, Mr. Har. Shut up. And we are going to get right into it. But first, let me just remind everybody, okay?
If you like what you're Watching you can stay connected here across all the full Now Media lineup, live or on demand. So download the Now Media TV app on Roku or iOS for bilingual programming in English and Spanish if you're on the move. You can also catch the podcast version anytime on NOW Media platforms. Now let's get back to building a business that's cleaner, safer, and more profitable, right? So if segment one was about create the risk and the creation of risk, this segment's more about creating some control, right? We get that risk under control, Right? So I want to talk about a simple operating rhythm here, right? So the monthly routine that makes taxes predictable and can strengthen your cash flow and bring you all kinds of good benefits. Right? So we're going to frame tax planning as a cash flow strategy, not year round.
We're not just scrambling on April 15th or whatever it may be. So we're going to focus on estimated taxes, clean financials, and build it a forecast first culture so that founders can hire, invest and scale without surprise bills. Right. So harsh after all that. Let me ask you this next question. If, if you could install one monthly habit that changes everything, profit, taxes, peace of mind, what would it be and how does that work?
[00:13:26] Speaker C: You'd be surprised. I think one of the biggest advantages is closing your monthly books. Surprisingly, business owners get very, very busy, right? And not closing their books sometimes happens because it seems you can delay it, delay it. But from those monthly books, you get so much great information when it's closed. There are a lot of different adjustments you need to make for adjusting entries, for example, for some of the recurring and incurred type of expenses and revenue streams. If you don't do that monthly close, you're not going to see it. Especially if you're on the accrual basis of accounting versus cash. There's some nuances there that you know, can confuse a cash owner. Sometimes a sign would be is you look at your income statement and you see this big $200,000 figure. You go to your bank account, you see $10,000 and you understand why is there a difference? Well, that really comes when you can do a monthly close on time. You can actually see that happen, see where the adjustments need to be.
[00:14:14] Speaker B: So the money is hidden in accounts receivable. That's what you're telling me.
[00:14:17] Speaker C: I think that's a great idea. It's a great point too.
[00:14:20] Speaker B: Really, really is. There you go. There you go. Okay, so let's do this then. If you can, please. Let's walk me through. How would you set up a cash flow forecast? That actually matches reality because that's where we're at, that's where we're after. Right. And what inputs matter most for small businesses?
[00:14:40] Speaker C: I think, you know, like, I think when we deal with most small businesses, they tend to be fairly optimistic about the forecast. Now we want to think we're going to do really, really well. One of the things we do implement, which I think has a lot of effect, is a 13 week forecast. We actually look at 13 weeks out in the future. It's a rolling forecast. So we are actually able to see what's going to happen like maybe three months in the future because we have to think about cash reserve. We have to think about, you know, upcoming payments. You'd be surprised. You know, you have, you maybe have a balloon payment coming up. You might have done a loan a long time ago. You have a balloon payment coming up and all of a sudden if you don't do this forecast, it's a surprise when it actually happens. So it really, really is beneficial to put that out. It gives the right metrics to make sure we have the right money in our bank account to take care of those type of expenses.
[00:15:25] Speaker B: So don't wait until you get that letter in the mail from the bank. Oh, reminder, by the way, you owe this big balloon payment next week, Correct?
[00:15:32] Speaker C: Correct.
[00:15:33] Speaker B: Good luck for you. Okay, well, that's good stuff, man. So when we're talking about tax prep versus tax strategy and all that good stuff, what is kind of a trigger point, like a tipping point that you see that business owners should be paying attention to to kind of make that change?
[00:15:52] Speaker C: Great point. And I think, you know, you brought up a really interesting point about tax prep versus tax planning. It's so we have so few business owners that think about the fact that tax planning is an ongoing annual type of cadence you need to have versus doing it on April 15th. So that's first point. I think that's very, very important. Now some of the things we like to think about is that when it comes to implementing something like that, looking at planning, one of the aspects is looking at the cash flow coming through for the next few months. We want to see if there's going to be any ups or downs, any ways we can strengthen it. Because I think, I think probably something people don't take into consideration is the timing of revenue. Right. The revenue is going to be there. But can you time it in a way where it's maybe more tax favorable so we look at things of that nature? For the most part.
[00:16:38] Speaker B: Yeah. Let's sign that contract on January 2 versus December 30. Right?
[00:16:42] Speaker C: That's right.
[00:16:43] Speaker B: Yeah, exactly. Okay, so now let's jump into something really important that a lot of people, I've seen so many people struggle with this, right. Which is estimated tax payments. Do you have any special advice for us about those quarterly estimated payments?
[00:16:58] Speaker C: Well, they're important, right? They're important. And if you think about it from a W2 wage earner, right. That happens automatically where money's automatically pulled out of their paycheck, so they don't ever see it. But as a business owner, you're responsible for doing it. That is practically. That is an IRS regulation. You need to actually pick up your estimated payments. That's what you need to do. It shouldn't be a surprise. I think one of the things that we see is that, that our business owners are pretty savvy about that. They know they need to make them. But it's mentally, you know, they keep a mental note of it, but they don't physically allocate that money into a separate account. It stays in their main account. And then there's always a more important expense to pay. So the estimated payments never get made. Then there's a really big penalty at the end of the year. And I think we need to avoid that. Really do.
[00:17:44] Speaker B: Yeah, yeah. So a little bit of planning can go a long way, Right. And it's just. And you know what I'm hearing also, I mean, it's a big deal is the mechan of it, right?
[00:17:53] Speaker C: That's right. That's right. And that's what tax professionals are there for. They help you prepare that, they help you plan for that. I mean, I think if you're having trouble making that estimated payment, you can talk to your tax professional. They'd be able to actually advise you and maybe some other steps you can take.
[00:18:06] Speaker B: Yeah, absolutely. Good stuff. So rely on your tax professional, folks. That's a big. A big theme for today. Right? Okay. So, all right, let's jump into one final little thing. Time is flying, right. Tempo's fugitive it when you're having fun. Right.
But we'll jump into one more thing before we take another really quick break. And that would be about business owners who are kind of starting to do a little bit better, right. They need. They're got a little cash flow flowing and they need to reinvest, Right. So a business owner might want to be kind of aggressive in their. In their reinvesting, right. So how would you balance kind of taking those write offs so that you've got clean profitability. Right. But also, you know, doing that, reinvesting that people want to do.
[00:18:55] Speaker C: You had brought up the point about planning, you know, tax planning versus tax preparation. This is where this comes into play. You know, I know oftentimes as tax professionals, we're always trying to advise our clients for optimizing their deductions, you know, being able to use depreciation, other tools. But that's not always the best case, because if that taxpayer needs to maybe purchase property or purchase. Purchase equipment and they need a loan and they need financing, having lower income for tax purposes is not going to help them for financing. So that might be a problem or something we need to think about, you know, as. As we get to know our client better. And that's where that relationship and the planning part of it comes into play. And I see that. I see that as a definitely advantage for working with a tax.
[00:19:35] Speaker B: Oh, man, you are not lying. I've seen that a hundred times, man. People come and they're like, every year they come and they're like, hey, get my tax bill as low as it can be, man. And then one year they come, hey, yeah, I actually need to report more income because I'm going to get some financing and stuff. So that is definitely.
That is where the rubber hits the road right there.
Not lying. That is a real thing. That happens pretty frequently. Right.
So let me ask you this, Dan. Right? We're just wrapping up, going to head to another quick commercial. Before we do, I want to give folks out there an opportunity to get in touch with you, Harsh. So if somebody's out there watching, they want to get in touch, they want to implement this system for themselves. How would they go about getting in touch with you, man?
[00:20:22] Speaker C: I think our best ways just go on our website. So we are at www.myprofitgurus.com. you can reach us there. We have a booking format there where you can book a call. We'd love to talk to you a little bit more about that.
Or you can reach us on LinkedIn.
[00:20:38] Speaker B: Okay, so website or the LinkedIn. That's the two kind of best ways to get in touch with you, correct? All right, man. Well, I definitely recommend that folks out there go ahead and get in touch with Harsh.
He's one of the good ones and former irs man. You can't ask for better than that, Right?
So anyways, thanks very much for this wonderful information from this segment. And when we come back. All right, we're going to talk about an area that can actually destroy a Company fast man. We're talking about fraud risk, talking about weak controls, talking about internal mistakes that can just invite all kinds of bad consequences, legal consequences, tax consequences, you know, all the bad kinds of consequences. So don't want to fall into that kind of situation. Right. And we're going to talk about that as soon as we get back from this break. Don't go anywhere. We'll be right back.
[00:21:36] Speaker A: We'll be right back. We'll be right back.
[00:21:38] Speaker C: We'll.
[00:21:39] Speaker A: With more practical, real world legal guidance. This is Legal Talk on NOW Media Television. And we're back. I'm Jon Mitchell and you're watching Legal Talk on NOW Media Television. Let's continue the conversation.
[00:21:50] Speaker B: Well, everybody, welcome back, man. Time is flying and we are having fun and we're doing, you know, bringing some great information to everybody out there. I am here with Mr. Harsh, a CPA extraordinaire. Right. And welcome back. By the way, Hirsch, thanks for being with us on the show today.
[00:22:08] Speaker C: Thank you so much. I'm glad to be here.
[00:22:10] Speaker B: Absolutely, sir. Okay. Well, let me, let me, let me tell you this, right? So I see this constantly. This happens all the time.
So people, good people are out there working hard. They're doing, doing everything, you know, the right way, the best they can, growing their businesses. And, but, but then the controls within the business, right, they never evolved past the point of, well, hey, let's just trust everybody, right?
And I know in my business I've had to implement kind of some structure and stuff because when you're a one or two or three person shop, you can get by with working a certain way, but then you start growing and you get the team members in and stuff. You got to make some of those big changes, right? So trust matters, controls matter.
And so that is where some financial leakage can turn into some legal exposure. And we certainly don't want that. Now that, Hawkins, Hawkins, what's the right word? Right. It goes back to your CFE credential. Right, right. Certified fraud examiner, man, I am familiar with that because my son did that.
[00:23:24] Speaker C: Okay, very nice.
[00:23:25] Speaker B: Yeah, yeah. Fun stuff. So cfe, so what are, so being that you've got that kind of area of expertise, got that badge on you, right? What are some, the fraud scenarios, some typical things that you might see in a small business that owners would not maybe even imagine whatever happened to them.
[00:23:46] Speaker C: That's a great point. And you brought up a very, very good point about the fact that owners are pretty limited on the resources. So it's really hard to implement a control of a Fortune 500 company to protect your cash and protect your assets in that way. But there are some simple controls that can be put in place.
Maybe, for example, separation of duties as much as possible, where you don't have the same person that's managing cash and also recording cash at the same time. You know, those type of controls can be put in place. But I think, you know, when I look at small business owners, I think I generally find that, you know, it's the simple type of fraud that people should be aware of. You know, it's rarely going to be a situation where somebody steals $100,000. That's usually not the situation. It's usually small fraud. So. Because if somebody is basically taking maybe $300 away, you're not going to notice it and it's going to continue. And over time, it really builds up. Now, the types of fraud that I see that I think small business owners should be aware of. One has to do a little bit with payroll where maybe somebody inflates their hours, right? Maybe they were supposed to work a certain amount of hours. They add some overtime, or they add some additional hours that they didn't work. That actually could feed into a potential fraud. Sometimes you may find you're working with a third party, like a bookkeeper or somebody like that, and maybe they're taking a little bit of money off the side. That might potentially happen too. And, you know, sometimes you may just be dealing with a really bad vendor, you know, a vendor who maybe double charges you, triple charges you, and you don't see it because you're really busy with your activities. Maybe he says, I see something like that. But those are all different types of fraud that I've seen that business owners can potentially be exposed to.
[00:25:22] Speaker B: Man, oh man. So separation of duties, man, that is very important, right? The person managing the cash is not the person recording the cash, right? So that is very much a word to the wise for folks out there. I know. I've seen this myself. I've seen. Oh, my God. I could tell you stories and stories. I'm sure you could as well, right? You know, like, I even saw this one case where there was a tax. Tax professional, God help us. I'm sorry to even tell this story, but there was a tax professional. He was doing some work for the company. And basically what he would do is he would prepare a tax return, like let's say payroll tax, and go to the owner and say, hey, here's your tax bill. And so the owner would write a check for that. Remember those Back in the day, checks, right? And so he would, you know, write a check. But then this guy was, what he was doing, he would go back and prepare a real tax return. He was inflating the first one. So prepare a real tax return, send that check to the IRS under a company that he owns so that now the taxes are recorded as being paid and he was skimming off the difference.
[00:26:31] Speaker C: That's interesting.
[00:26:32] Speaker B: Oh, my God. Yeah, it hurts my heart, man.
I hate to see people out there doing stuff like that. But, you know, it's a world we live in. And so I think that what you said is very important is just keeping honest people honest. Right.
[00:26:46] Speaker C: That makes sense. Absolutely.
[00:26:48] Speaker B: All right, so let me ask you this. That if I'm a founder and one person controls the invoicing, the deposits reconciliation, what is the simplest control change that I can make without hiring more staff?
[00:27:04] Speaker C: I am a big fan of automation and AI and using like established workflows.
Many of our accounting Systems, whether it's QuickBooks or Xero or any of them, really have very strong established workflows where even if you're the owner, you can oversee a lot of that activity. Oftentimes there's certain thresholds built in where Maybe it's over $500 that would require like an approval from the owner or a manager or something like that. Maybe there's a criteria involved where maybe it's like a certain type of meal expense can't exceed a certain threshold, like $500 or something like that.
So you have different controls you can build in. But I really like automation because if it's workflow related, you have the automation will stop the transaction from happening. So you have a real way where you can focus on what's important as an owner.
[00:27:51] Speaker B: Man, oh man. So that, you know, that kind of leads me into the next thing, which is, you know, subscription creep, phantom expenses, stuff like that. So I don't want to be, you know, sitting there for hours combing through my books with a fine tooth comb. Right. Because I got other stuff. I got to go out and record TV shows and stuff. Right. That's important stuff to do. Right. And so what would be kind of the way, and I think I know the answer, what you're going to say here, right? How could we kind of avoid having to spend hours combing through all that stuff and still be able to find any subscription creep or, you know, phantom expenses or stuff like that?
[00:28:31] Speaker C: Yeah, and that's a good point. And you know, I don't think it's any different than the way people reconcile their credit card statements or an American Express statement, something of that nature. You know, you can do a couple of different types of easy sorts. Right. You can do a sort by vendor, you can sort by large amounts. You know, there's ways you can really kind of capture some of those anomalies that can happen when you're doing reporting. Now, you talked about subscription creep, and that's. That's a big one for me. I think when we deal with our clients, you know, it's amazing, and it's incredible how often you find the fact that you have maybe this small charge, about $25 a month that's going through, but nobody knows really what it is, but it's too small to worry about. But when you add that $25 together over the year and maybe over years, it really adds up. The other sneaky one is sometimes you'll sign up for an annual subscription and you don't really remember it until the next year. And once again, they charge you maybe $1,000.
So you have to be really, really careful and maybe log those. And I think that's a good way to sort of like, even manage your cash flow a little bit more effectively.
[00:29:29] Speaker B: Yeah, maybe a calendar reminder or something.
[00:29:32] Speaker C: I like the calendar. There's nothing wrong with the calendar. It's old school and it works.
[00:29:35] Speaker B: Yeah. In fact, in my office, I've got a special calendar. You know, you usually have a calendar assigned to an individual person, but I have a financial calendar that's got all kind of stuff like when bills are due and when do I have to do the quarterly payments and all that good stuff. And all that's on its own calendar with its own color coding so that I can keep track of all of that.
[00:29:59] Speaker C: I love that. I actually think it's one of the best ideas, and I think it's an easy one to implement. Right. So I think it makes a lot of sense.
[00:30:06] Speaker B: Excellent. So I got the stamp of approval. Excellent. Thank you very much for that. Okay, so how would I then go about designing an approval workflow? Right. So you got. A business has got some expenses, and you got people out there paying those expenses. I guess you're going to have, you know, your vendors and reimbursements, all that good stuff. So how do you kind of design a system that will kind of automatic, be automatic, and kind of take care of that stuff?
[00:30:34] Speaker C: So I think I'm still a big fan of established systems. I mean, I don't think you need to reinvent the wheel by any means.
Use A really strong accounting system like a QuickBooks, Xero, many other ones out there. I think those are where they've already done the work for you. They've already established those workflows. Makes it much easier. You just adopt them. Match your business process to what's in the system. You will see that you don't have to worry or spend too much time actually working with that in the future.
[00:30:59] Speaker B: Oh, man. See, that's what I like to do. Do things the efficient way. The first time, get it right, boom, you're in, you're out, and that's the way, actually a way to make that happen right now. Let's do one final question for this segment. Burning question people want to know because not everybody has gotten a good setup from the start. Right. So sometimes you got what we would call in the biz, you know, kind of cleanup type engagement. Right. And so you got some missing receipts, you got inconsistent entries in the, in the book and stuff. Cash withdrawals. How do you prioritize that cleanup so that at the end of the day it's going to be defensible if it's ever questioned.
[00:31:41] Speaker C: Yeah. So I think it's a great question. If you look at you doing a simple cash reconciliation, doing your book reconciliation, I think a lot of those type of issues kind of get filtered out. So you're able to actually see some of those areas of improvement. I think that's where I would focus on.
I think AI is getting better by, by the way, I think AI is actually being used where it can capture it. I mean, if you look at some of the tools out there, I mean, they will automatically, like, for example, pick up mileage and things like that. So I think there's like. I think it's improving in that space. And the more we can adopt AI in the future, I think that's probably the way to go.
[00:32:13] Speaker B: And the more you work with training your AI, the better it gets, by the way.
[00:32:17] Speaker C: Absolutely. Right. That's a great point. You know, I mean, I think there's a lot of time that I think business owners are going to need span training, training and getting better and making their LLMs stronger and more, you know, maybe, you know, look at privacy and other types of compliance issues along with that.
[00:32:31] Speaker B: Absolutely. Oh, yeah, yeah. We could do an entire show about AI and all the, you know, implications with that. Right. But. But we'll save that for another time because we are getting ready to head into our final segment, folks. It, you know, it's. It's been, it's been a wonderful show so far. We got lots of of good juicy information here.
So then in our final segment, though, we're going to go into growth and how to build a financially disciplined business that can scale, borrow, hire, all that good stuff. It can expand without getting into, you know, stepping into some legal and tax landmines. All right. So stay with us and we will be right back after this short break.
[00:33:14] Speaker A: We'll be right back. We'll be right back with more practical real world legal guidance. This is Legal Talk on NOW Media Tele.
And we're back. I'm John Mitchell and you're watching LEGAL Talk on NOW Media Television. Let's continue the conversation.
[00:33:27] Speaker B: All right, everybody, welcome back to LEGAL Talk. Listen, don't miss a second of this show or any NOW MEDIA favorites streaming live and on demand wherever you want and whenever you want, download the free Now Media TV app on Roku or iOS for instant access to to bilingual programming.
Now let's close strong with the growth moves that keep you compliant and keep you profitable. That's very important. Got to be profitable, man. We're doing it for the profit, right? Show me the money like the movie used to say back in the day, right? So welcome back again to our final segment. I want to end this with a roadmap, right, because small business owners don't want to just have less risk. They want a growth that they can actually sustain, Right. So we're going to talk about being audit ready as a growth advantage. Cleaner financials improve those financial outcomes, Right. We're going to reduce our tax surprises and our other surprises. And we're going to do all of that in this in these last 12 minutes or so. So hang on tight. And we're going to be right back with harsh and talk about some of this good stuff. Harsh. So what is what does an audit ready company look like in real life? What systems are in place? What's kind of the monthly rhythm or the kind of cadence?
[00:34:50] Speaker C: I think it all boils down to substantiation and documentation. I think audit readiness is really all about that. I think if you can make a really strong business case, if you're organized, that really makes a lot of difference when you're dealing with an IRS agent. Ultimately, they'll book makes you much more believable. Right? You have, you were clearly differentiating your business from your personal expenses. You're running it like a business and I think even operationally, Right. I think, you know, it's funny, like, I noticed that sometimes taxpayers and, you know, clients, they don't Spend enough time actually managing those expenses and they lose deductions because they don't take enough, they don't document enough, that becomes a problem too. So really, when you talked about the leaky cash flow and things like that, sometimes it's because we have such bad record keeping. So I think that's a big, big opportunity for us.
[00:35:39] Speaker B: That is, that's a, that's gigantic, actually. Right. I've seen that so many times. That's very, you know, very important stuff. So if. All right, so let me ask you this then. If I'm planning on hiring some folks, maybe expanding, you know, and knock out a wall over here and expand my place, whatever it may be, right. What kind of man metrics should I be looking at? Financial metrics so that I can maintain the business as it's growing, maintain the stability and not outpace my cash flow.
[00:36:10] Speaker C: I think there's really three areas you're really focused on. First is profitability. Second is liquidity. And third is solvency, like long term solvency to avoid bankruptcy and things of that nature. Really focus on those metrics. I think the other things too are really related more to cash flow. That and the cash is king. It's really a true statement. So when you're talking about, you know, having some measure to make sure that you're earning enough cash flow coming through to sustain your business, you know, like managing what we call the burn rate to find out, you know, how much you're burning through your cash, you usually see this with like newer businesses or with businesses that are getting funded. Right. Maybe they're entrepreneurs, maybe they're getting the first round of funding. But one of the measures that Most of the VCs or other folks that deal with this, them providing funding is how quickly they're burning through their cash. Right. Are they really spending it on the right items that are helping grow the business or is it frivolous waste? So these are the type of things that we really want to focus on. Sometimes you're also looking at like you had brought up a good point about accounts receivable. There's so much money locked up in accounts receivable. If you don't manage that well, you could be really. So your business could be suffering. So I think that that is something else that is worth worth doing an aging report, trying to find out how much of that could be captured at some point in time.
[00:37:22] Speaker B: Yeah, because you might find that you have to tighten up on your credit standards a little bit or something. Right. If you got too much lag in your, in your accounts receivable, looking at that aging report, 30 days, 60 days, 90 days. Very important so that you can keep track of all that, right?
[00:37:37] Speaker C: Absolutely.
[00:37:38] Speaker B: All right, so now we've talked about money and you know, every business eventually comes around to the fact that they need to borrow a little bit of money, right?
I think that's kind of a pretty much universal thing, right. So if you could kind of imagine in your mind a checklist, right. So that a business could be ready to jump in and be ready for some lending, right?
So if you were going to give us a checklist like debt service coverage, clean financial statements, all that good stuff, all that documentation, run us through kind of what that would look like.
[00:38:17] Speaker C: I think one of the things that depends on the size of the business because sometimes a bank would require some audit related bank statements that needed to be audited. They have to have gone through a complete audit. That might be a requirement. I think at a minimum they should be talking to their tax professional or their CPR accountant to make sure that they have some level of bank reconciliations going on, the books are up to date. Because if I'm a bank, I'm not going to really want to lend to you if I don't know, you have good books and you're organized. I mean, my money's at risk here. I expect you to, you know, be able to pay me back over time, you know, in the right amount of time, as well as, you know, pay me in full. And if I don't feel that you've reached that level of solvency or you're managing your expenses correctly, I'm not going to take the risk with you. So I think that, you know, that is something that I would definitely put into play.
[00:39:05] Speaker B: Right, Right. Oh my God, I've seen this. Business owners, they want to kind of manage their business from their hip pocket, right? Money comes in, they shove in their pocket, expense comes about, they reach in their pocket and nothing's documented. Stuff like that. Big problems. When you're trying to get the bank to put their money on the line, they want to make sure that you are organized and you got your eyes dotted. Dotted and your T's crossed, so to speak, right? So you, by the way, harsh. Now you've worked at the big four, you worked at the IRS and also in enterprise, you know, so what's one discipline that you would say that you've seen that big businesses really hit the nail on the head, right? So big organizations get this thing right, whereas small organizations, not so much I
[00:39:53] Speaker C: think it goes back to, to closing the books on time. Every month they close their books without fail. It is one of their imperative objectives. They make sure they do it. And what it does is it gives everybody, including their investors, their creditors, all of their customers, a sense that, you know, this company is running operationally in a very, very effective manner and transparent. So I like, you know, closing the books on a monthly basis on time, I think that's very, very crucial and I think that's a big business benefit that we should take advantage of.
[00:40:23] Speaker B: Man, I have seen, right, I've seen some stuff, man, seen some stuff. And I have seen million dollar businesses that I guess have never closed their books out, right. Like they just, every month they just keep putting stuff in QuickBooks and at the end of the year they print out their year end report. And you know, I've seen negative $400,000 bank balances on a balance sheet. And you know, you got to look at it and say, man, what are you, what are you doing? Right? You know, the bank didn't allow you to do that, right? That's not, that's not a thing. So, yeah, very, very, very good stuff. Right? Okay, so closing the books out, that's a very, very important one. Okay. On a monthly basis.
Okay. So if you had to give a 30 day profit and compliance reset plan, what would be, I guess your first two or three moves that you would have me implement from, you know, by tomorrow?
[00:41:22] Speaker C: You know, it's interesting. I have seen like some of the best business founders that we work with, they're very quick to implement dashboards for business intelligence. So they're able to actually pull on a monthly basis a very good understanding, a snapshot of their business, of all the key metrics that they're following that make a difference whether it's not only financial metrics, it could be sales metrics, marketing metrics. Is there ad spend being very effective?
We are looking at a lot of different metrics that are important to the business. What allows them to do with some business, intelligence wise is make course corrections very, very quickly. I think that's one of the ones that I've seen that's been very, very good. The other part of it is how they are managing their overall growth. You know, you'd be surprised going back to tax compliance as the company's growing, you know, maybe they're starting to sell, maybe in other states and other jurisdictions. But we have to think about the fact that you may be creating nexus in those states and now you have an additional bill, you need to pay a tax bill because now you're operating that state. So these are types, some of the planning opportunities that come into play as well. Things to think about.
[00:42:28] Speaker B: Yeah, definitely, definitely. So and so for people to be able to think about those things, people need to be able to find, reach out and get a hold of real professionals like yourself. There are. Right. So why don't we do this for everybody who's watching out there? Let me ask you this. What would be the best phone number, email, whatever website that people can reach out to you at my Profit Gurus.
[00:42:55] Speaker C: Perfect. Thank you, John. So our best place to get us is at our website, www.myprofitgurus.com. you can also reach me or my partner Matt on LinkedIn. And we also have a 1-800-number-1, 800-769-0092. All of those are opportunities to contact us and we'd love to hear from you.
[00:43:18] Speaker B: Excellent, man. Well, I will highly recommend folks out there go ahead and get in touch with you because I really have appreciated the way that you brought kind of insider knowledge right inside the system perspective today.
So that's a very valuable stuff. Again, folks out there, I'm John Mitchell and this is the key takeaway that I want to leave you with, right? It's not about being afraid of the IRS and just doing the bare minimum to keep your business and yourself in tax compliance. Right? It's all about, about utilizing these systems so that you can run a cleaner, tighter business that's positioned itself in the market to grow and be all that it can be. Right. So to speak. Right. So that's going to be very, very important to keep in mind.
Implement a monthly rhythm, tighten up your controls. Right. And protect what you've built and expand with confidence.
So thanks everybody for watching Legal Talk and I will be back next time. You know, stick with us. And thanks very much for being here.
