[LIVE RECORDING] 5 Financial Tips for New Entrepreneurs

[00:00:00] Speaker A: Hey, guys. Uh, I hope you are looking forward. [00:00:01] Speaker B: To a new episode of the New Money, new Problems podcast. This week's episode is unique. It's something we've never done before, and that is record an episode in front of a live audience. This is something I actually have wanted to do since we started the podcast, but just haven't to this point. But a few months ago, a friend of mine, Will Morrell, who's a well regarded singer, artist, business owner in town, told me about these things called passion parties, where he brings together creatives, entrepreneurs, and gives them resources to support each other. And they were holding a passion party, and he asked if I would be willing to record an episode of the podcast live in front of their group and then take some questions. So we did it this week. It was a great experience, really nice room of people, and you'll hear more about what the episode is about. So we'll go ahead and get into it. And I hope you enjoy this live episode because we plan to do more of them in the future. All right, let's get to it. [00:00:57] Speaker A: Let's get some money from new money. Hey, guys, I hope you're having a good week or have had a good week. Podcast successful professional. Hey, guys, I hope you are ready for another episode of the New Money Problems podcast. This week's episode is going to be really different. It's going to be negotiating compensation for the first time, purchasing your first episode in helping your, um, family, a live audience. This is something that, when we started the podcast, I initially thought we were going to do almost like one of the first few episodes, have some friends, family in a room record together. That did not come to fruition, but it's always been something that I wanted to do. And a few weeks ago, I have a friend. Uh, hello. My name is Brenton Harrison of new money, new problems. And a few weeks ago, I have a friend, Will Morel, if you're watching this video. And a few weeks ago, I have a friend, we will put a link to his information in the show notes, will, and if you something called the passion part, and the passion for another episode of the new way is going to be a little different. It's going to be something. If there is something that I could share. Hey, uh, guys, I hope you're looking forward to another episode of New money. So on this episode, we have an audience with us. They're going to clap to let you know that I'm not making this up, and that is that we recorded, and, uh, we are going to share five this is something that I've actually wanted to do. Entrepreneur needs to keep in mind when they are starting soon to start or have started there. But a couple months ago, a friend of mine, the first, who's a well regarded separate your business from, uh, your personal business owner around town, told me about something that he does. One of the things that I see people bring art, entrepreneurs and entrepreneurs for several years is there's a backtracking passion where they have to go back to separate their poor each other and different from their person. When you get started and you are a clothier when you are there, a singer, when you add one of their passions, uh, any type of eyes temptation is to say cash app that I hope to do m right at your intro. This LLC thing, there's this whole LLC twitter phenomenon where people are telling me I can just start an LLC and just borrow a bunch of stuff and never have to pay it back if it's in an LLC. What's true, what's not true, and you start to kind of dip your toe in the water of what it means to truly separate the business from the person. Well, to me, there's really a few areas that you need to do that and the reasons that you need to do that, and I'm gonna break down some of those for you right now. The first has to do with the difference between protecting your business from a liability standpoint, protecting yourself from a taxes standpoint. So when people talk about LLC is, a lot of people think that you start an LLC so you can benefit yourself on your taxes, but an LLC actually has nothing to do with your taxes if you are an individual sole proprietor, meaning you're just operating on your own and you're not in an LLC or a C Corp or an S corp, you have the same ability to take certain tax deductions and benefit yourself as you would if you had an LLC. An LLC is for the legal protection of your entity. It is to make sure that whatever assets are owned by that LLC are the only things that will be on the line in the event that you are sued. And one of the reasons you need to separate your business from your personal is the concept called piercing the corporate veil. Can you guys repeat that to me? So I know that you heard it? Here's what piercing the corporate veil means. When you are trying to make sure that your limited liability company actually has limited liability, an institution, an attorney, a court is going to want to make sure that when they look at your cash flow, when they look at your revenue, when they look at your expenses, when they look at the interchange of money between your business and your personal, that you are not using business assets and conflating them with personal use. And when you do that, you have done something called piercing the corporate veil, and it can strip all of the limited liability from your LLC. So that thing that you thought you were doing, where people told you you could just borrow a whole bunch of money and then get sued and have nothing on the line, or take a loan and not pay the loan back, if it's found that you've pierced the corporate veil, all of that goes out of the window. We'll talk about taxes, but from a liability perspective, things like an LLC, things like proper insurances, things like having a business attorney can make sure that you understand the limitations of what you're liable for. And if something were to come to pass where there's protections are, and you keep those protections strong by separating the business from the person. The next part of that is taxes. Again, LLC has nothing to do with taxes. But when you are a business owner, all of the things that help you produce that product or that service are things that you can likely take as a tax deduction. If you are a clothier, you know, all of the garments and the materials that you buy, of course, are things that help you do that business. But in the same vein, the marketing services, the Facebook ads, the website that you buy, all of those are tax deductible expenses. And when you are an entrepreneur that's just starting, you don't think to keep track of all of those things. You're just running. You're trying to get that business operating as quickly as you can. And you don't think about the fact that, hey, some of these purchases that I made are things that are tax deductible. One that I see is often overlooked for a new business owner is mileage. So, for example, I'm going, just because I see the hat and I'm like, man, it's just the quickest thing that I can think of. But let's say that I go to a place to pick up my materials for my clothes, and then I'm going to take that from option a or point a to point b, where a person is going to help me get it to the next stage in the production process. Well, the trip from my home to point a is not a tax deduction, but from point a to point b, those miles are tax deductible. So you want to make sure that you have an idea from a tax perspective of what you can and can't use to help you, because what you will find many people when they start their business, they take not just the Venmo and the cash app, but they don't report the Venmo and the cash app. But in reality, you don't typically have to fear about paying a ton of taxes when a business first starts. Because, as you know, before you're living off your business, you're really breaking even in most cases, and in some cases, taking a loss. And if you keep track of your taxes and your deductions, you can claim that loss, but also make sure that you're establishing a paper trail of increasing revenue from year to year. And that's the third reason that you separate your business from your person. One of the hardest things to do as an entrepreneur is to get funding for anything. A small business loan, a, ah, car loan, a, uh, home loan. They're going to sweat you three times as much as they do a non entrepreneur. An example, if you're an entrepreneur and you apply for a home, they're going to ask for your last two years tax returns. They're going to [email protected] business profit. If your profit goes up from one year to the next, most lenders will take the middle. They won't give you the higher year when they're calculating your income, but if it goes down from one year to the next, they use the lower number. They are trying to find any reason possible to not give you that financing as an entrepreneur. So what you do when you establish a paper trail of reporting your expenses, reporting your revenue, even if you're at a loss right now, is you can show them the progression of your profit and loss statement, your taxes, where you say, last year I took a loss. This year I took slightly less of a loss. Next year I'm profitable. And they can project and give you an idea and give them an idea of whether you're a good bet for financing. But if you wait until your business is up and running before you start to establish that paper trail, and then you go apply for financing, you could have a business that's earning $500,000 a year. But if you only have one year of tax returns that shows that type of revenue, they're going to say, show us two years in a row. Otherwise we can't help you. So that's step number one. Step number two, protect and grow your cash flow. Selfishly, there are some things that I call compassionate purchases or selfless purchases. An example would be, I, um, mean, anything you do for your children, obviously. But another example will be like life insurance. I don't buy life insurance for me. I mean, I won't be here. I don't really care what happens in terms of, like, my benefiting from life insurance, that's a selfless purchase that I buy for my family, right. There's certain things that I want to make sure is around in the event that I'm no longer here. So I purchase it even though I don't benefit from it. But there are some purchases, as a business owner, that are selfish purchases. One of those things is disability insurance. Disability insurance is paycheck protection. It makes sure that in the event that you are ill or unable to work, that there is something that is coming in the door to replace that income. And when you are creative, when you are in music, like many of you are, one of the hardest things to do is have consistent revenue. And if you are in a position where you can't travel, where you can't sing, where you can't use your, like, literal and metaphorical instrument, you put yourself in a position where there's nothing to replace it, right? And you've probably been in that situation where something happens. You can't travel, you can't take this gig, and you literally just have no revenue. Well, if that happens due to illness or injury, disability is something that will help protect that. But in order to get disability insurance, as an entrepreneur, you have to have two years tax returns, right? So it all goes back. These points flow into another. It all goes back to building that paper trail. So you want to make sure if you have dependable revenue, but you have not protected your income through disability insurance, that you make that selfish purchase. But another part of protecting and growing that cash flow selfishly is giving yourself, as quickly as possible, an idea of how much you should be spending from your business. Because when you start a business, most people, when you start it, you're doing something else, right? And you don't yet know when or if you should start to pull funds from that business to live off of. And even if you are living off of that business, you don't typically start and say, hey, if I'm making $1,000 a month, I made $1,000. Every single month for twelve months, I made $12,000. For most people is I made $12,000. That means I made $3,000 in January, I didn't make any money for the next two months, I made $4,000 in May, and then I make any money till December, and then I made the remaining amount right. Does that sound exactly. So when you are early in your business, one of the things that I typically encourage early stage entrepreneurs to do is to get an idea of the household income that covers their base needs. Now you want to build in a little fund and you want to build in health too, right? So if you know that, you need to make sure that you're talking to your therapist. This doesn't work if you're not in a good space, right? So that could be in your base needs. But you want to have an idea of kind of what it makes, what takes to make you operate and allows you to operate from a monthly cash flow perspective, because then you can establish a household income. And when you have irregular cash flow, at least knowing what your household income should be is helpful in good months and in bad months. Let me give you an example of a bad month. Let's start with good months, because why not start with the good news? Let's say that, uh, your household income is $3,000 and in the first month you bring in $5,000. It's a phenomenal month for your business. Well, you know that you've built in a little fun. We're not trying to live off beans and rice, but you know that based off your household income, you have a $2,000 surplus this month. You need to have the foresight to know that next month it may not be like that. And as much as possible, you need to take some of that surplus and put it in reserves. Because if the next month is a bad month, and let's say that you're a $1,000 in the hole, you only brought in 2000, but you had 3000 that you need to meet your base needs. Well, that's why in the good month, you establish that reserve, you didn't spend beyond your household income. You put the increase in your emergency fund or your reserves, so that when bad months come or you're trying to level out your revenue, you can use that operational account to make sure that you're not feast or famine. It's very hard to do, and it does not mean that you're going to have good months, but it does mean that as you're building towards good months, having an idea of what that base income would be will prepare you so that when you do have that blowout month, you at least have an idea of, uh, exactly how much can I enjoy this? Right? Because as a business owner, I'm a business owner myself. There have been months where it's not even things that you're blowing the money on. Sometimes it's things that you need that you've been avoiding purchasing. Right. I need four new tires. This has been a better month than the other months. So I'm going to take this surplus and I'm going to buy four new tires. When, if you had an idea of your household income, maybe you would have bought two new tires, put the rest in reserve, and the next time that you had a little excess, you'd have bought two new tires again, but you wouldn't have bought the full set or paid down debt trying to be responsible. And then when the lean months come, you're having an idea of like, okay, I got to go back to the same credit card that I just paid off because I got a little too aggressive in my spending and my debt repayments. [00:14:48] Speaker C: This is the new Money New Problems podcast, a show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen. We'll be right back. [00:15:07] Speaker A: Are you wondering what new money problems you might be overlooking in your financial life? If so, we've got great news. We've crafted the new money new problems gap finder to identify potential weaknesses in your finances in areas ranging from budgeting, investments, insurance, and even the threat your extended family's finances could pose to your household. Please head to newmoneynewproblems.com gapfinder to complete it today. Again, that's newmoneynewproblems.com gapfinder. To take the assessment. [00:15:46] Speaker C: You'Re listening to the new Money New Problems podcast. Subscribe [email protected]. Welcome back. [00:15:56] Speaker A: Number three is establish a banking relationship. And here's what I mean by a banking relationship. To me, a banking relationship is something that goes beyond opening up a business checking and a business savings account at bank of America or Capital one or insert big bank here. And it's not that those big banks are not good, but not every bank is good for everybody. When you are an entrepreneur, one of the things that I would want you to do, like establishing your business credit, like establishing your business taxes, like establishing your business cash flow, is also establishing a bankable relationship with an institution to whom you matter. If I'm a small business owner and I go open an account from $0 at, uh, bank of America, do you honestly think that the typical bank of America person cares that much about my account? It's not saying they're not a caring person, but do you think that my account was $0 and it matters to someone at bank of America. Do you think it's possible that it might matter a little more to a business banker who's trying to establish their book of business at a local or a regional bank? Probably matters a little bit more to that person to invest in your business, to keep up with you, to make sure you're growing to have an eye on revenue. So I'm not against you having an account at a Bank of America. I'm not picking on them. But I would also encourage you, when you meet people at these events who are business bankers, when you see a local bank that's opening down the road from you, to not just say, what's this random bank? I've never heard of this bank. That may be the best place for you to go open an account. Because when it comes time for you to apply for a small business loan or financing or a car loan, you want to make sure that you're putting your application before a bank that operates off of committees and personal decision making versus algorithms. If you are teetering on that line between getting a loan and not getting a loan, you want to be with a bank where somebody is going down the hall to talk to a committee about the fact that they know you and they're putting their word behind your business. What you don't want is to be with a formulaic bank that says, do they meet these metrics? Because if they do not meet these metrics, they don't get a loan here. So the next step, establish a banking relationship with an actual banker at a local bank. Number four is, do not treat your finances like they operate in a vacuum. I just talked about people who, if you're like me, and I hate owing people, it gives me hives. Like, the second that I get money, the first question that I have is, who do I owe? Right? So it's like, I don't want this feeling on me, because, like, if somebody owes me dollar 20 and I see them, I'm like, they owe me dollar 20. So, like, if I have that feeling and I owe somebody $20, I'm like, man, you know, I'm gonna give them 22 so that they, like, like, don't. I don't even want them saying my name in the street like I'm operating a way that I'm not. My sister's laughing over here because she knows that's true. So the problem with that, however, whether it's to pay off debt or to treat yourself, or even for things that seem like a good idea, an example would be putting money in a retirement account, you get a little money. Maybe you have a day job right now, but you're also trying to start your side business. Maybe you started your business, and you're saying, man, I need to save for retirement. So you put money in a retirement account. Oh, they have a 401k, max, matching my job. I don't want to give away free money in a vacuum if that were the only decision that you had to make. Of course it makes sense to put money in a take that employee match, right? You don't want to leave money on the table if the only thing that matters was your debt. Of course it makes sense to pay down that debt as quickly as you possibly can. But when things in your finances operate, they all operate together, right? If you do something with your finances, it's almost like hitting a marble, and it's connected to all these other marbles. So you can't just hit the marble and have it go off course. It's going to hit everything. It causes a chain reaction. If you pay down debt over here, it's less money that you can put in savings over here. If you pay a little more in this retirement account, there's less money that you can put in your business operating account. So I want you to ask yourself, when money hits your account, what is my primary objective? This may sound odd to you all, but I am, um, a financial advisor. I have not put money in my retirement account in two years. Not telling you not to put money in your retirement account for two years. But the reason that I haven't is because in the end of 2022, I decided to start my own firm, and I decided to bring on a full time hire, and I decided to change the entire structure of how I had been doing business for the prior 13 years. And when I started that firm, one of the most important things to me was stabilizing revenue, making sure I could make payroll, and also making sure that the sale value of my business continued to increase. So I took all of the money that I had previously been putting into retirement accounts, been putting into savings, and I started putting it into my business, and I started tracking the sale value. I don't plan to sell, but I started tracking the sale value of my business, because, in my mind, the return that I could get from doing that exceeded what it would gotten if I put it in the retirement account. Now, I don't know what that equivalent would be for you, but it is just to make sure that you understand the point that there is nothing that you can do in one area of your finances that doesn't impact the other. And you have to ask yourself, before you put money anywhere, what is your primary objective? If your primary objective is to start a business right now, businesses take revenue and cash flow and reserves. So even though it is in a vacuum, a great idea to put money in account that you can't access till 59 and a half, that's not your primary objective right now. Make, uh, sure you ask yourself that. And then the last thing is to find a financial literacy source that speaks to you. I'm biased. I think I'm pretty good. So I would say that I would hopefully be one of those sources. But you could be listening to this and hate this, so it doesn't have to be me. But one of the things that I have found with entrepreneurs, especially minority entrepreneurs or minorities in general, is that a lot of times we shy away from financial literacy because people are speaking to us about things that are just not our experience at all. You listen to insert financial influencer here, and they tell you, this is not going to be hard to fill in the blank, but save $1,000, and then don't save anything else until you've paid off every single debt that you have and tell all the family that asks you for money that they're lazy and need to get off their ass and work, blah, blah, blah, blah, blah, blah, blah. Well, like, that's easy for that person to say when the person who's asking them for money is asking for, like, hey, I want to go do XYZ, I want to go do. They're not saying, if you don't give me this money, I'm going to get put out my house, right. The person who's saying, hey, I'm going to save $1,000 and then not save anything else until I pay off debt. I'd be paying off $5,000 of credit card debt. They're not saying, hey, I'm upside down on my car loan, and I have $5,000 on credit card debt, and I have $75,000 what the student loans. So you have to make sure that you understand that. I promise you there is someone out there in the financial literacy sphere that speaks to your current situation. And until you have found that person, that resonates with your situation, the search is not over, because the one thing that is not an option is to not continuously increase your financial literacy. There was a study that came out a few weeks ago, study came out a long time ago, but articles picked it up a few weeks ago. That it was talking about the monetary value of being financially literate. Did anybody see this? So this article came out covering this study, and it was just talking about, like, measuring people's experiences compared to people who are not financially literate. And what they found is that a financially literate person has established an asset in that knowledge that's worth over $100,000, just in terms of either lower interest rates or greater interest rates on what they've saved or avoiding trouble financially. So the fact of the matter is, being financially literate actually has a tangible financial value, and acting like it doesn't will put you in positions where you're just behind the eight ball. From new money new problems this was the new money, New Problems podcast, a show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen.