161: Blog Business 101: Understanding Your Accounting with Ben Sutton

In this episode, I share an email quick tip, and then we talk about some really important things around bookkeeping and accounting and taxes, which might sound boring, but there's going to be some tips and advice that we share that might just save you money, especially some of the things that we talk about at the end. Hey, everybody, this is Bjork ostrom broadcasting from St. Paul, Minnesota, and you are listening to the Food Blogger Pro podcast. Excited to have you here. We have a community of thousands of people that tune in every week to this podcast and it is one of the great joys that we have producing, publishing, and connecting with the people that listen to this podcast, many of which are members of Food Blogger Pro. Some of you aren't. Some of you are just bloggers that tune in to the podcast every week to learn insights and little piece of advice that you can pick up and apply to building your online business, your blog, or your website. And one of those little tips that I want to share for you today is about email. And this is the Tasty Tip for this week. For those of you that have listened to the podcast for a long time, you know, the Tasty Tip is kind of the weekly sponsored portion of the podcast, but it's actually a business that we run. So the team behind Food Blogger Pro and WP Tasty, we kind of operate as one, even though those are two different businesses. And we wanted to make sure that you understood it was two different businesses. It's not under Food Blogger Pro because it's a very unique niche business. It is a business where we create plugins, a lot of which we use on Pinch of Yum. All of which we use on Pinch of Yum. We create these plugins that we wanted to use for our food blog, for our blog, and we wanted to offer those to other people so people that listen to this podcast can go to WP Tasty and download those plugins. And there's three different plugins that we have right now, tastypins, Tasty Links, and Tasty Recipes. And those all have really specific uses that help you either grow traffic and build your social media following on Pinterest or leverage SEO or help create additional income. That would be Tasty Links by linking strategically with affiliate links. All of those are plugins that we use and we recommend to other bloggers and we talk about those within the Tasty Tip. But the Tasty Tip itself isn't always about those plugins. It's just a chance for us to say, hey, this is sponsored by WP Tasty. And the Tasty tip for this week is all about email. And specifically it's about a program that I love to use called Mixmax. Now, I want to tell you, not specifically about the program, there's a couple different pieces of software that do this. Mixmax is one. Another one is called Boomerang. And what I want to tell you about isn't specifically the software. Check out both of those, see which one works for you. I've used both and our team has decided to use Mixmax. And we like it and enjoy it. It's a really good fit for us. But what it does is what' really important. And the hard thing with email is that it can totally take over what you do day in and day out. And it can take up that really critically important space in your brain. If you're always thinking about, hey, did that person follow up to that email that I sent? Or especially if you leave emails in your inbox as a reminder to follow up on them. And then what happens is you maybe open them multiple times, you read them, but you don't take action on them. And Mixmax is a program that can help you manage your email. There's really a few different ways that I use it and I really like it. One way that I use it is if I send an email to somebody that I know that is really important and I need to hear back from them. I'll use Mixmax to say, in two days. I usually use two days. In two days, if I don't hear back from this person, remind me. And what that does is if the person doesn't reply to an email, that email shows back up in my inbox and I'm reminded to follow up with that person. It's a really great feature that I love using because it makes me not have to be responsible to remember to follow up on emails if somebody doesn't reply. The other thing that I really like is sometimes there's an email in my inbox and it's something that somebody sent to me. And I know that at that moment I can't reply to it. Maybe I have to wait a couple days until I have more information or for some reason, there's just not a reason for me to reply to it. What I do is I say, remind me about this email in a specific time period. Sometimes it's just two hours. And I say, okay, remove this from my inbox. I want to work through my inbox and I know this afternoon I'm going to have more time to process through that. So I remind myself about the email, but I get it out of my inbox. The other thing that's really nice that I use a lot is a feature for sending later. So let's say you are working really late, you couldn't sleep, and you're up at 1am you want to send an email to somebody that you have a connection with, or maybe it's a client that you're working with, but you don't want to send them like a 1am, 2am, 3am email. Or maybe you don't want to send an email on a weekend because you don't want them to feel like they need to reply on a weekend. What you can do with Mixmax is you can say, hey, I want to send this a little bit later. So instead of sending it right at that moment, you can say, I want to send this at a certain time when I know that it's going to be more convenient for the other person or make more sense. So those are just a couple examples. There's lots of other ways that you can use mixmax, but it's one of the features, some of the features that I really, really like about that program and that Mixmax isn't a sponsor of Food Blogger Pro. It just happened to be something that I wanted to share as a tip because it's been a really helpful program. So hopefully Mixmax, or Boomerang, which is the competitor of Mixmax, is something that you can integrate into your workflow for email and it will have a positive impact and help you get to that, that sometimes seemingly unachievable inbox zero because it's a huge part of, of the process for me as I work through my email. So that is the tasty tip brought to you by wptasty, and I hope that you're able to take that and implement on it, because that's the important thing is implementing on the things, not just learning about them. All right, so what is today's podcast all about? It is about accounting, bookkeeping and taxes, which doesn't sound very fun, but what I've come to learn is that understanding accounting bookkeeping and taxes is a critically important piece of the puzzle for having a strong foundation for your business. And as your business grows, it will also be one of the ways that you will be able to, quote, unquote, make it's actually saving, but make money within your business is to understand how the tax rules work and the tax laws. And that's regardless of if you live in the US or Canada or Europe, wherever you are, it's important to understand how taxes work in order to fully leverage those. So your business is running as lean as possible. And this is needless, maybe needless to say, you want to really strictly follow the rules that are there. But what I've found is, I've had conversations with business owners is that oftentimes people don't know what those rules are. They don't know that, hey, I can be expensing miles if I drive somewhere and that can be deducted against the income, so I'm not paying taxes on that. Or some of the things that we talk about at the end with Ben, things like the 20% pass through deduction for business owners. Those are going to be ways that you can save a lot of money within your business by understanding how taxes work and keeping really good books and having strong accounting. So Ben is going to talk about his company, what they do, why they're a great fit for, for bloggers and small business owners. And he's gonna talk about some of the really important things to understand as it relates to accounting, bookkeeping and taxes. So let's give a warm welcome to Ben Sutton. Ben, welcome to the podcast.

Thanks, Bjork. Good to be here.

Yeah. Excited to chat with you today about, believe it or not, it is one of my favorite topics, accounting and bookkeeping, which I know is maybe abnormal. I don't know if that's a normal thing, but I'm really excited to talk about it. It's. And to clarify some of the really important questions that I'm sure a lot of people have. But before we do that, I want to hear a little bit about your story, Ben, because not only are you an expert in this area of accounting and bookkeeping and understanding numbers, but you've also been working on building this business. So can I hear a little bit about your story and what brought you to where you are today?

Absolutely, yeah. And I'd say you are a little abnormal if you like this topic, but it's definitely relevant and it impacts our lives on a day to day basis, if not just an annual basis when we file tax returns. So it's definitely worth spending a little time to understand. So thank you for having me on giving me the opportunity to share some things with people.

Absolutely. Yep.

So I, you know, in school I. Accounting kind of made sense to me. I got better grades than my peers in that class. And so I guess that's what kind of made me go down that route of doing this for a career, for a living. I went to school, you know, graduated, got a Master's degree in accounting, got the CPA license, kind of the whole accountant track that, you know, the education departments feed you down. Went to, went to work for public accounting firms in Washington state and then in Utah state and was doing work for larger businesses, you know, so these public accounting firms are, you know, they, they're searching for the large business because that's where the bill, a lot of the billable hours go. And that's where they can make a lot of fees. Right. Collect a lot of fees. And so I was a staff accountant on large projects for large businesses. And I worked my way up over the years to be a manager over teams of auditors auditing these big businesses. And then I, you know, kind of those are some long hours. You work hard and work a lot of overtime during busy season and all that. It kind of clicked for me one day that no one here likes to see the auditor walking down the hall. No one likes to see me.

I can imagine this moment where like, you are literally walking down the hall and you're kind of looking around and you're like, wait a minute, there's something that I don't like about not being liked, Right?

Yeah. And I like started self reflecting. Well, why would that be the case? Well, it's my job to come in here and find things that they are doing wrong. Who likes that, you know, come in and just criticize their work all day long.

And that's you doing your job. Well, like if you are, if you are excelling, you are finding the things that are wrong.

Yeah. And so it's kind of a quandary, Right. So as I, as the scales kind of fell from my eyes and I realized the reality of my career and what I was setting out to do, it just put a bad taste in my mouth. And you know, I decided, you know what, I want to get on the other side of the table. I want to be on the business owner's side and help them in some way provide a service to them that they really need and appreciate and want and make sure that, you know, my interest is the same as theirs. And so that did two things. One, that meant small business was the way to go. Because these big businesses, you know, there's a CEO and there's owners, and no one really gets to talk to them. They're all distant. But the small business owner with a blog or who's a photographer or, you know, any other real small business owner, you're, when you're serving them, you're talking to them, and you're delivering the service right to their doorstep and they feel the impact and they appreciate what you're doing. And so the relationship is more with the owner directly and. And you can help people. And so that element of serving people and individuals and making a positive impact on their lives and saving them taxes drew me to this field of small business. Bookkeeping, payroll and tax services.

Got it. And talk just a little bit about what it was like to make that transition and to make that switch. Because everybody that listens to this podcast in some way is building their thing and it might be in a different industry. Right. There's probably not a lot of people who are building a bookkeeping and accounting services business, but I think we can all relate to each other in the sense that we are building something so really quickly. What was it like kind of in the building stages and how things progressed just from a business owner perspective.

Well, you're right. I'm sure as I explain this, a lot of people will relate. I had a vision, right. I had an idea, a concept of something that I thought could be. Was needed in the marketplace and that I thought would be received well and would be successful and would help me earn a living along the way. And. But to my professional buddies, you know, my, my auditor peers, I was going to do the bottom, you know, the grunt work the bookkeeping is. And payroll is like the grunt work of the professional accounting world. Really. And so they're like, what do you think? Why, why would you go do that? You know, you're telling me you're gonna leave this higher profile audit job to go do bookkeeping. And so there was some not, not rejection, but just dealing with people not understanding.

Yeah.

The vision that I had and the idea that I had and wanted to pursue and so going out on a limb, you know, is what I was doing against my peers, you know, they weren't advising me not to do it, but they just didn't get it and they weren't getting on board with me.

Yeah. And I think a lot of people can relate to that. Especially, you know, one of the things that we've had to do just because it's. What we do, is people ask, what is it that you do? And it's. We tell them, well, we have a food and recipe blog that we run and it's like, it's. It's such a weird thing and people don't fully understand it and it's so abnormal. And Lindsay and I joke about that. Most of the time people will like, respond kind of empathetically. Like, like, you know, almost as if we're communicating, like in a sense we're kind of in between jobs. And I think other people that listen to the podcast can relate in like, hey, expressing their dream, whatever that might be. And that dream is probably a little bit different than the normal career path that people are familiar with or even know how to have conversations about. So I think that's really relatable when you talk about expressing this vision that you have. And that vision isn't something that other people can totally understand or relate to, but you've executed on it, you've built this thing and here you are on the other side of it where you're building this business. So can you talk about just a little bit about what it is that you do? And we can have some time at the end and then we'll jump into some specific questions because it's such an important topic.

Okay. Yeah. So, yeah, you're right. The vision. And I'll say I had a vision and then there was a series of a thousand mistakes.

Yes.

And a willingness to keep trying.

Yes.

Has allowed me to be alive today and still doing it. And fortunately it is providing for me and my family and I have no complaints about that. So, you know, sticking with it has been the key.

Oh, isn't that so true?

Yeah.

There's a presentation I did and I did it in a couple different places, but one of the slides I said was, I'm going to tell you the secret of success when it comes to blogging. It's blood, sweat, tears and mistakes. Like that's the secret formula. And it sounds kind of similar to what you're saying. So anyways, I interrupted, but keep going.

Okay. And it's such a wonderful process. Right. You grow, you learn and you grow so much independent of the social norms that often teach us things. Passively, you're out there paving the way yourself and learning things on your own. And there's a tremendous amount of character that's developed process. So it's been good. Very difficult, but very good when traded for anything.

Yeah. Great. And the name of your company, you've been holding it back.

And so we are a subscription based accounting service that provides bookkeeping, payroll and tax return services to the very small businesses of America. Right. So I'm not talking small business. 50 employees, you know, it's small business. Primarily zero to 10 employees. Sure. Is where we serve. And. And it's all across America. So we've got clients in 45 states and provide those services. All from Utah. Our Hub here in Utah, Orem, Utah. And it's a monthly cycle. So we, we reconcile bank and credit card accounts every month, deliver financial statements every month, and then are available to discuss taxes and tax planning and minimizing taxes all through the year. And then we prepare the personal and business tax return at the end of the year.

Got it.

And that's all included in our subscription.

Got it. And you have the really unique perspective of, you know, you talked about your hub in Utah. You are also the hub, or you kind of are the central point of contact for a lot of different people that look very similar to the people that listen to this podcast. And I love having on guests like you where you can have this broad peek into kind of the inner workings of lots of businesses. And you also are able to see some patterns and are also able to say, like, okay, really consistently, I see this as being an issue. And I would love to spend some time talking about those different things that you see as consistent areas for improvement, consistent things that come up as issues. But also I would love to talk about some of the basics. And I think it would be really good to start from that area is to talk about the ground level, foundational things. So first, let's start really up high. We're talking about accounting. We're talking about bookkeeping. What's the difference between the two of those things, accounting and bookkeeping?

Bookkeeping. Well, let's start with accounting. Accounting would be the overarching umbrella, right, that covers a broader range of topics. So I throw tax underneath the accounting umbrella, bookkeeping underneath the accounting umbrella, and payroll could go into the accounting umbrella. So accounting is a very broad term that encompasses a lot of different special specialities. Bookkeeping is the specific practice of aggregating transactions that occur during a time, a time frame, and summarizing them into financial statements. So take getting the information, each transaction off of a bank or credit card statement. That's. That's the ground level of what we're talking about. You look at your bank or credit card statement and there's a list of transactions there. And the process of bookkeeping is taking those transactions, entering them into or importing them into an accounting software that allows you to categorize or tag all of those transactions and then summarize them by category or summarize them by tag. So during this month, If I have 10 different transactions that were at various restaurants, I tag all of those as meals as they go into the accounting software. And then when I look on my report, it's going to show all 10 of those transactions summarized, added up into my Neil's category.

Got it.

Meals expense. Right. So bookkeeping is that process getting the information off of the source document, bank and credit card statement into an accounting software that can then provide information to. You can summarize those transactions so that you as a business owner can see what's happening.

Got it. Yep. And it's a couple things actually that you had said within there that I'd love to drill down into a little bit more. One of the things that you talked about was. Well, before I get the. Before I ask this question, let me back up a little bit. When should we start bookkeeping? Like, so we have a blog. Maybe it's creating a little bit of income, but not a lot. We're putting some money into it and investing our time and we're working on it. It's probably a. But when should you actually start doing this? At what stage does it make sense?

Yeah. So I would suggest that as soon as you can. That if you can open a bank account for this for free without having to pay for an extra bank account, I would say you start running all of your transactions through that bank account from day one. Just as early as you can, you know, as early as you finally realize, oh, this is something that's happening and I'm going to be putting my time into. Really. The IRS will say, as soon as you make your first dollar, you know, collect your first commission check or ad revenue, you've got a business.

Yeah. And why would you not just do that in your personal account? So everybody probably has a. Or most people probably have a personal checking account and a personal credit car. You just say, okay, I'm going to, you know, when I buy something for my business, I'm going to keep the receipt and just write business on it. Why is it important to have a separate account?

That's a great question, because I'll tell you, a lot of people don't have a separate account, but there's a lot of benefit to having that separate account because you've now isolated this business activity, this blog business activity, into one bucket of, you know, this one stream of activity that you can go to and know, okay, everything in this list of transactions is related to my business. And when you're going about doing the bookkeeping, as I described, of taking transactions off of a bank statement, putting it into accounting software, you. You have to differentiate between things that pertain to your business and things that don't. So. Because at the end of the year, when a tax return has to be filed. The IRS is expecting you to strip out all of your business activity. And so keeping receipts, you know, if you've got maybe one or two transactions a month and you're ending up the year with say maybe 20, 30 receipts that are pretty easy, quick to add up, then yeah, that might work just fine. But very quickly, it can get pretty hairy with trying to differentiate, oh, was that Amazon purchase for my house or was that for the blog or for the, you know.

Yep.

What was that for? And so if you just, if you set up that separate business account, you eliminate half of the decisions that you, you know, half of the things you have to remember. Okay, I know all of these are business.

Yep.

Now all I have to do is identify what they were for. Yeah, for supplies. What it was it for rent or utilities or Internet, whatever.

Yep. And that would be, that was actually my second question. So there's to have that line in between your personal and your business. So nice. Because then you can say, okay, all of the income that I'm earning will go into the. Let's, let's just keep it super simple. Let's say you only have a checking account will go into the checking account for my business and all of the expenses that I have for the business will come out of that business checking account. And so then you can see, okay, am I making money, am I losing money, how much related to my business and having a lot of clarity around that. But then you can also, if you are doing the bookkeeping, which again is taking those expenses and taking that income and then bringing it into a tool where you can categorize it. If you are categorizing it, you can also see, okay, here's where I'm spending the most in a certain category, or here's where I'm earning the most in a certain category and really getting to understand your business and how it works kind of the engine of your business based on those categorizations. So the follow up question that I had, you're talking about categorizing things and tagging things within an accounting software. How do you know what to tag things as and categorize things as? How specific do you get? Would you categorize different types of software? Like, okay, this is design software and have a category for that, or just one big bucket for software. What does that look like in terms of how specific you should be in organizing the types of income and expenses you have?

So that's a great question. And there's two perspectives to it. One is what does the IRS expect you to do as far as breaking it down? And two, what do you need as a business owner to analyze and manage your business the way you want? The IRS does not expect a great amount of detail. You can group things together. They, in the tax returns, they have like maybe 10 predetermined categories, you know, of expenses, which is not very many. So, and then if you go beyond those 10, you list them out and you just write in what the names are. So they have like supplies, rent, advertising, payroll, and those big categories that are kind of, you know, for businesses that they most often have. But if you have things, you can call it whatever you want, but you can say food, blog, photography, you know, have that be one of your expense categories and write that in on the tax return. So. But the IRS doesn't expect that. So you can be more summarized higher level categorizations for the irs.

Got it. That makes sense. So idea being the IRS has some things where they say, hey, if you're going to have advertising, we want to know what that is on the forms that we fill out. When you say, hey, this is how much money my business earned when you're doing those tax forms. Beyond that, you don't have to get more specific unless it would be helpful for you within your business. So maybe you want to know. Okay, I feel like I have an addiction to buying camera lenses. Let's see exactly how much I'm actually spending. I'm gonna create a category in a category for camera gear that would be going above and beyond. But it's for your personal use, not for the irs.

Right, exactly, but. And it works for the IRS because they have a place for you to write that in, and it's just in their other category. Got it. So you're not losing anything or creating extra work by having special categories. But that's exactly right. So you, as the business owner, you, you want to be keyed into what numbers matter to you and which ones you want to track so that you can inform your decision making as you go along. Now, I will caution against too much detail in your categories. I see it occasionally where there's a subcategory for everything. You know, there's supplies, expense for food, supplies, expense for utensils, supplies, expense for tapestries, you know, and there ends up being so much detail in your categories that when you look at the report, you don't get anything out of it. You're just as overwhelmed as you were if you were looking at your bank statement.

Yeah.

And so I caution, I always Say start more summarized. You know, start by aggregating at the higher level and then break it out further if you need to. You know, there's some information that's buried within a category and you want that broken out. Okay, do that next.

Yeah, it's interesting. The question actually came from that exact issue that I noticed with some of the ways that we have our own books set up, where for a Pinch of Yum, which is the food blog that we run for some reason at one point I got really specific with tracking the software that we use. And so there's like a subcategory for each specific line item or piece of software. So it'd be like Adobe Backups Domain and Hosting Dropbox E Junkie. Like those are way too specific because essentially it's just listing the service. So that's something that we need to go and unwind because it's not very helpful. We can drill down into software to see like, okay, where are we spending that additional money in software? But to have it essentially just list the actual item that is under software doesn't make any sense, right?

Yeah, exactly. And it's, it's interesting at the beginning, you know, it's interesting at the beginning and it's usually people at the beginning of the business, you know, we're interested in that detail or detail oriented people are, and they like to see that. But then after a while you realize, oh, this is, this is not helpful, you know, distracting me from looking at things at a higher level.

Yep. And so we've talked about categorizing, we've talked about tagging things, but it's, we haven't really defined where we're doing that yet. So if somebody hasn't gone through the process of setting up a tool or an app or somewhere where they're actually tracking this, where would you direct them? Where's the first place that they should go? Obviously you probably have some preferred tools and maybe even some internal tools that you use, but which you can talk about. But for somebody who's just getting started, what should they look at? What would your recommendation be?

So at the very, very beginning, where the transaction volume is not very high, you know, maybe you've got a dozen transactions per month going on. I think a spreadsheet is probably the best place to start, where you are outlining your transactions and just typing them in to a spreadsheet. Now, because there's so much transparency. Right. No software doing things behind the scenes that you don't know about. Right. So you can see exactly what's going on. And so if you create a column for each category, so you got your transactions maybe listed off to the left, and then you've got a column where you put each amount in, and then you've got a total at the bottom where you're adding up each column category that, you know, it's, it's rudimentary and it's basic, but when you don't have a lot of transactions, it's. It's cleaner and it's, it's easier to understand. And. And then when transaction volume does go up, then really, if you're going to do it yourself, QuickBooks is probably as the place to go. You know, it's just straight software, so you're not getting much help with it. But it's a great tool for getting transactions into an accounting software that allows you to categorize them and then generate a legitimate profit and loss report that spreadsheet doesn't do automatically for you.

Yeah, I love that. And I think, you know, one of the big revelations for me as I was starting to learn more about taxes and accounting and bookkeeping was it's like there's not this official government rule, at least for small businesses that are just getting started. It's not like you have to use this tool and it has to work in this specific way. Essentially, you are responsible for keeping track of your business expenses and your business income, and you are responsible then for submitting that information to the IRS or for our people that are listening, that aren't in the U.S. whatever government agency would overlook kind of the taxes and finances of businesses. But there's not some, like, magic thing that you have to be doing that is tracking and fits into the rules and stipulations that government have. Now, obviously, as businesses grow and become more official, that changes. But when you're first starting out, you can be scrappy. You can have a spreadsheet, and if you only have six transactions, you can keep track of those in a spreadsheet, how much you're making, what the expenses are, and calculate the total profit from the business from that. And one of the things that it doesn't do that you had mentioned is this idea of a profit and loss report. And that was one of the questions I wanted to ask you. For those that have started to use some type of bookkeeping software, they're kind of getting to the point where it's like, okay, we're getting the hang of entering in expenses, entering in the income, then what does that do for you? How can you use that to understand your business a little bit better, there's a profit and loss. Are there other places that we should be looking as business owners to understand our businesses better?

The profit and loss is going to be the one that really helps you understand your business and drives and is an insight into your business to realize what your profitability is and how to manipulate that. You know, how to change that profitability so that it comes out maybe to more how you want it. So really the profit and loss should be. Is kind of step one, the main tool that you're going to use. And it's listing out that income and those expenses that that are happening during a monthly, on a monthly basis and then allowing you to compare those from month to month. And that's kind of where the power comes in to a profit and loss is when you start lining up, you know, January through July of how much income did I generate? How much did I spend on this soft. The software or payroll or supplies? And am I spending what I want to spend?

Yeah.

Or do I think I can do. I think I can spend less and get the same quality result? Are my sales where I want them to be and, and how do I increase sales and decrease expenses without sacrificing quality of service or quality product? Right. And so that. And as you start to look at trends, when you start comparing January through March and look at your monthly or even your yearly comparable P Ls and set those up side by side, you see the trends, you see your history and what's happened in the past and it allows you to look into the future, you know, because you've got this evidence that says if you spend this money, this is probably what's going to happen. Or if you spend this money on marketing, this is probably what your sales is going to look like, you know, and so being able to project out into the future is one of the key elements. And budget out into the future and then. And predict the future is one of the great powerful tools of understanding a profit and loss statement.

Yeah, I remember distinctly and it was not that long ago. Right. So we've been doing. We've had Pinch of Yum, our food blog for eight years. This was maybe like a year, year and a half or two years ago where I was in QuickBooks and discovered this ability to compare to the previous year. And I was like this is the best thing ever. Like I can see what lack last year look like and what growth has been. And you know, previously I had this routine of going in, reviewing the profit and loss and saying like, okay, are there any areas where it's like weird we spent a bunch of money this month in that area. Why is that? Investigate a little bit. But I had never compared year over year or month to month. And that's such a cool thing to be able to do because you, like you said, it gives you a little bit of an insight into how things are changing or any areas that might be a red flag or any areas of concern. So really valuable and interesting thing to look at. And if nothing else, just get in the routine. Maybe schedule a one hour time period every month to say, okay, I'm just going to spend a little bit of time in this and kind of poke around and say what has changed and see if I can discover why that has changed and see if any of those things and this is what you're talking about with the marketing, see if any of those things are a leverage where it's like, okay, I can see that if I, I'm trying to think of an example for, that's relevant for what we do. How about this? If I spend more on video, like if I invest more on video, then I can see a result from that with more income from maybe sponsored content. And you'd have to, you'd have to spend time understanding that like if I, maybe the money is spent, you know, in January and you get the income from that in March from a payment or something like that. But you start to understand the numbers of your business and the different levers that exist with that which is so incredibly valuable. So profit and loss is important. Would there be any other kind of reports or areas that you'd recommend people look at or be aware of?

Well, the balance sheet is kind of the other main one that is relevant. It's less informative and less relevant, especially to the small, small business. But what that kind of represents is the overall health of the company and kind of the cumulative profitability over the years. So it's meant to, it lists out the assets, it starts with cash in your, your cash balance. And then any other assets that you own, like maybe expensive equipment or even a building or cars or any other assets that you have in your, in your business that you paid for. And then it lists out the liabilities, the credit card balances or the loans that are outstanding that you, that you owe. And then there's this section called the equity section which keeps, displays the cumulative of the total activity between the owner and the business. So anytime the owner puts money into the business, it goes into the equity section. When the owner pulls money out of the business. As an owner's distribution, it comes out of the equity section. So those. The balance sheet is important and it's meant to ensure that everything is done right. But on a month by month basis, it's less relevant. It's mostly useful. Like if you're trying to sell your business, it becomes very relevant. And so in special cases like that is very key and important. But on a month to month basis, the profit and loss is really where to spend your time.

Got it. Great. So a couple questions that I had that are related to you having this understanding of small businesses, bloggers, in a lot of cases, working with these people in the 0 to 10 employee range, where it's maybe just somebody as a solo entrepreneur, a solopreneur, so to speak, and some of the things that you've learned along the way. So first question related to that. What are some common issues that you see when you start working with somebody? What are the things that you need to clean up right away that people that are listening can say? Oh, that actually applies to me. It's something that I should do as well.

Yeah, we've already kind of touched on it. But cleaning up your account so that you're isolating your business transactions into business dedicated accounts, that, that just does a lot to organize a business. So it doesn't mean you can only have one account. Right. You can have a couple checking and a savings and two credit cards, you know, but as long. But the, the goal is to get only business transactions flowing through these accounts. That's a, that's a big immediate cleanup.

And do you have recommendations for the easiest way to do that? Like if just kind of the drop dead easy approach to separating your expenses.

From your personal. Yeah, yeah. So the goal is to make it so you accumulate your profit in your business account and then you get paid from that business account. Right. So to use that money for your personal expenses. So ideally your goal, the end goal should be to make a transfer to yourself once a week, twice a month, Once a month, however often you need to, and use that money to pay for personal bills.

Got it.

Right. But it's a challenge. But, but really you got to get all of your automatic payments, OB software and all the other softwares that are automatically coming out of your accounts. You got to get those switched over to a business account, which is unfortunate. There's no simple way to do that. But attacking each one by themselves. I've seen people go the other direction where they've got personal and business expenses. Mixed. And they decide instead of moving all this business over to another account, I'm going to just move my personal over.

To another account because they have more business transactions. Their personal account. Sure.

Right. Or more automated transactions. Right. Coming for business. And so the first step that we have clients do to kind of begin this process is to go through their account and highlight each of the business, all the business transactions.

Got it. So this is printing out a piece of paper, going through and saying, like, for the last, whatever, six months, go through and highlight every single transaction that was related to your business.

Exactly. Yep. And that's what has to be done at some point so that we can extract the business activity out of. Out of all those transactions and report it to the irs. And so, and we, as their outsourced accountants, you know, it's hard for us to differentiate the two, so we have to ask them to go through and highlight those. And so that, that gives you insight whether you're outsourcing it to an accountant or not. It gives you insight into what, how many business transactions are there and what type of transactions are they. So if I'm going to divide these, you know, how do I do it? And it's like, oh, here's the Amazon one, here's the Adobe one. I gotta go talk to them and get this switched.

Yep.

So that, that's step one to getting that divided.

Got it. And I think that that in and of itself will be a huge accomplishment for people if they are able to say, okay, from this podcast, I'm gonna learn that I need to separate things out, need to take my business expenses, set up a business bank account for that, have that be a separate thing, get a business debit card or credit card, and all of my transactions that are related to business go through that, and all of the income related to business go into that. Ideally, it would be set up in a way like you're saying, where it's connected to your personal account, so then you can pay yourself when you need to from that account. Now, I'll just mention this because I think that it will be important for a handful of people that there's a point when it makes sense for some business owners, when they become profitable enough to change the type of structure that they have where they're actually paying themselves a legitimate salary from their business. They're not just doing transfers, they're actually on payroll for their own business. And it's called and again, this is for the US So it's a US specific podcast. But this episode is at least Because I wish, and I'm sure that you do too wish that it could know international accounting and bookkeeping taxes. But. But the US is complicated enough. But the idea being that there's this point where it makes sense to set up your business where it's paying yourself. Can you talk about what that is and the idea of S Corp and when people should research it more without kind of going into the details of exactly how that works and how that works?

Absolutely, yeah. So in summary, we're talking about this idea of being taxed an S corporation without the S corporation. All of your profit, all of your, the money that the business generates is subject to self employment taxes and income taxes. Okay, so self employment taxes, it's Social Security and Medicare, it's about 15% and income tax is usually between 10 and 25% depending on how much money you're making. So as when you're not an S corp, you're paying self employment tax and income tax on everything. With an S Corp you are made an employee of the company and you're taking a wage, a regular salary out of that company, but you're also taking an owner's distribution out of the company. In that structure, you don't have to pay self employment taxes on what you take as an owner's distribution. So you're still paying the Social Security and Medicare or self employment tax on the wage, the salary that you're pulling out as an employee, but you don't have to pay that self employment or Social Security Medicare on what you pull out as an owner's distribution. So once you're making, I don't know, I usually say 40 grand, you know, 30, 40 grand. If you're taking home that much money or more, then the S corp becomes something to look at because the cost associated with having that S corp is payroll. You gotta pay someone or do payroll yourself, which I'd never really advised because it's so cheap to have someone else do it for you now. So there is a little bit of a cost, maybe let's just say an extra thousand dollars a year that it would take you to have an S Corp. But if you're making, you know, 50 grand, 30, 40, 50 grand plus, you can quickly save 3, $5,000 in taxes by doing this.

Yeah, and that was something that was really hard for me to wrap my head around when we started, when the CPA that we work with started to explain that. But I wanted to more than anything just give people that kind of little tipping point. So once your business or your blog Gets to the point where you're kind of in that like 30, 40, 50 range, then you can say, okay, mental note, I need to learn about S Corp and paying myself a salary like that. If that's the only takeaway that you get, great, because you can learn about that. You, you can go and research that a little bit more. The basic idea being it's a really, really common tax strategy to avoid paying yourself or to avoid being taxed the self employment tax at a really high rate as your business grows. So wanted to mention that and make sure that people at least just kind of make a mental note of that as you think about growing your business and your blog and the income that you're earning from it.

Good.

The other thing that I would like to talk about is this new. And again, this is like hard stuff to explain over a podcast, but as much as possible want to make people aware of it so they can either understand it on their own or make a note of it to follow up with somebody like you, Ben, to have a conversation around how they can implement it. But there's this new tax law that was passed and has gone into effect for 2018. And one of the things that exists is for small business owners like the people that listen to this podcast, there's this idea of a past a 20% pass through deduction, the Tax Cuts and Jobs act, that's a part of that at a really high level. Can you explain what that is and what we need to know about it in order to be intentional with tax savings?

Yeah. So this new tax law, from my perspective, appears to be really good for the small business. When I look at it year over year, I'm just seeing savings. I'm not seeing really anybody paying more. I mean, there's a few cases where people will pay more for various reasons, but overwhelming majority people are just going to be saving taxes this year. And a couple things triggered this. So that tax law lowered the corporation tax rate to 21%. Right. So. And it used to go up to like 35%. And so they lowered the tax rate for corporations. C Corporations.

And corporations would mean essentially it's like the really big businesses, there might be some small businesses that are corporations, but most small businesses, most bloggers, all the businesses that we've set up, those are all, they're called limited liability corporations, LLCs, which is a little bit confusing, but they're not the C Corporation, like you said, like a really big company like Apple or something like that.

That's right, yeah. And so they lowered the Tax rate on all those big corporate or on C corporations, which anybody can form, but mostly they only make sense for big, big companies. But in order to prevent everyone saying, ooh, I want to go be a C corp, you know, and have all the LLCs say, oh, I'm gonna go save taxes by being a C corp, they said, we got to do something for the LLCs and the S Corps and the sole proprietors.

Yep. We got to do something for the little guys.

Right?

Not all LLCs are little guys, but it's kind of the, it's more of the Main street versus the Wall Street.

Yeah, that's right. And so they said, in order to avoid this wave of people moving to C corporations, let's give the small businesses this tax break where we make up a deduction. It's called the QBI deduction. We're called qualified business income deduction. And it's just a new made up deduction. You don't have to spend any money to get it. Where the IRS says, okay, if you, for simplicity's sake with math, if you make $100,000 as a sole proprietor, we're going to give you a $20,000 deduction. And it's just kind of no questions asked. So they just created this 20% cut for the small business owners pass through income.

Got it. And so in that scenario, let's say you made $100,000. This 20% pass through deduction essentially is saying, hey, you made $100,000. But because this is a tax cut that we have passed, we're going to cut your taxes. And the way that we're going to do that, if you are an LLC or a sole proprietor, the way that we're going to do that is we are going to pretend as if even though you made 100, that you actually only made 80,000. Is that essentially how it works from a tax perspective?

That's exactly right. So you're going to see, you would see $20,000 knocked off on the tax return. You know, you'll see the 100,000 and then you're going to see a $20,000 deduction and it brings it down to 80,000 and then they're going to compute the tax on the 80,000 instead of the 100.

Okay, and how do you make sure that you take advantage of that? Like, what does that look like? I'm guessing working with the CPA is really important piece of that. And the other piece is, does it apply to everybody or are there exceptions like, hey, only these types of people.

Can use It So there are exceptions and it's going to be interesting to see how it plays out. Right. TurboTax and all these other self prepare softwares I'm sure we'll have, we'll build it in. It's just gonna be one more series of questions they're gonna ask you probably. But a cpa, you know, will or accounting firm like ours will know how to get it and to make sure that you get it. Now there is a qualification. They've identified certain professional services like medical professionals, doctors and consultants and accountants actually and other. They've kind of been a little bit vague but they say professional services where the service that's being offered depends on the reputation of the individual providing it will be, you know, are considered special or excluded from this and they don't wipe it out completely but they, they do limit the benefit. So for most, and I don't see bloggers falling into that category, photographers might. Sure. We're still, you know, in front of this thing. We haven't actually gone through year end yet and there's still IRS kind of publishing information, the details but for the most part everybody gets it. And even if you are excluded, like I said, they still give you some but phases out if you make a certain level of money. And I think it's like $300,000 if you have to make over $300,000 before you start losing the benefit. So it's going to be pretty, pretty good for most everybody.

Yeah. That's awesome. And again one of those things where if you are listening and you feel like oh this is so confusing, I don't get it. That's okay. The point of this isn't to like totally understand how it works. The point is for you to say okay, I'm going to make a little note here just like I did, you know, make a note with the pass through deduction. Just like I did, you know, making a note with some of the other things that you might not fully understand but you know, you need to implement and then do that additional research, understand it a little bit better. Get connected with the cpa, get connected up with Ben and his company to get a better understanding of that. And speaking of that, I feel like that will be. That's a good transition here Ben, as we're coming to the end for you to talk about if people are interested in working with you or people that are on your team, how can they connect up with you and what are the services that you offer that will help people get up and running and implement some of these really important things that we talked about.

Yeah. So the best, quickest way is probably to go to the website mazumausa.com and fill out the web form, you know, just submitting your name and email address for us to get in contact with you. We'll reach out to you within a day, if not within the hour, and ask you about your situation and, and inform you on, answer any questions you have and get you signed up. So we, and our main services are kind of everything. We've been discussing the bookkeeping. So you know, when you've got a few transactions, it's not a big deal. But if you've got enough to where it's taking you more than a couple hours a month to do this part of your business, then maybe it's you're better off paying us 75 bucks a month or, you know, to do it for you and to include your tax return. So we will do all the data entry for you, all the categorization for you, send you the reports. And then we are also tax professionals here that you can call or set an appointment with and ask tax planning questions. So you know, you have specific situations that you need to discuss with somebody. We are here to help you with those questions. And it's all included in your monthly fee. And then at the end of the year, we're doing your tax returns. Right. So we're actually preparing and filing your tax returns for you. And so those are the three main pieces. The bookkeeping, the tax advice, the tax returns that we're doing for as part of that monthly subscription. Payroll is on top of that. But our base subscription is $75 for if you've got one account or $125 a month if you've got up to four accounts. So we can. And all of that is included in that 125. So the tax returns, tax advice, you're never paying anything more than that monthly fee.

Awesome. That's great. And we'll link to that in the show notes as well. And one of the things that I love about a relationship like this is it's a great way for a small business owner, for a solopreneur, for somebody with a small team to start to think about building a team where you're not necessarily hiring somebody full time. You don't have to work about, worry about like every, the legalities of an employee or you know, contractor relationship, but you're able to start to kind of do that outsourcing that's so important with business building in a sustainable way where you know exactly what the cost will be and you know exactly what the exchange will be, the service will be. And it allows you to kind of build that team in that those initial stages. And it was one of the first things that we did was, hey, how do we make sure that we're doing bookkeeping and accounting really well and that we're not the ones doing it? Because it's so important to have that. But also if you are somebody even like myself, that likes it and enjoys it, the reality is that people who are professionals and do this day in and day out are going to have a better understanding of what it is so you can focus on the things that you're good at and not have have to worry about this. So, Ben, thanks so much for coming on the podcast, for sharing your insight, for sharing the advice. I know that for some people this might not be the most exciting stuff to talk about. For me it is. I know for everybody that it's really important. So really appreciate your time and insight.

Thank you. Bjork, good to be here. I'm glad to help.

Hey, wonderful listeners. Alexa here. Thank you so much for tuning in this week. I had to laugh when Ben said that he was sick and tired of being, you know, the hated person in the office when people saw the big bad auditor walk through the halls. Because I was actually an auditor in a past life. Meaning like three years ago before I came here to Food Blogger Pro and started my crazy wonderful, amazing food blogging journey. So had to give him credit for stepping out and doing something that made him a little more happy and liked in the industry. But I'm also here to bring you the review of the week and this one comes from Alicia from Dailyration.net and it says I'm fairly new to Food Blogger Pro and wish I hadn't taken so long to get here. The podcasts are perfect for me because they are full of truly valuable information concentrated into very focused nuggets and spaced perfectly to help avoid the overwhelm I often feel when I'm trying to learn something new. Thanks for providing useful chunks of material that I can apply immediately. It has never been a waste of time to listen to one of these podcasts. Thanks so much Alicia. We appreciate you tuning in and for leaving that review on itunes for us. And before signing off today, I wanted to remind you that we are hiring a member success agent and you have until August 5th, which is this Sunday, depending on when you're listening to this episode, to apply so you can learn more and apply@foodbloggerpro.com apply. Thank you so much, everyone, for listening today. We appreciate you so much. And this is, this is such a fun part of our jobs. So from all of us here at fpphq, make it a great week.