Mike Andes answers two questions from landscape contractors: whether to count revenue as invoices paid or work completed (he uses cash basis to match bank activity), and how owners should use profits. He covers using profit actualization to qualify for real-estate loans, timing tax payments to show strong financials, and deciding between reinvestment, employee pay, equipment, owner pay, or savings.
Chapters
Hey, everyone, it's Mike Andes and you're listening to the landscape business course. Today we're going to be answering more of your questions. I think this is like part four of these series of answering all your questions. If you would like to submit your question on another episode, make sure you text the word landscaping to 855-575-1267. Text that number with the word landscaping. And when I need questions, I submit a thing out to everyone and they can submit your questions alrigh. Before we get started, make sure you sign up for Landscape Summit. 2021 is January 14th, 15th and 16th, about an hour and a half drive from Seattle's airport. Some people's excuse is that's in the middle of snow season. You need to come to the conference so you can create systems and a team where you can leave during snow and things don't get dropped. All right? Like this excuse about being able to not come because you're too busy or. Or because it might snow is not a good. It's not good. You're basically saying, I don't have systems in place. I don't have a team in place that can watch over things when I'm gone. You have not created a job, a business. You've created a job. Please come to the conference. Learn about trusting a team, developing a team, paying a team correctly, and creating a culture where you can leave and you can go work on the business. And that's how a business grows. So I'm not a huge fan of that excuse. I will fly with it. If someone says it to me, I'll say, I understand. But in the back of my mind, I know that that mentality is what will keep them doing that same activity. That same behavior is you've got to break away from the business and work on the business. Come away to the conference three days and work on your business. So come check it out. Landscapebusinesscourse.com conference. Sign up today. Sign up your manager, sign up your spouse, anyone. That's key to making 2021 your best year yet. All right, let's jump into the questions. Let's go. When counting revenue for the month, are you counting invoices paid or the amount of work completed in the month to get your total revenue? All right, so without getting into a whole bunch of technical details, this is cash accounting versus accrual accounting. Accrual accounting is like, when I do the work, I therefore earn that revenue. Whereas when I'm showing my profit and loss statements in QuickBooks the past couple months I am showing money, collected money like in the bank account and money that left the bank account. There's no like hidden amortization or taxes or interest that's in the background. It's all, it's in the bank account and out of the bank account. So it's cash basis accounting. It's not accrual basis accounting. Or where, like when I send the invoice or when I complete the work, that's when I realize the income on my profit and loss statement. That's what I've been showing you. I've been showing you money in the bank and I've been doing that specifically because I know that some people.
They share stuff online, they don't do that, and they show when they do the work or when it's invoiced, but their cash flow is so poor, like their cash flow in turn getting the money back, that it's actually really not good business. So I'm trying to be as just authentic as possible by doing cash accounting when I'm showing everyone online. Good question though.
Okay, as an owner. Next question. As an owner, what can I do with my profit and what are the pros and cons of each? Some examples would be, do I wait till until the end of the year so my profit gets actualized on my year financial documents? Do I need to spend it within the business to minimize my tax responsibilities? If I'm not currently growing and using money, there should be, how should I prioritize money, increase pay and benefits for employees, better equipment, more owner pay, more money in savings. Great question. All right, so a profitable business, what do you do with that money? Okay, first things first. If you're looking to invest in say real estate, where you need strong numbers for your tax return, this might be a year where you eat some taxes. Like you go ahead and pay some taxes in order for you to have a really good profitable year on your tax returns. Therefore, you're able to go buy some real estate and invest in a different sector of the economy besides your business. If your business is very mature and that's kind of where you're at, is trying to diversify and invest in more passive streams of income like real estate or stocks. So if it's real estate, maybe you take a year where you actualize, like you said, the profits, get it on your financial documents, on your tax returns, and then you have a very strong financials to go to a bank for a real estate deal. Very important because usually.
It'S orders of magnitude with real estate, because you usually can borrow 25% and then you can put for 25% down and then borrow 75% of the value.
