MBA1778 Guest Interview – Michelle Brownstein – Financial Tips for Every Entrepreneur To Action Right Now

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Welcome to the $100 MBA show. Because it takes more than just inspiration, it takes perspiration to build an amazing business. That's why we deliver daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of Webinar Ninja, an independent software company I started with my partner back in 2014 and today's episod episode is a guest teacher episode. I had the chance to sit down with Michelle Brownstein, a certified financial planner over at Personal Capital. I asked her the questions you have in your head and how to get ahead financially in your business, how to deal with a crisis, how to reinvest in your business, tax tips and more. I share with you this conversation because not all of us have access to an expert like Michelle. So I wanted to make sure you do. In the next 15 minutes you're going to get some financial tips that every entrepreneur can action right now. So let's get into it. Let's get down to business. So I sat down with Michelle Brownstein, a certified financial planner over@personalcapital.com and we had a great discussion and she shared some amazing financial tips for your business, especially during this time. So we're going to jump right into the conversation. But don't forget after this episode to check out personalcapital.com because I have some free financial tools that you can use to implement a lot of the things that she mentions that you should do in today's episode. So without further ado, let's jump into the conversation with Michelle Brownstein.

Guys, I'm so pumped to have Michelle Brownstein here today to inform us and to help us and to give us some great advice when it comes to our finances, to taxes, to everything, when it comes to making sure we have the right practices in place when it comes to our money and our business. Uh, Michelle, I want to kick off by saying, you know, many of our listeners, they're just getting started, you know, their businesses may be their side hustle. They're, they're doing it on the side with their full time job and many of them are wondering when is a good time to hire an accountant.

So I'll say that's a very personal decision and one that really depends on where you're at in your business cycle. However, I think it can make a lot of sense even when you're first starting out with a separate side hustle, separate from your full time job, to sit down with an accountant and perhaps do just a one or two hour consultation to talk about how should I be thinking about my additional income? Make sure you're filing things correctly. Doing so typically after tax time is a good time to catch most accountants that had to be really busy in the spring. And when you get to a point where your income from your side business is say 50% or more of your overall income, that's often when I'll see someone hire an accountant. Now for some individuals that's not the right level. They say, you know, my, my finances and my taxes are just getting too complicated long before they hit that 50% threshold. And they end up hiring an accountant then and others are very comfortable filing their own taxes and end up waiting a bit longer. So really comes down to personal preference. And I think it's always a good idea to sit down with an accountant even if it's just once a year, some good hygiene check and make sure that you're doing the right things when it comes to filing your taxes and treating your outside income, meaning outside from your full time job appropriately when you go to file.

I love this because just even just sitting with an accountant just to get some advice on what and what you should do while you're side hustling, you know, that threshold of money, all that kind of stuff can help. I Remember when I got started with my side hustle? I side hustled for over a decade before I went to full time entrepreneurship. I just hired an accountant on an hourly basis, a couple hours and just picked his brain and he gave me some great advice and I was good for the rest of the year. And then eventually I had to hire him on retainer as the business grew. So I love this kind of take it step by step, but speak to a professional. And we often talk on the show. Like a lot of businesses want to focus on just the product. They want to focus on the actual business, you know, solving problems, helping the customer through their product, but by just not worrying about the finances, often it costs them the business. So what are some tips you can give our listeners to have a little bit more visibility on their finances so they're just not in the dark and they can make the right decisions.

So I want to share maybe a personal anecdote where years ago I had a number of friends who worked in the wine industry. I live in Northern California, so we know a lot of individuals who work in wine and we saw so many passionate, talented, really wonderful winemakers fail. And it wasn't because they weren't amazing at what they did. It was really because they were ignoring the financial piece of things because that wasn't their area of expertise. So the advice I would give anyone listening is the numbers are really important. Your passion is what drives your business, but your numbers are what will keep it going and make it sustainable over time and make it hopefully very profitable for you. And so when it comes to knowing where you stand, that is the first step to getting a handle on your finances. And don't be afraid to use a tool to help you do that. Personal capital. The company that I work for has a free dashboard that anyone can use both online and on mobile or in the app store. And what it does is actually lets you link up anything financially. So I can look up, link up my assets, I can link up debts, so maybe I have a business loan tied to my startup business. I can tie in cash flow so how much money I'm making from the business and what's going out the door. And I can categorize all of those pieces to really see what is my money doing on a day to day basis. Because if I don't know what's coming in the door and what's going out the door, I really have no idea. To gauge success, maybe I'm having fulfillment and I'm enjoying doing this side hustle. But to make it a real viable career for myself or a viable option to go this route, whether it's a startup business or the next one or the next one after that that I want to devote more time to. The numbers have to make sense, in addition to it being something you're really passionate about.

I love that example you gave because, you know, I've seen this with a lot of entrepreneurs that I've worked with where they ignore the finances. They said if I just create a great product, then everything is going to go great. One of the things they forget is that sometimes we can't control that. You can't control the market, but you can control knowing your numbers, knowing what's coming in, what's coming out. Like you mentioned, in my career as an entrepreneur, I was able to have cash flow. And as we know, cash flow is like oxygen for a business through making more money, like bringing in more revenue, but also by cutting my costs and realizing, oh man, I'm spending too much money this month. I need to make sure that maybe I negotiate that contract with a vendor or let go of some things I'm not using so that visibility is so important, like you mentioned. And I love the fact that you giving people permission, hey, just use some tools. It can help big time. And we talk a lot on the show about how businesses are often, you know, trial and error. We make a lot of mistakes. But if you can avoid these mistakes, if you can learn from other people's mistakes, that's better than making the mistakes. What are some common mistakes that new business owners make when it comes to tax and their business?

The two most common mistakes I see from a tax perspective are one, not setting up the right kind of structure. And I'm not going to sit here and say that I'm a tax expert, but know enough to be dangerous in the space. And what I mean by not setting up the right structure is if I look at the way a corporation versus an LLC are taxed, those are taxed very differently by the irs, and they're looked at differently because they're different entities. And if you're simply going about your business saying, well, everything comes to me and comes through me, you're a taking on potentially a lot of liability, a lot of risk personally, depending on what your business is doing. But you're also potentially paying more in tax, if that's all coming through as personal income, than it would through a different entity. And so sitting down with typically a tax attorney or an accountant to talk about those different structures and how they're viewed from an IRS perspective can be really helpful even early on and especially as you start to make more and more income or take on more employees. Or again, if you're in that high risk space or could have some potential legal trouble. Having separation between yourself and the business is really important from both a tax and a liability perspective. So the other mistake that I see individuals make from a tax perspective is simply not thinking about or saving for retirement. And when we're in let's say I'm working for a big company and I have a 401k it auto enrolls me and I start saving for the future and I put money away, I get the tax break. Now if I'm using a traditional deferred 401k, great. Well I go and start my new business and sometimes that savings habit goes right out the window or I just start hoarding cash and I'm not really saving for the future. So I'm not taking advantage of different tax sheltered plans and what's available as a small business owner is different. Meaning I can use a SEP ira, a simple ira. There's a lot of different structures but again, making sure that I'm both planning for the future while focusing on the present is very important. So not giving up those potential tax sheltered years of growth is another issue that you want to make sure you avoid.

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Yeah. I also think that the point you made about separating, you know, your finances, your personal finances from your business finances is just help. It really helps in terms of the mentality of your own wealth. A lot of us, we don't do that, so that's a start. One of the things I did is just as simple as just having a separate bank account, even when I don't have a lot of income with that new business idea or whatever. But it just allows me to see this as a separate entity for my own money so that I can know, is this actually a viable business, if this is actually helping me, you know, build an asset, that type of thing, and it's kind of seeing it separate from me. So even just doing all this as a practice of, you know, getting your mind right when it comes to your personal finances versus your business's viability, I think it's really helpful. You know, I want to talk about the pandemic, the elephant in the room. A lot of us have seen our businesses grow, maybe suffer, maybe close down completely because of the pandemic. The one thing that pandemic has taught us is that a rainy day can come around at any time. Tough times are just around the corner often. How could some small businesses, our listeners, prepare financially for the next recession?

First goes back to something you were just talking about, which is a separation of personal and business expenses. Because the first piece, as much as we all love what we're doing from an entrepreneurial standpoint, and we're really passionate and excited about it from a pure financial standpoint, the most important thing to be thinking about when it comes to that rainy day is am I and my family going to be okay financially if the worst happens? And so am I able to cover my basic living expenses for a period of time if I have no income coming in? And the worst could be a pandemic, it could be, personally, I get in an accident, I can't work for a while. There's a lot of scenarios that can cause that emergency situation. So as a general rule of thumb, I like to make sure that individuals have three to six months of their basic living expenses in cash for that rainy day, to pay their mortgage, to pay for groceries, to pay for the utilities. Just the basics, the things that you could not live without. Now, for someone that has more varied income, so many entrepreneurs have much more volatile income. They have really economically sensitive businesses that move up and down a whole lot. They have these huge boom years and then huge bust years for those they may choose to have a bit More cash. So maybe closer to a year's worth of cash to ride through those downturns or the leaner years. That's on the personal side. Now, in the business side, how do I get my business through a recession? Depends on the business. Some businesses do very well when it comes to a recessionary environment. Some businesses during the pandemic had their best years ever. And if that's the case, that's wonderful. If that's not the case and you are in a much more economically sensitive sector or space, having an emergency fund for the business that you can tap into that separate from your own can make some sense. I've also seen some small business owners who choose to carry, say, a business line of credit that they don't tap unless it's an emergency, and they know they will be able to pay it off in the near term. So as an example, maybe I have upcoming. I received a bunch of orders, but I haven't received those accounts payable yet. So accounts receivable. So I'm waiting on the cash to come in. But I know over the next 60 to 90 days I have X amount of dollars coming in. So I might choose to use that credit line to float that period, and then when that cash comes in, pay down that credit line. So I'm not sitting on the credit line unnecessarily. So there's a few different ways to ride through it, but it comes down to knowing what would it take to get through that period. And to a point you made a few minutes ago, Amar, the other piece to think about, which is not a fun thing to think about, but is a reality of running a business. The other way to get through a leaner time is to focus on cutting expenses. So that may be downsizing, it may be cutting marketing costs. There's other ways to adapt to get through that tough time.

That's a really good tip and a really good reminder. We mentioned a couple episodes ago, Rick Steves, who runs a travel company, and he's a travel expert in Europe, but his company basically stopped making any revenue in the last 12 to 14 months because of the pandemic. And he did exactly that. He met with his team and knowing that it would be really expensive for him to hire a whole new team and let them all go, he just asked them, hey, can we just do a pay cut across the board and keep you on salary and we'll work on, like, blog posts and things like that? And everybody agreed because they're like, hey.

We'Re in this industry too.

You Know, like, even if we change jobs, you know, we're not going to get anything better. So I love that idea of like, hey, think, think about how you can, you know, just hold on for longer. One of the reasons why Rick was able to continue to pay his staff is because he saved for a rainy day in his business. He had 30 successful years. And then, you know, something happened where it affected his market, his economy. And for, for all you listening, who, who really did well in, in, in the pandemic and said, well, that's not my problem. I have an E commerce business, I'm doing well. You don't know what's going to happen in the future that might affect your economy, that might affect your market, just like Rick and his business. So I love your advice of just having some cash reserves to make sure that you can pay your expenses for some period of time. And that kind of leads me to the next kind of challenge that some of our business owners have is they had a boom in their business because of the pandemic, and some of them are struggling with what they should do with all this extra revenue. Right? And it's a good problem to have. And we're all like, oh, I wish that's me. But, you know, a lot of businesses did see a huge boom, especially online businesses during the pandemic as everybody switched online. What are some reinvesting tips that you can share for our listeners that do have some cash that they want to kind of use and not just have it sit there?

I think it depends what their focus is both on the business and personal. So if personally my goal as an entrepreneur is to maybe stop working earlier than the average retirement age, if my goal is to stop when I'm 50 instead of the normal kind of mid-60s, perhaps I use a boom year to take a big step in that direction and not just I'm stopping work right now, but take some of those excess profits and save them. So I take a big step towards that. Again, end goal of I want to stop working sooner and reach financial free freedom or financial flexibility sooner rather than later. That's often why entrepreneurs are doing what they're doing. So that's one thing to consider is should I take some of the money out of the business to set myself up sooner for that full financial independence if that's not a goal. So I also know entrepreneurs that want to work into their 70s, and they do because they just have more and more ideas and it's the next thing, the next thing, the next thing. If that's the case, it may be a good opportunity to take a look at the business and honestly evaluate, which can be hard to do because we're all passionate about our own businesses. So it could be worth having another set of eyes take a look at the numbers, honestly evaluate is this current growth trajectory sustainable or was this a short term boom that may drop back down to more normal historic levels for our business and as the pandemic subsides. And so if you believe that the new higher levels are sustainable, it may be time that, or maybe necessary to take some of that extra capital that you've made to reinvest in the business, whether that's additional people, whether that's additional infrastructure, whether it's additional marketing spend to keep the growth going. And so it's really looking at those two trade offs and it doesn't have to be all of one or all of the other. You could say I'm taking half of my profits or extra profits and putting that towards my long term goal of financial independence and the other half I'm putting back in the business. So that's the piece that is so personal in all of this, is what is my goal with this small business or hopefully in the future, much bigger business? What is this goal with the startup that I've created? Is it to continue furthering the mission of the company or is it to give me financial independence? And it could be many other things as well.

Yeah, and I love that you mentioned retirement as one of the things you can invest in because I want to talk a little bit more about that before we wrap up because a lot of the entrepreneurs I work with, the people I've heard people that write into from the show, they get burnt out, they feel very tired because of the 24, 7 on demand, kind of always thinking about their business, you know, lifestyle they have. You know, I always say that, you know, entrepreneurs are like professional American football players. You know, if you, if you're, if you don't live in America and you don't follow American football, they only play once a week. You know, football players don't play once a week versus like a basketball player plays three or four times a week because it's such a high impact sport and they need a lot of rest and often they have to retire early from their profession because of how high impact it is. And I've, I've seen my entrepreneurial friends often retire very early, typically 10 years earlier than the typical retirement in the 60s. They retire by their 50s. And retirement can be defined in different ways. But Basically the way I define is they don't have to work. Like if they want to work, they do, but it's kind of like they have somebody running the business for them or they either exited the business and they are working on writing a book or whatever it is. But the point that I'm making here is that retirement is something that we have to plan for as entrepreneurs because no one's going to plan it for you. It's not like a job where you can Enroll In a 401, you can do some other things like a Roth IRA or depending on where you live. I know the Australian government has the superannuation type of system, but what are some ways entrepreneurs could start planning for their retirement so they can enjoy the things they built sooner than later? I hate to see a lot of entrepreneurs just basically end their business because they can't do it anymore. How can they kind of have something set up, something's invested, so that way they have a light at the end of the tunnel and a goal to shoot for.

I think that's the key is that goal. If I don't know where I'm trying to go, I have no way to figure out how to get there. Meaning if I get my car and I have no destination, how in the world can I get directions from my GPs to tell me how to get there? The way I think about retirement is I need to come up with that long term goal. So I might say my goal is to have full financial flexibility in the next 20 years and if I'm really able to push it, I want to do it in 15. And for me, what does financial independence look like? And so the way to calculate that is to really think about how much do I want to spend on my lifestyle. So am I happy living the lifestyle I live now, or do I want to live more extravagantly, in which case I need to budget for more and at what age am I retiring in that projection? So how long does my money need to last? Now you don't have to make those calculations on your own. I mentioned our software earlier. One of the tools it has is called a retirement planning tool or retirement planner that does that calculation for you to say, are you on the right track? Are you saving enough or not to get to whatever that goal is? So I might say I want to retire at 57, and at 57 I need to have, I want to be able to spend $200,000 a year. What does that mean I need to have in the bank at that time or in my investments to actually make that a sustainable reality. That gives me something to work towards and again gives me that end point that I'm then chipping away at. And it may be for many entrepreneurs that savings, it's not like when I'm in a normal quote unquote career where I save exactly the same amount every year and I keep trucking away and I get there. It may be that in those big boom years, I take huge steps towards my savings goal. I save 10% of what I need to save all in one year. And the next year I don't save anything because I had a really lean year. And again, knowing where I'm trying to go and then having a plan to get there is really the key to making sure you have that point of whether it's retirement. I think we're using two different terms. You're saying retirement, I'm saying financial independence. We're using referring to the same thing, which is the ability not to work when you choose to. And the other piece to just be thinking about is what kind of accounts am I using to get there? Because if I want to retire in my 50s, some accounts I cannot access until I'm over 60, for example, without penalties because they're tax sheltered. And so I want to make sure I'm waiting until the appropriate age to draw into them. So I need to have different types of accounts so that I can basically pay my way through my retirement in a very efficient manner. And speaking with a financial advisor can be a really helpful step to just say, what is it I need to be doing to get to this endpoint that I have in my mind? And sometimes you'll be told by a financial advisor it's not realistic, or you're on the right path and you're doing all the right things. But having that conversation sooner rather than later can really help because the more time I have my money working for me and invested, the better off I am because I have compounded interest on my side for many, many years. If I keep continuing that path over time.

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One of the things we mentioned on the show often is in a lot of ways, money is time. You are basically buying yourself time so you can do what you want to do with your time. Like you said, financial independence allows you to do that. But just a quick reminder to listeners is that as you're working on this retirement plan, as you're building your wealth in the next 10, 15, 20 years, you need to keep track of your health as well. You don't want to get to retirement and not be able to enjoy it because you haven't taken care of your, you know, your well being and that's your mental health as well, not just your physical health. And you know, I often feel like, you know, if we don't make time for that kind of stuff, including, you know, health, retirement, financial visibility, all the things we talked about today, then we are just going to pay for it in some other way in the future. I want to thank you Michelle Braunstein for being here today, dropping all these golden nuggets, giving us some wonderful advice and just sharing your wisdom with us. I wanted to tell listeners, hang on because I'm going to be sharing with you what you can take advantage of. Over at Personal Capital, they have some great financial tools, free financial tools that you can use to do many of the things we discussed today so you can implement immediately what we just talked about in today's interview. Michelle, thank you so much for being here.

Thank you so much for having me. Omar.

I want to thank Michelle Braunstein for a great guest interview and sharing those great financial tips for us to action immediately. Don't forget to check out personalcapital.com for their free financial tools. Guys, if you enjoyed today's episode, today's style of episode, an interview with a guest and extracting their knowledge, let us know. You can email me directly at omar00mba.net and send me some feedback or you can comment on this episode on our Instagram feed over at the 100 MBA. Before I go, I want to leave you with this. One of the best things that I've done in my business is get some financial advice, some financial help. I know myself, I want to focus on the product, on my customers innovating, but I don't want to neglect the financial responsibilities I have as the leader of the company. So you got to hire a great accountant. You can even hire a part time CTO to just meet with you once a month to take a look at your projections, your finances, what's coming up, how you're going to grow, question the decisions you make and help you make sure you're making the right moves. So invest in. Great advice. It's a small investment for a huge, huge reward in the long run, as well as avoiding some financial mistakes that you might make because purely just not knowing what to do, great talent is one of the best investments you can bring onto your team and onto your business. Thanks again for listening to the Hunter MBA Show. I will check you in tomorrow's episode. Until then, take care.

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Gas, snacks, tolls. This trip is draining my wallet.

Yeah, but we'll be with family.

You're in a good mood.

What's your deal?

What's my deal? I saved at Metro with no activation fees and I got one line of 5G for just $25 per month. Kept the phone I love and a 5 year price guarantee on my top.

Tuxt and data detour to Metro.

Get that more for your money feeling only at Metro by T Mobile Just.

Bring your number $30 first month and $25 after with autopay not available. If with Metro or T Mobile in the past 180 days.