Featured Coaching Excerpt - Notes & Transcript, Part 1
Accounting: A general term that refers to the overall process of tracking your business's income and expenses, and then using these numbers in various calculations and formulas to answer specific questions about the financial and tax status of the business.
Lesson Nugget: Most entrepreneurs only know how much money is coming into their business. It is impossible to accurately calculate your profits without knowing what you pay in expenses and taxes.
Action Step: Hire an accountant to help manage your finances.
Action Step: Contact three different accountants and hire one of them to help you answer these important accounting questions.
teamtreehouse.com for accounting and time management
-My name is Caleb Taylor, and I'm one of the host here at Thrive15, the online platform that teaches sales, marketing, time management and more, along with a myriad of other tasks. And I'm sitting down here with Clay Clark today, CEO and visioneer of Thrive15. And we're going to be talking about accounting. Many entrepreneurs don't like discussing the details, the ins and outs, of accounting. But it's important. And we're going to break down definitions that you need to know. Here at Thrive15.com, we continually say that knowledge without application is completely meaningless. And we'll never stops saying it. So as you're watching this episode, be sure to ask yourself, how can I apply this to my life, and to my business. If not, this episode could be more meaningless than an AA meeting in a bar.
All right, Clay. Let's jump right into it.
-We want to Thrive to be a place that answers your questions simply. So we're going to attack this topic of defining accounting. So if you have any questions about accounting, you stumbled upon this episode, but go ahead and search for any of these terms. We'll define them all for you. But this time let's define accounting. So I know of most entrepreneurs-- I would say most. I think I've heard you say most entrepreneurs can't necessarily define a lot of these terms that we're going to dive into.
-What happens is, you go and you meet with your bookkeeper or your account, or for me you don't meet with anybody. And then you just find yourself at 2:00 in the morning on April 14th trying to figure out how TurboTax works. You're like, please sweet mother, just work! I just-- you're trying to figure out your taxes, what you owe. And you're so worried that you're going to get a penalty or a fine. And you don't know what these words mean. So we're just going to get in to it.
-Well, the definition of the accounting that we have is "a general term that refers to the overall process of tracking your business's income and expenses, and then using these numbers in various calculations and formulas in order to answer a specific questions about financial and tax status of that business." All right, clay. I think I understand but break this down for me a little bit more, this definition of accounting.
-Any time I have an excuse to go to my board, I'm going to do that.
CALEB TAYLOR: You love that board. It's drawing you. It's like a magnet, just drawing your body closer.
-So here we go. As far as accounting goes, basically what you have to deal with is you're talking about your income and your expenses. And I'm just trying to make this happen-- this is going to be your taxes. And this is going to be your profits. These are basically the areas that when you do accounting, this is what you want to know. You want to know how much money comes in. So I'm making up a number. Let's say $100,000 is coming in. And then we know our expenses are at $50,000. And we know that our taxes are at $40,000. And we know that our profits are at $10,000.
That's kind of our dashboard to run our business. And I would argue that probably 8 out of 10 business owners watching this right now know what their income. They know how much gross revenue. They know how much total revenue is coming in. They know how much money's coming in. They say things like, we just sold $12,000 deal. One young man I met with, he goes, I just sold a $14,000 deal. I'm so excited. And then I said, what are your expenses on that? I don't know.
Well, you didn't make $14,000. Actually, how much are your expenses? I don't know. Well, you need to know. We found out he only makes about 20% on every dollar. So that $14,000 was really about $2,800. Make sense?
-And that's a big difference if you're budgeting off that full number.
-This dude is getting married. And so he was actually trying to buy an item using this money. And this happens all the time. I wish I could say, oh, that never happen to me. Oh, it happened to me. Then we have to know our taxes. Then we have to know our profits.
-And we've got all episode on taxes, so if you've got the questions about, visit those episodes.
-The thing is, when we-- this is all accounting. But what the action step everyone can take is, either you have know this. This is your financial dashboard. You have to know this. Just like when you're driving your car. You have to know when your car's on E.
CALEB TAYLOR: Yeah, that's a good thing to know.
CLAY CLARK: You have to know how fast you're driving. You have to know those basic gauges. We have to have these gauges in order to drive our vehicle without crashing. So if you don't know these, hire an accountant. You have to know this.
-I don't want to take away from this topic, I just think it's funny that you use the analogy of driving. Because you're one of the worst drivers I've ever met.
-I don't think you're being accurate--
CALEB TAYLOR: But you're great at this.
-Well, I think I'm actually worst driver ever. And now that I'm about ready to auto wrap it, it's going to be awesome. Because we're going to get a lot of calls. We're going to get more visits to the website ever when I'm driving.
-He's wrapping his car completely with his face and a few other faces of the mentors here. And his goal is to rile some people up.
-That's not my goal, but that will happen. A lot of traction on the website.
-I love it. So again, you said the action step is to know this. How exactly do I go about knowing this? What's the next step that I take?
-If you're watching this right now and you're like, whoa, whoa, whoa, bro-town. I have no idea what my income is, what my expenses are-- most entrepreneurs only know their income. They don't know their expenses, they don't know their taxes, they don't know their profits. If that's you, go hire an accountant. How do you find an accountant? Use a little phone book technology and call three people. That's what I do. Phone book technology. Call three people. Then I'm going to use some friend technology. Call a friend and say, hey friend. What are three people I can call?
Have those six people. Meet with them. Do the smell test. Do they smell good? Do I like them? Make a decision. Hire an accountant. You need to do this. Don't be like me and not hire an accountant to get audited. When I got audited, Eugenia-- you sweet, sweet, wonderful lady from the IRS-- I cherished our interactions, and I'm so happy that you audited me. Thank you.
-That's good. I mean, there's no shame in hiring an accountant. And when you do, it frees up more time to focus on growing your business. Or if you don't want to hire an accountant, you can have a basically schedule. You don't even have to call her, but Eugenia, or a member of the IRS, will come and find you. And they will schedule a dream date vacation.
-Have you had interactions with 'genia?
-I have. I've interacted with her. Her name is Eugenia. And I did interact with the United States Internal Revenue Service for a little over a year. They would come to my office. They wouldn't call. They would just show up. And we'd just have good interactions.
-Auditing sounds fun.
-It's a fun deal. It's like going to Disney World without the rides and the food and the fun and the weather and the good stuff.
-Perfect. Well, I love that you were able to break down and define this topic of accounting in five minutes.