Easy Bookkeeping Practices to Set You Up for Longterm Success with Mark Butler (Transcript)
In the episode, Mark shares exactly how to DIY your bookkeeping — and how to do it right. So that when you eventually are ready to work with a pro, you’ll be PROUD to show them your books and there won’t be any awkward conversations.
This is a transcript of Work Less, Earn More, Episode 60. Listen to the episode here.
Mark Butler:
First of all, it's great for bookkeeping. Secondly, it's just a way for a person to start acknowledging with actual transactions, this thing is real and I'm going to treat it like it's real from day one. I'm going to be the investor in the business by moving money from personal to business checking. And by doing that acknowledge that now, I as the investor have kind of skin in the game in this new project.
Gillian Perkins:
We became entrepreneurs because more than anything, we want freedom. We want to be in control of our own schedule, income, and life. But unfortunately, that isn't always the reality of being a business owner. I'm Gillian Perkins, and I'm on a mission to take back entrepreneurship for what it's supposed to be. In every episode, I'll share with you how to get the most out of every hour you work so that you can work less and earn more. Let's get to it.
Gillian Perkins:
Hey everyone and welcome back to the podcast. Today I'm talking to Mark Butler, the founder of Let's Do the Books. So Mark has spent the last seven years as the money guy for six, seven, and eight figure coaching businesses. His newest project is called Let's Do the Books, which is a friendly bookkeeping service for coaches and creators who want perfect business financials without confusing software or expensive accountants who don't understand online businesses. I know that this is a situation that a lot of the listeners of this show are in that themselves so I'm really excited to be introducing Mark to you guys and to be sharing his knowledge with you today. Hi there Mark, and welcome to the show.
Mark Butler:
Hi Gillian, thanks for having me. I'm excited to be here.
Gillian Perkins:
Yeah. Thank you so much for taking the time. I'm really looking forward to learning more about some of the basics as far as bookkeeping and financials go that every entrepreneur really should understand, because I know that, like I mentioned, a lot of the listeners are DIYing their finances, doing their own bookkeeping. And it can be a little bit stressful to do that, especially when you don't really know what maybe you don't know. So before we get into any of that though, I just have a question for you about the work that you do. As I read in your bio, you have worked with eight figure coaching businesses and I'm really curious, what is the business model of an eight figure coaching business?
Mark Butler:
That specific business was a higher ticket membership that led to an even higher ticket certification.
Gillian Perkins:
I see. Okay. So it's not at all one-on-one coaching, it's a one to many group coaching, sort of like a high ticket mastermind almost?
Mark Butler:
Yeah, although she doesn't really do masterminds. But you're right, it is. The whole business is one to many at this point, there is no one-to-one aspect of it anymore. So the front end of the business is a $300 per month membership that people pay for and quite a high enough percentage of those people end up doing a certification off the back of that membership that costs $18,000.
Gillian Perkins:
Interesting. Okay. Well, thanks for sharing that. My next question also about your business is I understand that you have this new project called Let's Do the Books, could you tell me a little bit about that program, that software, that service, whatever it is and how it works?
Mark Butler:
Let's Do the Books grew out of the fact that I found over the last seven years that when coaches and course creators and online business owners would come to me, they would very often come to me in one of two scenarios. One would be that they'd experienced a sudden spike in income or revenue, more specifically, revenue of the business. So they're sort of having their best months ever and starting to feel like, I need to do something with this money. I need to have my accounting sorted out. And then I would hear from them. What I would very often experience, and this is completely fine when it happens, but they up till that point had been procrastinating dealing with their finances. So always with the idea that they would deal with that when they started to make money. But along the way, because they were waiting to deal with it, they probably did a few things that made it a little bit harder to get it cleaned up and set up correctly when they finally did get around to me.
Mark Butler:
It's totally fine. My team and I are happy to deal with that, but I created Let's Do the Books in part because I wanted to make it easy for people to start working with me long before they felt like they absolutely had to. So Let's Do the Books is a service that that meets people wherever they are in their business and has a sliding scale fee structure so that if a person's very new in businesses, isn't generating a lot of revenue yet, they can still access me and my team to get things set up correctly so that everything is good to go from day one. And then when the money spikes as hopefully it will, they've already dealt with it all and there's no surge in stress to go with the surge in revenue. So Let's Do the Books is a bookkeeping service that makes sure business owners have their financials clean and current and accurate and kind of meets them at whatever revenue level they are at the moment, thanks to the sliding scale fee structure.
Gillian Perkins:
I love the idea for that because I can really relate to what you were talking about there where when I started my business for the first several years, I wasn't making hardly any money. I was still just figuring out how to start a business really. And so I certainly was not in a position to hire a bookkeeper myself because there wasn't really anything to manage. But as I started making a little bit more money and a little bit more money, thing has gotten messier and messier. And I didn't know what I didn't know, but I just knew I still wasn't ready to really hire a bookkeeper. And so I was looking for something like what you're describing and at least I couldn't find it. So how does Let's Do the Books actually work though? Is it a service? Is it a software? What is it and how does it help?
Mark Butler:
So it's a service where when a person signs up for the service, we do everything. It's a done for you service. So they sign up, we have a welcome call with that person. We make sure that we have access to everything that we need to access like PayPal and Stripe and a business checking account. And then from that day forward, we pull all their business transactions into our financial software that we use so that they have up to the minute, or up to the week at the very latest, reports on their business finances. So we take care of everything with the exception of once a month, we email our clients and say, hey, we have questions about these few transactions. Can you clarify these transactions for us? And once they give us that clarification, we can finalize the reports for that month and then they have those on demand. So we're a done for you service because we don't want our clients to have to learn accounting or all the associated jargon in order to have their financials clean and current.
Gillian Perkins:
Well, I wish something like that had existed when I was starting my business. That sounds really helpful.
Mark Butler:
I'm really glad to hear that. I'm sorry that you didn't have it, but I'm glad it exists now.
Gillian Perkins:
Yeah. So you mentioned that before you created Let's Do the Books when you were working as an accountant that often when a business owner would come to you because their revenue has started to increase, that there were some mistakes that they'd made or some things that maybe they hadn't done that put them in a little bit of a pickle, maybe they weren't quite where they should be with their bookkeeping. Could you share with me some of those mistakes that you really often saw?
Mark Butler:
There's one biggest one. And the biggest one is I hate to even call it a mistake because it's more just a person, it's like you said earlier, it's them not knowing what they don't know. And it's the simple act of separating their business finances from their personal finances. So very often new business owners when they're getting started, there's an element of wondering whether this is all going to work out anyway. So if I'm not totally sure it's going to work out, why would I get a dedicated business checking account? Why would I get a dedicated business credit card? And then why would I only run my business transactions through those accounts? Because I'll, again, I'll deal with that later when I start to make more money.
Mark Butler:
So very often, this used to be the case, when I would take on a new client, I would find myself doing sometimes as much as a year or two worth of kind of back bookkeeping and parsing or separating out all the business transactions from the personal transactions. And again, not the end of the world, my team and I are still happy to do that to this day. But a business owner saves themselves some headache down the road if very early in the life of their business they say, you know what? I bet this is going to work out at least to some extent. So I am going to get a checking account for the business, going to get a credit card for the business. And I'm going to run business transactions through those accounts. I will thank myself later. That's the biggest thing.
Gillian Perkins:
Such good advice. And so my question, my follow-up is, should someone create a business bank account to separate their finances when they're first thinking of starting their business? They have a business idea, maybe they need to spend the money to buy the domain for the website or something like that. They're definitely not bringing any money in yet, they're just trying to get this off the ground. Should they start the business bank account then or should they wait until they do have a little bit of money coming in?
Mark Butler:
You know, there's what I would love to see as the bookkeeper, and then there's what I think is realistic. And probably the best case is somewhere in the middle. I would say this, I think that sometimes newer business owners get hung up on something as simple as the business checking account, because they wonder whether they need to form an official entity or incorporate before doing that. Because often business bank accounts will require you to have an employer identification number, which requires you maybe to incorporate and they get sort of overwhelmed by all that and they say, I'm going to deal with it later. I think there's an easier first step, which is this, the day that I'm feeling really excited about this new thing, I'm going to go to the bank where I'm already banking and I'm going to open a new checking account, even if it's just a personal checking account. And I'm going to call that bank account, the business's bank account.
Mark Butler:
No EIN, no entity, none of that. It's just me acknowledging and sort of voting for my business and saying, this is real. I'm excited about it. I'm going to give it its own account. And then when they're ready to buy that domain or sign up for that first program or course that's going to help them grow their business, they move some money from their personal account to that new business account and then spend on the business from that business account. First of all, it's great for bookkeeping. Secondly, it's just a way for a person to start acknowledging with actual transactions, this thing is real and I'm going to treat it like it's real from day one. I'm going to be the investor in the business by moving money from personal to business checking, and by doing that, acknowledge that now, I as the investor have kind of skin in the game in this new project.
Gillian Perkins:
What a great practical way to believe in yourself. That's like some of the most common, I won't even say advice, but, a thing that people say, believe in yourself, believe in yourself. You're not going to succeed unless you believe in yourself, but what does that even mean? But by just taking this simple step to take yourself more seriously, to take your business seriously, I see that as a really practical way to believe in yourself. So I love that.
Mark Butler:
Yeah, me too. I love seeing people do it. Seeing people vote for themselves and cheer for themselves in that way.
Gillian Perkins:
What other really common mistakes do you see businesses make when they're coming to you and they haven't had a bookkeeper in the past?
Mark Butler:
You know, there are sort of quirky little things like if they use a spreadsheet, it's something as simple as the way they set the spreadsheet up sort of maximizes difficulty for them and complexity for a bookkeeper later. So I'll see little things like a person will set a new tab of a spreadsheet for every month, or they'll set up a new tab of the spreadsheet for, this is for expenses and this tab is for income or revenue, things like that. And again, always well-intended, nothing horribly wrong with any of this, but if you want to do something as simple as using a spreadsheet, because I know tools like QuickBooks are, in my opinion, very overwhelming, one tab on that spreadsheet and then, I'll say this and hopefully your listeners can write this down later, but you just need a few very simple columns on that one tab of that one spreadsheet.
Mark Butler:
You need a date column where you record the date of any transaction you need what would I call a payee column, meaning who's the person that's involved in the transaction, whether it's MailChimp or Mark Butler or whoever it is. You need a little category column, or even simpler than that, you just have a note column where you put a note about what the money did. It paid for software or it paid for coaching or whatever. And then you need an amount column. And if the money left you, the amount will be negative. And if the money came to you, the amount will be positive. That's it.
Mark Butler:
If you just sort of keep a running log of your transactions with those columns, at the end of the year when it's time to do your taxes, if you were to give your tax pro that spreadsheet, they'd probably be shocked and thrilled because that would be so much simpler and easier for them to use than what they're accustomed to seeing, which is probably a stack or a shoe box full of receipts or something. If you want use a little spreadsheet, just keep it simple. It doesn't need to be anything too complex.
Gillian Perkins:
I love how simple that is. And it's a step more than what I did when I started. I had that shoe box of receipts, with a lot of receipts missing even. So yeah, I love how simple you're making this. And it also would take so little time to set that up or to maintain that.
Mark Butler:
It is. In many new businesses, including some of the businesses that sign up for Let's Do the Books because they just want to outsource this, we'll see fewer than 10 transactions per month in some of these businesses. And if you have fewer than 10 transactions per month and if you don't want to use a service like Let's Do the Books, it really will only take you 10, maybe 15, 20 minutes a month to log your business transactions in that simple spreadsheet and then just be done with it. So keep it simple and then you're more likely to actually stick with it.
Gillian Perkins:
Yeah. And not only is that obviously going to make your finances a lot more organized, but just the peace of mind that's going to give you that you understand and you know what's going on, that alone would be worth so much more time than the 10 or 15 minutes you'd spend on that. And of course, just setting up a simple spreadsheet like this is completely free.
Mark Butler:
Yes, it is. Use a Google sheet or an Excel sheet and you're going to be good to go.
Speaker 3:
The episode you're currently listening to was originally offered as a live stream inside Startup Society, our training program for digital entrepreneurs. Each week in the program, Gillian teaches a live workshop for startup members, including a teaching segment, like what you're listening to right now, a tutorial segment that demonstrates how to take action on the lesson, and an open Q and A period where Gillian and guest experts work directly with each member. Members also get access to Startups Society's library of business training courses, monthly co-working sessions and other events and our private community forum. If you're looking for affordable business training, mentorship, and accountability, then visit startupsociety.com/podcast to learn more about the program and apply to join. Now, here's Gillian with the rest of today's episode.
Gillian Perkins:
So beyond that simple spreadsheet, as the business starts to grow a little bit and the entrepreneur is working on starting to scale their business to some degree, what are some of the basics of bookkeeping and accounting that every entrepreneur should understand?
Mark Butler:
The biggest things that they need to understand are number one, that I alluded this earlier, but that the business is its own distinct entity, whether it's an official government entity or not doesn't as matter as much, it's that it's its own entity with its own money and its own transactions. So you'll thank yourself later when you're ready to start doing actual sort of analysis on where's my money going and where's my money coming from, that job is a thousand times easier if all those transactions are distinct from your personal transactions. Business owners also need to understand that the two most basic reports in any business are the profit and loss statement and the balance sheet. And the profit and loss statement is a reflection of the money that the business earned and that the business spent, with the profit being the amount left over after whatever you spent.
Mark Butler:
So I think you hear that called the profit and loss statement. You hear it called an income statement. That's the same thing. It's just acknowledging here's what the business earned, here's what it's spent and here's what's left over. Now, the big confusion here for people Gillian is especially for solo operators our audiences tend to be, is when I take money out of the business, is that a business expense? Does that impact my profit and loss statement? And the answer is probably no. And that's very confusing to a lot of people because they think if I'm paying myself this money, how is that not a business expense? Have you ever come across that confusion in any of your audience or yourself?
Gillian Perkins:
Yeah. I was definitely confused about that at first. And I figured it out and now mine falls into that maybe category. The yes category in fact. So walk us through why that is.
Mark Butler:
So what happens is, if we go back to what we talked about a few minutes ago where we said, I would love to see you as the investor in your business, when you're ready to spend before the business is making money, you put money into the business account, that's you making a contribution to the business. The business didn't earn any money when you did that, it just received some investment capital from you, the investor, who happened to also be the person working in the business.
Mark Butler:
When you take money back out of the business, it's just you as the investor harvesting some of that cash. We call it a distribution or a draw, but the business didn't spend any money because nothing was purchased with the intent to grow the business. It's just you the investor saying, I need some of that money back. So that's why it doesn't impact the profit and loss statement. And it's not called your salary and it's not called your payroll. And it's even not called your profit. It's just money that you withdraw from the business for personal use. Now it sounds like in your case, you've gotten to the point where maybe you've incorporated in such a way that you've started to pay yourself through an actual payroll service. Is that what you're doing?
Gillian Perkins:
Yes, that's right. So now we file as an S Corp and I'm an employee of the company and so I earn wages.
Mark Butler:
Exactly right. Now, so Gillian, being an employee of the company earning wages, you got to be able to envision yourself occupying a couple of different seats here. You are the investor who occasionally puts money into the business so that it can function. You're the investor who occasionally harvests cash. That's the stuff that doesn't hit the profit and loss statement. But when you are the employee of the business and the business is paying you to help it grow and succeed, you're earning a wage, that is the business expense. And the way we identify that money so it's obviously a business expense is that we process those payments through an actual payroll service like ADP or like Gusto. You get an actual direct deposit into your bank account. You get a W2. Those are business expenses.
Mark Butler:
So in Gillian's case, everybody at this point, she is the investor who can occasionally take cash out of her business. That's not wages or salary, and it doesn't impact the profit and loss, but she's also the employee who gets a regular paycheck from the business, which does impact the profit and loss. That way, Gillian's in a position that when she looks at her profit and loss statement and she sees her wages on it, she can say, oh, maybe I want to pay somebody else to do some of these things that I'm currently being paid to do and I can get a different employee to do it. Then my profit increases, my ability to take more cash out of the business increases, but my actual work goes down. So that's a big confusion for people is what's the difference between the business profit and the money I take from the business and my actual sort of wages or payroll?
Gillian Perkins:
So if anyone's wondering if the money that they've taken out of the business should be on their profit and loss, the answer is no. You'll know if you're paying yourself wages.
Mark Butler:
Exactly right. And usually, this was probably your experience, it was also mine all those years ago, when your businesses is producing enough cash that the amount that you're taking from it exceeds a certain level, and I'm not going to give the level because I want you to talk to an actual tax pro, your tax pro will say, I think it's time for us to look at restructuring you so that you can pay yourself a wage and get the benefits of that tax benefits that come with paying yourself that wage, and also sort of legitimize the whole thing. Your tax pro will let you know. In the meantime, when you're taking cash out of the business, it's not your salary, it's not your wage, it's just money that you're taking out of the business.
Gillian Perkins:
So you mentioned a little bit ago that there are two primary financial reports that people should be aware of. One was profit and loss, and the other was…
Mark Butler:
It's the balance sheet. Now the balance sheet, it doesn't play as big a role in businesses like yours and mine and our audiences because our balance sheets are so simple because we have what you'd call a cash based business. Cash comes in, cash goes out, there's not a lot else going on. There aren't typically truck leases and probably not inventory, unless we're developing some sort of an e-commerce business where we have a bedroom full of stuff that we sell. But in course businesses and in coaching businesses, the balance sheet mostly just looks like the money coming in and the money going out. And it keeps track of the different accounts in the business. So business checking, business credit card. And then it also keeps track of an area of the business called owner equity. Now, this is again, a part that can kind of get confusing for people, but owner equity ends up being a representation of how much money you have contributed to the business as an investor and how much money you've taken back out of it, how much money you've harvested.
Mark Butler:
So you remember earlier we said, when I'm just taking money out of my business and it's not through a wage payroll service or as an actual wage, I'm taking that money out of the business, that's actually reflected on the balance sheet. The balance sheet is saying, okay, Gillian has put, we're going to use random big numbers here, Gillian has contributed $100,000 to her business and then she's taken back out of it, $80,000. So on her balance sheet, there'd be a line called owner equity that would have $20,000 on it and that would be a representation of where do you stand in terms of your investment in the business.
Mark Butler:
Now this is a big simplification, but the reason I like to point it out to people is that sometimes they might think, well, I'm able to pay myself as much as I've ever been paying myself. I'm really getting a lot of cash out of the business, even though my sales have gone down, for example. And I'll say, well, let's peek at the balance sheet. And what we might see is that on the balance sheet we're seeing debt balances grow. We might see that last year you had total debt balances at the end of the year of say 10,000 and this year it's 50,000. What you've been doing is you've been subsidizing your own income with increased debt, for example. And so the balance sheet can kind of be the canary in the coal mine that tells us, well what's really going on in the business? Is its equity and is its cash growing over time? Is it shrinking over time? Is the debt shrinking over time or growing over time? The balance sheet clues us in to what's going on there.
Gillian Perkins:
Would it be accurate to say that the balance sheet describes how much is in the business at any given point in time?
Mark Butler:
Yes. And what has also come into the business and gone out from the business in the past. It kind of captures all of the above. So my experience being the CFO for all these online businesses is that we don't often really have to refer to the balance sheet because we don't have complex things like leases and inventory and that sort of mess. We're mostly dealing with the profit and loss and with our cashflow plans to decide how the business is doing. So the balance sheet is something that once our business gets to a certain size, the tax pro requires it because the law requires it. But it's not something we as owners use a whole lot in our day to day thinking.
Gillian Perkins:
Yeah. For a business that isn't selling, that isn't buying inventory and selling inventory, it's so simple that it can almost be confusing because it's so simple. What is this even describing? So for the sake of understanding it better, could you give us a quick example of how it works for a business that has inventory?
Mark Butler:
So it's a really good question because in businesses that carry inventory, you get this weird situation where when I buy inventory, it's logical to me as the owner that that would be a business expense because I would think, I don't have that cash anymore but now I have all these items sitting in my spare bedroom. I spent the money and that that money is gone, therefore it's an expense. But the way that accounting deals with that inventory is that you don't realize the expense associated with that inventory until you actually sell it. So you can get in a weird situation where you could spend $100,000 on inventory and you could think, well, my profit is reduced by 100,000 because I spent that money. But from the IRS's perspective, you haven't spent that money yet. So that 100,000 will inflate your profit and therefore your taxes.
Mark Butler:
And you can see inventory based businesses get in really sticky situations where they've spent a bunch of cash on inventory, but then which results in a high tax bill because their profits still looks really high because the IRS says you haven't spent that money until you sell the inventory. So if I've got a whole warehouse full of inventory at the end of the year, I also am going to have a big tax bill. So I'm simultaneously like, I don't have the cash because I spent it on the inventory, but I do have the big tax bill because the IRS says that that money didn't come off my profit.
Mark Butler:
So you see inventory based businesses having to do some kind of gymnastics around tax time. Sometimes they have to dump inventory. Sometimes they have to do other weird stuff because inventory plays different from a tax perspective. It's one of the beauties of having a course business or a coaching business or any other online business that doesn't deal with inventory because money out is typically an expense, money in is revenue and the difference between those is your profit, which helps you guess at what your taxes are going to be and you're not going to be caught off guard by that.
Gillian Perkins:
Well, I'm glad to know that I'm in the right business. I'm glad for the additional confirmation.
Mark Butler:
You really, really are.
Gillian Perkins:
I used to run a local business and I didn't run into that problem, but there were so many other aspects of running a local business, carrying some inventory, but just the overhead of running a local business that caused me so much more stress that I felt like I didn't really get to enjoy all the supposed perks of working for yourself. So now I know even more reasons why I'm glad I run the business that I do. Well Mark, this has been really informative. Thank you so much for the simple steps that you've shared with us. I just love how much you broke that down with some really practical things that new business owners can do to just have a bit more of a handle on their finances, even if they're DIYing, and also just love the work that you're doing in this field. Like I said, I really wish something like Let's Do the Books had existed when I was getting started with business. If someone wants to learn more about Let's Do the Books and maybe work with you there, how can they do that?
Mark Butler:
Just go to letsdothebooks.com. There's an introduction to the service there on that site. And also the opportunity to sign up for a quick consultation with me if you're wondering whether you're in a spot where you'd benefit from our service. So letsdothebooks.com is the best place to find us.
Gillian Perkins:
Perfect. Well, thank you so much Mark for taking the time to be here on the show today and for everything that you've taught us.
Mark Butler:
Thank you very much for having me.
Gillian Perkins:
All right. Well, that is everything for today. Thank you so much for joining me for today's episode. If you found this episode helpful and you would like to participate live in future recording sessions, then be sure to visit startupsociety.com/podcast to learn more about all the benefits of membership and apply to join. And finally, it would be a big help if you left Work Less, Earn More a review on Apple podcasts. Not only will this help us reach more people, but it's also going to give you the chance to potentially win a 12 month membership to Startup Society. All you need to do to enter is post your review on Apple podcasts then email a screenshot to contact@gillianperkins.com. Thanks again so much for listening, now let's wrap this up. I'm Gillian Perkins and until next week, stay focused and take action.
