JF2336: Understanding The Numbers With Sylvia Inks #SkillsetSunday

Sylvia Inks Real Estate Background: 

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“I constantly see small business owners make the same 5 expensive mistakes” – Sylvia Inks

TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. Here’s an interesting conversation for you. We’re going to be talking about the five expensive mistakes that small business owners make that negatively impact their personal finances. And with us today to talk about that, Sylvia Inks. How are you doing Sylvia?

Sylvia Inks: I’m doing great, Joe.Thank you.

Joe Fairless: I’m glad to hear that. And a little bit about Sylvia. She’s a business coach, finance expert, and speaker. She focuses on teaching small business owners – and by the way, we are all small business owners as real estate entrepreneurs – how to build multiple streams of income. She’s the author of Small Business Finance for the Busy Entrepreneur: Blueprint for Building a Solid, Profitable Business. Based in Raleigh, North Carolina. So first off, Sylvia, do you want to give the Best Ever listeners just a brief background of yourself? And then let’s get right into the five expensive mistakes you see people make.

Sylvia Inks: Sure. So I have been working as a financial coach for small business owners for a little over six years now, and what I’ve found was that so many small business owners, they’re so great at either their product or the service that they offer, but they’re financially overwhelmed. Their finances are either disorganized or they don’t know how to make sense of their numbers… And I started seeing just really, really smart business owners either go out of business or stressed, or they have marital stresses because they’re not able to bring a consistent paycheck from their small business to their personal household income… So what we’ve been focused on in the last few years, is really helping small business owners get profitable, figure out a way to save time, and make more money so that they can do more of what they love.

Joe Fairless: Well, we all want to get more profitable, and do more of what we love, and save time… So hook, line, sinker – let’s do it. What’s number one? What mistakes do you see people make?

Sylvia Inks: Biggest mistake, I see people co-mingling their personal and business money. I see it happen all the time. I actually had a real estate agent once who told me that every December, she called it “the week of hell”, her husband would give her literally the credit card statement from January through December of that year and gave her a highlighter and said, “Go highlight all your business items so I can put it on our tax return.”

Joe Fairless: I’m hyperventilating.

Sylvia Inks: Are you cringing?

Joe Fairless: No, I’m about to have a stroke as a result of just thinking about that.

Sylvia Inks: Yes. So they co-mingled everything. They just had only one credit card that was paying for their personal finances, as well as her real estate business, and it was just a mess. So the biggest thing everybody absolutely–

Joe Fairless: And they did that multiple years?

Sylvia Inks: Multiple years. Yes, every year. Every December, she got a printout, multiple pages of credit card statements, and a highlighter, and the husband said, “Here you need to go highlight and tell me which ones of these are business expenses.”

Joe Fairless: Just get a bookkeeper, right? That’s the solution here?

Sylvia Inks: No, actually, the solution is to make sure you set up three business bank accounts. So completely separate from your personal life.

Joe Fairless: Three?

Sylvia Inks: Yes.

Joe Fairless: Please. Elaborate.

Sylvia Inks: Okay, so the first one is your operating expenses, right? That’s whatever it needs to keep the lights on in your business. So everything that, no matter what, you have to pay the bills. So you’ve got a website, you’ve got phones, you’ve got whatever things that have to be paid, dues and subscriptions, those are in your operating expense account.

The second account is for taxes. I see so many business owners accidentally spend their tax money, because a lot of times you’re either paying monthly taxes or quarterly taxes. So if you’re co-mingling that and that’s all sitting in your operating expenses, there’s a good chance that you are accidentally spending that tax money. So a good business opportunity comes up and you’re like, “Oh, yeah.” I see a lot of business owners just log into their checking account and see that they’ve got a pot of money, so they’re like, “Oh, yeah. I could take advantage of that. Let me go purchase this, or let me go invest in this.” And then forget that that was their tax money. So separate tax account. And then the third business bank account is actually for your emergency fund. So having a separate emergency fund just for your business.

Joe Fairless: Okay, I hear you. But this isn’t for everyone though, right? Because if you’re disciplined enough to allocate an emergency fund within one bank account, and taxes, and expenses – you don’t need three. So this is for people who have a hard time doing that already… Is that correct? Or what is your thought process?

Sylvia Inks: Great question. So I actually did have a client of mine who said the same thing. She started working with me and she said, “Sylvia, I am really disciplined. I just know that a certain portion of my money is always dedicated to an emergency fund.” And she struggled with it and she fought me a little bit, but eventually, she did do it. She said, “Okay, I’m going to have to take this leap of faith.” It doesn’t cost you anything, you just open up a checking account or savings account, if you will, and put your emergency fund there.

She emailed me less than a week later and said it completely freed up her mental space by having a separate account for her emergency funds. That way, she knew that her operating expenses, she knew that what was going out for paying bills, versus if she saw more money in her checking account, that that was extra money that she could use to invest in a business opportunity that came up, right?

Joe Fairless: Okay.

Sylvia Inks: So it’s more peace of mind, and just freeing that mental bandwidth. You don’t want to have to constantly go, “Okay, well, there’s 50k in my checking account. Well, how much of it’s supposed to be for emergencies? And do I really have this money to invest in XYZ course, or this book, or whatever?” It just frees up that mental bandwidth.

Joe Fairless: Okay. And then as far as the checking accounts, are they three checking accounts? Just I’m getting into the weeds a little bit, I know.

Sylvia Inks: Yeah, of course. I would recommend if it’s your emergency fund, try to do a savings account, so you can get at least get a better interest off of that. But these days, I think all the interest rates are pretty minimal, but any little bit helps.

Joe Fairless: Yup. Okay, got it. And you’ll just also want to make sure that the accounts don’t have dormant fees, because if it’s just sitting there idle, and it is a checking account, that you have some sort of automatic transfer, that transfers $1 into that account, so you’re not getting charged fees, so it’s not actually costing you money.

Sylvia Inks: Absolutely a great point. And again, definitely make sure if you’re using this for your business, please make sure that it’s a business checking or savings account. I actually had a participant at one of the workshops that I gave, and they were running their business out of a personal checking account at a credit union, and the credit union found out and ended up closing down their accounts, because you can’t use personal accounts to run your business.

Joe Fairless: Okay, number two.

Sylvia Inks: So number two actually was making sure that you have an emergency fund. So again, I see a lot of small business owners think, “Oh, well…” Maybe their business is a hobby or a side business. So they feel like, “Okay, well, I don’t need to have a separate business emergency fund. I’ll just tap into my personal emergency fund if I really need to.” So I really highly encourage people to make sure that they separate that out and make sure you’ve got one just for your business. Because you don’t want to get into tapping into personal funds or anything that’s meant for your personal life, whether it’s…

Joe Fairless: Specifically how much?

Sylvia Inks: So I’ve always said three to six months. And that’s really depending on the type of business owner you are, especially if you’re paying for a leased space or rental, making sure that that may be more closer to like six months. But with COVID, probably more is probably a little bit safer these days.

Joe Fairless: Three to six months of what?

Sylvia Inks: Of your operating expenses. That way, you can make sure that you can cover expenses if anything happens. So a great example 0 I had a client of mine, she had a death in the family. And she felt like, “Okay, I can’t really work on my business.” She just took two months off of her business, but there are still bills that have to be paid. So she didn’t account for that, and she ended up going into debt, because she forgot to account for, “Hey, there’s things that even if I want to work, I may end up having to take time off because of personal emergency reasons.”

Joe Fairless: Number three.

Sylvia Inks: Number three – so not having your tax money taken out. So if you’re a W2 employee, your tax money’s already automatically taken out, that way you’re not accidentally spending it. So again, that’s why we want to talk about the three bank accounts. So making sure that you just account for that anytime that you are getting sales, working with your CPA to figure out what’s your tax amount, and just go ahead and put an automated process to take that tax money out. You can do it weekly or monthly, but just making sure that it’s not all sitting in your one operating checking account, so that you’re not accidentally spending it.

Joe Fairless: Okay. And number four?

Sylvia Inks: Number four, this is my favorite one.  A mistake that I see with small business owners is that they are willing to work for free. So basically kind of like a no paycheck. So they’ll work for months without paying themselves consistently, because they feel like “Okay, well, I don’t know when my next sale is coming in. So I’m just going to wait, and wait, and wait.” So I have business owners who have been in business for eight-plus years who don’t consistently pay themselves a paycheck, because they don’t put themselves as a line item, as essentially treating themselves as an operating expense. So figuring out how much they want to make sure that the business is paying them, so they can bring that into their personal household, family, etc.

Joe Fairless: And number five.

Sylvia Inks: Number five. One thing that I see a lot of small business owners make the mistake of is they lower their prices. So basically, they give discounts on the fly. So they feel like “Okay, well, if I don’t ask for too much, then I’ll be able to make the sale.” But a lot of times they don’t think about all the costs that go into keeping the lights on in their business. So when they’re having these sales conversation, or they’re getting nervous that maybe somebody’s not going to close on the sale, I’ve seen business owners just lower their prices or give a major discount to attract customers.

I had one instance where I had a business owner, when we’ve calculated everything that she did, she actually ended up giving her product away for free. When we factored in all her cost of goods sold, her discounts, her taxes, etc. She actually basically gave the customer money to walk away with a product.

Joe Fairless: It reminds me of the Office episodes where Michael Scott creates the Michael Scott paper company and they’re meeting with their number cruncher, and the big guy says, “Well, actually, as you grow, you’re going to lose more money and actually be out of business.” Because they’re doing a fixed cost model versus a variable cost model, as they’re just assuming the costs will stay the same as they grow, but they’re actually losing money.

And two things come to mind, besides the Office episode. One is that being aware of all the costs that are taking place in order to operate a business, it’s not something that a lot of entrepreneurs are aware of, in my experience. And the second is when you do lower your costs to attract a certain clientele, you’re actually getting hit twice. One is you have a lower profit margin, if any profit at all. And number two, you’re attracting not the type of client that you really want to attract. You want to attract clients and customers based off of the value that you bring, not a price point. So on the first part though, I’d love for you to talk a little bit about how do we become more aware and cognizant of the expenses that are going on in order to make our business run? Are there certain reminders or techniques or softwares that we should always keep in mind?

Sylvia Inks: Yes. This is actually one of my favorite topics. I’m glad that we’re talking about this. So in terms of expenses, keep it pretty simple. You can put it in Excel. But really, I stress to my clients to make sure that you list every single thing that you’re paying on a monthly basis or even a yearly basis. So everything that you’ve signed up for – subscriptions, all those monthly bills, yearly bills, or insurance. And then I also recommend just putting a line item for why you signed up for that service or that tool. Because when you start off, your reasons for signing up for something may be one thing, but five years into your business, that reason might change. And maybe you don’t need that product or that subscription anymore.

I actually had one real estate client that I was working with, we were looking at all their bills, and I looked at their phone bill, and I was like, “Why is it several hundreds of dollars? You have a pretty small team right now.” And then they started realizing that they were paying for seven or eight cellphone bills and realized that they no longer had those agents. So they were paid, right? And this was years; like, they’d been doing this for three-plus years, and they’re like, “Oh, my gosh, we had these people on our payroll, and we were paying their cell phone bills, but we don’t have those people on our team anymore.” So really, it was just there was no oversight for that.

And then it was a husband and wife team, and we were looking through and I was like, “Okay, well tell me what the subscription is for?” And they couldn’t remember. It was like, “Okay, well, let me figure out why did I sign up for this.” So really just giving yourself notes for why you signed up for something… As well as, if their yearly bills that are coming up, I would just say put it in your calendar, a couple of weeks, two weeks, maybe even a month out, and just remind yourself and say, “Hey, this bill is about to be due.” Especially if you’re paying a yearly premium for it. And say, “Make sure that you’re still using this tool. If not, let’s cancel it.”

Joe Fairless: What a great exercise to look at; first, in order to analyze the data, you need to have the data organized in the right way. I mentioned on number one, have a bookkeeper. And you said, “No, no, no, no, have three bank accounts.” I’m going to mention it again for this one. Because you haven’t mentioned “get a bookkeeper.” How come? Because I have a bookkeeper and it’s amazing. And that bookkeeper just provides the monthly finances, he’s with the CPA firm that I work with… But I haven’t sat down and done it methodically, I should say, “What is this one service and do I still want it?” Would you recommend having a bookkeeper and then taking this approach?

Sylvia Inks: I do recommend everybody have a CPA, for sure. So you definitely need somebody who is trained to do your taxes. So I don’t have a bookkeeper. I do have a CPA, but I use an invoicing and accounting tool called FreshBooks. So that provides…

Joe Fairless: FreshBooks?

Sylvia Inks: FreshBooks. Yup. I can give you a link as well. So it will take all my expenses – so I just sync up any of my credit cards or my debit cards, bank account information… So it will basically do an inventory of all my expenses and categorize them for me. So it will say “Oh, I see that you had gone to Starbucks five times this month.” And it’ll flag it as a meals and entertainment expense. Maybe I was meeting with a colleague or a prospect. Or “Oh, I see that you’re paying Microsoft for a subscription every month.” So it will start flagging those for you and categorize it for you. So basically, it’s an automated process where I don’t have to pay a bookkeeper for that, because the system will do it for me.

Joe Fairless: Initially, though… Because I used to have something like that… You have to categorize something so that the machine can start learning, “Okay, that’s for XYZ”, right?

Sylvia Inks: Correct. Correct.

Joe Fairless: I got it. So it takes some initial work on the front end. But then once you start having reoccurring purchases, then it puts them in those categories that you associate it with?

Sylvia Inks: Yes, that’s correct.

Joe Fairless: Awesome. Anything that we haven’t talked about before we wrap up that you think we should as it relates to expensive mistakes all entrepreneurs make?

Sylvia Inks: Yes. So we talked about expenses. The number one tool that I’d say every small business owner absolutely needs to budget for is a scheduling tool. I’ve seen people lose business deals because it takes three to four, or five emails back and forth trying to find a date and time to work.

Joe Fairless: Oh yeah.

Sylvia Inks: And lots of people are scheduling meetings after hours. So if you’re not accessible, or if it takes a phone call or it takes trading multiple emails to get on your calendar, you might lose the sale. So definitely having a scheduling tool is a must-have as a small business owner.

Joe Fairless: What’s your favorite one?

Sylvia Inks: Book Like A Boss is my favorite one.

Joe Fairless: Book Like A Boss. I haven’t heard of that one.

Sylvia Inks: I used to use Calendly, which I know a lot of people have heard of Calendly. But Book Like A Boss, it looks like a micro-website. So aesthetically, it looks prettier. And again, you can set up different types of appointments. So I have a different link for prospects versus clients, versus colleagues who want to connect with me. So I just give them a different link and they can get onto my calendar and it sends automated reminders. It’s fantastic.

Joe Fairless: Alright, thank you for that. I’ll check it out, Book Like A Boss. Well, five expensive mistakes that small business owners, entrepreneurs, real estate investors make that negatively impact their personal finances – co-mingling personal and business money. So get those three bank accounts set up. Emergency Fund, three to six months of operating expenses. Not having tax money taken out, number three. Four, working for free. You don’t want to work for free. Number five, lowering prices, giving discounts on the fly. And we talked about that, and the exercise that I’m personally in love with, which is taking a look at the expenses that you have on an ongoing basis and then asking yourself “Why did I initially sign up for this and is it still useful?” How can the Best Ever listeners learn more about what you’re doing?

Sylvia Inks: Sure, they can go to my website, smifinancialcoaching.com/bestevershow, so it’s just for your listeners. And they can get access to a free mini-course on the top five tools to help you save time and money starting today.

Joe Fairless: Well, wonderful. I will include that in the show notes as well. Thanks for being on the show. I enjoyed it, grateful, and hope you have a Best Ever weekend and talk to you again soon.

Sylvia Inks: Thank you, Joe.

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