On the most recent episode of I’m That Geek Web-TV show we talked about something that is so crucial to all the entrepreneurs and business owners out there: their finances and their business structure and legalities. I'm happy to share with you two of the brilliant minds and they are amazing people. Pam Jordan, The Profit Finder and Stan Padgett, Attorney, who teamed up to create Enrich Your Elephant.
We talked about all the stuff that is happening to your business and messing you up. Issues tend to pop up because when people are just getting started, they don’t know what they don’t know. What type of business structure should you set up? How do you protect your personal assets if something bad happens to your company? What are the numbers that you need to be focusing on in your business? These are important questions that you should know the answers to and if you don’t, your business could be in trouble. Don’t worry, we have your back. Here are the answers to these and other important questions…
How did an Accountant and a Lawyer decide to create a business together?
My name is Pam Jordan and I'm an accountant. But don't blame me. I'm actually kind of a fun person even though I like numbers. I've been doing this for 15 years specifically in small businesses, for multiple industries, and we focus on getting all the numbers organized, making it easy for the entrepreneur to know where they are and make good decisions and then let them focus on what they're good at. We take care of the numbers and they move on. Stan and I actually met in Florida, he's in Florida and I'm in North Carolina. I was really impressed with him and how he handled issues with his clients. I'm not a fan of many lawyers, but I like Stan and I was like, I think this could work. So we partnered up and we've been working together for about a year now.
I’m Stan Padgett and I have been a business trial lawyer for 37 years. I got out of Duke Law School in 1982. I've been practicing in Tampa. I've represented almost any kind of business there is: construction, securities, every kind of company, large and small. I've found that there are problems business owners have that are very common. It's sort of the same problem over and over, with a little different twist to it. That's one of the reasons that Pam and I decided we would put together a course and try to help business owners avoid making a lot of mistakes we've both seen our clients make over the years.
How do you even know where to start when it comes to setting up your business?
Most people don't like numbers and they don't want to talk to an attorney. So Stan and I aren't very popular and the things that we talk about, no one really wants to spend hours going over besides us. As an entrepreneur and business owner, the money is your money and the numbers are your numbers. If you don't pay attention to them, there is so much that can go wrong with your money. I'm not saying you need to have an MBA or a CPA or a huge business accounting degree so you can understand what retained earnings mean. I am saying you need to know at a high level how your company is doing and what those numbers are so you can track the growth and most importantly know if there's a problem.
What’s the difference between cash and revenue? Is it possible to grow your business and bankrupt it at the same time?
There are statistics that state over 80% of companies that go out of business is because of cash. Not because of lack of work, but because they don't have money. I have seen countless companies shut down, even go bankrupt with signed contracts ready to go, but they didn't have the cash in the bank to fulfill their financial obligations, whether it be to their employees for loans, their utilities, anything. That's what shuts them down. So you have to know where your cash is. Yes, revenue's important because part of the financial statements and outside entities like bankers and lawyers and CPAs like those things. But for you as a business owner, cash is king and you have to know where you are with it.
How do you save on your taxes?
There are some things that people don't understand when you’re setting up your business, how you set up an entity. Your company might be a corporation, or a limited liability company. THE BIG question is what kind of company should I be? How should I set up my corporation is a completely separate question from how should my company be taxed? Because the income tax code lets you elect several different ways to do it. There's a right way and a wrong way.
Most of the time, at least in my experience, small business owners who are getting business advice off the internet or from a CPA, are getting the wrong advice. If you are set up to be taxed as a C corporation, you can actually pay taxes twice. Once when the company earns it, and also when you take your own money out, you can pay taxes. You don’t want to do this. There are also ways inside the way that you set your company up that is completely separate from how do I get taxed on my business?
There are lots of ways to save money on your taxes and a lot of it depends on your situation and the numbers that you have in place. How much cash do you have on hand? There are great tools such as retirement plans and investments that obviously are great for tax deferral and tax mitigation, but you have to have the money.
If you don't have a big pile of money in the bank somewhere and you want to know “How do I save on my taxes?” there's lots of things that as a business owner you do that are business related that you might not be accounting for as business expenses. Now I'm not saying expense your groceries. You can't expense your dry cleaning. However, your office space in your home, your cell phone use, part of your mileage. A lot of this low hanging fruit people don't realize that they can expense through their company and so they're just leaving money on the table.
How do you set up your company in 60 days the right way?
The first thing is we have an assessment and we encourage all of you to take it to get a glimpse of where you are right now. If you go to the questions and you don't know the answer, it’s a no. Do the assessment, see where you are, get a baseline.
Then we also have a webinar. It's called, “How to set up your company in 60 days without losing your mind”. We have five steps of how to set up your company. We discuss in detail the legal, tax, accounting portion and tracking your money so that you can set up your company correctly and be off and running.
From that Webinar, we also have a course, it's an eight module digital course that Stan and I have built and it's called, Set up secrets: Secrets to starting and growing your profitable business. We go into a huge amount of detail, tell you lots of stories, give lots of examples and we have notes. We have quizzes and tons of resources to go along with it so that if you want to do it right out the gate, this is your roadmap. We show you from start to finish, how to build the foundation for your company that will help you sustain to the next level. Also to make sure you don't make those 50,000, a hundred thousand and a half-million dollar mistakes.
Are Question and Answer calls included in the course?
We go along this process with you. People who are in our Set up Secrets course get not only the content, but they also get access to our private Facebook group. Which is huge because then there’s peer encouragement. Someone might be going through something and someone's already been through it so they can help one another. We also have monthly live Q and A calls with Stan and I. As you're going through and you get to module three and you're like, “this doesn't make sense because I'm blah, blah, blah”. Well, jump on the monthly live calls and ask your question.
Then, the other piece that is fantastic about our course is we have quarterly expert calls. We bring in the best of the best from their industry to come in and do live Q and A with our students. These are people that you would pay hundreds of dollars to be consulted and you're getting it as part of our course and being part of our community.
How to know what to look for when choosing a good accountant for your business?
When you're looking for a good accountant, there's a couple of things that you can do. You can always ask to talk to some of their other clients to get a feel for how they interact with them, how frequently they speak. What sort of advice and information they get from that.
The other thing that you can do is ask the accountant how they handle the difference between tax accounting and business accounting. If they can't understand what you're asking, you've got the wrong accountant because tax accounting is what you do at the end of the year. When it's time to fill out your tax forms. Business accounting is what you do day in and day out to run your company. If you're sitting in front of an accountant that doesn't understand the difference, you need to go find someone else.
Also, when you're meeting with an accountant, ask them how creative they are, what are they doing that are out of the box that are not mainstream to help their clients? Because there's a lot of accountants that are stiff and they will ask you questions, get your numbers, put them in the formula and then hand you a bill.
Well that doesn't help you as a business owner. You want your accountant to be your business partner. You want to know, are they just going to do your taxes or are they actually going to partner with you and give you advice such as, “Hey, I need a bigger warehouse. Can I afford it? Is this a good idea?” Then they sit down and go through that information with you. If you're talking to someone that doesn't understand how to calculate those numbers, you've got the wrong accountant.
What are the best ways to find a good lawyer for your business?
For lawyers, there really are three ways. There is a lawyer rating service called Martindale-Hubbell. It's online. It is a peer rating service. That means the lawyers who are rated by Martindale-Hubbell are getting those ratings anonymously from other lawyers and judges. So it's a pretty objective system.
Step one is you figure out what area of law you're looking for. You are looking for a lawyer who has the rating AV. That means they have the highest rating for legal ability and the legal ethics given by other lawyers and judges. That's a great starting point.
There's a commercial service called Avvo. That is a mixture of requested ratings by the lawyers and customer ratings. I place much less weight on that because the lawyer ratings in Martindale-Hubbell are blind. I don't know who they're sending them to rate me and Avvo, I specifically ask other lawyers to give me ratings and you ask clients who are happy, so that's nice. It will give you some feel for client interaction.
The third way that's really important to me is to talk to lawyers. They're service providers. I tell clients all the time when they meet with me. We talk about their issues. I say, “Now look, before you make a decision, you have to tell me, do you feel comfortable with me? You don't need another lawyer because if you don't feel comfortable with me, you're not gonna listen to me when you should.” And that means I can't help them. So trust your gut when you talk to lawyers.
Here's my last one. I'll add a number four. If you've got a lawyer you've worked with for any significant period of time and you don't have their cell phone number, you have the wrong lawyer. Your life is 24/7. You don't do business from 9-5 Monday to Friday with an hour and a half for lunch. You need to be able to get ahold of your lawyer on the fly. You need to be respectful of their family time too. But bottom line, you need somebody that you feel comfortable enough with that if something really major happens on a weekend, you pick up the phone and call.
How do you find accountants that you can trust?
I talked about the three questions to ask: you get referrals, see how creative they are and then make sure they understand business accounting. And the other thing is really just go talk to other people because you don't know what you don't know. An accountant, sure they can do your taxes. Well H&R block can do your taxes. You want a business partner. Talk to other accountants, seeing what's going on with online reviews. It's really just a matter of having a conversation with them, helping them understand your company. If they're not giving you good feedback, there's not a good interaction, they're not thinking big picture and thinking about how they can help you, it's the wrong accountant.
What are the Top 5 Numbers that you should care about in your business?
When I'm talking to business owners, there are top five that I say that you should care about. To put parameters, this should be looked at on a weekly basis and it should be looked at week over week. So you can see the progression. And this is a 50,000 square foot view. This is not digging deep. This is not going into details. If you have five minutes every Monday afternoon, look at your numbers to see if you're okay or not.
These are the top five that I recommend. The first is how much money did you make that week? Actual money in the bank, not what you invoiced, what you actually brought in.
The second thing is how much money is left in your bank. All the bills you had to pay your loans, your payroll, so money out, money in.
And the third one, which is the most important, is what your profit was. Did more money come in than went out? Iif not, that needs to be red. A big red number that says, “Help me, your negative $10,000”. So that you know that you need to do something.
The fourth number that you should track is how much money you are owed. If you invoice your customers and they don't pay you right away, you need to know how much money you're owed. Also, a lot of times entrepreneurs will loan money to other companies, to their buddies, those kinds of things. You need to know in total how much money is owed to you.
The fifth number is how much money you owe. These are all of your unpaid bills, all of your loan balances, your credit card balance, all the money. With those five numbers, you know how much money you have, you know how much money you're gonna have and you know how much money you're going to have to spend. If you track that over time, you're going to get a red flag really quickly if something starts to go south and you'll have real time information.
I create an owners dashboard where they can see these top five numbers, it takes them less than five minutes. If it's color coded green, everything's great. Yellow means kind of going to have problem and red, “Freak out. We need some money!” I understand that with business owners, it's not a priority to them. They just want to make sure they have money. These top five numbers let them know whether they have money or not.
When is the best time to call and connect with your lawyer?
It's before you signed the contract. Before you make the deal, you really need a lawyer to have the same kind of vision that Pam described for your business accountant You want them to look forward with you. If the only thing you use your lawyer for is calling them when you get sued or a problem comes up, you're not getting the value that you should.
One of the things I do when I work with entrepreneurs, I say, “look, call me and let's spend 10 or 15 minutes on the phone before you make the decision and before you sign the contract”.
after 37 years of doing business trial work, working with entrepreneurs, I can almost smell when a deal doesn’t sound or just doesn’t feel right
and would you rather me tell you, “Look, this doesn't feel right to me. Here's three things you need to know the answer to before you decide to do business with this person.
Would you rather meet and know that now or after you've been in business with them, you spent $100,000 trying to promote something you're doing together and to find out it's never gonna work because there was a fundamental flaw in the deal. The 15 minute phone call, could save you $100 grand.” How do you know that your home and personal assets are protected if something happens to your company?
This is one of the first questions on our assessment and one of the first things we teach in our course is what kind of company to set up and what tax election you should make. Every state has a different set of creditor protection laws. Things like a homestead exemption. How much of the equity in your primary residence can you protect from the claims of creditors other than the mortgage company? In Florida, Texas, and a couple of other states, it's unlimited.
That's why we have OJ Simpson, because you can build a $20 million house in Florida, spend all your cash on the house and then your predators can’t come and take your house.
In some states like Georgia, it's $20,000 for a married couple. What you have to do is you have to get a lawyer who understands that asset protection is like a layer cake. You start with what are the things that are protected under federal law, things like pension plans, 401K’s, Social Security benefits, disability benefits, stuff like that. Then you look at the state that you live in. What are the protections your state's law offers?
They differ typically in three very important ways. Homestead varies from unlimited to as little as $10,000 depending on where you are. The amount you can protect in IRAs. IRAs are not federally protected. Florida protects IRAs very well, some states don't.
The third area is the amount of cash value in annuities. Again, that varies dramatically depending on where you live. You need to have somebody who can help you take that into account when you set your business up. If you ever decide you're going to move from one state to another, you need to have that conversation again before you move because you want to make sure anything you've protected in state one is still protected when you move to state two. You want to make sure there is no gap. Where there's a period of time something wasn't protected because of a claim of a creditor can attach in that gap period. That's why it's important to structure the plan right from the start.
Some people may think this is the type of thing that an accountant would help with. If you're getting legal advice from your CPA, you're already wrong.
What kind of issues can you have in your business if you don’t have a good lawyer on your team?
Please don't copy and paste from Google. Because if it's free… you get what you paid for. I have seen clients get trapped into contracts in the construction industry that they literally copied and pasted off of Google. They just went out and sent it and had their subcontractor agreement. It was basically crap, they lost $50,000 because they copied and pasted.
I understand as an entrepreneur starting out, you don't have a lot of money. If you want a business that grows, is strong and has a good foundation, there are some things you need to invest in and a good attorney to help you set up your company, right, is first and foremost what you need. If you have a weak legal foundation, it doesn't matter how good your money is because Stan can tell you horror stories of people losing it all because they didn't have the right legal structure.
Yes, it's not fun. Yes, it does cost a little bit of money, but $500 now when you're starting out is much better than losing 50,000, 100,000 or and a half million dollars in three to five years because you're using information that's junk and your legal structure is a disaster.
Are Pam and Stan’s specialties working with startups and do they act as a team in that regard?
We both work with startups. We also work with established companies. I have clients who are $100 million plus companies and I provide outside general counsel services for them. Pam and I do work together on clients who want to retain us.
If you work effectively and you concentrate part of your promotion on startups and early- stage to mid-stage corporations, then how can you also be an expert at the hundred million dollar Gross Corporation?
With the larger companies, what I tend to do is I tend to be litigation for them. Often a company that is at 100 million or more will have an inside general council who often does their HR, insurance, and provide typical business advice.
For a couple of those companies I tend to be their outside litigation counsel because I've been a business trial lawyer for 37 years. My work with entrepreneurs tends to be broader. When you're either in a startup phase or you're at r, 10, 15, 20 million, you don't have an in-house general counsel because you can't afford to pay them at that level.
What you want is you want a relationship with somebody like me who has a broad range of experience. I've tried employment cases. I’ve discrimination cases. I've tried construction and securities and other kinds of business cases.
It could be I'm a resource where you pick up the phone and you call me. If you tell me you have an immigration problem, I'm going to get you an immigration lawyer. I'm going to quarterback that team for you, but I'm not a jack of all trades. I don't do immigration. I don't do social security. I don't do work comp. I try to follow Clint Eastwood's advice from one of the old dirty Harry movies. “Man's got to know his limitations”.
How does Pam handle when someone says, don’t tell me that I can’t do something, tell me instead how can I do it?
So earlier when I was talking about finding a good accountant, you've got to find someone who's creative. If you can find an accountant that thinks outside the box, comes up with ideas and they'll give you the, “Okay, so you want to buy that company? Alright, well let's figure out a plan so that you can do that in the next six months when we have the capital”. Not,” No, that can never happen”. It's all right, let's be realistic about where we are, but let's create a plan to get you there.
When first starting out with your business, what is the best type of business structure? Should you do an S or C Corporation?
You shouldn't have a corporation at all. You should have a limited liability company, an LLC. That's the kind of entity you ought to create. How you ought to have it taxed, if you have two people, I’d consider taxing it as a partnership or even have it disregarded so that it just flows through to your own tax return. If you're filing in the US, there are problems if you try to protect the company and protect your own assets using a corporation or even if you're an LLC electing to be taxed as a corporation either as an S or C, I don't like either one of them.
My preference would be to set up a limited liability company in a state that has a good asset protection statute and then make the tax election that your accountant tells you make.
How do you find where you are leaking money in your business and how to fix it?
Everything is leaking is the answer. You as a business owner are bleeding money everyday from most all of your expenses. I know you don't want to hear that, but here's the thing... How often are you pricing and negotiating your insurance, your phone bill, your Internet bill? Are you taking advantage of group discounts for gasoline if you've got a huge fleet?
You are potentially losing money everywhere. What you need to do is go through and assess, “I want more money. At the end of the day I want more profits”. Then you go through all your expenses and say, “if I can kind of half a percent here, half a percent here, and 1% here, you just added 2% to the bottom line. Now 2% of $1 million is a lot of money.
The low hanging fruit is to see where you're spending your money and if there's a smarter way to do it. If you can negotiate any of those rates, group plans for health insurance, group cell phone plans, fuel, there's so much that you can do to save small amounts.
There's been a few cases where I've come in and I found a huge gaping hole in the company where money was just rushing out. But for the most part it's just a little bit here and there. Once we can plug those holes, it's amazing how much money you can put to the bottom line.
What is the best way to connect with Pam Jordan and Stan Padgett?
Our company is called EnrichYourElephant.com. That's where you can find out more about our course and get information about the webinar where we share how to set up your company in 90 days.
If you want to know where you currently stand with your business and the steps that you need to take to make sure that your business is set up properly and protected so that you are making and keeping your money, then make sure to head over to: https://imthatgeek.com/pamandstanprogram and take the assessment today.