January 7, 2021
I have a question for you. Who here has started saving for retirement? Raise your hand. Or don’t. Cause you haven’t. No shame. Another question. Who here knows how to pay themselves as an entrepreneur? Especially one whose work might be seasonal and fluctuates throughout the year? Raise your hand. Or don’t. No shame. Again. If your hand didn’t raise on either of those, this episode is for you. And lowkey even if your hand is raised, this episode is still gonna be gold.
We’re chatting with Michael Eckstein, an accountant, and business advisor. He helps small business owners increase profitability, fix cash flow, and create a business strategy, so they can enjoy more date nights, take more vacations, and build their wealth.
Today we sat down and chatted with him all about cash flow as an entrepreneur, knowing how to pay yourself, figuring out your hourly rate, and how we should go about saving for retirement. Because as entrepreneurs we don’t have that nice 9-5 company taking money out of our paycheck each month for a 401k. We gotta be proactive and do that ourselves. Michael breaks all of that down for us, and we have just an honest, real chat about money, saving, and legacy.
An account and business advisor who doesn’t just do compliance things and tax returns but also helps clients with their business. He helps increase profitability, cash flow, create business strategies, and goals so you can enjoy more date nights and more vacations. Building personal wealth.
He became an accountant because his dad is one as well and knew he was better at numbers than reading!
For how he got to where he is now, being an advisory accountant, there was a shift for him. Always being the type of accountant that talked to their clients. As opposed to that other kind of accountant that gives you your documents and gets you out of their office. Never pick up their phone. You might have had one at one point in your life. Michael has always been the kind that wanted to help his clients with their businesses. Many of his “tax appointments” were sitting and talking about all things business and looking at their websites. As time went on, he wanted to structure this help for his clients doing monthly meetings, weekly accountability calls, and setting goals and tasks.
Pivoting his accounting firm to advisory because it felt like it was missing. Having lots of small business clients that were good at what they did, cared about their clients, employees, and doing good work. But something just fell between the cracks when it came to finances. It’s no one’s fault, we’re not taught it from the start.
Everyone says to become an entrepreneur and open your business, but at no point does anyone teach you about any of the things. Then you are out there and in the field, doing stuff and it starts hitting you. How do I do this, how do I do that? Then you have higher-level stuff and if you are never taught, no one will want to teach you or have a conversation with you because they feel like you’re not big enough. If you can’t afford the 50k consultant to come fix your systems, you’re left to your own devices. That is how Michael felt a lot of his clients were falling into that area and they just needed the help with it.
When it comes to paying yourself as an entrepreneur it is a two-part question:
Besides Michaels’s tips, he highly suggests that you speak with an accountant as he will not be able to give you enough education for your business as many nuances are depending on where your business is.
If you are a sole proprietor or single-member LLC taxed as a sole proprietor you take your pay by taking a draw of your profits from your business bank accounts. Which you should have. You should have a separate business account.
If you are an S corp, you have to pay yourself a salary. Legally if you own an S corp and are an employee in the S corp you have to pay yourself a salary. That means paychecks, W-2’s, and payroll tax returns.
How much you pay yourself is a tricky question. There is a lot that goes into it. On how to do it, save yourself the time and buy the software. It makes it so much easier. A more well-known one on the market is Gusto, it’s relatively straightforward, when you set it up ask your accountant to make sure all the tax ID’s are in there correctly. Then from there, you can do it all on your own! It is not worth saving the money to do it yourself.
When you do payroll taxes, you have to pay paychecks out. What Gusto will do is, you can also write paper checks, but it can also deposit the money from your business bank account into your personal bank account automatically. Even if you are just a one-person shop and it is just you and the business, it will still do that for you. It is really handy as it will make the tax deposits for you instead of having to log into the EFTPS Gusto will do it automatically for you. It will tell you how much it is taking out and then boom! The money comes out and it goes to the government. It will also do all your payroll tax returns per quarter, without having to think about it.
In theory, you could do it all yourself, but in reality, you could pay an accountant to do the payroll tax returns and after their fees, it will come out to be about the same price if you used Gusto or some other software.
The hardest part is setting it up, but once you are set up YOU can manage the week-to-week tasks. If you are worried about screwing something up, ask your accountant to check in once a quarter to look and make sure everything is right.
When it comes to being seasonal you have two options:
Even if you are not seasonal it never hurts to have some money set aside. The general wisdom is two-three months worth of expenses in your emergency fund.
Typically the kind of business that has an emergency fund set aside is a healthier business that grows more. Because when you have money set aside you look at decisions differently. If you are always scraping for money and there is a good deal on a new camera, it would improve your business (better images and such). If you don’t have that money set aside then that option is gone, never there. But if you have the money set aside you can make that move and purchase it. That goes with all sorts of things, new employees, new office spaces, or maybe a photography course. Having the money on hand to make decisions changes things.
So pricing in and of itself a very complicated topic. We have all heard of hourly vs flat fee vs value pricing. No matter how many webinars that you go to a lot is just theory. So let’s talk about how it goes in real life.
When you are first starting, check out your local competition in your area. How much are they charging? Because if they are charging a certain amount, chances are it is relatively close to the market rate. They could be undercharging and you could charge higher, but it gives you a good idea to start with. When you first start you need to have practical real-world examples and no webinar is going to give that to you.
It’s good to always have an hourly rate in mind when you are first starting. One, it’s very hard to quote how many hours something is going to take if you don’t have the experience out there in the field ahead of time. Even if it takes 10 hours for the job itself you need to think of the admin hours as well. In the beginning, an hourly rate is nice while you figure out how many billable hours a job takes. Even once you progress past that and use a flat fee bill, it is still nice to have the hourly rate in mind for out-of-scope work. It can also help you review your hourly projects. It lets you look at and evaluate if you are shortchanging yourself.
Michael prefers flat fee billing, but still believes you should understand and know your hourly rate. We can’t throw it out just yet.
We have all struggled with imposter syndrome when you don’t know your worth. You feel like your work isn’t as good as others in your field and that you’re not worth your clients time. We do have to look at our competition and see what they are charging but don’t let it discourage you. If we were to live in a vacuum and didn’t look at the market around us we would end up either underpricing ourselves or overpricing.
If you are not someone who is already saving you, you have to learn how to save. When you have a corporate gig and the 401k, the way it works is you just sign a piece of paper and say take X amount out of my paychecks. Then you make do with what is left. But when you are a business owner and your own employer you don’t have that luxury. Now you have to partition the money.
First things first you must learn how to set aside money. In the beginning open a separate bank account, preferably one without monthly fees. Your local credit unions won’t have them, some online banks, or check into opening a separate account with your current bank and save there. Start small, $20 a week, and build your way up. Once you are saving $100 a week and are comfortable not worrying about dipping into your savings each month. Now you can start setting saving goals and a retirement plan.
Setting saving goals can be complicated, but the gist of it is to have a conservative amount of what you will need in retirement. How much do you need per year to live your life? How much do you think you need depending on your age 10, 20, 30 years from now? Which is a tough question.
When you are first starting don’t stress too much, but just make an estimate. If your mortgage is paid off, you will only have property taxes and utilities now, but maybe medical bills will be higher. Start conservative.
You will also want to consider opening business retirement accounts. You’ll want to discuss it with your accountant as there are a lot of options and can be confusing depending on your business. Such as, how much your business is making, where your tax rates are, whether you have employees or not? With some retirement accounts if you contribute to your retirement account you also have to contribute to any employees you may have. While a lot of business owners love their employees and want to treat them well, there is a big difference between tossing an extra thousand or two in retirement savings and making a massive 25% contribution especially if you are paying them 20-50k a year. Huge difference, right?
There are a few different types, there are traditional accounts that will give you a tax reduction and reduce your taxes today, and then later when you pull the money out you’ll pay taxes on it. The other account type is Roth accounts, which will not give you a tax reduction today, and then later when you pull the money out you don’t have to pay taxes on it. Those are the two flavors of retirement accounts, you have either one or the other.
Next, you have IRA’s, set IRA’s and 401K’s. With IRA’s there are certain caps on how much you can deduct depending on how much you make per year. With set IRA’s if you contribute to your retirement account you have to contribute to all your employees some percentage.
Then with 401k’s if it’s just yourself, you have a solo 401k, you can find a free provider that is in charge of your fees but if you have employees it will cost money just for the account to exist every year. That amount could be as little as a thousand and up to five thousand dollars, just to have a 401k account. Not even put money in it, just to have it exist. All sorts of testing and compliance have to be done with 401k’s and you don’t want to do that by yourself. Technically you could but make it someone else’s problem because if it goes south it is going to cost ten to a hundred times more to clean it up than to pay the compliance fee to someone else to set it up.
A lot of small business owners don’t save until they are doing really really great! The reality is that even if you aren’t doing amazing you need to plan for retirement. This is tough advice and no one wants to hear it but if you don’t save for retirement, you’re either going to work forever or you’re going to live off social security and hope your kids take care of you. After working your whole life that is no fun way to end it.
No one wants to think about it but it is a reality. On the topic of working forever, your job may be fun now, but at some point, you will get tired and wish to be retired.
One of the main reasons why business owners (or anyone really) don’t save for retirement is because of the lack of education. In high school or college, they never taught us about mortgages, insurance, student loans, or budgeting. Michael learned about taxes only because he was studying to be an accountant. We get our first health insurance after coming off our parents and don’t understand anything that is going on. How does any of this work?
We are never taught. With mortgages, if you miss a payment you get an angry letter from the bank, with taxes you get a letter from the IRS, utilities they’ll just shut off your power. You’ll find out the hard way. But with retirement, you don’t find out until you are 55 and your friends are talking about moving to Florida when they retire and then you think oh crap! I was supposed to save. We have received bad financial education. No entity twists our arm along the way to save money.
The second thing is you are busy running a business and it is much harder to save money when you are running a business than being an employee. Everyone talks about running a business like it is a path to wealth. It definitely can be. But when you are an employee you just sign that paperwork at your job and they put that money in a 401k for you. Your paycheck is constant, you don’t have to worry about cash flows and there is no offseason for you. Every single week, every single paycheck the money is taken out.
Not only do you have to run the business you have to find the money to save. Not just what investments to pick but what accounts to open and all sorts of things that weren’t problems before but now are. And nobody taught you any of this. The key is finding the right people to help you. At the beginning look for an hourly financial advisor.
Like they say the best time to plant a tree was ten years ago. The second best time is today. You’re never going to get there unless you start today.
With retiring it is key to think of goal setting. It can be forgotten. We forget why we started our business. A lot of us started our businesses to have better lives for ourselves and our families and somewhere along the way it gets lost. We have to tie it back and remember our why. If we wanted a job where we clock in and out and make decent money we could have done that anywhere. Why did you start this?
Some people want to build a legacy, not an empire but they want to prived for their children even after they are gone. They want to have a business that can be taken over. On the other hand, people want to work 20hrs a week and have a work-life balance.
A great metaphor for the reason you need goals is the same reason Google maps need a destination. If you open Google maps on your phone it knows your location but it can’t tell you how to get somewhere unless you tell it where you are going. The same goes for you, your business, and your life. Until you know where you are going you’ll never be able to plan a route there.
The book, Book Yourself Solid by Michael Corp has this excerpt that says you cannot build a successful business AND have someone’s approval. It wasn’t in the way that you’ll eventually upset people along the way, it was specifically talking about your mentors. You can’t build a successful business and have the approval of your mentor, parents, spouse, or kid. Eventually, you will disagree and you will have to go with what you think is right.
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WASSUP FRIENDS. We’re Evie + Lindsey, co-founders of this wild partayyy called The Heart University. Our goal is to empower entrepreneurs to kick freaking BUTT in their businesses, dive down into the heart of their why and how, and serve you with all possible tools you’ll need to up-level your business game and CRUSH those goals of yours.
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