How to Confidently Prepare for Tax Season With, Shay Davis

Welcome to another episode of Launched & Legal with Dayna Thomas, Esq., entrepreneurship attorney and law firm coach. Launched & Legal is an Atlanta Small Business Network original series dedicated to bringing entrepreneurs and business owners the best practices and tips for strategizing, legalizing, and monetizing their ventures. Today, Dayna is joined by Shay Davis, founder of The Money Council and Digi Suite Council.

If you have questions or comments about today’s show, send Dayna a message or comment on Instagram @daynathomaslaw.

Transcription: 

Dayna Thomas, Esq.:
Hi everyone. I’m Dayna Thomas, Esq. and welcome to Launched & Legal, where it’s my mission to help you strategize, legalize, and monetize your business. I’m so excited that you’re watching because today and in every show, I’ll be sharing the best practices and tips to help take your business and brand to the next level.

The upcoming tax season is almost here. While it’s common for small business owners to scramble during tax season, this episode is going to help make sure that you are ahead of the game. My guest today is Shay Davis, returning to teach emerging CEOs how to enter the upcoming tax season with confidence. Shay is the founder of the Money Council and Digi Suite Council, two companies that help empower entrepreneurs to establish a firm financial foundation. Today, Shay will help us get to the bottom of our finances so we can stay on top of our business. Hey, Shay.

Shay Davis:
Hey, Dayna.

Dayna Thomas Esq.:
Thank you so much for coming back to the show. Our first episode was so fantastic and you shared so much good information about bookkeeping and tax season and accounting that now that we are almost there for the next tax season we had to get together again. So thank you for being here.

Shay Davis:
Thanks for having me again.

Dayna Thomas Esq.:
Absolutely. So before we jump into our topic for today, I want you to share about how awesome you are and how you got started, and yeah, a little bit about your journey so everyone can know who we’re talking to.

Shay Davis:
Awesome. So as Dayna mentioned, I’m Shay, I’m the founder of the Money Council. I started off as Lit Fin Consulting, and nobody knew what that meant. So I switched over to a simple name that could resonate with the typical business owner looking to get their money together.

So I started off in corporate for about 12 years, and I had two bouts of corporate where I worked for two Fortune 100 brands and stayed in corporate for 10 years. Then went back to school to get my master’s in accounting on my CPA journey. And then left corporate for the second bout to really focus on this entrepreneurship journey and bring the bookkeeping business up to par with me and my spouse.

Dayna Thomas Esq.:
Absolutely. Well, that’s awesome because you definitely have the background for what we’re going to talk about, and so I’m going to dive right in.

I know firsthand that accounting and bookkeeping is not something that is the front of our minds as entrepreneurs, and we learn along the way to do things the right way. So we’re going to kind of talk today to that emerging CEO, as you call it, who may not have been doing things the right way, probably would be scrambling had it not been for this episode. So we’re going to help to mitigate that for them. Right?

Shay Davis:
Absolutely.

Dayna Thomas Esq.:
All right. So what are the top three mistakes that CEOs make with accounting?

Shay Davis:
Absolutely. So I wouldn’t necessarily call them mistakes because as emerging CEOs, we’re always so busy just trying to do the thing that we love, which is doing what we do, making products, serving the people, and we often just forget about the accounting. So these three things will help you get everything kind of together. So the first thing is bookkeeping, right?
Bookkeeping is a cornerstone that will help you understand the report card of your business. Bookkeeping is really just categorizing your expenses, knowing the money that’s coming in, the money that’s going out. So that you can understand the net profit, once you understand your net profit, you can then go from there.

The second item is record keeping. Most people think bookkeeping and record keeping is combined, which it should be. But bookkeeping is the categorization of expenses and revenue, whereas record keeping is keeping up with your receipts, your contracts, and everything that you need to have to substantiate the things and the purchases that you’re making in your business and that’s crucial for tax season.

Dayna Thomas Esq.:
And for audits too, right?

Shay Davis:
Yes. Exactly. And then the last thing I’ll say is because most business or emerging CEOs don’t have the bookkeeping and the record keeping, they end up staying in their LLC too long. So when they’ve reached a certain profit, they don’t know because they haven’t been keeping track of their numbers. And then when tax season comes around and they take it to their tax repairer the accountant, and we start having conversations around S-corps or transitioning to C-corps, they just don’t know. Right? So making sure that you understand your numbers, the record keeping, and when it’s time to transition to that election status with the IRS is super critical.

Dayna Thomas Esq.:
Absolutely. So that happened to me. So my first year I was taxed as a single member LLC, and then the second year I was like, oh, no, no, that’s too much, I have to pay. What can I do? And it’s like, well, if you were an S-corp, it would save you. And so I knew for the next year, I need to make sure that I elect to do taxes in S-corp. But in the beginning, I wasn’t doing it exactly how I should have, but I learned the second year in terms of keeping track.

Shay Davis:
Exactly. And then even from an S-corp standpoint, there’s another threshold. In one of your episodes, you’ve talked about C-corporations, right? There’s another threshold that you reach that at some point it makes sense for you to be taxed as a S-corporation, right?

Dayna Thomas Esq.:
Yeah, absolutely.

Shay Davis:
So there’s certain situations where having your bookkeeping together will give you those alerts to let you know when it’s time to switch over.

Dayna Thomas Esq.:
Absolutely. So a lot of emerging CEOs and entrepreneurs do not do their bookkeeping, do not do record keeping. So if that’s the case, what would you say to that person who has not kept up with their bookkeeping for this year, but they want to know what is the best way for them to prepare for the tax season coming up?

Shay Davis:
So the first thing I’ll say is you’re not alone. I’ll first say that, but the thing is, with bookkeeping being the cornerstone, if you haven’t done it for the entire year, it’s not too late to start, So we’re in for 4Q, now’s the time for you to either start doing those YouTube searches to figure out how to either prepare an Excel tracker that tracks your revenue and expenses or working with a professional that can help you get it done.

Dayna Thomas Esq.:
And so working with a professional is the better option, right? Because even as a lawyer, sometimes people come to me and say, hey, do I really need to hire a lawyer for this or can I do it myself? And I’m honest all the time. There are some things that you can do yourself. Forming your own LLC I did a show on that so that people can learn how to form your own Georgia LLC. You most likely don’t have to hire a lawyer for that. But there are certain things that you do need to have a lawyer for. And I know that it’s the same thing for an accountant. So if someone was interested in trying to do it on their own, what would you say to them or would you direct them to say, You know what? No, you have to hire an accountant?

Shay Davis:
Yeah. So the biggest thing I would say, like we said, there are two options. So either you can do Excel or you can hire an accountant for it. So I usually tell people that the biggest mistake that they make is that they either will go to a coach that has created an expense tracker, which may or could be error prone because they don’t understand how that specific coach has built it. So the best way to start is to build your own Excel tracker, which tracks the revenue and the expenses. And you can do CSV downloads from your bank to get the information into Excel. That’s like the most cost effective way to do it.

But there are issues with that because accounting is very specific and there are certain things that you can account for as expenses if you co-mingle your business and your personal expenses together that can’t be deductions. Right?

Dayna Thomas Esq.:
And we know that’s a no-no, don’t co-mingle.

Shay Davis:
Exactly. So in that situation where you have commingled your funds, then you want to talk to a professional because a professional will be able to easily strip out your personal from your business expenses to help you along that way. So you can either pay 550 or 400 per month to get the bookkeeping done, but usually when you speak with a professional, it is more effective and efficient to get it done at once. So they’re not going to be charging you that absolutely backup bookkeeping. It’s going to be more efficient to get it done at once with a professional.

Dayna Thomas Esq.:
That makes perfect sense. And even though we are encouraging emerging entrepreneurs to do it the right way, hire professional, we know that there’s still going to be some folks out there that say, you know what? I’m just not there yet. It’s not in my budget yet. I’m barely even making any money. So for those entrepreneurs that are just not there yet, and it’s absolutely not in the budget, do you have any recommendations for tools or resources that they can use to try to put it together themselves?

Shay Davis:
Yeah. So again, cloud accounting is going to be the better option. So the first option we talked about, you can do Excel which is more manual in nature. The second option is cloud accounting. So the more popular brand that’s cloud accounting is QuickBooks Online. And that is a good DIY tool. But what I will say is that most people have this misconception that once they download QuickBooks Online, it does everything for them.

Dayna Thomas Esq.:
Oh, no.

Shay Davis:
But it still takes some configuration for you to understand it. So if you have the patience to Google your way through how to categorize certain transactions, just going download QuickBooks Online, sit down for a couple of hours to figure out exactly how it works, work through the configuration modules that they have for you, And then when you’ve just wrecked your brain, then you can reach out to an accountant who may have consultative services that’ll help you do a crash course in QuickBooks.

Dayna Thomas Esq.:
I’m familiar with QuickBooks, and you’re absolutely right. Because I have a bunch of businesses so for some businesses I have to have my accountant, but for some of the smaller businesses I have, I’ve tried to navigate QuickBooks. So you’re absolutely right. There’s a learning curve with it and it takes a lot of time. So I’m not sure if that’s the best option, but at least we have that option, which is good. So would you definitely recommend cloud accounting over manual accounting?

Shay Davis:
Yes. So the thing with cloud accounting is you can automate certain things. I think QuickBooks did a study that showed that without cloud accounting, most business owners spend 30 hours plus on their accounting. So in the sense where if you use cloud accounting and there’s certain cloud accounting softwares that work specific for specific industry. So make sure you do your research and understand the pros and cons of each.

But the cloud accounting, once you configure it the right way, most businesses think if they go from Excel and into a cloud accounting, that it will reduce the time, not necessarily unless you’re using all of the features at your disposal to automate certain transactions that are recurring in your business. So if you have 80% recurring transactions that happen every single month, you want to make sure you understand those automation configuration steps so that you can reduce the time it takes for you to work in that system.

Dayna Thomas Esq.:
Absolutely. So I’ve talked in a couple of episodes about automations, and while I am a fan of automations, I am not a fan of automating a mess. And that’s what people often do because they get excited about the possibility of doing less work, and you just set something and you forget it, but you didn’t realize, oh, this is a little bit different and that part is a little bit different. So I know specifically with QuickBooks that if the automation is set up incorrectly, then that expense is categorized in incorrectly. So you definitely have to be careful there, it’s possible but you definitely have to be careful there.
So, What are some other ways that bookkeeping can help emerging CEOs?

Shay Davis:
So when I think about bookkeeping being the cornerstone for me to understand how my business is operating, I fall in love with numbers and I fall in love with profit and law statements and balance sheets as an accountant. But once you understand your numbers and you’re not commingling your funds and you’re in QuickBooks or another cloud accounting software, they have reports for you to then be able to go and analyze how your business is performing.

Dayna Thomas Esq.:
That’s what we need to know.

Shay Davis:
So you can answer questions, How did I do this year compared to last year? How did I do this month compared to last month? What are I average prices for services? Am I profitable? Am I not profitable? What do I need to stop doing? So those are some of the questions that you can start asking yourself as a business owner, and you can lend to the reports to help you solve those problems. So, without the bookkeeping you won’t be able to go and run those reports to understand how you’re performing as a business. It’ll also pigeonhole you in a sense where you won’t be able to do effective tax planning to understand where to reinvest back into the business to reduce your tax bill with IRS.

Dayna Thomas Esq.:
Absolutely. So that makes perfect sense because hiring an accountant or even doing your bookkeeping, yes, categorizing expenses is important. It makes tax seasons easier, But what is the conclusion for your business? So for me, when I’m working with someone who’s going to help with accounting or bookkeeping, I don’t just want expenses categorized, I want you to tell me what am I spending too much money on? We spend $500 on this every month, but we only bring in 200 from that software, so we need to take this software away. Or we have two scheduling softwares, you have Calendarly and you have Acuity are using both like, oh no, I haven’t used Acuity in six months. Well, let’s cut that one off. So those are the things to me that really help the entrepreneur take their business to the next level and that’s how we make more money as well because if we’re saving and spending less, we are profiting more. So that’s super important.

So talk to us about KPIs and how reviewing our statements and doing correct bookkeeping can help us with KPIs. So first, define that for us, and then what are the top three KPIs you think emerging CEOs need to track?

Shay Davis:
Yes. So KPIs are called key performance indicators. And I’m going to keep this very simple because we can get into financial KPIs, operational KPIs, qualitative KPIs. So we’re going to stick to financial KPIs since we’re talking about bookkeeping and knowing your numbers, right?
So KPIs, again, if we touch on the last topic, when you look at your profit and loss, it helps you determine what specific questions you can ask yourself to solve. But KPIs get to the roots of what you need to be doing to make specific changes so that you can see step level improvements. So the biggest KPI that you need to be tracking in your business is net profit. Hands down. Most businesses want to look at revenue and revenue is sexy because you see, it’s like a lot of money coming in.

Dayna Thomas Esq.:
If you have a lot of expenses, baby, it does not matter.

Shay Davis:
Exactly. So net profit is the thing that you want to check every single month. You can do it monthly, quarterly. This allows you to do analysis. Am I improving if I look at quarter, over quarter or year over year?

The second KPI that I like to track is average profit per solution. So solution can be product or service. This helps you get down to the productivity of the product or service that you’re offering. If the product or service on your menu selection is not profitable, then this gives you an indicator that you need to eliminate that service. So this helps you become more productive and more efficient and accurate in running your operations.

Dayna Thomas Esq.:
Can I interrupt you right there?

Shay Davis:
Yeah.

Dayna Thomas Esq.:
Because that happened in my life too. So when I first started my law firm, Shay, I was doing a full suite of entrepreneurship services from LLC formation, contracts and copyrights and trademark, just anything that a entrepreneur needed. But when I took a look at my finances, 80% of my revenue was coming from one service, which was trademarks for me. And so I made that business decision, hey, if 80% of the revenue’s coming from there, let’s be intentional about it now. And that has helped my business really to skyrocket. So, it’s super important to determine your KPIs, track them, but not only that, make decisions based off of that.

Shay Davis:
Exactly. And that’s so good that you mention that because as an entrepreneur, you have to experiment to figure out what’s going to stick in the marketplace. And we’re not saying that it makes no sense for you to offer all of these services. But to your point, be intentional about what services you’ll continue to offer so that you can put your best foot forward for your clients.

And then the third one I would say is average daily revenue. So average daily revenue gets back to the sexy revenue goal-

Dayna Thomas Esq.:
Oh, I made $5,000.

Shay Davis:
Exactly. Exactly. But the thing is, if it’s not consistent, then it doesn’t really bring you peace, right? So we always hear that to make six figures, I think the number is like I need to bring in, is it 273 a day? I don’t know.

Dayna Thomas Esq.:
It’s 8,000 something a month. Yeah, I’ve looked at it.

Shay Davis:
So if you break down that $100,000 into a daily goal, your average revenue per day will let you know if you’re meeting, exceeding or not meeting it at all. So you have a goal in mind. This KPI won’t work unless you have a specific goal. Okay. Because it’ll tell you whether you are meeting it, exceeding it or not meeting it at all.

Dayna Thomas Esq.:
That’s an average?

Shay Davis:
Average.

Dayna Thomas Esq.:
Okay. That’s an average per day. All right. That’s helpful. So there is so much that it seems like we have to do as it relates to staying on top of our finances and preparing for tax season. But it doesn’t have to be super overwhelming. And I know that you have a lot of resources and that you have already some that are in the works to help it go smoothly because some people have it in their budget to hire a CFO, some people do not. Most entrepreneurs or small business do not and some can work monthly but some do not have that in the budget and some just don’t want to go on YouTube or Google. But they would rather speak to someone and help them to direct their attention. So, tell us about the suite of resources-

Shay Davis:
Like how you did that.

Dayna Thomas Esq.:
Yes. Tell us about the suite of resources that you have for entrepreneurs at every level.

Shay Davis:
Awesome. So the Money council is like the service wing. This is our VIP like a la carte solution where we help business owners understand their finances on a one to one basis. But we also have Digi Suite Council, which is the DIY learning platform. And I like to say it’s the number one finance academy for emerging CEOs.

Dayna Thomas Esq.:
Yes it is.

Shay Davis:
So the thought there is we want to be that one stop shop for all accounting and finance questions for you to understand how to DIY your S-corp, how to DIY your bookkeeping, what KPI should I be tracking for my specific industry? So we have a curriculum that’s in the works that we’ll be building out over the next 18 months where it’s like the entrepreneur’s playground.

Dayna Thomas Esq.:
That’s right. I love that.

Shay Davis:
And it’s effective and affordable. And then for the people who need specific VIP support for bookkeeping services to prepare them for taxes, and they’re ready to make a small investment that isn’t multi four figures, we have a specific service that’s called our five Hour Coaching Intensive. What we split it up over two sessions. We like to call the first session like you’re learning, right? Two and a half hours is spent specifically for learning, getting into a cloud accounting software system of your choice so that you can understand how to reclaim your time by using specific automations for your business so that you’re just not putting in garbage into the system.

And then the second session, you come back with questions. We call that our tutoring session. So you come back with questions-

Dayna Thomas Esq.:
Which people will have.

Shay Davis:
Exactly. You come back with questions specific for your industry and whatever time is left, you get to use either as a tax planning service to add on to what you’ve already learned for your business.

Dayna Thomas Esq.:
I love that. So from every stage that an emerging CEO is in or entrepreneurs and you have something for them or in the works.

Shay Davis:
Exactly.

Dayna Thomas Esq.:
And as an entrepreneur myself, I appreciate that. And even for the many entrepreneurs that I serve through my business and Launched & Legal, it’s just something that we need more education and resources. So thank you.

Shay Davis:
You’re welcome.

Dayna Thomas Esq.:
Thank you for sharing your information today. This was an amazing episode, and I look forward to having you again, because legal and accounting go hand in hand and it’s often two topics that a lot of entrepreneurs don’t have access to at their fingertips unless they have enough money to hire a lawyer or for those consultations, which a lot of entrepreneurs don’t have. So thank you for sharing your time.

Shay Davis:
Absolutely. You’re welcome.

Dayna Thomas, Esq.:
Well, I hope today’s show help to educate and inspire you as you pursue your business goals. Be sure to share today’s show with someone who can benefit and visit MyASBN.com and subscribe. If you have any questions or comments about today’s show, I would love to hear from you, send me a message or comment on Instagram at @daynathomaslaw. Remember to tune in next week and every week to make sure your business is launched and legal.