Free Webinar: Making More Money and Saving on Taxes

Episode Transcript
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Speaker 1 (00:01):
Hey everyone, we're going to go ahead and get
started here this morning.
So for all of you who havejoined, welcome.
My name is Cody Hall.
I'm the head of sales andmarketing here at Bookkeepers
for Painters and I'm excited tokick off today's session.
Knowing your numbers and savingbig on taxes.
This training is builtspecifically for you, the
painting business owners, whoare ready to scale profitably

(00:23):
and stop overpaying in taxeswithout wasting time and money
on things that do not move theneedle.
So let's introduce our expertsthis morning With me.
I have Daniel Honan, cpa andour founder here at Bookkeepers
for Painters, and the mindbehind the Profitable Painter
Program.
He's helped hundreds ofbusiness owners grow and master
their numbers with using simple,powerful metrics and ratios.

(00:46):
I also have Richard Dutton, ea,our tax reduction strategist,
who spends much of his timeusing aggressive strategies to
legally reduce the amount ofmoney you owe to the IRS.
Here are some things that arecoming up today Two very
actionable presentations, thefirst of which will be by Daniel

(01:07):
on how to make more money usingone simple ratio without
wasting a dime on marketing, andthen by Richard, how to pay
almost nothing in taxes whileavoiding trouble with the IRS.
Very important footnote there,avoiding trouble.
As a bonus to all of you, andto celebrate the rebranding to
ProfitPay or CPA, both of theexperts will have a limited free

(01:30):
offer for a few of the guestshere today.
That could add thousands ofvalues and or save thousands for
your business.
So stay tuned after every oneof the presentations for more
details from those folks.
Now we are going to have anintermission between Daniel and
Richard.
We'll have a short little quizduring that time and for those
who participate and get thingsright, we'll be having some

(01:52):
really cool free giveaways.
Now, throughout some of thelessons, you may have a question
Using the QA icon in the menubar.
Please, throughout thepresentations, type your
questions into there and at theend of the presentation, when
prompted by the expert, I'llread them out loud and the
experts will answer those for us.
Now, without further ado, I'mreally excited to introduce

(02:17):
Daniel Honan on the top of howto make more money using one
simple ratio.
Daniel, take it away.

Speaker 2 (02:25):
Awesome.
Appreciate it, cody.
So let's get this started Allright.
So in 1983, an Air Canadaflight was cruising at 41,000
feet when suddenly both enginessuddenly shut down.
The plane lost all power.

(02:46):
The problem, it was a simplemiscalculation the ground crew
filled the tank up with usingpounds instead of kilograms, so
the numbers looked right, butthey were wrong and no one
caught the error.
So the pilots were suddenlyflying a 130-ton glider through

(03:09):
the sky no engine, no margin formistake, and they ended up
performing one of the mostheroic landings in aviation
history in an abandoned airfieldin Gimli, manitoba.
But let's be honest, that nevershould have happened.
Now you're probably not flying a767, but a lot of painting.

(03:32):
Business owners are doing theexact same thing.
They're running their businesswith the wrong numbers or no
numbers at all.
They're taking on jobs, they'rehiring crews, spending money on
marketing, but they don'treally know their gross profit,
their break-even or theircustomer acquisition cost.
And they're flying high untilsuddenly the engine's cut out,

(03:57):
and when that happens, can'tafford to figure this out midair
.
So this reminds me of a clientthat I had a couple of years ago
.
We'll call him Mike, and Mikehad a $1.5 million business and
every month felt like a scramble.
He had no real financialdashboard.
He was guessing at job pricing.

(04:20):
He never planned for taxes, hejust hoped.
He never planned for taxes, hejust hoped.
And when we started workingtogether, the first thing we did
was build him a real cockpit, aclean set of books, a monthly
dashboard and a strategy for tax, and it turns out he had been
leaving over $50,000 a year onthe table in tax savings alone.

(04:44):
Fast forward a year, mike's netprofit has nearly doubled and
his cash flow stabilized and forthe first time he told me that
he finally feels like he is incontrol of the plane.
So my goal today is to show youthe one financial ratio to
master your numbers, just likethe top 20% of the most

(05:06):
profitable painting companies inthe industry, and really your
numbers can be boiled down tothis one ratio.
So if you get this one ratioright, which we'll go through,
you can really open up theprofitability.
And I wanna be clear that thenumbers I share with you today
have worked for hundreds ofpainting businesses.
And I know that they workbecause I've worked with over

(05:29):
400 painting businesses fromstartup to 20 million over the
last nine years, so I know thisfrom experience, not theory.
So, with that said, let's getinto things here.
Here's a quote from PeterDrucker, one of my favorite
quotes a business without profitis just a hobby.

(05:50):
A business without profit isjust a hobby.
And if you don't have profit,your business is broken and you
can't scale broken.
And don't take my word for howimportant this topic is.
Let's take a look at how it'shelped other folks.
So staying profitable hashelped Scott go from startup to

(06:13):
650,000 per year.
It's helped Ryan go from700,000 to 3 million per year.
It's helped Chris go from 4million to 8 million and dozens
of others who work with us toknow their numbers and grow to
the next level.
In fact, over the last severalyears, the painting businesses
we work with on average increasetheir bottom line net profit by
$78,000 and reduce their taxburden by $44,000.

(06:38):
Now, once you know the numbersyou need to hit in your business
, it doesn't take a ton of timeto get results.
You just got to do the rightstuff the right way.
But knowing the numbers and howto improve the numbers is the
hardest part, which is why we'vededicated a huge amount of
resources to this mission, andthe mission is to guide painting

(07:00):
business owners to financialprosperity, business owners to
financial prosperity.
So, with that said, let's diginto the numbers here.
So these are the numbers fromthe top 20% in the industry,
categorized by typical paintingbusiness stages, that we've
pulled from our internalbenchmarking.
So all the painting businessesthat we work with, we pull those

(07:21):
numbers together and to try tounderstand what are the best
people, what are they hitting intheir numbers.
And so if you look at the charthere on the left, you'll see
the typical categories of atypical profit and loss revenue
gross profit, sales, people,marketing, spend all that.
And then on the right you havethe stages of a painting

(07:44):
business, from solopreneur allthe way up to sellable machine,
and then underneath each columnare the percentages of each
profit and loss category as apercentage of revenue.
And these are the numbers fromthe top 20% in the industry.
So these are like the idealnumbers that you'd want to hit
in your own painting business,ideal numbers that you'd want to

(08:07):
hit in your own paintingbusiness.
Now notice that as you grow,it's a process of taking off
hats and putting them on otherpeople.
So when you're in thesolopreneur stage, you're
wearing all the hats asindicated by those little hat
icons.
So when you're a solopreneur,you're doing the painting you're
doing, you're the productionmanager, you're the salesperson,
you're the office admin andyou're also the leader of the
company.
But as you grow, you'll need tohire folks on and put those

(08:32):
hats on other folks.
So the next stage is the offthe brush category.
This is where you have crews.
They're actually doing thepainting for you.
So you put that hat on otherpeople and now you're still
wearing those other hats.
Now, as you grow, your what wecall discretionary earnings will
go down, because when you'refirst doing everything, most of

(08:54):
the revenue should be going inyour pocket because you're doing
all the rules.
But as you grow, you have topay other people, so that as a
percentage of revenue it will godown, but hopefully as an
absolute value of the dollarwill go up.
So let's run through an exampleand see how this works.
So let's say Joe, from Joe'spainting, he's in the off the
brush stage and so he is doingeverything except for painting

(09:18):
on the job side.
So he's the salesperson, he'sthe production manager, he's the
office person, he's thebusiness owner.
So to be in the top 20% of theindustry, his take-home pay, or
aka his discretionary earnings,would need to be 31.5%.

(09:43):
So for every dollar of revenuehe should be getting 31 cents
essentially.
Now let's say that Joe, okay,he wants to actually grow the
business.
He wants to grow to the nextlevel and he wants to bring on
an office person so he can focuson growing the business revenue
.
He's going to bring an officeperson on so he can focus on the
marketing and sales.
Let's say so he's removing thathat and putting it on his new

(10:04):
office person and so his newtarget take-home is 27%, as you
can see by that column there.
So 27% is the new discretionaryearnings target and that's down
from 31.5.
So his target net pay isactually going down as he grows.

(10:25):
But the idea is he's growingthe pie bigger and he's just
taking a smaller slice of abigger pie, so he should be
making more money.
So this is a lot of numbers,right?
Hopefully you know this ishelpful.
You can definitely take ascreenshot of this growth model,

(10:45):
of the numbers you should behitting in your business.
It's really helpful forcomparing these numbers to what
you're hitting on your ownprofit and loss.
However, it can be a lot.
It's a lot of numbers thrown atyou, I know.
So, to really boil this down,it'd be great if we could just
boil it down into one simpleratio, right?
So let's do that and let's talkabout that key ratio and this

(11:08):
is the whole purpose of thispresentation is to go through
the gross profit to customeracquisition cost ratio.
If you get this ratio right inyour business, it's dialed in,
the profits are going to come.
So let's break down what thisratio actually means.
And it's made of a coupledifferent components.
The first component is grossprofit.
So gross profit, what is grossprofit?

(11:30):
Actually?
Let's take a look here at thenumbers here.
As you notice, gross profit forthe most part is around 50%
across the board.
It's a little higher forsolopreneurs because
solopreneurs, if you look attheir profit and loss, they're
working on every single job site, so their gross profit is going
to be a lot higher.
But for everybody else it'saround 50% and it usually gets

(11:53):
better as you grow and as youdial things in.
And so you'll notice that thesellable machines they're
hitting 56 plus percent on grossprofit.
So just to make sure we're onthe same page, let's define what
gross profit is.
It's basically the revenue, themoney that customers pay you
minus the cost to produce thework, and so this is paying for

(12:15):
the painter labor and thepainter materials.
What's left over after that isgross profit, and we usually
state it as a percentage bytaking what's left over,
dividing it by the total revenueto usually state it as a
percentage, by taking what'sleft over, dividing it by the
total revenue to get it statedas a percentage of revenue.
And gross profit really is themost important profitability
metric for your paintingbusiness and a lot of painting

(12:35):
businesses get this wrong.
So it's the first place tostart really for your business.
If you want to improve yourprofitability, you have to start
with gross profit, and there'stwo main ways to improve your
gross profit margin, and thefirst way is to increase your
prices.
Pretty straightforward it canbe scary to increase your prices

(12:57):
, but it's essential.
If you're really strugglingwith gross profit and you've
eliminated the other issues, itcould be it's probably pricing.
Now oftentimes folks are sayingthat oh yeah, I shoot for a 50%
gross profit, but then when Ifollow up with some questions,
it turns out they're actuallynot the way.

(13:17):
Their pricing isn't allowingfor a 50% gross profit margin.
So it's important to know thenumbers here and understand how
are you actually arriving atyour prices?
So in order to hit a 50% grossprofit margin, you need to
charge your customer twice theamount it costs you to produce
it.
Pretty simple idea, right?
Charge the customer twice ofwhat it costs you and that
should allow you to hit that 50%gross profit.

(13:38):
And most folks get this rightwith with labor, like they
understand, okay.
Just to take an example lastweek I was talking to a new
painting business owner we'reworking with and he's we're
looking at his profit and loss.
His gross profit was like 35%.

(13:58):
So not ideal, right, we wantthem to at least be at 45% gross
profit.
He was at 35, 35% gross profitand so I was like, okay, let's,
let's walk through how are youpricing your jobs?
Like, walk me through what youdo to arrive at the price.
And so he walks through thelabor portion.
He's like my average paintermakes about $25 an hour and I

(14:23):
add on some additional burdenbecause the payroll taxes and
workers comp.
So I add on about an extra 30%there to arrive at $32 an hour
as my fully loaded rate and Iwas like that's perfect.
Okay, what do you do from there?
And so I take that fully loadedrate of $32.
And I basically just double itand I have a charge rate.
I charge the customer $64 anhour.

(14:44):
When I'm determining the price,I was like that's excellent,
that's perfect.
You're basically taking yourlabor rate, adding in some
burden there and then basicallydoubling that for your charge
rate.
I was like, okay, now what aboutmaterials?
How are you arriving what tocharge the customer for
materials?
And it turns out he wasn'tmarking up materials at all.

(15:06):
He would just add, he wouldjust figure out okay,
sherwin-williams is going tocharge me $500, so I'll just add
$500 to the quote.
So that was the issue.
It was simply that he wasmarking up labor, but he wasn't
marking up materials.
And with that one change he wasable to actually hit 50% gross

(15:27):
profit on his jobs.
So all that to say pricing is asimple idea Charge twice the
amount it costs you to producethe work, but sometimes it can
get screwed up in theimplementation.
So it's important to payattention to this.
Now.
The second way to improve grossprofit is to improve efficiency.

(15:48):
So this is how fast your crewsare producing the work, but also
how you're compensating yourcrews.
We're talking about yourpainters right, and so what I've
seen?
The best way to improveefficiency is to generate
budgeted hours with eachestimate using production rates,
and there's a lot of greattools out there nowadays to help
you do production rateestimating, to include paint,

(16:10):
scout and drip jobs.
But just to back up a second,let's define what a production
rate is.
It's all it is is a measure ofhow long it takes a painter to
paint a given surface.
So when you're doing an estimate, there's a bunch of different
types of surfaces.
There's siding, windows, trim,doors, etc.
You should have a productionrate for each of those different

(16:32):
surface types to generate howmuch time it's going to take
your team to paint that project.
And so when you do yourestimate, you generate those
budgeted hours, multiply it byyour charge rate to get the
labor portion of what to charge,and then that should also help
you generate a work order toprovide a work order to your

(16:55):
team the budgeted hours, so thatthe crew understands how much
is budgeted for each surfacetype.
So they should say, okay, wehave five hours budgeted for
doors, we have 10 hours budgetedfor siting, etc.
And then you give them theexpectation to beat the budget,
to meet or beat the budget andso that the folks that are most

(17:17):
profitable, they have thisprocess dialed in and they're
they're doing great at providingthose budget hours to their
team and holding themaccountable.
Now, if you're usingsubcontractors, it's more just
about ensuring that you're notovercompensating your
subcontractors and allowing foryou to hit your targeted gross
profit.
Now, once you've dialed ingross profit, now you can shift

(17:40):
focused to the other part ofthis ratio, which is customer
acquisition cost.
So because, remember, the keyratio that you'll need to be
looking at each at least monthly, is gross profit to customer
acquisition cost.
So this is the other part ofthat ratio and customer
acquisition cost.
You can find out on your profitand loss by looking at what you

(18:02):
pay your salespeople and whatyou pay for marketing, because
the customer acquisition cost isthe cost to find, acquire and
close leads, so it's all themoney you got to spend to close
a deal.
So this is going to be yourFacebook ad spend your
door-to-door marketing, sendingout flyers and whatever you're
paying your salespeople, whetherit's your closers or your

(18:26):
setters, so folks actually goingto do the estimate and closing
the job, or you know how muchdoes it cost you to pay like a
setter to go out and do doorknocking and canvassing.
So all those costs is yourcustomer acquisition cost,
otherwise stated as CAC, and ata minimum your CAC should be one

(18:47):
third or less of your grossprofit.
So if we're looking at yourprofit and loss, let's say your
gross profit is at 45% ofrevenue, your CAC, or your
customer acquisition cost,should be 15% or less if you're
at 45% gross profit and thatallows for that three to one GP

(19:08):
to CAC ratio.
That's the minimum three to oneGP to CAC ratio.
So that's super important.
Now let's go through.
Let's say you're looking atyour customer acquisition costs
on your profit and loss, you'relike man, my CAC is really high.
What are some ways you can?

(19:29):
What are some ways to approachthis?
Like, how can you reduce thosecosts?
And there's really there'sthree ways.
So first is to evaluate thereturn on investment you're
getting for each marketingsource.
So maybe you're doing Facebookads, maybe you're doing door to
door, maybe you're doing directmail, those different marketing

(19:51):
channels.
Track how much you're spendingon each one.
And then to track how much, howmany jobs that you get and what
the value of those jobs througheach marketing source and
basically take how much youreceived in revenue divided by
what you spent for thatmarketing source, and that will

(20:11):
give you a ratio, and usuallythe number that we're looking
for is somewhere around 10x or10 to 1 ratio of what you got in
revenue versus what you spent.
Now that's not to say if youget 7x you should immediately
cut that channel, but it's justto look in deep, more deeply
into that marketing channel tosee can we improve it?

(20:34):
Are there some things that wecan do to improve that marketing
channel?
And we're going to go throughsome of those things here in a
second.
So, like I said, you're ideallylooking for about a 10x return
on investment or so for eachmarketing channel.
So just to go through a quickexample if you're doing door to
door canvassers and you spend$1,000 on the flyers and $1,000

(20:57):
on the canvassers actually go todoor, door to door, with your
payment by the hour and a bonusfor each lead they get or
whatever your compensationpackages for them, let's say,
all in, you spend a thousandbucks and then but you got one
$10,000 job, that's a 10x return, right, all right.
So tracking it tracking thereturn on investment by

(21:19):
marketing channel is kind ofgives you an idea of how each
marketing channel is performingis kind of gives you an idea of
how each marketing channel isperforming.
Now let's say you identify ohman, my Facebook ads are only
giving me like a seven X return.
That's not that great, you know.
I want to be at 10 X.
What can you do to improve that?

(21:39):
So I would take a look at yourset rate, show rate and close
rate and these.
We're going to go through eachof these, but these are usually
numbers that are in your CRM, ifyou have one, and so a set rate
, just to make sure we're all onthe same page.
What this is is basically, whena lead comes in, what
percentage of those leadsactually get booked on the

(22:00):
calendar for an estimate, on thecalendar for an estimate.
So for Facebook, this isusually a.
Facebook leads are not as highquality as like website leads.
If someone's coming to yourwebsite, they looked for you.
They are high, they have a highintent.
They're trying to find someoneto paint their house.
They go to your website andthey fill out that contact form.
You should be setting like 90%of those folks as estimates.

(22:24):
Now, if they're coming in fromFacebook, they just saw a
Facebook ad and they're like, oh, okay, that sounds interesting,
they click it, but they mightnot be super, they don't, might
not have that high of intent.
So 50% set rate for Facebookleads is pretty good, whereas
website leads 90%.
So depending on the marketingchannel we're looking at depends

(22:47):
on what we should want to seefor the set rate.
But this is a good benchmark.
If you have Facebook ads andyou're really setting 20% of the
leads that are coming in, youprobably should focus on
improving your speed to lead.
You know, as the lead comes in,getting to that lead within two
minutes.
That's the gold standard with aphone call, email, text message

(23:09):
and trying to get them set asquick as possible, because the
value of the lead decreasessignificantly after they show
interest.
The next rate is show rate.
So if your set rate's good move, the show rate.
See how that looks.
Your show rate is thepercentage of folks that
actually schedule.

(23:30):
What percentage actually showup or don't cancel beforehand,
and so this should be a veryhigh percentage, like 80, 90% or
higher.
If you have a lower set showrate than that, I would just
take a look at your reminders.
Do you have email and textreminders leading up to the
estimate.
Are you doing a qualifying callbeforehand just to make sure

(23:54):
that they remember and they'requalified and all that good
stuff?
You can look at adding thatinto your process.
The other thing I'd look at isclose rate, and so this is
actually once you perform theestimate, do the estimate and
provide the proposal to theprospect, what percentage of

(24:16):
those folks actually sign upwith you and it turns into a
closed deal deal.
Your close rate should besomewhere between 33% and 50%,
depending on the lead qualitythat you have.
So if you're doing a lot ofFacebook ads, usually they're a
little bit lower quality, so youmight have a little bit lower
of a close rate, whereas if youhave all referral work, referral

(24:40):
and repeat customers, youprobably should be on the higher
side, more like 50% close rate.
So those are some benchmarksyou can use to evaluate your
close rate.
So you're looking at thosethree different rates set rate,
show rate, close rate andidentifying how can I improve my
sales process.
And once you do that, once youmake those improvements, it's

(25:03):
actually going to reduce yourmarketing spend as a percentage
of revenue on your profit andloss.
So it's a way to reduce CACwithout spending less on
marketing.
So you use same dollar spendbut no same dollar spend and
you're just improving your salesrate.
Your sales process willactually reduce the marketing

(25:26):
spend as a percentage of revenue, because your revenue should go
up, because you're closing moredeals right, by improving each
of these rates, all right.
Third way to reduce customeracquisition costs is to evaluate
your salesperson compensationstructure.
So typically a closer is paidsomewhere around 8% of what they
close.
So if a salesperson closes $1million in a year, their

(25:54):
compensation should be around$80,000 to include burden.
So that includes payroll taxesand workers comp.
So maybe they actually nettedlike $65,000.
Then you add in the burden andthey're on the profit and loss,
so it'll look like $80,000.
So ensure that you're notovercompensating your

(26:17):
salesperson.
And this happens relativelyfrequently where we kind of go
through the compensation packageof a salesperson because it
looks super high on the profitand loss.
It turns out okay, you'regiving them a salary and you're
also paying them 10% commission.
That's a little high.
So if they're just doingclosing, it should be around 8%
of what they close.

(26:39):
So the whole key here is to makesure that your GP to CAC ratio
is 3 to 1 or higher three to oneor higher.
And it's usually if, if you aregrowing aggressively, it should
be three to one or higher,because that's usually where the
GP to CAC ratio gets thesmallest is when you're trying
to aggressively spend a lot ofmoney on marketing, it should be

(27:02):
three to one.
Now if you are heavily, if youdo a lot of repeat and referral
work, you're not doing a lot ofoutbound type marketing like
Facebook ads or door to door.
You're kind of well-known, youdo maybe some networking, you do
repeat and referral work.
Your GP to CAC ratio should belike five, six to one or maybe
even higher, because yourmarketing spend is probably

(27:25):
pretty low.
But if you're aggressivelytrying to grow, keep it to three
to one or higher and if you'redoing this, your profitability
will stay intact and be great.
So, and this GP to CAC ratio isone of Alex Hermosi.
He's a owner of acquisitioncomand he it's basically a family
office.
It's a owner of acquisitioncomand he is basically a family

(27:46):
office.
It's valued at around a billiondollars.
I had opportunity to spend acouple days with him going
through kind of like the keythings that he looks at, and
this is a key thing he looks atwhen evaluating businesses to
purchase as the GP to CAC ratio.

(28:06):
So, going back to the growthmodel that we were looking at
earlier, notice that for eachstage of the painting business,
there's that three to one ratio.
When we look at gross profitcompared to customer acquisition
cost, it's a three to one ratioor higher for each stage.
So the top 20% are hitting thisand actually hitting it

(28:29):
oftentimes a lot higher thanthree to one.
So it's a super important ratioto look at and really, if you
can only look at one thing eachmonth on your financials, look
at this ratio and that will tellyou 80% of what you need to
know about your business.
So the bottom line here is thatyou need to know your numbers,

(28:52):
and you know you don't need tofly blind, you need to.
You don't need to wait for afinancial crisis to get clear on
your numbers.
Know your gross profit, trackyour customer acquisition costs,
because when you fly with theright data, you don't just
survive, you soar.
So with that, we will move itto questions.

(29:17):
Cody, do we have any questions?
If you have questions, rememberto use the Q&A box.
You can type in any questionsand we'll definitely address
them.

Speaker 1 (29:25):
Yes, thank you, daniel.
Great work.
Our first question actuallycomes from Angela.

Speaker 2 (29:37):
What if the job sales closes have terrible GP?
What if the jobs that youclosed already have terrible GP?
I'm thinking the question is ifyou've already closed the job
historically and you weren'tdoing the pricing correctly, and
and you know that, oh, we haveto produce this work but it's
not going to be profitable, Iwould try to go back to the,

(29:59):
because what you don't want tohappen is you do the work for
free, basically, cause that'swhat will happen if you have a
really terrible GP and you'reonly like, oh, gp is only going
to be 25%.
I would go back and say, hey,customer, mr Smith, mrs Smith,
we actually need to charge morefor this job and I apologize for

(30:21):
the inconvenience, but it turnsout I can't do it at this rate,
given the paint prices and whatI need to pay my team.

Speaker 1 (30:27):
She also asked some additional detail there, daniel.
She said yeah, why would youget commission or percentage pay
on that if it had the bad GP?

Speaker 2 (30:38):
I'm not sure if I understand that question, why
would you get commission orpercentage pay on that, okay?
So I think maybe what we'retalking about is if the
salesperson closes.
Okay, I think I understand whatthe question is.
If you have a salesperson andthey close a job that has a

(31:01):
terrible gross profit, shouldthey still get a commission on
that job Because basically theysold a job that just had
terrible margins?
And so, yes, that's a greatquestion.
And when you're compensatingyour salespeople, you can

(31:22):
actually compensate them tied togross profit.
So maybe you have a just tothrow an example compensation
structure for a salesperson.
Maybe you start out with 4% ofwhat they close.
They don't get a.
They don't get a forresidential repaint.
Usually the base salary is zeroor very low because you want
your salespeople hungry to goout and close jobs.

(31:45):
So let's say that the basesalary is zero.
Let's say you're doing acommission of 4% for any job
that they close, but then theycan get an additional bonus like
an additional 1% on revenue ifthey hit 45% gross profit.
Or if you hit 50% gross profit,you get an additional 2% on

(32:07):
revenue.
Up to that, 6.5% is where youwant to keep it, but you can
basically tie the bonus tohitting those gross profits.
Now that's going to require youto do job costing to know what
to pay the salesperson, but youcan align, align the incentives
there great.

Speaker 1 (32:30):
Thank you for that, daniel.
Uh, the next question is goingto be from joshua edwards.
With what frequency should we,as business owners, be auditing
and updating our numbers?

Speaker 2 (32:41):
so I would be updating your numbers at least
monthly, like so you can havefinancial statements at least
monthly, um, but maybe even morefrequently depending on the
level of how, how big yourbusiness is and what you're
trying to accomplish.
Um, so that that would be theminimum I would recommend,

(33:01):
because after, especially ifyou're looking at your gp toAC
ratio, you want to keep prettyclose tabs on that ratio,
especially if you're spending alot on marketing, to be able to
see am I overspending or am I inline, at least monthly.
Yeah, Great.

Speaker 1 (33:20):
Thank you, daniel.
Now I have a new question fromthe name IPAM, so anonymous.
What if I'm approachingsemi-retirement as a sole
proprietor and want to sell thebusiness?
What should a buyer need forfinancials?
Yeah, there's an additionalelement Should estimates being?
Oh, that's a different question.

(33:40):
I'll let you ask the sameperson, though, okay.

Speaker 2 (33:47):
So, yeah, as a sole proprietor and you want to sell
the business, usually to sell abusiness, you do need financials
, like a profit and loss balancesheet at a minimum, and they
usually want to have somehistorical like over the last
couple of years at a minimum,and you want the also selling
the business.
There's a period called the duediligence, where the buyer will

(34:11):
dig into your books.
They'll get access and they'lllook through and make sure it's
done right.
So you got to make sure it's ahigh quality.
You know bookkeeping that'sdone to hold up, but that's a
great question.
Financials having audit-readyfinancials when you're trying to
sell is super important, andhaving it ideally in some sort

(34:31):
of QuickBooks online and makingsure everything's reconciled and
it's done in a manner that willhold up.

Speaker 1 (34:42):
Do you want to touch on any of the entity aspects of
that?
They asked specifically aboutfinancials.
In regards to selling a soleproprietorship versus an entity
like an LLC or otherwise, doesthat differ at all?

Speaker 2 (34:54):
It does.
Yeah, for sure.
Selling a sole proprietorshipis definitely different than
selling if you have a team underyou.
So in this case you're lookingat probably a situation where
the person is really buying yourcustomer list and your branding
and you're going to be probablyput on as a consultant for a

(35:20):
long period of time.
They might do seller financingwhere you actually have this.
You know they pay you a certainamount over a period of time
and it might be tied to Tocertain revenue that needs to be
hit or profit margins that needto be hit, be hit.
So yeah, there is, if it looksa lot different at different
levels, for sure.

Speaker 1 (35:42):
But they've that extra clarity.
Next question, same personShould estimates be included as
a charge added to the services?

Speaker 2 (35:51):
So that's up to you.
I think the question is shouldI charge for my estimates?
And I mean you could?
There's some folks that do thatand have success with it.
I think the majority of folksare have free estimates

(36:26):
available.
I think at a minimum you wouldwant to qualify who you're going
out to to meet.
You know.
For example, you wouldn't wantto in most cases not all cases,
but you wouldn wouldn't.
Maybe you wouldn't want to goout and do an estimate for
painting a mailbox, um,especially if it's in a bad part
of town, so maybe you wouldwant to pay them.
Uh, it was a really good partof town and it was like I want
to be in that neighborhood, Iwant to do a bunch of work in
that neighborhood.
Maybe you do paint the mailbox,you know, do that something
there, and so you can upselllater on, like hey, your door
and your exterior looks kind ofrough, you want to get an extra

(36:48):
coat on there.
So but yeah, I would definitelyqualify your at a minimum,
regardless of whether you chargeor not, is qualify who you're
going to spend the time to dothe sales consult with them.

Speaker 1 (37:03):
Great answer, good question.
Our next question is by Josh,and it's what is your goal or
cost per lead on Facebook ads?

Speaker 2 (37:13):
So usually the cost for Facebook ads right now is a
cost per lead is about $60 to$70 per lead.
But what's really important ishow much you're actually
spending overall to uh to getthe customer.
So you might spend 60 dollarsper lead, but you know you might

(37:37):
.
Um, I was going to pull up acalculator here and actually do
some math.
So let's say $60 per lead, butmaybe you only set one out of
two, so 50% set rate.
So you just spent $120 to getone estimate.
Now, out of the estimates thatyou do, maybe you only book one

(37:58):
out of three.
So that means you're spendingthat $120 to get an estimate.
Then you got to spend thatthree times to close a job.
So you're spending $360 perFacebook uh to Facebook to close
the job.
Um, so that that would be thenumber I'd pay attention to is
how much you're spending toactually close the job.

(38:19):
Uh, cause the amount per leadcan kind of vary, but if you can
spend about 10% or lower ofyour revenue that you're coming
in, that's probably a good placeto be.
So in the example I said $360to spend to close the job.
Hopefully your average job sizethrough Facebook would be at

(38:41):
least $ 3,600 or higher.
Most folks are around 5,000plus, so it should be.
So those would be good numbers,so that would be the way I'd
look at the Facebook ad spend.

Speaker 1 (38:57):
Now I have three more questions and Josh says thank
you very clearly.
So the next question will befrom Angela.
Super specific question, butinterested in your expertise
Should we charge back thecustomer our credit card fees?
As an example, do we exchangeour customers to pay with their

(39:17):
credit cards so they charge backthe fees for the credit cards?

Speaker 2 (39:20):
Yeah, yeah, a lot of folks do that.
You could say you know, here'sthe price is $5,000.
If you want to pay by creditcard, we do have a three or 4%
convenience fee for credit cards.
I think most homeowners areexpecting that and we have a lot
of folks that charge thatconvenience fee for sure.

(39:43):
So, yeah, if you didn't feelcomfortable charging the
convenience fee, I would justinclude a 4% extra on all your
like.
Maybe you always have peoplethat are paying with credit
cards all the time.
It kind of depends on themarket you're in if people pay
with credit cards or check.
But if you always encounterpeople wanting to pay with

(40:03):
credit cards, maybe just add 4%to all the estimates you give
and then just say it's includedso you don't have to go back and
add the convenience fee later.
But yes, I would definitely,because that will definitely
hurt your margins if you'realways just eating those
customer, those credit card fees.

Speaker 1 (40:23):
Great Good point, Tim .
I have one more question.
This is from Greg.
When do you sell your paintingbusiness?
If you want the mostprospective buyers and highest
valuation, is it better to bestructured as a C-Corp or an
S-Corp?
Assuming sales price is in thearea of 1.5 to 2.5 million value

(40:44):
substantial capital gains,Specifically on the entity
structure to max buyer valuationand the tax benefit for capital
gains, 1202.
That's a very specific question.
I'm going to say Greg's anaccountant.
Yeah.

Speaker 2 (41:03):
Richard, do you want to chime in?

Speaker 3 (41:04):
Yeah, yeah, no, I love this question because this
is a very, very thoughtfulquestion.
So, greg, I think what you'regetting at here, the heart of
this, is the section 1202qualified small business stock
exclusion on capital gains,which is an incredible provision
that is only available toC-Corps.

(41:26):
Right, and so, for those of uswho aren't familiar with it, if
you have a small business thatis structured as a C-Corp and
you hold it for at least fiveyears and you meet a few other
requirements, you can excludemost of, if not all, of, the
capital gains from when you goto sell that business.

(41:47):
So that seems like a veryenticing reason to set your
company up as a C-corp from thebeginning.
But I'm going to give you a bigred flag on that, because,
while, yes, you do have thisQSBS at the end of the road
there when you go to sell for$1.5 to $2.5 million, it's going

(42:09):
to take you several years, ifnot a decade, to get there, and
during that time you are goingto be paying taxes on your
business profit every year,every year, and as a C-corp,
you're going to have doubletaxation because you're going to
be paying 21% corporate tax onthe business profits and then,
if you want to take thoseprofits out for yourself, you're

(42:42):
looking at an additional 15 to41% range, whereas with an
S-corp you're going to bedealing with more ordinary rates
of around 22, 24%.
So usually for paintingbusinesses, which are businesses
that generate a lot of cash,painting businesses, which are

(43:06):
businesses that generate a lotof cash and your free cash flow,
is like the number one thing abuyer is going to be looking at
when they go to buy.
So you need to be generating alot of cash if you want to sell
for $2 million.
Plus it's going to cost you afortune every year to get there.
So generally what I recommendis stick with the tax structure
that benefits you the most now,which is probably going to be

(43:27):
S-corp.
Yes, you are sacrificing thatQSBS exclusion, but it's usually
not worth the cost ofmaintaining a C-corp for a
decade or longer to get there.
Plus, we have other ways ofreducing those capital gains tax
.
You know if we're doing anasset sale, we're gonna try and

(43:48):
allocate most of your businesstowards things like goodwill
versus hard assets that might betaxed at higher rates.
So sorry, it was a long of ananswer, but generally I'd say
stick with the structure thatbenefits you now and it's
usually not worth chasing thatthat section 1202.

Speaker 1 (44:08):
QSBS.
Great, thank you, richard, andthere's more to come there as
well.
Not still anyone's thunder, butthere's going to be an
opportunity for Daniel to talkabout something after I do this.
One last question, let's let'ssave that question.

Speaker 2 (44:21):
That's a good question.
The retirement question let'ssave that one, because that one
actually we're going to betalking about that in the next
presentation, thumbs up.
And so, before we get into thenext presentation, in
celebration of our rebranding,we're actually rebranding from
Bookkeeping for Painters toProfitable Painter CPA, just

(44:42):
because we've been in businessfor nine plus years at this
point.
We started out just doingbookkeeping, but now we're a
full-fledged CPA firm that doeseverything from bookkeeping to
tax prep, to tax strategy, toadvisory.
So we're offering somethingspecial, but limited, today.
So we've opened up 13 freebusiness valuation slots.
There are a lot of questionsabout business valuation, so

(45:05):
definitely take a look at that.
We're going to put some linkshere in a second, but we have 13
free business valuation slotsexclusively for qualified
painting businesses.
So this is your chance to findout.
You know what the true value ofyour business is, understand
the key drivers to increase itsworth and uncover any risk
factors that may be holding itback.

(45:26):
So we'll show you how much yourpainting business is worth
today and what a private equityfirm would pay for in cash up
front to buy it from you.
So if you're interested, clickthe Q&A icon in your Zoom window
and type link.
Just type the word link and hitsubmit and we'll respond with a
link to get you scheduled for afree evaluation.

(45:50):
Again, this is only forqualified painting businesses
and we just have about 13 slotsavailable.
So just type link L-I-N-K inthe Q&A box there and let us
know if you'd like to get in onthat free business valuation.

Speaker 1 (46:13):
Wonderful, and I've already started sending out some
links there.
So thank you for that detail aswell, daniel.
So, all right, let's keepthings moving.
We are now in intermission, sofor those folks who would like
to use the restroom, get readyto perform the presentation, you
can please do so now.
But we're also going to have afun quiz, so I went along with

(46:36):
giving you to a five-questionquiz called Profit or Pass, a
little light quiz round that hassome possibilities of winning
some free stuff.
So here's how it works.
I'll be in here in a momentmaking available to everyone
five questions.
There are four options A, B, cor D.
So if you don't know the answer, still pick an option, because

(46:57):
you get a 25% chance of beingcorrect and everyone will have
about three minutes to answerbefore I display the actual
questions.
Now, during that time, I'm alsogoing to ask daniel, because
daniel would not let mecopyright the uh jeopardy music,
uh, for this three minutes, andso for that reason, I'm gonna
add daniel actually talk about abook that uh.

(47:18):
The company is launching thathe wrote, uh here recently has
some really fun jam-packedinformation in there, as you, as
business for painting, shouldknow.
So I'm going to go ahead anddisplay this on the screen and
then you can start answeringyour questions all right, as
he's pushing out that thatsurvey know your numbers quiz.

Speaker 2 (47:40):
I'll tell you a little bit about the, the book
that is getting released onAmazon and a couple other places
.
The book is called ProfitablePainter Basically been writing
it for like the last nine years.
It's everything that I'velearned about keeping your
painting business profitable.
It's written specifically forpainting businesses who are
doing like 300k to 3 million inrevenue, who want to scale

(48:05):
without losing control of theirfinances, overpaying in taxes
and constantly guessing ifthey're making the right moves.
So the big idea is this Mostpainting businesses don't fail
because of bad painting.
They fail because of badnumbers or not knowing their
numbers.
So in the book, I break it alldown into three clear parts.
First, we talk about aframework called GAPS G-A-P-S to

(48:30):
help you identify the coreconstraints that's holding your
business back whether it's notenough leads, not enough labor,
bad policies or broken systems.
And then we move to the nextframework called scale S-C-A-L-E
the scale framework, where Ishow you how to grow in a way
that's sustainable, and thisincludes everything from job

(48:51):
costing, pricing, managing cashflow and even how to grow
without debt.
And then, finally, we cover thethird framework, which is cover
your butt B-U-T-T, and thatmeans keeping more of what you
make through smart tax planning,protecting your assets and even
transferring wealth to the nextgeneration.

(49:12):
And this isn't theory.
This is real strategies, realstories, practical tools that
I've used to help over 400painting businesses across the
country.
So if you're ready to stopguessing, fix the leaks and
actually grow with confidence,this book is for you.

Speaker 1 (49:35):
So the folks that I think win this quiz here will
get a free copy sent to yourdoor.
Wonderful, thank you, daniel.
So we have about one minuteleft for everyone to take the
quiz.
If you haven't done so, itdoesn't hurt to get in there and
even guess, if you want to, ona quick lightning round.
There's one thing I provedduring our Bookkeeper Painter
Summit, during our trivia nightthat guessing does pay off.

(49:57):
One does not understand About30 seconds here.
I see all the questions justrolling in.

(50:19):
I am now closing polling.
I'm going to share the resultsand I'm also going to ask Daniel

(50:42):
just to read over the questionand then also go through the
answer real quick.
So if you would, daniel, please, all right, the first question
would Daniel please, all right.

Speaker 2 (50:51):
First question is what is gross profit?
So gross profit looks like mostfolks 83% got that right which
is the profit left over afterpaying for paint and painter
labor.
Second question is what iscustomer acquisition cost made
up of?
And it looks like everybody gotthat right Sales and marketing

(51:12):
costs, excellent.
What is the key ratio to trackto ensure profitability in your
painting business?
Most folks got that right withGP to CAC ratio.
And then, what is the minimumGP to CAC ratio?
Three to one.
Most of you got that as well,awesome.
And the last question is whatis the minimum a painting
business should be making ifthey are completely passive in

(51:33):
their business?
And we had this little split.
I didn't, uh, emphasize it asmuch in my presentation, but we
typically say 15 of revenue.
If you're completely passive,sipping a corona on the beach
while your team makes you money,you should be hitting around
15% of revenue as that target.
Now, if you're active in thebusiness, definitely higher

(51:57):
percentage, but that is it.

Speaker 1 (52:01):
Great work everyone.
Thank you, dave, and foreveryone, after webinar we'll go
through and actually tally upwho answered, who answered by
speed, and see who is going tobe the third, second and third
place.
Uh, the third, second and firstplace.
All will receive um daniel'sbook that he just spoke about,

(52:21):
packed with awesome things tohelp your business, you know,
save big on taxes and make moremoney, um, and then, of course,
no shipping cost there.
We'll email you for youraddress and then, likewise, the
first place we'll get somereally cool bookkeeping for
painter swag I'm not talking alittle green visor and
calculator, something that youcan actually wear out in public.
So thank you so much for yourparticipation there.

(52:42):
Now, next, I'm very excited tointroduce Richard Dunton, ea, on
how to pay almost nothing intaxes while avoiding trouble
with the IRS.
Richard, take it away, sir.

Speaker 3 (52:54):
Well, thank you for that nice introduction, cody.
Yeah, my name is Richard Dunton.
I am an enrolled agent.
That means I am a federallylicensed tax practitioner and my
goal is to or my specialtyreally is small businesses and
helping with tax reductionstrategies and also putting
people more in control of theirtaxes.

(53:16):
So my goal today and I've got anice little slide here with an
icon is to help you pay almostnothing in taxes while avoiding
trouble with the IRS and I knowthat sounds very lofty, very
aggressive.
Is it really possible to payalmost nothing in taxes?

(53:37):
Well, the key here is that wewant to put you in the driver's
seat and give you control overthe amount of income that you
recognize and tax that you pay.
So, yeah, it is possible to payalmost nothing in taxes, but,
more importantly, to give youthat ability to control your
taxes and not have those formscontrol you at tax time.

(54:01):
And, of course, we do solegally, with proven strategies.
There's nothing shady going onhere.
I tell people you don't need aprofessional's help if you want
to commit tax fraud.
You can do that on your own.
A professional helps you dothis and keeps you out of
trouble with the IRS.
All right, let's see here.

(54:22):
So we do this with somethingcalled tax planning, and we
might be wondering why botherwith tax planning?
You know, I look like this guyhere in the picture every April.
I don't want to have to thinkabout this in the summer or in
the fall.
Once a year is enough.
Well, the reason we have to, orwe should, concern ourselves

(54:43):
with tax planning is because, asRobert Kurosaki, the author of
Rich Dad, poor Dad, said, taxesare your largest single expense.
It's not labor, it's notmaterials or advertising, it's
actually taxes which are goingto be the largest expense your
business has.

(55:04):
And it's a little bit deceptivebecause they're usually not
listed on your financialstatements.
Maybe if you're a C-corp theyare, but for a lot of us we're
not staring at them, and so wemight forget that our taxes can
actually eat up 35%, 40%, evenhigher if we're not careful.
So tax planning is differentthan tax preparation.

(55:26):
So tax planning is differentthan tax preparation.
All of us here are familiarwith filing forms, and we might
have a CPA or a tax preparer whodoes that for us.
But tax planning goes beyondjust filing what has already
happened in the past.
Tax planning is something thatis done throughout the year, not

(55:48):
just at tax time.
If we wait until after the yearends the tax plan, it's usually
too late for most of thesestrategies.
So now is the perfect time tobe looking at how we want our
2025 to end and being proactiveabout it.
The truth is, is the tax systemis built for those who plan Now.

(56:12):
That might sound a little odd,especially if we think that
taxes are supposed to be a fairsystem that helps fund the
government.
Truth is is that it's not justabout funding the government.
It's also about pushing throughpolicies and incentivizing
behaviors that the governmentthinks are beneficial.

(56:32):
So we're not here to be a slaveto whatever the government
tells us to do.
But if the government isoffering tax incentives to do
things that already align withour values and our principles
and our goals, we want to beable to reach out and take
advantage of that.
The fact that the system isbuilt this way is a feature, not

(56:55):
a bug.
So there are hundreds of waysthat we can reduce our tax, but
these things don't happenautomatically.
You have to know about them,you have to plan for them and
you have to act ahead of time.
So it does require action andeffort on our part.

(57:16):
The truth is and I think this isprobably the most important
concept of my whole presentationis that it's easier to keep
your money than it is to earnnew money.
So every dollar you save intaxes is pure profit that goes
right back into your pocket.
In Daniel's presentation hementioned that even if we're at

(57:39):
the point in our business wherewe're sipping Coronas on the
beach and we've completelyremoved ourselves from
operations, we still want to begetting a 15% profit margin.
So in that case, if we are ableto reduce our tax by $15,000,
that is the exact same thing asbooking $100,000 in new work,

(58:05):
except we don't have to lift abrush or make a phone call or do
anything to get that money.
So it's easier for us to keepthat money than it is to go out
and have to sell an additional$100,000 of work.
Now just to kind of setexpectations.
Unfortunately there is no justone weird trick the IRS doesn't

(58:28):
want you to know that's going tohelp you save on taxes.
There's no tax fairy with amagic wand that makes these
things go away.
But if we do engage in taxplanning and we do it well, we
can expect to lower our lifetimetax burden, free up capital
that we can reinvest into ourbusiness, we can reduce the risk

(58:53):
of audit and penalties and wecan align our tax planning with
our business growth strategy.
So maybe we're in a positionwhere we are just systematizing
and getting our processes down.
Maybe we're at a place wherewe're scaling or thinking about
exiting our business.
Our tax planning should alignwith our current goals and needs

(59:17):
.
So tax planning is really aholistic approach to our entire
tax, legal and personal life.
And if you've ever heard metalk about the trifecta, this is
what it is tax, legal andpersonal life.
And if you've ever heard metalk about the trifecta, this is
what it is tax, legal andpersonal.
We are looking at everything.
We're looking at our businessand how it's structured.

(59:40):
We're looking at our familymembers and how they might fit
into our plan.
We're looking at things likereal estate, investment accounts
, iras, personal property andwe're also tying it all back to
our estate planning so that weare building a legacy for the
future and we're able to havethe control over that that we

(01:00:02):
want.
So your tax plan should look ateverything, not just your
business.
So let's kind of dive into someactionable strategies here we
want to build a good foundationand that means selecting the
right tax structure for ourbusiness, and we might change

(01:00:24):
structure as we progress andmature.
But I mentioned the four maintypes of taxation and you'll
notice that LLC is not one ofthese types, and that's because
an LLC is a legal entity, whichis an awesome entity to run your
business out of, but thetaxation type that you choose

(01:00:47):
can be different even with anLLC.
So to start with, let's look atsole proprietorship.
This is the most common placethat people start off on.
That's because it's easy to setup.
You can have an LLC or not.
Either way is fine.
They are simple.
There's very littleadministrative work.

(01:01:07):
You're going to file your taxreturn for your business right
along with your personal return,and this is ideal for
businesses that are juststarting up.
Now the downsides of soleproprietorship and why a lot of
businesses eventually outgrowthis taxation type is that all
of your profit is going to besubject to a 15.3%

(01:01:30):
self-employment tax and that isgoing to be on top of your
regular income tax, so it canget a little bit expensive
tax-wise.
Additionally, the owner of thebusiness is going to bear
unlimited liability for debtsand also legal judgments.
So you and your business areone in the same.
There is no real legal or taxseparation between the two of

(01:01:55):
you.
Maybe a little bit of legalseparation with an LLC, but
generally you are going to beliable for any debts the
business takes on.
Another type of structure is thepartnership, and this is going
to be a lot like the soleproprietorship, except with more
than one person involved.
So again, you can have an LLCor not.

(01:02:17):
A group of people can cometogether and form a general
partnership without a underlyingentity.
One of the biggest pros of apartnership is you have almost
unlimited flexibility.
So if you want to have uniquecompensation structures where
one partner gets more thananother or one partner is

(01:02:39):
required to bring more or lessinto the business than the
others, you can do that with apartnership setup, where it's a
little bit more difficult to dothose fancy structures with a
corporation.
The downsides of a partnershipis, again, all profit is subject
to self-employment tax, thepartners bear unlimited

(01:02:59):
liability for debts and you arerequired to file an additional
tax form each year, whether youhave an LLC or not.
If there's more than one personinvolved and you're not married
to that person, you are goingto have to file a 1065.
The third type of structure andthis is probably by far the most

(01:03:21):
common and popular structurefor painting businesses is the
S-corporation.
Now there are no legal orphysical S-corporations.
S-corp is a tax election thatis made for an LLC or a legal
corporation, so if you want totake advantage of this, you do

(01:03:42):
have to have some kind of legalentity underneath.
It is much more tax efficientfor the owners because you go
from being an owner to ashareholder slash employee and
now, instead of paying 15%self-employment tax on
everything you earn, you're onlypaying those taxes on your

(01:04:02):
salary.
The rest of the business profitis coming to you payroll and
self-employment tax-free.
You are starting to createlegal and tax separation between
the company and the owners, andS-corps are 15 times less
likely to be audited than soleproprietorships.
This is very surprising for alot of folks, but the more

(01:04:26):
complicated corporate taxationstructure is actually less
likely to be audited.
Downsides of S-Corps is you doincrease complexity and so you
increase the administrativeburden.
You're going to be puttingyourself on payroll.
You're going to have additionaltax forms.
Deducting certain personalexpenses is going to become a

(01:04:49):
little bit trickier, but it'sstill doable.
You also have some limits onthe amount and type of
shareholders, so you're limitedto no more than 100 shareholders
and everyone has to be a legalresident of the United States
and you have less flexibilitywith distributions.
Basically, you have to treateverybody fairly.

(01:05:11):
If you have an 80-20 partnership, the guy with 80% has to get
80% of the profit, the guy of20% has to get 20.
A lot of times folks will startoff with a general partnership
and then kind of level up to theS corporation when their
self-employment tax becomesburdensome.

(01:05:32):
And if you want to enjoy theflexibility of the partnership
taxation but avoid theself-employment tax, we could
look at doing a little bit morecomplicated structure involving
an S-corp holding company andstill kind of get the best of
both worlds.

(01:05:52):
That's a little bit beyond thescope of this presentation.
And then, finally, we have theC-corporation and, greg, in your
question you really hit thenuance of this.
So your C-corporations are thedefault for legal corporations
but can be elected by an LLC.

(01:06:15):
C-corps can allow you to receivetax-free fringe benefits,
usually not worth the extrataxation, unless you have a lot
of medical expenses and you needto set up some kind of like
health reimbursement arrangement.
You could also take advantageof that qualified small business
stock to avoid capital gainstax.

(01:06:35):
But again, the juice is usuallynot worth the squeeze for penny
businesses and they are idealto attract angel investors,
private equity and they'rerequired if you want to have
foreign investors.
But if those benefits are nothigh on your list of necessities
, it's usually not worth thedouble taxation of the C-corp,

(01:06:57):
where your corporate profits aregoing to be taxed at 21% each
year and then when you try andget the money out of your
company you're looking atanother 15 to 20%.
We were working with a pendingbusiness owner very successful.
His previous accountant set himup as a C-corp and he enjoyed
that because he didn't take alot of money out of his company.

(01:07:19):
But now he's in a positionwhere he has over a million
dollars of cash and if he wantsto access that, he's going to
have to pay an additional 15 to20%.
Wants to access that?
He's going to have to pay anadditional 15 to 20%.
So we're working on somecreative ways to help him get
that money out and offset thosedividends tax.
But we also immediatelyswitched him over to an S-corp

(01:07:40):
taxation so that his futureprofits are not going to be hit
with that double rate.
All right.
So those are the differenttypes of structure.
That's kind of your foundation,making sure that things are
flowing efficiently.
Once you've done that, we canstart looking at the three
different types of tax savings.
I've got gold, silver andbronze here.

(01:08:02):
All of these are valuable.
Some are more valuable thanothers, but all of them are
worth going after if it alignswith your goals.
So number one, gold.
We've got tax credits.
These are going to be dollarfor dollar reductions of the tax
you owe.
Some examples the electricvehicle tax credit for $7,500 is

(01:08:23):
going to immediately reduceyour taxable liability by $7,500
.
Child tax credit is going to be$2,200 per child.
That's going to reduce your taxIf you take your tax down to
zero.
Some of these credits arerefundable, so the IRS will
actually write you a check.

(01:08:43):
The EV tax credit is notrefundable.
The child tax credit ispartially refundable.
So just if you're expecting toget a check back, make sure that
you understand which ones willallow for that.
In the silver position we've gottax deductions.
This is where we subtract anexpense from our income to

(01:09:04):
immediately reduce the amount oftax you owe.
So as business owners you'reused to writing off things like
materials, labor, advertisingand we'll talk about some other
examples of this shortly.
And then, in third place, we'vegot tax deferrals.
Now a deferral does not allowyou to avoid paying the tax

(01:09:25):
completely, but it does let youkick the can down the road and
so that you pay the tax at atime that is more convenient to
you.
An IRA is a great example ofthis.
You are putting money awaytax-free and then choosing to
pay the taxes when you withdrawit in retirement, when you are

(01:09:46):
probably in a lower tax bracketand maybe living in a state like
Texas or Florida that doesn'thave an income tax.
So it's giving you control overthe amount of tax you pay.
All right, tax strategies andaction.
Let's get into some of the nittygritty.
The good news here is, ifyou're at this webinar, you

(01:10:08):
probably either own a businessor you're seriously thinking of
starting one, and that means youare already in a position to
enjoy the best tax strategythere is, which is IRC Section
168 that allows you to deductordinary and necessary business
expenses.
This seems kind of elementary,but I can't understate how

(01:10:33):
valuable it is to be able towrite off business expenses.
We're going to talk about somespecific ones.
Let's start with home officeexpense.
So if you have a space in yourhouse that is used exclusively
and regularly for business, youcan deduct the cost of that
space, even if you have a rentedarea that you work out of.

(01:10:57):
So let's say you have a shopwhere you keep your vehicles and
your materials.
If your home office is yourprincipal place of business, so
that's where you do all of youradmin work, that's where you
contact your customers, you doyour paperwork, you can still
write off that portion of yourhome as a home office deduction.

(01:11:20):
And there's two ways you can dothat.
If you're a sole proprietorship, you can use the simplified
method, which is $5 per squarefoot for a maximum of $1,500.
Or you can use a percentage ofactual home expenses where
you're going to figure out okay,if I'm using 200 square feet of

(01:11:40):
my 2,000 square foot home,that's 10%, and I'm going to
write off 10% of my mortgageinterest, my property taxes, my
utilities and whatnot.
And this can work whetheryou're a sole prop or an S-corp.
There's different ways of doingit, but the basic framework is
the same.

(01:12:01):
All right, vehicles are probablygoing to be your largest
expense.
So we definitely want to makesure we're getting good use out
of those.
If your vehicle is less than100% business use in other words
, you're using it for personalreasons as well we do need to
separate it out.
The personal use we can'tdeduct that, but we're going to
write off the business portionfor sure.

(01:12:22):
Best way to do that is to trackyour mileage, and I know
tracking mileage is a pain inthe neck.
There are some great apps likeMileIQ out there that make it a
little bit easier, but it'stotally worth the deduction
because you can get 70 cents permile as a tax deduction.
This is wonderful forfuel-efficient or electric

(01:12:46):
vehicles.
I can give you an example.
My wife owns a janitorialcompany and in her business she
uses a 2015 Tesla Model S, whichis kind of a wild car to be
pulling up to a office to clean.
But we've done the math on itand that vehicle only costs us

(01:13:09):
about 22 cents a mile to operate.
So electricity, tires,insurance but we're getting a 70
cents per mile tax deductionWith my wife's marginal bracket
her self-employment tax andIllinois state tax.
It is better for us to writeoff that mileage because not

(01:13:31):
only is the government coveringthe cost of operating the car,
they're paying us an additionalnine cents per mile every time
she drives.
So there's a really coolarbitrage play there if you have
a fuel-efficient vehicle.
If you have a larger truck or avan, then we're going to look at
using actual expenses, so theactual fuel, actual depreciation

(01:13:54):
.
We also have the option ofusing bonus depreciation to
possibly write off the entirecost of the vehicle in year one.
So if you are in a year whereyou've got some heavy tax
expense like maybe you're doinga Roth IRA conversion or you've
just had a really big boon thatsummer and you need some tax

(01:14:17):
breaks, buying a vehicle thatqualifies for 100% bonus
depreciation and writing off theentire thing in year one can
dramatically drop your taxes toalmost nothing.
Just be careful that it doesqualify.
In year one can dramaticallydrop your taxes to almost
nothing, just be careful that itdoes qualify.
If the vehicle is less than6,000 pounds curb weight, you
might be limited to only 20,400in year one.

(01:14:40):
All right, other tax deductionsthat we might not be thinking
of Phone and internet AreiPhones, are Androids.
Are we using them for business,at least partly, and are we
having the business get thatdeduction, our internet, if we
have a home office, are wewriting off the business portion

(01:15:00):
?
Do we have to upgrade to ahigher package so that we can
get that speed to lead and makesure that we're contacting our
leads in time?
Let's write off that extra.
Premium Computers andtechnology we're talking about
laptops, cameras, phones, selfiesticks All the things that we

(01:15:20):
need to market and advertise ourbusiness can be deductible
Business travel.
So flights, hotels, rental cars,cars neat little trick here if
you can time your legitimatebusiness travel to end on a
friday with your trip home beingon a monday, you can enjoy

(01:15:41):
yourself.
Excuse me, you can, uh, havepersonal use during the weekend
and still right off the trip,coming home on Monday.
So some folks have gone toSouthern California for
conventions that end on a Fridayafternoon, they enjoy
Disneyland on Saturday andSunday and then they fly home.
As a business deduction that'sperfectly legit.

(01:16:03):
Meals are 50% deductible if forbusiness.
So meals with customers,clients, networking travel those
can be written off.
Office supplies like paper, ink, shipping and software are
always going to be deductible.
Education and training so ifit's something that is directly

(01:16:23):
related to your business, suchas a course or a conference, the
PCA Expo every year, those aregoing to be tax deductible as
well, and my tip here is keepgood records.
I know saving receipts is apain in the neck, but those
receipts are going to make surethat you don't miss out on any
of these deductions and they'regoing to help support your tax

(01:16:46):
strategy.
So good bookkeeping will keepyou out of trouble with the IRS.
Let's talk about healthinsurance.
That is a big thing in thiscountry.
Can we use our business to helpus save on our health insurance
costs?
And the answer is absolutely.
We have something known as theself-employed health insurance

(01:17:10):
deduction.
That is a above-the-lineadjustment.
So for our non-accountants here, above-the-line adjustments
reduce your taxable income andit may help you qualify for
certain credits and deductionsthat you would normally phase
out of if your income is toohigh.
Your insurance can cover you asthe business owner and also

(01:17:35):
your spouse and your children,so the whole family is going to
be able to benefit.
You do need to have aninsurance policy that meets
minimum essential coverage.
So if you're buying your policyfrom the affordable care
marketplace or from a place likeUnitedHealthcare, blue Cross,
blue Shield, those are going tomeet minimum essential coverage.

(01:17:56):
If you are buying yourinsurance as a private plan from
an insurer that's not really ahealth insurer, or if you're
doing like a health care sharingministry, those may not meet
that minimum essential coverageto get that tax deduction.
And if you are buying yourinsurance through the ACA

(01:18:17):
marketplace and you're gettingthat government subsidy, that's
great.
The portion that you do pay forout of pocket can still qualify
, so you don't lose out on thatbenefit just because a portion
of it is being covered by thatpremium tax credit.
All right, if you are an S-corp,then you've got some other

(01:18:38):
options here.
You can still take advantage ofthe self-employed health
insurance deduction, but thebusiness does need to pay for
the insurance premiums and thenthe business is going to write
that expense off as a directbusiness expense.
The cost of that insuranceneeds to be added to your W-2 as

(01:18:59):
part of your wages.
Now it's going to go into boxone, which will be taxable
income, but it's not going to goin box three or box five and
that's where your payroll taxesare calculated.
So yes, it increases yourtaxable income, but it is not

(01:19:20):
subject to payroll tax.
So there's a little bit of aplay here.
As an S-corp owner, let's sayyou need to hit a $50,000 salary
to have that reasonablecompensation.
If you were to pay yourself$40,000 cash and $10,000 of

(01:19:40):
payroll tax-free benefits, youwould still hit your $50,000
reasonable comp, but you wouldsave yourself $1,500 in payroll
taxes each and every year byreplacing $10,000 of cash with
$10,000 of tax-free benefits.
$10,000 of cash with $10,000 oftax-free benefits and then when

(01:20:04):
you go to file your personaltax return, you're going to
deduct the cost of the insuranceas the self-employed health
insurance deduction.
So yes, it is a little bit of aroundabout way of doing things.
It's how the IRS wants it done.
But if you do it right you canactually kind of double dip
there by writing off yourinsurance and reducing your
payroll taxes.

(01:20:24):
Finally, let's look atretirement accounts.
These come in two flavors andwe've kind of previewed this
already.
We've got the traditional IRA,traditional 401k.
That's where you receive animmediate tax deduction for the
amount that you save, but you dopay taxes on that later when
you make your withdrawals.
The other version is called aRoth.

(01:20:47):
Now, when you make Rothcontributions, you get no tax
break up front, but that moneygrows in your account tax-free
and it comes out in retirementtax-free.
So which one you choose isgoing to depend on what your
goals are, and you might have amixture of both in different

(01:21:07):
years.
Once you've decided whether youwant to do traditional or Roth,
we've got different vehiclesthat we can use.
We've got different vehiclesthat we can use.
For just starting out, an IRA isgreat for individuals because
these are tied to you as thehuman being.
They are not tied to yourbusiness.
You can open them up quicklyand easily, a lot of times for

(01:21:29):
no cost, and both you and yourspouse can contribute up to
$7,000 each into eithertraditional or Roth.
If you want more than $7,000and you're a sole proprietor, a
SEP or self-employed pensionplan is going to be a good
option.
It allows you to contribute upto 25% of your income tax-free.

(01:21:51):
Beyond that, we've got thesimple IRA, which is really kind
of like a simple 401k becauseit's tied to your business.
This is good for smallbusinesses that need simplicity.
So it's just like a 401k, butemployees can contribute up to
$16,000 a year and the companyis usually required to do a 3%

(01:22:14):
company match.
The costs are low and theinvestment options are simple
unlimited.
Now, if you want a plan withmore features, I want to
recommend a regular 401k.
This is good for any sizebusiness.
It allows your employees andthat includes you to contribute

(01:22:35):
up to $23,000 a year, and thecompany can do an optional match
.
If you're in a situation whereyou and maybe your spouse are
the only employees in thecompany so maybe you run like a
subcontractor model, but theonly people on payroll are you
and your wife we could look atdoing a significant company

(01:22:56):
match that allows you to put upto almost $70,000 a year into
your 401ks completely tax-free.
So that would be, between youand your spouse, $140,000 every
year that you don't have to paytaxes on.
Now sometimes people shy awayfrom retirement accounts because

(01:23:19):
we've been through severalstock market crashes, recessions
.
Some folks are a little bitleery of putting their money
with Wall Street, and Iunderstand that.
I recommend that folks investin what they know.
So I want to make it real clearthat the 401k, the IRA, these
are tax-efficient vehicles.

(01:23:41):
But what you put in thatvehicle is going to be up to you
and it's going to depend onwhat you're comfortable with.
So if you like traditionalinvestments like stocks, bonds,
mutual funds, etfs, index fundsyou can obviously buy that in
your 401k.
That's pretty straightforward.
If you want to do somethingalternative.

(01:24:03):
That's also possible.
You could hold digital currencylike Bitcoin, ethereum, in your
retirement account.
You can own real estate.
You can own other smallbusinesses.
You can do private lending likepeer-to-peer loans or private
construction loans.

(01:24:23):
I even know one CPA who boughtand sold cattle in his
retirement account.
He's from Texas, he knows theindustry and he's made a lot of
money buying calves, havingsomeone else raise them and then
selling them for a profit, alltax-free, all inside of his 401k

(01:24:43):
.
So this is typically referredto as self-directing.
You're not gonna get thisoption from places like Fidelity
, merrill Lynch.
You might have to go someplaceelse.
That gives you that checkbookcontrol and the cost is gonna be
a little bit higher because youare getting more features here,
but it's absolutely doable.
If you want to go outside oftraditional investments, all

(01:25:07):
right.
Well, thank you for stickingwith me through all of that.
I think we're going to go aheadand open it up to any questions
we're going to go ahead andopen it up to any questions.

Speaker 1 (01:25:21):
Good job, richard.
And we do have a livingquestion.
I was at it in the previousround, but for everyone out
there, you can go ahead and typein your questions in the Q&A
box at the bottom for Richard.
We'll go ahead and start withthis one.
How would you convert aself-employed IRA to a Roth to
minimize taxes, taking the RMDat a small amount each year
until age 72 and a half?

Speaker 3 (01:25:43):
Okay.
So just to kind of clarify anRMD is a required minimum
distribution and that applieswhen you have a traditional IRA.
The IRS is not gonna allow youto keep that money in there
forever.
When you hit a certain age likearound 72, 73, they're gonna
force you to take distributionsand pay taxes.

(01:26:07):
If you're much younger thanthat and you're thinking, hey, I
really want to benefit fromthis Roth thing where I can grow
my money, invest in Bitcoin,buy real estate and never have
to pay taxes on it, but all myretirement is in a traditional
IRA, you can convert that from atraditional into a Roth.

(01:26:31):
When you do that, you pay thetaxes on that money because you
had not paid them previously.
So you're going to want to dothis in a year where you are in
a lower tax bracket.
Or you have a strategy that isgoing to create a lot of
deductions that will offset thetax on that conversion.

(01:26:52):
So, for example, maybe you area real estate professional and
you've bought a new propertythat you're going to rent out.
You're looking at a costsegregation depreciation
strategy that's going togenerate six figures worth of
deductions and that's going tobe used to offset the conversion
.
So, to answer your question.

(01:27:12):
You really want to talk to yourtax professional and come up
with a strategy.
Maybe it means that you do thisin tranches.
You realize, like the nextthree to five years you're going
to be in a moderate tax bracketbefore your business really
takes off, and so you want to doit in chunks so that you don't
push yourself up into a highertax bracket.

(01:27:33):
There's different ways of doingit, but it's really going to
come down to your personalsituation.

Speaker 1 (01:27:42):
Great answer.
Thank you for that, Richard.
I have one other questionwhat's the most amount of money
you can make per year to qualifyfor a traditional IRA?
That only allows a $7,000contribution of 7k contribution?

Speaker 3 (01:28:02):
Great question.
There are phase outs, but itdepends on if you have access to
another retirement account.
So if you and your spouse donot have access to a company
401k or 403b so in other words,like you're running your
painting company, your spouseworks at a hospital and they
have access to a 403B then theyhave access to a retirement

(01:28:23):
account and there's going to bea cutoff.
I don't know it.
Off the top of my head it'saround $250,000 that you can
make before you start to loseaccess to that traditional IRA.
But if neither one of you haveaccess to another retirement
account, then there is no limit.
You can both contribute thefull $7,000 and it will be tax

(01:28:47):
deductible.
If you want to take it one stepfurther.
I was going to mention maybeyour spouse does have access and
so you don't qualify for thatimmediate tax break.
You can still contribute, youjust don't get to write it off.
And then we could talk aboutmaybe doing a backdoor Roth

(01:29:10):
conversion, where we sneak thatmoney into a Roth and you've
already paid the taxes on it.
So there's options if you're ahigh earner.

Speaker 1 (01:29:21):
Great.
Thank you, Richard.
Any other questions regardingRichard's presentation?
If not, we'll move on.
So all right, that brings us toend, and I want to leave
everyone with a real, clearsummary as to what we've covered
today.
First is you don't need toguess your way through finances.

(01:29:42):
There is a roadmap that'savailable to you.
You don't need to overpay ontaxes as Richard emphasized.
There's a plan for that even ifyou make a lot of money in one
year.
And you don't need to run yourbusiness without a plan to scale
profitably.
There's also a plan for that.
So you saw how one key ratiocould dramatically increase

(01:30:03):
profitability without spendingmore on marketing, and how smart
tax strategies can help tens ofthousands stay in your pocket
and stay completely compliant.
Now, for those who want thatexpert eye on their situation, I
want to highlight the thingsthat Richard and Daniel offered.
These are not sales calls.

(01:30:25):
These are strategy sessionswith Richard and Daniel, and I
want to pause for a secondbecause, Richard, I don't think
you mentioned your strategysession that you're offering
folks.

Speaker 3 (01:30:37):
No, no, we saved the best for last, no, so Please
mention that please, before Isay that you mentioned it, so we
do have, I believe, 13 slotsavailable for a free tax refund
finder.
This is, as Cody mentioned, aone-on-one session with either

(01:30:57):
myself or Daniel where we arelooking at your personal
situation.
We are finding you some taxstrategies that you can
immediately implement andthey're about 30 minutes long
and you're definitely going toleave with some really valuable
insights and probably save sometaxes going into the next tax
season.

(01:31:18):
Insights and probably save sometaxes going into the next tax
season.
Cody, I believe if folks wantto sign up for this, they can
type link into the Q&A andyou'll send out that link.
Super valuable offer.
Really encourage everyone totake advantage of it.

Speaker 1 (01:31:31):
Yeah, some folks already remember from the last
session and I was getting linksbefore we even said link.
So I love it and, like Richardsaid, and own emphasize, these
are working sessions, so there'sa lot.
You're sitting down withRichard, the tax saving expert,
and Daniel going over the CPAelement.
You're not meeting with me, I'mthe sales guy and so this is

(01:31:52):
for you to really get someinsight from those experts.
Now, if you did not request thelink, you can just look at the
link.
You can Just look at the emailthat you'll receive after we
close the session today.
Both links will be in there and,if you qualify, go ahead and
answer a few of the questionsand see if it allows you to
schedule.
If it does, jump in there andtake advantage of some free eyes
.
Now I want to thank everyonefor joining again, and just

(01:32:17):
something that I heard every dayin the military as well, as
repeated often by Alec Tormosi,the founder of acquisitionscom a
plan without action isworthless.
So I ask that you go out, takeactions and if you have
questions, need support, we'rehere for you.
Thank you so much for joiningthe webinar today and I hope you
have a great day.

Speaker 3 (01:32:36):
Thanks everyone.

Speaker 2 (01:32:39):
Thanks everyone.

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