Stupid Tax

Mitchell Baldridge, the world's most famous accountant, and entrepreneur-turned-farmer Scott Hambrick are back! In today's episode, they respond to a listener email asking for opinions on their business idea: a "microgym" in which customers pay a monthly fee for a time slot at a small but well appointed barbell gym. The gym would have all the necesasry equipment to train for powerlifting, weightlifting, and crossfit, but in a small footprint, under 1,000 square feet. Mitchell also shares an update on the recent tax season, and the state of hiring accountants in 2024.   Want your question answered on a future podcast? Email Mitchell and Scott: show@stupidtaxpod.com   Follow The Stupid Tax on Twitter/X: @stupidtaxpod   Mitchell Baldridge Twitter: @baldridgecpa https://baldridgecpa.ck.page https://baldridgefinancial.com   Scott Hambrick Twitter: @hambrickscott IG: @ogscotthambrick https://onlinegreatbooks.com https://scotthambrick.com

In the previous episode of Mitchell's Mailbag, Mitchell and Scott set aside one email to dedicate an entire episode to -- this is that email! Listener Tim W. (T-dub for short) shares his new SEO marketing business he has rolled out, and some reservations he has about growing it beyond a certain point. While T-dub only wants to grow the business enough to cover his monthly nut and a little profit on top, Mitchell and Scott warn of the dangers of a business that just generates enough profit to get by, especially when times get tough and business slows down. They also take aim at his service offerings, and offer some suggestions to enhance the value proposition of his services to attract more valuable customers.   Want your question answered on a future podcast? Email Mitchell and Scott: show@stupidtaxpod.com   Stupid Tax is now on Twitter/X! @stupidtaxpod   Mitchell Baldridge Twitter: @baldridgecpa https://baldridgecpa.ck.page https://baldridgefinancial.com   Scott Hambrick Twitter: @hambrickscott IG: @ogscotthambrick https://onlinegreatbooks.com https://scotthambrick.com

Mitchell Baldridge, CPA and Scott Hambrick reach into the Stupid Tax inbox and look at three questions submitted by listeners. One young business owner started a handyman business in the fall of 2023 and started off with a bang, making $14k in his first full month of operation. The following three months were lean, however, with revenue falling off signficantly and net operating losses. Mitchell and Scott offer some advice on ways to figure out what worked in the first month, and target his customer base with higher margin, more attractive service offerings.   Another listener has been sitting on a business idea for quite some time, and put together a pitch deck to lay out his plan: a community to help Christian fathers improve their relationship with their children. Mitchell and Scott point out the problems with a business like this, and more to the point, the problem with taking so long to try out a business idea and figure out if it works or not.    Mitchell and Scott offer a third listener advice on building a solid marketing pipeline to reach customers by reducing the friction between customers receiving communication and buying services.   Want your question answered on a future podcast? Email Mitchell and Scott: show@stupidtaxpod.com   Stupid Tax is now on Twitter/X! @stupidtaxpod   Mitchell Baldridge Twitter: @baldridgecpa https://baldridgecpa.ck.page https://baldridgefinancial.com   Scott Hambrick Twitter: @hambrickscott IG: @ogscotthambrick https://onlinegreatbooks.com https://scotthambrick.com

Many business owners struggle with the idea of raising prices. Even in the current environment of high inflation and rapidly increasing costs for just about everything, many people struggle to raise prices. Sometimes it's in fear of losing good business, sometimes it's because raising prices feels like conflict and owners are conflict-avoidan. Other times it is because people have deep seated insecurities and low self-confidence, and feel like they simply aren't worth the extra fee. Regardless of the reason, raising prices regularly, to keep pace with the costs of running the business as well as remain competitive, is crucial to a business' long-term survival.   As Mitchell explains, the Pareto principle applies to customers and profits too: 80% of your profit comes from 20% of your customers. When you neglect to raise prices, the "bad" customers, that is, the low margin customers who cost a lot to service (in time, stress, and maybe even physical materials) and demand the lowest rates, become worse customers. Then the good customers -- your most profitable customers -- become bad customers, because you are continuing to charge them the same rates while your costs increase!   Raising prices regularly accomplishes several things for the business: It allows the business to pass on increased operating costs (due to inflation), so your profit margins remain stable Some customers will stop buying your products and services due to the price increase. These were your least profitable ("bad") customers anyway, so they need to go to make room for you to service better customers. You end up doing less work and making the same amount of money when you let these people go. Good customers stay good (profitable) customers. They are the most likely to agree to the price increases anyway, because they are likely not buying based on price. You train customers to expect regular price increases by regularly increasing your prices!   In a high inflationary environment, raising your prices in step with your costs may be the difference between making it or going bust. If you haven't raised your rates in a while, now is the time!   Ask Mitchell and Scott a question: show@stupidtaxpod.com   Stupid Tax is now on Twitter/X! @stupidtaxpod   Mitchell Baldridge Twitter: @baldridgecpa https://baldridgecpa.ck.page https://baldridgefinancial.com   Scott Hambrick Twitter: @hambrickscott IG: @ogscotthambrick https://onlinegreatbooks.com https://scotthambrick.com

Mitchell and Scott discuss a common problem that successful business owners encounter in their first coupe years of operation -- an income tax trap caused by rapid growth. Here's the scenario: our young business owner Connor leaves his low paying W-2 job to start a business, and it's a hit! He generates $150k in profit in his first year of operation. He leaves $50k in the business, and distributes $100k to himself. The newfound income is a windfall for his family. But... the looming tax bill is greater than you think, and requires careful planning to make sure you have enough cash to cover it.   As Mitchell explains, in order to satisfy IRS safe harbor requirements, Connor must pay 110% of his prior year's taxes during his first year of operation. This 110% amount, of course, will be based on the salary at his low paying W-2 job, let's say $40k. When April 15th arrives on the following year, however, his taxes due for the year will now be based on the $100k he distributed to himself from his new business. Connor has paid estimated taxes based on his $40k salary from the previous year, but will owe a far greater amount because his actual income was $100k. If he didn't save extra money to cover this tax bill, the shock on April 15th can make your stomach turn!   This scenario is the result of success, but it far too frequently becomes the business owner's undoing. Not only do you owe the larger amount on April 15th for the previous year's taxes, you also owe estimated tax for the first quarter of operation in the current year. Business owners who take home a large chunk of cash from the business and then spend it on lifestyle improvements can find themselves in a big hole, sometimes unable to get out. This scenario will play out again in the second year of operation, if the business experiences more growth.   Mitchell and Scott walk through the math of Connor's tax dilemma, and identify the cash flow pitfalls busines owners need to navigate in their first couple years of business. With good planning, a good CPA, and discipline withholding cash for future tax bills, you can make it through the minefield and come out the other side with a successful, highly valuable business.   Ask Mitchell and Scott a question: show@stupidtaxpod.com   Stupid Tax is now on Twitter/X! @stupidtaxpod   Mitchell Baldridge Twitter: @baldridgecpa https://baldridgecpa.ck.page https://baldridgefinancial.com   Scott Hambrick Twitter: @hambrickscott IG: @ogscotthambrick https://onlinegreatbooks.com https://scotthambrick.com

Bad businesses are a Ponzi scheme, says Mitchell, in which owners hang on for dear life until the next check clears, only to immediately be in the hole again when the next project -- and the costs associated with it -- comes in. In fact, most businesses start this way! The job of the owner is to turn that bad starting business into a good one, a business where there is plenty of cash flow to handle the costs associated with taking on new business, hiring new employees, and other working capital needs without needing the cash from the next project to cover them.   Lack of capital, or undercapitilization, is a problem for many starting businesses. It's important for the owner to understand his margins, and understand his costs, so that each time revenue comes in, he can set aside some of that to handle the next project. Over time this extra cash on hand builds up to a nice stash of working capital, funds available to handle the day to day costs of doing business and growing the organization to handle more business in the future. This takes discipline, and often personal sacrifice, to leave the money in the business.   But it's the only way to ensure the health of the business, and ultimately the health of the owner. Money stress, constant worry over whether you can meet payroll before the next hit of revenue comes in, etc. can rob you of your health and happiness over time. Don't be the guy running a Ponzi scheme on yourself!   Ask Mitchell and Scott a question: show@stupidtaxpod.com   Stupid Tax is now on Twitter/X! @stupidtaxpod   Mitchell Baldridge Twitter: @baldridgecpa https://baldridgecpa.ck.page https://baldridgefinancial.com   Scott Hambrick Twitter: @hambrickscott IG: @ogscotthambrick https://onlinegreatbooks.com https://scotthambrick.com

Hang around a group of small business owners -- folks who have been in the business for a long time -- and you'll find that nearly every one of them has had someone steal from them or commit fraud at one time or another. Small businesses are prime targets for fraud and theft, mainly because they tend to have weak or ineffective fraud controls, if they have any at all! It's imperative for any small business owner to understand common fraud risks and develop some basic processes to ensure they don't happen.   The most common reason people get away with unchecked fraud and theft is because the business owner is simply not paying attention to his accounting. The books aren't reconciled often enough, invoices are not reviewed regularly to ensure they match revenue, and too many people have deposit and check writing permissions for the business. As Scott says, the only other people that should have the ability to write checks for the business, besides you, the owner, are your wife (husband) or your mom.   Having a bookkeeper is great for getting insightful reporting on your business, ensuring your books are done on a regular basis, and your taxes are filed stress-free and on time. But you, the owner, still need to personally review the books on a weekly basis, check the invoices, and maintain a list or database of your contracts, so that you can catch any funny business before it snowballs into a very expensive problem for your business. There's no substitute for being in touch with your business' numbers, even if you have someone else doing the dirty work of categorizing transactions and reconciling bank accounts.   Ask Mitchell and Scott a question: show@stupidtaxpod.com   Stupid Tax is now on Twitter/X! @stupidtaxpod   Mitchell Baldridge Twitter: @baldridgecpa https://baldridgecpa.ck.page https://baldridgefinancial.com   Scott Hambrick Twitter: @hambrickscott IG: @ogscotthambrick https://onlinegreatbooks.com https://scotthambrick.com

Mitchell and Scott answer questions submitted by listeners, including: do I need a lawyer, how much do you need to know about industry to buy a business, should you ever go into debt to buy a business, and more!   Ask Mitchell and Scott a question: show@stupidtaxpod.com   Stupid Tax is now on Twitter/X! @stupidtaxpod   Mitchell Baldridge Twitter: @baldridgecpa https://baldridgecpa.ck.page https://baldridgefinancial.com   Scott Hambrick Twitter: @hambrickscott IG: @ogscotthambrick https://onlinegreatbooks.com https://scotthambrick.com

Starting and growing a business is hard, but are some harder than others? Absolutely! Scott and Mitchell discuss the factors that make a business difficult to succeed in, and what things they like to look for in businesses with a high chance of success. Scott also points out that while some businesses are difficult to scale, there's no reason an operator can't make a good living running a business at a certain level and refusing to grow beyond that point. At the end of the day, the business exists to serve its owner, and a profitable, cash-flowing business that does not achieve huge scale but provides its owner with a good living is a worthwhile endeavor!   Ask Mitchell and Scott a question: Email: show@stupidtaxpod.com   Mitchell Baldridge Twitter: @baldridgecpa https://baldridgecpa.ck.page https://baldridgefinancial.com   Scott Hambrick Twitter: @hambrickscott IG: @ogscotthambrick https://onlinegreatbooks.com https://scotthambrick.com

Mitchell and Scott pick up today's episode in the middle of a conversation about whether "the kids are gonna be alright." As Gen Z enters the workforce en masse, they do so with very different expectations than the millenials before them. Zoomers are well aware of the long and ongoing slide in real middle class wages, as well as employment uncertainty. They have less of the entitlement and belief in institutions compared to millenials, and they exhibit no lack of work ethic. In spite of this, says Scott, many Zoomers lack creativity and ambition when it comes to building their lives, and, in turn, structuring their business activity around their life.   Mitchell and Scott discuss the concept of a "fifty year plan," developing a long-term plan (a liftetime view, for most Zoomers) for your life and business. Once you identify the things you want in life, it begs the question: is your business getting you there? Can it get you there? Because if it's not, or it can't, then it might be time to re-examine your priorities, or the way you do business. The years will pass you by whether you like it or not, as Mitchell points out, so you owe it to yourself to create a plan and set a course toward what you want in life. Of course things will change -- it's a fifty year plan, after all! -- but it gives you a framework to evaluate the actions you are taking, or not taking, on a day to day basis.   Settlers of Catan TikTok: https://www.tiktok.com/@justindarnellcomedy/video/7167012784339717418     Ask Mitchell and Scott a question: Email: show@stupidtaxpod.com   Mitchell Baldridge Twitter: @baldridgecpa https://baldridgecpa.ck.page https://baldridgefinancial.com   Scott Hambrick Twitter: @hambrickscott IG: @ogscotthambrick https://onlinegreatbooks.com https://scotthambrick.com  

Mitchell Baldridge and Scott Hambrick answer a listener question asking about switching from cash accounting to accrual accounting in his farming buinsess, and a potential tax bill that would arise from that switch. Listener Austin also asks about the common practice of spending money on new equipment to reduce taxable income, even when the business doesn't need the equipment. Scott and Mitchell explain why spending money on equipment you don't need to save on taxes is a bad decision, and why tax planning around write offs is a poor strategy for the small business person in general.   Ask Mitchell and Scott a question: Email: show@stupidtaxpod.com   Mitchell Baldridge Twitter: @baldridgecpa https://baldridgecpa.ck.page https://baldridgefinancial.com   Scott Hambrick Twitter: @hambrickscott IG: @ogscotthambrick https://onlinegreatbooks.com https://scotthambrick.com  

It's popular nowadays to throw around the term "grifter" when it comes to getting people to check out your product or service. After all, it seems like it takes either tons of frequent exposure or outlandish behavior to get attention on the internet, especially social media and YouTube. Grifting implies some level of fraudulence, however, or at least a failure to deliver the value you promised customers. What some people call "grifting" is just marketing in the modern age. It's not enough to simply describe your product any more. You need to signal what your company is about, the kind of person that buys your product or service, and do it often!   Ask Mitchell and Scott a question: Email: show@stupidtaxpod.com   Mitchell Baldridge Twitter: @baldridgecpa https://baldridgecpa.ck.page https://baldridgefinancial.com   Scott Hambrick Twitter: @hambrickscott IG: @ogscotthambrick https://onlinegreatbooks.com https://scotthambrick.com  

Somewhere in the early part of the 20th century, retailer Marshall Field famously declared "the customer is always right," underlining his emphasis on customer satisfaction as an important part of the retail experience. It's a catchy saying, and variations of it have appeared throughout the retail and customer service industries. However, as Scott points out, the 21st century customer experience has been shaped by online shopping and services. Behemoths like Amazon deliver a faceless service with a priority on rock bottom prices, free shipping, and no hassle returns. Customer expectations have changed accordingly.   This puts the small business in a precarious position when it comes to customer satisfaction. Small businesses do not have the margins or scale to compete on price and volume like Amazon, and they usually can't offer instaneous service either. The small business customer experience typically thrives on personal connection, good communication, and direct access to the owner or product designer/experts -- the things you can't get from very large companies. Consequently, small businesses need to be picky about the customers they deal with. Demanding customers with expectations well out of line with what your business can offer (or should offer) can cost you a lot of hassle, grief, and ultimately, profit if you don't identify them and create a plan for steering them away early. Mitchell and Scott talk about their own experiences dealing with problem customers and how they have defined their ideal "customer avatar" in the process.   Ask Mitchell and Scott a question! Email: show@stupidtaxpod.com   Mitchell Baldridge Twitter: @baldridgecpa https://baldridgecpa.ck.page https://baldridgefinancial.com   Scott Hambrick Twitter: @hambrickscott IG: @ogscotthambrick https://onlinegreatbooks.com https://scotthambrick.com  

We're taking a short break for the week of Christmas and New Years. We'll be back on January 1st with more small biz talk. In the meantime, Merry Christmas and Happy New Year!     Ask Mitchell and Scott a question! Email: show@stupidtaxpod.com   Mitchell Baldridge Twitter: @baldridgecpa https://baldridgecpa.ck.page https://baldridgefinancial.com   Scott Hambrick Twitter: @hambrickscott IG: @ogscotthambrick https://onlinegreatbooks.com https://scotthambrick.com    

Business is frequently reduced to numbers -- revenues, costs, ratios, and percentages -- but not every aspect of business operations can be described purely numerically. As Mitchell and Scott discuss on today's episode, the hassle of any given business activity has a cost measured in misery and frustration, if you have the wrong clients for your business. The best clients, that is, clients who are easy to work with and don't ask for customization that doesn't fit into your processes, are often the most profitable clients. On the other hand, even clients that offer you a lot of money can end up causing more problems than they are worth with complex, high-touch projects. Every business has it's sweet spot, and a customer avatar that will fit in best with the business model, and as Mitchell says, just do more of that!   Ask Mitchell and Scott a question! Email: show@stupidtaxpod.com   Mitchell Baldridge Twitter: @baldridgecpa https://baldridgecpa.ck.page https://baldridgefinancial.com   Scott Hambrick Twitter: @hambrickscott IG: @ogscotthambrick https://onlinegreatbooks.com https://scotthambrick.com  

Mitchell and Scott ruminate on the life of Charlie Munger, legendary investor and vice chairman of Berkshire Hathaway who recently passed away at age 99. For decades, Munger was the right-hand man of perhaps the most famous investor of all time, Warren Buffett, and made a long string of successful invstments in diverse sectors such as insurance, banking, retail, and food. Munger amassed a fortune in the billions, but Scott questions the motivation of a man still working hard and chasing deals into his 90's.   Mitchell and Scott also address listener Matt's question (the same Matt who asked about purchasing his uncle's pest control business last episode) of whether he should work for, and potentially take over, his mother's cleaning business. The short answer? Probably not. As Mitchell puts it, whatever skills and hustle Matt could bring to the table for his mom's business could be put to work in another business -- his own business -- with far more upside.   Ask Mitchell and Scott a question! Email: show@stupidtaxpod.com   Mitchell Baldridge Twitter: @baldridgecpa https://baldridgecpa.ck.page https://baldridgefinancial.com   Scott Hambrick Twitter: @hambrickscott IG: @ogscotthambrick https://onlinegreatbooks.com https://scotthambrick.com  

Matt recently wrote into the show to ask about best practices for buying a business, and more specifically his uncle's pest control business. Matt has worked in the business some, and has an opportunity to buy the business, but isn't sure about the best way to go about it -- generating a letter of intent and purchase agreement, how to value the business, how to stucture terms, financing, etc. Mitchell and Scott review his email and offer advice for aspiring business owners in a similiar situation, sharing their own successes as well as lessons learned from deals gone wrong.   One key takeaway -- once you decide you want to buy the business, get the purchase agreement signed as soon as possible. Don't delay! Many people in similar situations have gotten with a verbal agreement to buy the business, but the owner procrastinates, the papers never get drafted and executed, circumstances change, and the deal never comes to fruition. The potential purchaser wastes months and years with nothing to show for it. You owe it to yourself and your family to get serious about making a deal, or move on and look for the next one.   Get in touch with the show! Email: show@stupidtaxpod.com   Mitchell Baldridge Twitter: @baldridgecpa https://baldridgecpa.ck.page https://baldridgefinancial.com   Scott Hambrick Twitter: @hambrickscott IG: @ogscotthambrick https://onlinegreatbooks.com https://scotthambrick.com  

Too many business owners use accounting to essentially stay out of jail, or at least out of trouble with the IRS. They close their books once a year so they can file their taxes, then move on, having learned little of value about the business' financial health in the process. Everything they learn by this accounting process is late, by months and months, usually far too late to do act on. Other business owners might be better, closing their books every quarter, or even monthly, but the problem remains -- they are always looking in the rear view mirror while trying to steer the ship forward.   Mitchell and Scott outline what an effective, useful accounting system looks like. It gives a business owner close to real-time information about the health of the business -- not just the cash flow and the operating income, but things like customer acquisition, number of proposals compared to closed deals, advertising effectiveness, and so on. A good accounting system is like the instruments on an airplane, and the business owner is the piliot. The accounting system is the business "console," with all the critical information for the business owner to steer things in a profitable direction. It also offers deeper insight into the business model. You can learn which levers move the needle on sales, and what actions you can take to grow when sales begin to slow. You can learn which activities are the most profitable, and which ones need to be discontinued. All of these things emerge from an effective accounting system.   That said, most business owners are experts in their field, not in accounting. An excellent bookkeeper can take all of this off your plate and give you the real-time insight you need, while saving you tons of time in the process! Visit Better Bookkeeping for the ultimate solution for small business owners: https://www.betterbookkeeping.com     Get in touch with the show! Email: show@stupidtaxpod.com   Mitchell Baldridge Twitter: @baldridgecpa https://baldridgecpa.ck.page https://baldridgefinancial.com   Scott Hambrick Twitter: @hambrickscott IG: @ogscotthambrick https://onlinegreatbooks.com https://scotthambrick.com  

If you want your business to grow beyond a certain point, you'll eventually need to hire employees, and you'll need to let them take over some of the work that you have been doing. Many business owners get hung up on delegating tasks to others, and taking the time to train employees. Whether it's perfectionism, unwillingness to let new employees make mistakes, or fear of someone else being better than you at a given task, business owners that want to grow have to put their ego aside and let others become expert in the various operations of the business. How do you train employees? First, you have to understand and be able to communicate exactly what it is that your business does, and to do that, you will need documented systems and standard operating procedures (SOPs).   Systems are critical for helping a business grow. Systems ensure that business operations happen on time, are consistent, and can be communicated to others. When you need to onboard new employees, having a set of documented systems allows you to train them efficiently. Systems are also an opportunity for process improvement. If a talented employee figures out a way to do something quicker, more efficiently, or more profitably, document it! Over time those iterative gains in efficiency can unlock tons of untapped value in a business. When it comes time to sell the business, it also leads to better valuation, since you can accurately communicate the business to buyers.     Get in touch with the show! Email: show@stupidtaxpod.com   Mitchell Baldridge Twitter: @baldridgecpa https://baldridgecpa.ck.page https://baldridgefinancial.com   Scott Hambrick Twitter: @hambrickscott IG: @ogscotthambrick https://onlinegreatbooks.com https://scotthambrick.com  

Mitchell says that small business is the best tax deal in America, and in today's episode he expalins why! He outlines 10 ways business owners can take advantage of tax credtis, deductions, legal entities, and investment vehicles to lower their taxable income in the business and on their personal returns. Some of these hacks are simple, others are complex, so if you need advice on whether you qualify and how to implement them, reach out to Mitchell's accounting firm Baldridge Financial in the links below.     Mitchell's ongoing Twitter thread on tax savings and personal finance: https://twitter.com/baldridgecpa/status/1333953486208241665     Get in touch with the show! Email: show@stupidtaxpod.com   Mitchell Baldridge Twitter: @baldridgecpa https://baldridgecpa.ck.page https://baldridgefinancial.com   Scott Hambrick Twitter: @hambrickscott IG: @ogscotthambrick https://onlinegreatbooks.com https://scotthambrick.com