Digital Social Hour - The Secret Weapon for Entrepreneurs: It’s NOT Revenue! | Shannon Weinstein DSH #530

Episode Date: July 2, 2024

Unlock the secret weapon for entrepreneurs that’s NOT revenue! 🚀 Join us on the Digital Social Hour with Sean Kelly as we dive deep with Shannon Weinstein, founder of Keep What You Earn. In this riveting episode, Shannon spills the beans on why revenue is a vanity metric and what truly drives your business forward. 💰 Packed with valuable insights, Shannon shares why discipline and strategic spending can transform your entrepreneurial journey. Listen in as she debunks the myth that you need an accountant from day one and offers game-changing advice on focusing on profit and EBITDA over revenue. 📈 Don't miss out on this eye-opening conversation! Watch now and subscribe for more insider secrets. 📺 Hit that subscribe button and stay tuned for more eye-opening stories on the Digital Social Hour with Sean Kelly! 🚀 Join the conversation, get inspired, and learn how to truly keep what you earn. 💼 Tune in now! #DigitalSocialHour #SeanKelly #Podcast #Entrepreneurship #ShannonWeinstein #BusinessGrowth #ProfitOverRevenue #EntrepreneurSuccess #ScalingBusiness #FinancialStrategiesForEntrepreneurs #EntrepreneurAdvice #TaxStrategies CHAPTERS: 00:00 - Intro 00:35 - Do you need an accountant 01:36 - Revenue is a terrible metric 03:18 - Lifetime revenue metric 06:29 - Do you want your businesses to be profitable year 1 07:37 - What are the winning companies doing that the losing companies aren’t 08:53 - What Were You Doing Before You Started Your Business 09:58 - Moving to Costa Rica 12:52 - Are You Launching a Community 14:02 - Biggest Tax Mistakes People Make 17:04 - AI is getting good 18:37 - Scaling vs. growing 19:47 - EBITDA explained 20:40 - Tax returns vs. books 23:15 - Tax strategies are time intensive 24:58 - Audits 27:30 - IRS access to bank accounts 28:25 - How do you find out you're being audited 30:04 - How do they pick who they audit 31:29 - What Counts as a Write-Off 32:42 - What Receipts to Keep 33:45 - 100% Write-Offs 34:20 - Where to Find Shannon APPLY TO BE ON THE PODCAST: https://www.digitalsocialhour.com/application BUSINESS INQUIRIES/SPONSORS: [e-mail] GUEST: Shannon Weinstein https://www.instagram.com/shannonkweinstein https://www.keepwhatyouearn.com SPONSORS: Deposyt Payment Processing: https://www.deposyt.com/seankelly LISTEN ON: Apple Podcasts: https://podcasts.apple.com/us/podcast/digital-social-hour/id1676846015 Spotify: https://open.spotify.com/show/5Jn7LXarRlI8Hc0GtTn759 Sean Kelly Instagram: https://www.instagram.com/seanmikekelly/ Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit podcastchoices.com/adchoices

There's a lot that you can do if you have discipline. You don't necessarily need another person to tell you what to do. If you just have that discipline to track and you have separate business and personal bank accounts, you're fine. You don't have to do it all on day one. And I would rather people spend their money follow or subscribe. It helps a lot with the algorithm. It helps us get bigger and better guests, and it helps us grow the team. Truly means a lot. Thank you guys for supporting, and here's the episode. All right, guys. Shannon Weinstein here, founder of Keep What You Earn. We're going to talk about money today, right? Yeah. Let's do it. All right. So I'll start off right here. You basically

think you don't need an accountant in your business. Yeah, as an accountant, I tell people you really don't need an accountant, which is kind of like, please don't kick me out of the club. But the truth is that a lot of people like accountants will tell you, oh, you really should have an accountant from day one. Just like a personal trainer will tell you that to get your ass off the couch, you should hire a trainer. There's a lot that you can do if you have discipline, enough discipline to get by, and enough of a motivation to track what you're doing that you don't necessarily need another person to tell you what to do. If you just have that discipline to track and to keep track of your stuff and you have separate business and personal bank accounts, you're fine. And you can always add and layer that on later. You don't have to do it all on day one. And I

would rather people spend their money on stuff that will actually generate them revenue and actually invest in marketing, invest in building the business, the product, you know, making it excellent so that that way you don't have an issue with earning money. And now you can work on, okay, now let me keep track of everything and make sure I'm keeping what I earn. You mentioned revenue. You believe revenue is a terrible metric. Yes. I believe it's a terrible metric to measure yourself off of. It's like measuring your health based on how many calories you burned at the gym. It's more of a, it's an input, but it's not a measure of overall health. It really is a vanity

metric. There's this quote that's, it's the unknown source, but revenue is vanity, profit is sanity, but cash is king. And I think revenue is purely for the sake of saying, I have a seven-figure business, I have a seven-figure business or I have a six-figure business. Revenue is really not that valuable as a metric to track because there's so much that happens between the revenue gross top total and what you actually take home and what that actually contributes to your life. That you have to be focused on what is the EBITDA or the profit first before I would worry about the revenue. And most people aren't going to buy your business when you look at value off of a revenue multiple. A lot of the times it's

an EBITDA multiple because people know. I mean, even Alex Hormozy, who we follow, he had a revenue target for a portfolio company and has since switched that to an EBITDA. And that is really important to note because now they're paying attention to, well, just because you have a million dollar revenue doesn't mean that you're actually making money. And just because you have that total doesn't mean that you have a solid margin. We would rather filter based on margin than filter based on a total revenue. Yeah, I agree. I think it's cringe when people have in their Instagram bio, seven figure entrepreneur. Oh my God. Especially when it's lifetime revenue, that bullshit metric. Are you kidding me? Like

I've earned a million dollars over the course of my whole life. And I'm like, fantastic. I'm a multi eight figure entrepreneur. I don't get anything for that. Like there's no, there's no winning there. It makes no sense to me why people use this like lifetime revenue metric to value their business or to promote it on Instagram. Let's talk EBITOs from now on guys. Come on. Yeah. Right. Not revenues. I mean, if I wanted to, I could probably do tens of millions of revenue and make nothing. Exactly. And then, but then what is the point of sharing that with the world on social media? Like, what are you trying to prove? Sell a course. Exactly. Sell a course on how to tell people that. Yeah, that's the secret. A lot of course sellers make more off the course than what they do. Yeah. And it's this kind of like Russian doll

of course sellers that we're seeing, right? I'm selling a course that will help you sell a course that will help you sell a course. And I'm like, so what do you actually do? Or how did you actually become good at business? Well, I learned how to sell a course. Yeah. Yes. It's tough to respect that. I get it if it's supplemental and maybe it takes off because what you're teaching is

really valuable. But when it's the main thing for years and you're teaching outdated stuff, I'm not a fan of that. No, I'm not either. Yeah. Do you teach what you do or is it mainly hands on? So, but teach what I do in terms of how I... Savings and everything. Yeah. It's really hands-on, but there's a couple of different ways that we do it. We do hands-on with the founder. We do everything in our fractional CFO services, everything from the

bookkeeping all the way through to tax planning and strategy for the individuals. But in between, we've got cashflow forecasting, budgets and projections, and all that stuff for the business to make sure they're actually thriving as a business and they're healthy. It's not just about making more money or managing it better and cutting costs, but it's like, are you actually accomplishing your goals?

Because goals will be different for each business owner. My goal is not to get every one of my businesses to a multi-seven or an eight-figure total. My goal is that my founder accomplishes their goal. So if that is sending their daughter to private school, or if that is investing in real estate or whatever that may look like, I say, okay, let's put a number to that and figure out what you need to do in terms of numbers for that to happen. And then what behaviors do you need to have or actions you need to take in order to make that happen? And then I

hold them accountable to those things. And we start tracking the metrics and tracking the totals. And when they figure out how these numbers connect to their personal goals, they're more meaningful. And now they're tracking the numbers. And now they're like, hey, I looked at my P&L this month and I'm getting closer to this because now they care. And now they've connected it to something personal instead of these arbitrary things on a piece of paper. You were just saying you hired a bookkeeper. But unless you get your P&L and you know what it's telling you in terms of like a health score or if you're getting closer or further from your goals, it's a meaningless piece of paper. Yeah, I don't think they're doing that. I think they're just logging expenses to be

honest. Yeah, they're just tracking it and giving you the report. But until someone interprets it for you, it's like getting your blood work from a doctor. I actually had that happen. A doctor gave me the blood work or the lab gave me the blood work. I had no one explaining this to me or any even ranges of what's healthy, what's not healthy. So I'm like, my blood pressure is, I don't know, I'm clearly not a doctor, but it was like 2.8 something. And I was like, is that good? Am I going to die? They didn't tell you? No, like there was, well, it wasn't in the report. It was kind of the, here are the numbers. And then you have to go to this website to look at it, or you have to call the doctor, or I had to go. There was an extra step involved to

interpret the number. And I said, oh my God, this is how my clients feel. I said, oh my God. Yeah, it is. But this is what bookkeepers are doing to you every day. It's like, you're getting your financials and it's like, okay, is that good, bad? What should I do about this? And if you're not turning that data into decisions, then what good is it? Yeah. Do you want your businesses to be profitable year one usually? I would love for them to be profitable year one. I think profitability is key, but is it realistic all the time? Not always. And I think that it's just being mindful of the investments. So even if they're not profitable, did you put your money toward, and I use food analogies all the time, but I put it towards like nutrient dense calories you're spending. Like, you know,

when you eat food, you can eat like, you know, I used to be on Weight Watchers back in the day. And one of my friends who was on it would be like, I have 20 points left. And I'm going, okay, I can eat a turkey sandwich and these vegetables and this and this and this. And she'd be like, I'm saving up for a big Snickers. Like, I just want to eat that. It's the same calories, AKA the same dollars. But one could be more nutrient dense and give you what you need to fuel your business. And one could not. So spending 10K on a course, a coach, a mastermind, and I'm not knocking them.

But versus hiring somebody in your business for two months that's going to help offload big tasks for you and open you up to sell more. What's the more nutrient dense spending there in terms of what's going to actually be an investment? Yeah. Plus it's a one-time thing, right? Exactly. So when my companies are profitable or not profitable, I more so look at what are they spending their money on and is it something that's going to end up generating a return? Yeah. What are you seeing in the companies that are winning? Because you've had both winning and losing clients. 100%. I would say winning would be mindful spending in terms of how they're making decisions about their money. And it's also the language they're using with me because I would say the ones that are winning will speak in future tense. They'll say, hey, Shannon, we're thinking about

this, or we're exploring this option in six months, or we're looking at launching this product. We want to run through it with you and show you the projection. The ones that are losing, we bought a car. The ones that are losing, we bought a car. The ones that are losing are, we did this. And I end up having to dig them out of a hole as opposed to creating a structure. So I find that when you're winning, it's because you're planning ahead and because you're speaking in the future tense

and you're thinking about the one, three, five year horizon and you're not thinking about the one, two, three week or three months. Yeah, proactive versus reactive, right? 100%. Yeah, it's important. And a lot of business owners don't want to take that step to plan out the future. No, a lot of them are like living the proverbial paycheck to paycheck

and they're going week by week and saying, I'm still alive, looking at their bank account balance, thinking they're healthy, which is no different than looking at the scale in the morning and saying, I'm healthy. But you don't really know what that's comprised of and you don't really know what healthy is supposed to look like. So without that perspective and without acknowledging there's different variables to that, but you don't really know what that's comprised of and you don't really know what healthy is supposed to look like. So without that perspective and without acknowledging there's different variables to that, you're really only going to have that one metric to go off of.

Yeah. So you quit your job in 2021 and go full-time with this? I did. What were you doing before? I worked in big four accounting for several years, working with Fortune 50 companies, doing audits, fraud examination, everything from consulting, know, consulting tech, technology upgrades into companies. We did it all. I went in big for audit consulting.

I then worked at a SAS company as director of technical sales, which was super fun. And then internal audit. And I ended up like realizing that I was kind of in one cubicle cage after the other. And I said, you know what? I think I can do this for small businesses. I think I can take what I've learned and I can go apply it in a way that is easier to understand and teach it the way I was taught very young. I learned accounting and financial stuff very, very young, 12, 13, 14 years old.

And I said, I can teach this to people and they can use it to build small businesses, like real people, not just these people with corporate bottom lines who employ all these people. It's more important to me that like some family puts food on the table because I help them. Right. Yeah. It's more meaningful to you. A hundred percent. That's cool. It sounds like you found your purpose.

Yeah. Yeah. It took me a while to find mine too. And shortly after that, you moved to Costa Rica, right? Yeah. So during the pandemic, we actually sight unseen purchased a home in Costa Rica, right? Yeah. So during the pandemic, we actually, sight unseen, purchased a home in Costa Rica for my in-laws at the time. But long story short, my father-in-law didn't make it long enough to see the property. He had cancer. We bought it when he was diagnosed. And unfortunately, he passed before it could be finished. And what ended up happening was we moved in in November 2020 and honestly fell in love with it.

We loved the town. We loved the environment. And especially during the pandemic, it was such a breath of fresh air because everybody was nice to each other. People didn't have masks on all the time because it was open air. Like there were no windows and doors in the restaurants. You know, it was on the beach. So people were it was very lax when it came to the restrictions. Wow.

So if you go inside with air conditioning, they had you put a mask on, they had you wash your hands, but it was actually, they still left the hand washing stations because I'm like, that's actually not a bad idea when you leave a Home Depot to wash your hands.

But it was a great breath of fresh air for us and we ended up staying for most of 2021 and then just continued that habit and now we live there most of the year. Nice. Are there tax benefits being there? So a lot of people ask me that because I am a CPA.

They're like, oh, there's got to be a tax play. It's a joy play. It's straight up joy lifestyle arbitrage, I call it, where you earn money up here and you spend it down there. And that's enough of a reason for me, along with the fact that I just love the country and love the culture. It's primarily a joy play.

There is a financial benefit, I guess, but it's really not one of the biggest reasons I do stuff. I'm like, yeah, that's also nice. But, you know, and I know California, knocking California for their taxes, like it's kind of that thing where I go, people still live in California despite the taxes because they find joy in it.

That's true. They have other benefits. The weather, they call it the weather tax, right? And same with Costa Rica. Even if it cost us more, we would be like, still really nice. It's still nice to live here but it is nice that it is uh a little bit more of an arbitrage that yeah you know it does cost less to actually live down there depending on your lifestyle they speak english there a lot of people do speak english but i speak spanish fluently so that was a ton yeah i bet how's the food over there the food is really good um costa

rica like please don't kill me costaans. They don't have a lot of seasoning. Oh, it's white people food. I know. Well, it's really good. It's just kind of like a little bit blander, but you can add your seasonings into it. It's not like Mexican food. Okay. It's not as spicy, but there's a lot of these basic food groups.

You know, there's like your rice and beans. They call it gallo pinto. There's a gallo pinto dish there's a um uh basic a dish called cassado which is like a protein uh rice beans salad plantains basic latin american food i went to salt lake last month that was the whitest food i've ever eaten nothing had seasoning there i went to four different restaurants and i felt like i had to bring my own seasonings to the restaurant i have debated that in costa rica at times where i'm just like can you please put seasoning on it they do season stuff but i think it's just less than what we're

used to or what you would think from a Latin American country. Absolutely. Anything else you're working on with the saving stuff? Are you launching a community for that? So I actually do have a community for that. It's called CFO On Demand. And if anyone, because our fractional CFO services start at five grand and up, like we realize that's not accessible to everybody. But part of our mission was to make financial information more accessible to people, make it a source of inspiration instead of intimidation. So we said, well, how could we do that and make it accessible? This is a membership for under a hundred dollars a month where you get access to me and a messaging channel. And you can actually ask me questions,

share your financials, book a 20 minute call with me and just go through the necessary steps that maybe you're not getting from your bookkeeper. If you're getting just that piece of paper, you can say, hey, Shan, I want to hop on a call with you and just run through this. Tell me what you think. Tell me what you're seeing. What patterns are you seeing that I don't? How are you reading this since you speak this language? What is it telling me? And just give you the punchline of this is what I think you should do. Or hey, I think you need to redesign your charter of accounts this way so that you're actually going to find it useful for 364 days out of the year instead of the one tax day. So I try to help entrepreneurs open their minds up to

actually reading their financials and understanding it for their benefit and understand that it's a tool for them, not something they have to do for taxes. What are the biggest tax mistakes you see people making? Not planning ahead for them. Like that, you know, April 14th surprise. No. And if anyone's listening who has a tax preparer, especially entrepreneurs, because they don't always fully understand the impact of entrepreneurship on their taxes, you have to work with your professional and ask for something called a pro forma, which is a dress rehearsal or a fake tax return that they're going to do for you. We do them in July for our clients every year. We take the first half of the year. We either double it or we say, hey, what are you expecting in profit for the rest of the year? Let's play with a number. Throw me a number and

we'll plug it in. We plug in the totals and we go, this is the range of what you're going to owe. Plan accordingly. You have eight months heads up. Now it's a lot easier to say, oh, I'm going to owe 30 grand. It's easier when you have an eight or nine month head start to that. And you can say, that means I just have to save up a few grand a month, like three grand a month. That becomes more digestible than say, you know, getting a 30K bill out of the blue. It's definitely more of a cash flow hit. So we try to allow people to plan in advance.

We celebrated, happily celebrated this year, a zero stress tax season. Like nobody was surprised by their bill. Everybody had the money in the bank account. All of my clients were like, cool, just like direct deposit it because it's in the bank account. Cause you told me the whole time what I was going to owe. Well done. That is so rare to hear from someone in your space. Yeah. We did it in July and then we update it in November based on like closer to the bullseye, closer to the bullseye. It's like pin the tail on the donkey where we're stripping the blindfold as months go by and we're like, got it. Now it's going to be about this much. Set this much aside.

You're good to go. And that expectation was set from day one. And I want people to realize that that's possible if you have somebody who's going to spend the time on doing that for you. Yeah, most accounts are so stressed in April. I don't even want to call them. They're doing high volume. Now keep in mind, I have 12 clients. Oh, that's it? I have a 12 client cap. Wow.

So there's a reason for that because I want to be able to dedicate that much time to them. And we will expand eventually, but right now it's the sweet spot of we're all busy enough, me and my team, but we're giving everybody what they need throughout the year and able to be responsive. Able to have that 24-hour response time and at the drop of the hat, go and meet with the client if they have an issue come up. They can buy in this thing. Can we have a huddle on this? Absolutely. So that responsiveness gets cut out. And when you have a high volume of clients, you're losing responsiveness. You're losing that personal touch. You're forgetting people's names. You're forgetting people's names. You're forgetting their stories.

And I didn't want that because I was so used to that from accounting firms. I said, I'm not playing the volume game. The volume game, and we were talking about this before, if you're playing the volume game, that's who should be worried about AI. Because you're doing a surface-level task for a lot of people versus doing an in-depth task for a few. And what AI cannot do, maybe eventually, but right now, cannot do the depth that we do. Can't go around the whole circle of what we do and provide that multifaceted advice just yet. Maybe one day, but I think the first thing they're going to come for, that tax prep, that bookkeeping, the basic tasks that can be done by a robot and are done.

Are you interested in coming on the Digital Social Hour podcast as a guest? We'll click the application link below in the description of this video. We are always looking for cool stories, cool entrepreneurs to talk to about business and life. Click the application link below. And here's the episode, guys. Right now, accountants think they're doing it. I'm like, you're still using QuickBooks and Excel formulas.

What do you think those are? Yeah. Like the AI can learn that stuff. You could probably input in a chat GPT right now, all your numbers and probably dish it out. Yeah. A hundred percent. I even use chat GPT just for fun. I actually used it and I pretended it was my CFO employee. And I said, okay, I'm going to tell you about this client. Did not use a client name, used like change the account names, cleansed it up real good. And I said, tell me about this client and what their biggest concerns are or what their biggest issues are. Lo and behold, it nailed it.

No way. It nailed it. Oh, because their numbers are public? Well, no, the numbers weren't public, but it was an ambiguous client. I just said, it's in this general industry, right? I gave it like, it's in this NAICS code industry, it's in this. So I kept it super clean from the client's data. But I just said, hey, like arbitrary client, here's the numbers. Like, what would you do with this? Or what would you suggest to them? And it gave me like three bullet points of what I would suggest. And I said,

without knowing the backstory, it did a pretty good job. And it's a great starting point. It does not replace us. And we're definitely not copying what it said. But it's a great starting point to spring off of to say, this is a good conversation starter. These three bullet points would make a great next call for our CFO meeting to say, have you explored these options? Just to start the conversation. But I do think that human element will always be valued when it comes to stuff like this, because people have different stories around money. Agreed. Have you seen a sweet spot when it comes to scaling? Because some people want to scale their companies 10x in a year and then their profit goes down. Yeah. And just to touch on that,

a lot of people say they want to scale. They don't. They want to grow. But scaling requires elimination, simplicity, and repetition. A lot of people will add more thinking they're scaling. And I go, that's not about adding. It's about subtracting. Do one offer crazy good, like Chick-fil-A did chicken. Do one thing really well where you become known for it, then leverage off of that. Look at Drybar. Look at any of these things. Like we offer one thing, like just blowouts. And then they exploded.

Why? Because they were really good at one thing, and then they did it repeat, repeat, repeat exponentially. And that's the most important thing. What people think they're doing scaling, they're actually just doing what they're doing and then doing another version of it or adding more complexity to it.

And they may be growing their company, growing their revenue, but they're not truly scaling. Not everyone wants that though. Like I don't want to scale necessarily. I want to grow. So we have to really distinguish between those things. But I do find that like scalability is key.

When you're building a company, you should build it. Even if you're not sure if you want to scale, you should build it as though you're going to. Right. When it comes to exiting, is that all based off the EBITDA? It depends on the industry, but most of the time, yes, we look at EBITDA as a big driver of value. We also look at, for example, there's people who will buy financially based on your bottom line, based on your financial statements, but then there's also the industry buyers that are more strategic. Like, I want to roll up your business and mine to

eliminate competition. Or I want to compete with this other person and I need your business to do that. So there's a little bit more to it than just the financials. But EBITDA is probably the biggest metric that gets scrutinized or gets reviewed. And that's just earnings before? Interest, taxes, depreciation, and amortization. Fancy way to say profit before the tax tricks. Got it. Net profit, right? Net profit that you actually generate in your business before you do any tax magic to eliminate stuff through depreciation. As a solopreneur entrepreneur, it's a game I play where it's like, do I want to pay a lot of taxes because it'll look good if I want to sell this company? Or do I want to write off a

ton of shit? Yes. Also, real estate. Look at lenders right now. They're scrutinizing everybody's financials. If you're a business owner and you're trying to buy a property, you're trying to get a mortgage, it's so hard because they're like, you have this kind of tug of war pull of, on the one hand, tax savings. Yay.

Awesome. Short term. It's like the short term satisfaction of, yay, my tax bill is lower. Oh, but I lost buying power because now I'm not approved for that mortgage because I didn't pay taxes on that income. So now my taxable income looks lower and the mortgage lenders don't always know how to read a tax return. They don't really understand what it means with like W-2 income versus self-employed and all the tax strategies. So what we do also for our clients is we do a translation where we're like, listen, they had an accountable plan reimbursement. That's still cashflow to them. They had this depreciation. They had this thing here, this thing here. We actually have to add that back

into their income when you're considering them for the loan. And we explain that away to them. You'd be surprised at how accountants and lenders do not speak the same language at all. But it's a funny thing because entrepreneurs have such a tough time with getting loans because they're so focused on reducing that tax profit. I go, what they should do is look at your books, not your tax return, because your tax return, you're trying to shrink yourself. And then for a loan, you want to show that you're earning a lot. So it's conflicting priorities. No, 100%. I'm struggling right now getting a house, even though I have the money, but on paper. There have been times where I've seen a client who could pay cash that day for the property. They want to get the loan because they want to spread out the cash flow. Smart, right? Especially if they can get good

financing. And they're like, guys, I want to pay you the interest money. I could literally, look at my bank account. I could buy the property today. Come on. And they're like, no, your tax return says that you only make. It's like, come on. It's outdated. They got to fix that. They really do. They need to look at cash flow. And I think the tax profit, they're not looking at the right metrics. Yeah. Right now I either have to do seller financing, which is tricky, or a P&L loan, which the interest is insanely high. It is insane. I had a client that just did that and it was just, it was bonkers. Oh yeah. You're bleeding at that point. You have to refinance it. And it sucks. Cause like I said, I have the money, like I can pay it in cash today, but

I want to spread it out over 30 years. Cause it's not the best investment for personal use. I was like, like you guys should be thanking me for giving you interest on this. It's so crazy. Cause I'll show them the bank statements and everything. And they'll be like, Nope, you don't qualify. Yeah. It's insane. I mean, I'm glad we have tighter restrictions than we did in 2008. But at a certain point, it's like, what is the point of this? Isn't it just to prove that I have the cash flow to pay it?

Yeah. You know, I don't get it. You said a lot of strategies to save on taxes are kind of time intensive earlier. Yeah. So I find that a lot of the tax strategies that you hear on social media and a lot of the stuff, especially like the short form, you know, the punchy, like the Augusta rule and, you know, the accountable plan and the S-corp and

all this stuff. Like I'm a believer in all of those. They're all fantastic, but there's always, and hire your kids. That's the other one. Very, very time intensive when it comes to doing it the right way. So when you have to do it to defend it in an audit, you have to have the backup. You got to like for hiring your kids, for example, you got to have the backup. You got to like, for hiring your kids, for example, you got to have job descriptions. You got to have timesheets. You got to have evidence of what their job was, their job agreement. You have to treat them like a real employee. You got to put the work in.

You got to run payroll. And like at that point, you go, wait a second. I'm going to be spending like, we'll say an hour a month on this on average. I go, well, and you're going to save a grand total of $2,000 a kid in taxes. Hmm. Is that worth it to you? Most of the time, it's not. Most of the time, comparing the work that you have to put in with what you're going to get back, the ROI just isn't there.

It's a fantastic strategy. And it's also great if you want to teach your kids about money and to have them invest in IRAs and like And I'm not knocking the strategy. But you also have to understand there's a cost of your time, the opportunity cost of, well, what could you earn if you were doing sales and marketing and lead gen with the time you were spending doing that? Right. That's something they don't ever mention, the time. No, they never talk about how long. Well, you know what? It's not sexy.

And it doesn't fit into a 30-second reel of like, you need to go implement this thing. And then people will come to me and say, I want to implement this. And I go, okay, cool. Like, here's the recipe for it. We have to cook up together. And they're like, ooh, that's a lot of time in the kitchen. I don't want to do that.

Like, yeah, that's what I figured. But the 20 seconds make it sound really cool. Absolutely. How do the audits work? I saw Pineda just announced he's getting audited. Oh, he did? Yeah. So basically how audits work is it's the

financial equivalent of getting pulled over by the police. You may not have done nothing wrong, but maybe they just picked your license plate. They don't like your car color. They don't like what type of car you drive or your car looks like somebody's car that's in trouble. They're going to pull you over. And if you get pulled over by the police, as like a lot of us have happened in the past, what you do is, what do always tell you to well this is what i've been told is cooperate right number one cooperate they ask for your license and registration you don't refuse to give that especially if they're valid like some people do but but you know you you have to cooperate to some extent and be agreeable and you'll get better treatment typically if you are difficult i guarantee you being agreeable may

not get you a better outcome, but I will say that being difficult is going to contribute to a worse outcome. For sure, for sure. So that goes with audits, too. So what you want to do is you want to have good record keeping, and you want to be able to prove whatever it is that you're saying is true

and that your story makes sense. The IRS auditors, believe it or not, are insanely flexible. As long as you have a logical reason for what you did or how you did it. You're not going to jail. You're not going to get in big trouble. But the typical worst thing that happens is you pay more in taxes. But if you can justify, and you can tell a really good story as to why you took this approach, and it's backed by like, show your work. Remember like third grade math, show your work. You may not get the right answer,

but you get an A for effort. And you're going to win a lot of rapport with them. The more that you have your stuff in a row and you go, listen, here's all my information. It's all organized. My bank accounts are separated. Here's all the income I earned. I did not claim a single penny of it. It's all there.

You're going to earn their trust on day one and say, okay, she's got her shit together. Now I'm more inclined to trust Shannon with the next question because she was so good at this one. It's kind of that like A plus student thing of you get away with a little bit more when you prove that you're able to, you know what you're doing and you're going, hey, I had a genuine, I goofed up and I didn't bring my hall pass that one time, but you're an A plus student. So it really does kind of add up all together in the course of an audit to what are they going to do to either knock you for aggressive deductions you've taken or, and sometimes it's a little bit of a negotiation just to get the, you know, the item wrapped up because the auditors just want to have, to get as much money as they can and get the audit over and done with as quickly as possible so they can move on to the next one right in general the easier you make it for them the easier they will make it for you that makes sense is it true the irs has access to view your

bank account balances i don't know if that's true or not i saw but i would not be surprised yeah i saw a clip like they have access to every bank account i mean given all i mean the fact that so many apps have access to everything i ever do or click, I'm just going, if they have access to that, the IRS has got to. Although the IRS is still operating off of fax machines, so who knows if they have that tech. Are they? Yes. So you have to mail everything? Oh, yeah.

We can't email anything. No, we can't. It's so annoying. So they ask for bank statements and you have to physically mail it? We have to fax them. Holy crap. Oh, it's awful. That sounds terrible.

I have to e-fax them from my email because I don't have a fax machine. Who the hell has a fax machine? Can you imagine like me in Costa Rica, like faxing? I got an app that does it actually. Oh, that's cool. Tiny scanner. So I have something like that, right? So I have a scanner and an app to fax it, but they only accept fax messages and they

have to be like processed a certain way. So it's, oh my God, it's a hoop to jump through. That is outdated. And how do they let you know you're being audited they call you they email you you get a letter oh a letter they'll never call the irs will never call you by the way so that's how the phone scams eventually got shut down was the irs always says we will never call you we will never email you like we won't do that um which i guess is like a good thing to know that they're being scammed if that's happening but also it is so annoying that all they do is communicate via letters.

And it scares, especially my entrepreneurs. They get an IRS letter. It could just say, you've changed your address with us or we've updated your address. But they don't open the letter because they're so scared of what it's going to say. And I'm like, they literally, everything they say to you, they have to communicate via letter. Please open the letter. No, that's relatable. When I get IRS letters, it's never like, oh, I'm pumped to open this. No, they actually, this is hilarious. I had a client

who got an IRS letter. And by the way, if you have power of attorney with your accountant, you could actually set it up. So I get all my clients letters sent to me. So they actually don't have to open it. I want them to out of just habit to say like, I don't want you to, I don't want to prolong this avoidance, but if, but I also get the letters. And what's so funny is one day I didn't get the letter and I asked my client, could you please send me a picture of the letter? They sent me a picture of the closed envelope with the address. They didn't even open the letter. They sent me a picture of put like, took it out of the mail, put it on the counter, the envelope and took a picture of it. And I was

like, you know what I meant? Take a picture of it after you open it. That's funny. I mean, the worst that'll happen is they'll find you. Like you said, it's not like you're going to end up paying a little bit more. That's the outcome that they want is that you're going to, it's going to cost you more. But I will say this, if you prolong it and you avoid it, it's going to cost you in the long run anyway, because it's just going to add up interest adds up. So the sooner you can address those things, the better. Yeah. I wonder how they pick who they audit. Is it random? It's somewhat random.

Now, I don't know their algorithm. Trust me, if I did, I would make so much more money. It's not. But I will say this. They were looking for, if you think about it, it's logical. They're looking for the fastest money they can get as soon as possible. And there was this statistic that came out, and I don't know the source, but saying that the majority of audits were toward middle-class families. And I said,

well, of course they are, because probably that's the majority of people. So the majority of audits are happening to the majority of people. Whoop-dee-doo, great statistic. So there's a lot of stuff being reported out there that can be skewed. But I would say, if you look at it logically, that the people who are probably going to get audited are the people with shakier ground to stand on because the IRS thinks that they'll be more likely to get more money out of it. So people who are deducting vehicles, meals, business owners, obviously I'm talking about maybe real estate if they're abusing the rep status, which is the real estate professional status. They know the strategies people are taking advantage of and they know who's likely to be trying to implement that. And they know that they're probably going to get away with getting more out of you if they know that your documentation is weak. And they know most people, most entrepreneurs have weak documentation. So what they'll typically do is probably,

probably, I'm just speculating, target businesses, business owners, because they know that they're probably going to get more out of that because it's more subjective tax return than the literal W-2. The W-2 is pretty straightforward. Absolutely. And when it comes to meals, what's the strategy? Let's say I order Postmates. Does that count as a write-off? It depends. If I'm at the studio. If you're at the studio. Well, there's this rule that it has to be a meal consumed with a... The only time you should be deducting a solo meal is in travel status. Got it. Period. Now you can also invite people to come eat with you and you can have

business conversation and then you can deduct it. So I tend to lean toward the, Hey, I'm hungry. I'm like, who's around or what business can we discuss? How would you prove that you talked about business? The only proof you have really is that you're going to write down on the receipt at like a restaurant or wherever, had business with Sean or had dinner with Sean and we discussed his tax strategies, Shannon. And I take a picture of that receipt and I save it in my QuickBooks. Okay. And just having that though, even though it's like, well, how can you verify?

Just having that is more than most people do. Just having that. Because most people just run it through the credit card and they won't care i don't even take the receipt usually exactly yeah but take a picture of the receipt real quick with the tip and everything included and go that's what it is honestly i do that anyway because my admin does my books for me and she needs to know what that is or how much of it was tip and what it was for and where to put it in the books got it so we have that anyway but i won't take and i have a threshold where like i won't even bother with the receipt if i go get a donut and a coffee at duncan i'm like y'all i'll deduct my

three dollars and 65 cents and if y'all want to audit that take your taxes i don't care like the 40 cents or whatever you guys want to take they're not going to go after those little guys so people who obsess over doing every little thing every time and again accountants say this all the time like oh take a picture of all your receipts and all your meals. I'm like, the ones you really care about. I'd say over a hundred bucks, bro. Yeah. Like mine's like over two 50, 300. I go, that's about 50 bucks in taxes. Now I start giving it, you know, like I go, okay, that's 50 bucks. Like I would be mad if I dropped that on the ground. So like, I'm gonna, that's a good rule. Yeah. Like I would be mad if I dropped it on the ground and I would go after it if it fell into a, like a, you know, a ditch, like I would go in there

and get it. So I say, okay, then I would then care enough to make sure I have good documentation for that. But I think people have this all or nothing mindset of, it has to be, you know, oh, I'm not really going to do that at all. Or I have to do every little penny that comes out of my business. I'm like, no, you don't. You really don't. And it's not 100% write-off anymore, right? Did they lower it to 80% or something? It's 50%. It always has been 50%.

Well, not always, but since the tax law was initiated, it's been 50%. And the idea that you're deducting the meal of the other person, kind of in that sentiment. That makes sense. But they actually brought it to 100% during...

I remember that. because they wanted to encourage restaurant business. I was going hard during that. Yeah. Daily. When they incentivize, again, they're incentivizing behavior saying, go eat at restaurants. And we're like, yes, sir. Yes, ma'am. We'll go do that and spend money. Yeah. I miss those days. Shannon, it's been fun. Where can people find out what you're up to? So the best place to find me is on my own podcast, Keep What You Earn. I encourage you guys to listen to that. We have a lot of fun over there. I release daily episodes and offer a lot of this type of advice. It's just like realistic and not just the boilerplate advice you hear on social media. Perfect. We'll link below. Thanks for coming on. Thank you. Yeah.

Thanks for watching, guys. See you tomorrow.