Focused - 14: Putting Numbers in Boxes, with Andrew Carroll

Episode Date: February 7, 2017

A new year brings accounting and tax challenges for independent workers, so we asked accountant and financial advisor Andrew Carroll to join us. Andrew recently went out on his own and now provides tax and financial advice to free agents and entrepreneurs.

David Sparks and Jason Snell spent their careers working for the establishment. Then one day, they'd had enough. Now, they are independent workers, learning what it takes to succeed in the 21st century. They are free agents. Welcome back to Free Agents, a podcast about being an independent worker in a digital age. I'm Jason Snell, and I'm joined as, by my fellow host, Mr. David Sparks. Hi, David. Hi, Jason. It's good to be back.

We have a guest. This is one of our guest episodes. How about that? It is. Yay, guests. Oh, there's the voice of the guest now. We've had a lot of requests for a show on accounting and taxes, and we are not accountants, and we are not tax experts.

So we decided to talk to somebody who is a free agent himself, no less, and an accountant. It is Andrew Carroll. Welcome to the show, Andrew. Hi, thank you guys. I'm super excited to be here. Andrew, we've talked about in the show, you know, the triumvirate of support you need when you're a free agent. I feel like it's a, you need a good lawyer, you need a good accountant and you need a good insurance guy or gal. And, um, and so, uh, it's, I'm so happy that you were able to come on. We're heading towards April 15th and, uh, we're going to talk about on the show, some things that free agents can be doing to make sure that they get ready for taxes appropriately. And also I want you to give some advice on hiring a CPA as a free agent. But before we do,

let's talk a little bit about your free agent story. I can go all the way back. I started working for a CPA firm when I was in college at Cal State Fulton. Ended up working there for all four years of college, got my accounting degree, ended up working there for all four years of college, got my accounting degree, and kind of went into that whole accounting. And I was also a financial planner by training as well. So CPA financial planner. We did that for a lot of years, ran a CPA firm in North Orange County, and then opted to leave the firm in April of this last year. So coming up on almost a year now. I can't believe it's been a year.

It feels like it was just yesterday still. But yeah, I decided to go free agent. Mostly because I felt the business model and how this industry works needs to change a little bit. And it was changing. And so I was trying to skate where the puck puck was headed not where it was right now um and plus i i'm as i kind of stole this from you david i'm i'm mostly unemployable at this point too i pretty much do whatever i want and uh um so that works it works better when i'm my own boss yeah it does doesn't it it's kind of nice so you you've been at it a year. How's it going?

Good. So the first iteration of stuff I started is CFO Andrew. I actually have a bunch of businesses, but CFO Andrew is the one that's probably the most applicable for this group. And I'm basically a personal CFO, which includes accounting, taxes, financial planning, everything for freelance knowledge workers. I've got a roster of about 120 clients and basically every single one of them is a freelancer or a free agent, I guess is the- Thank you. It's branding. Always the branding.

They're all free agents. That's basically what I do is I help free agents with their money stuff. And like I said, I launched the business in April and I wanted 120 people on my roster and that's how many I've gotten now. So I guess we call that a win. All right. Good for you. And the, now that you've been doing it a while, are, what are your thoughts about, are you going to continue at this 120? Are you going to look at growth or, I mean, what, if you, I don't know, maybe this is an inappropriate question for a podcast. No, no. I will stay at 120. I will probably pick up a few tax-only folks. The nice thing about

being a free agent is that there are a lot of businesses that are what we call lifestyle businesses. No one ever got rich preparing tax returns. No one ever got rich doing this kind of work, but that doesn't mean that nobody, that doesn't mean you can't make a really good living at doing it. And I think that once you grow to a certain point, especially in a knowledge-based, especially in a relationship-based business like mine, because mine is all about, I've got to know what these people are doing. I got to know about their lives. I got to know what's going on with them to be able to give them good advice. And I don't care how many assistants you hire, you can't scale relationships beyond a certain point. I can only care about so many people at once.

And so I think that's the fundamental flaw you've got, which is why I built my business, which is why I left the industry and no longer work the way most industry people work, which is scaling up and getting more people underneath you. It's because the only real valuable piece of that puzzle is the relationship. Everything else is easy. Most CPAs will get mad when I say this, but preparing tax returns isn't hard. If you know your numbers, you're just filling out forms. preparing tax returns isn't hard. If you know your numbers, you're just filling out forms. There's not a lot of value add there. And building a business around a value add that is putting numbers in boxes is not a very good long-term business. It's the relationship. And so you

can't scale it that much. So I work on lots of other businesses, but not this one. I had an attorney friend say, hey, I could do some of your contract stuff for you. I'm like, well, that would defeat the purpose because the people who hire me expect me to do it. So I don't think it works. And I agree with you. It is almost a lifestyle choice. But you can still make a good living at it. And I'm glad to hear the things that went well for you. When you first left, I had no doubt that you would be super successful. I'm so happy to hear that you are. But today I'd like to talk a little bit about kind of the nuts and bolts of this stuff. And we've got a lot of folks listening to the show that are new to free agents or thinking about going out on their own.

And that's a whole new ballgame for you in terms of doing your taxes, especially if you're used to getting a salary and just you fill in the one or two lines on your tax form every year. It's a whole different thing. What are the kinds of things people can do as free agents to kind of help themselves get ready for this? Well, the best thing to do is to understand the framework. If you understand the framework, it's not that complicated. It's not that different, but there is some definitely some unique stuff. And if you understand that different, but there is some definitely some unique stuff.

And if you understand that framework, you understand how to make decisions and things inside of that. When I say framework, what I mean is, you know, as a W-2 employee, you work, they take taxes out, they give you what's left and you stick that on a return. And maybe you get a few more deductions for some charity and, you know, for your kids and your house. And it's real simple. It's done. There's nothing else there. When you're a few more deductions for some charity and for your kids and your house. And it's real simple. It's done. There's nothing else there. When you're a free agent, you flip this switch because now we no longer look at you as an

employee. We now look at you as a business. That's a really important flip to switch in your head because all of a sudden you've got a whole new way of operating. That way of operating is that all the money you bring in is your income. And then we take expenses against it. And then you arrive at a profit number and the profit number is what you pay tax on. And understanding that different flow helps you understand how to set these things up and everything else. All the strategies we use are built around understanding that different kind

of flow. Um, it also helps to know that there's multiple kinds of taxes. Um, income tax is a big one, obviously. Uh, but if you've got a W2 job,

you've all, you've seen that, uh, social security, Medicare box, we refer to as FICA taxes. Um, self-employed folks can be subject to self-employment tax,

which basically means because you're self-employed, you get to pay both halves, which is about 15%, um, on that FICA tax in addition to the income tax. So then the game becomes, how do we get our profit as low as possible to lower the income tax rate? And what strategies can we use to reduce the self-employment tax? But it is a little bit more complicated. It's not super complicated, but it's a different way of thinking about it, different way of looking at it. You got to understand. Does that help? Does that answer the question? I don't know. Yeah, it does. I mean, it really is. I think though, I like kind of you're talking about

a process because I think that's a really important thing. As a free agent, in my experience, taxes aren't something that you worry about starting in early February. It should be something that's on your mind as you're going through the whole year. Absolutely. And what kind of systems can free agents put in place to kind of help make it easier when they get to that point where they need to deal with the accountant and get the taxes rolling? You've got to have books of some sort. I mean, there's no other way around it because no one is taking, you know, W-2 jobs are a little bit, I don't know if paternalistic is the right word, but it's a little paternalistic and they're taking care of all of it for you, right? So it's really cool to are a little bit, I don't know if paternalistic is the right word, but it's a little paternalistic in that they're taking care of all of it for you.

So it's really cool to be a free agent, but the joke I always say is you know that useless boss you had that did nothing but just walk around and manage things, that middle manager? Well, they're probably mostly useless, but they are doing some things that are valuable because there's infrastructure that a business has like tracking, taking taxes out, withholding them, sending them out and all that kind of stuff that is being done. And if you're going to be a free agent, you got to do that stuff yourself. And so you can just not pay taxes all year round, then just pay one big lump sum at year end. That can be pretty painful. It can catch you off guard. It's usually not, it would not be considered best practices. But like you said, as you go throughout the year, if you're recording your income and expenses, you can figure out roughly what you think the tax bill is on that. And you can start, you got to start withholding that stuff ahead of time. You got to start taking

money out and set and decide knowing you've got a tax bill coming. The worst thing you can do as a freelancer is forget that fact. You'll get all the money that comes in, you spend it all and then April shows up and you owe $14,000 and you've got $4,000 in the bank. And that's the beginning of a very long cycle of being behind the eight ball. Yeah. I know a lot of freelance writers I've known over the years. And that's one of the things that has always struck me is you can't, the cash in hand when somebody writes you a check is very different from the cash in hand when you get your paycheck because the paycheck's got taxes deducted. And as a freelancer, that check you get does not. And so you have to save it away. And then the other thing that always struck me in talking to freelancers

before I did this was estimated taxes, the idea that you can get a big tax bill at the end of the year. But at that point, the government looks at you and says, say, you should have been paying taxes all along, this is too much. From now on, you're going to pay us every quarter. And then you're basically forced into an installment plan because the government doesn't want to wait a year. Yeah. And the way they enforce that is by charging you a penalty if you underpay your taxes, if you don't pay estimates. And there's actually a lot of people that opt to do that. In some cases, having the cash around is – the underpayment penalty is not super onerous. So I have a lot of folks that, particularly in capital-intensive businesses where their cost of capital is higher than what the IRS charges, they'll opt to pay the penalty because it's cheaper than having to go borrow money to fund their business throughout the year.

I'm thinking about – I had a real estate development client that was the same thing. He said, well, if I dump all my money into developing this property, I'm going to get a 25% return. Well, yeah, okay. And the IRS is going to charge you a 4% penalty for not paying your taxes. Great. I'm still 21% to the good. So yes, you don't actually have to pay estimated taxes. If you don't, they're probably going to ding you on um for for underpayment penalty for not paying the estimates you still gotta pay the taxes well you know one way or another but um that's how they so they're basically charging you interest exactly that's exactly what they're doing is they're charging if you don't pay it they're like listen you had the money you knew you were gonna owe taxes if if you don't pay it you're

gonna charge you interest because now just like you know just like when you don't want to have too much withheld because you're giving the government an interest-free loan, they don't want to give you an interest-free loan either. I don't advise not paying your estimates. I think everybody should be paying their estimates, especially in the free agent knowledge worker world. Just pay estimates. You know you're going to owe it. Unless you're doing something very unique like real estate development, you probably don't have a very high cost of capital and need to be worrying about that. Yeah, I pay estimates because I just don't want that big bill at the end of the year. Yeah, absolutely. And it makes me feel like I'm kind of more on top of things, but, but actually listening to you making these decisions and dealing with the

percentages and what the penalty is. I mean, I'm learning things just listening to you. And, and I'll tell you that the thing that I'm taking away from this is I still come back to my fundamental belief as you're getting, if you'm taking away from this is I still come back to my fundamental belief. If you're serious about doing this and going to try and make a living out of this, you need to get an accountant. I mean, Andrew's telling me stuff I don't know. And I'm thinking, it's like going to the dentist and him saying, well, you should definitely get a root canal. And you say, that's okay. I'll just do that myself.

You're asking for trouble. So I like, but, but so I like though the idea, one of the things I'm doing now is I've decided, I just told my CPA, look, what's it going to cost a month to just have you look at everything as it comes in and just kind of manage this stuff on a monthly basis. So I don't get to the end of the year and have this massive thing on my, over my head. And, you know, in my case, cause my, you know, I don't have that much to deal with. It's, it's about 300300 a month for me to have an accountant just deal with that stuff for me. I think it's totally worth it.

And I think so one thing you can do is look at getting a relationship with an accountant, figuring out a way to kind of offload this stuff. But assuming that somebody doesn't want to offload it, what kind of records should they be keeping as they go through the year? So when they get to taxes, they don't have a problem. Yeah. Well, it's interesting you say that because what kind of records is actually the most important point? Because if you have good records, getting an accountant or bookkeeper or anyone to help look at it and make sure it looks okay becomes very, very easy. But what you discover is that, so getting those records is the first piece. If you want an accountant, great, but I can't do anything if you don't have anything to show me, right? I can't just, you know, pull numbers out of thin air. So nowadays I recommend almost exclusively, you know, you have to have a separate bank account for your business, period,

end of story. And there's too many great accounting softwares out there for everyone to not have their own books. Go get FreshBooks, go get Xero, go get QBO, go get anything like that. Plug in the online login to your bank account, take one credit card. It doesn't need to be a business. I'm doing air quotes, which you can't see because it's radio, but it doesn't need to be a business credit card. Most of us have more than one credit card. Pick one and go, this is now my business credit card. Everything you want to put all your expenses on that, pay the bill of the business bank account, plug both those logins into one of those online softwares. And in 30 minutes a week, you'll have books, it'll download it, you record them, and you have the ability to

get decisions made. If you get that piece done, everything else is easy. You can hire accountants to look at the numbers with you, make sure you're doing it right. You can make sure your estimates are paid because you've got a P&L you can look at to figure out what the taxable income is going to be, all that kind of stuff like that. And it's, it's so many people don't do that. Um, and it only ever causes massive problems when you don't. Yeah, we, that's actually very much what we do. Um, since I, cause I've been out on my own for a couple of years now and, um, my wife is basically the, the CFO of my company. And so we have a business account and we do have a business credit card. And she is using accounting software to do the bookkeeping and track the numbers. And then we

have basically an accountant who we talk to at tax time, but we've collected all the data. And that has other benefits too, in the sense that we also have a very clear sense of how the business is doing. And this isn't just about paperwork. It's about understanding where the money's coming from and where it's going. And if you don't do that, I think it's really dangerous for anybody who's out on their own, because then you don't have an idea of what might be coming if you're having problems, or if you're misprioritizing because the money, you know, you think the money is coming from over there, but it's actually mostly coming from over here. And so it also gives you a vision into your business. It's not just about keeping records so that you can file your taxes. That's exactly right. It's, it's about

information. Um, and you can hire all the accountants in the world, but with bad information, you're going to get, you're going to make bad decisions. Even the best accountants are going to make bad decisions with bad information. And this is, to your point, people underestimate the additional responsibility that comes with being a business owner, right? If it's a free agent, you are effectively a business owner, which means all those decisions fall to you. And not making a decision is a decision, right?

Not being involved, not paying attention, that is a strategy. It's a bad strategy, but that is still the strategy. If that's your default position, you still are making choices about how your business runs. You're just leaving it entirely up to chance. And that's usually not the key to a long, successful business. Yeah, that's how you end up back working for the man. Yeah, that's exactly how you do that. Even 10 years ago, this was so much more of a pain in the butt than it is now. Nowadays,

I tell people all the time, there's no excuse anymore. Like there's just no excuse anymore. It is too easy for this stuff to work like that. I mean, if you can't do that very basic stuff, then you don't belong and you do not belong as a free agent. You need to go back and work for the man. So give us some basic advice. If someone's listening to this and saying, oh my goodness, I'm not doing any of this stuff. I need to get on the road here. Do you have any particular recommendations for software or cloud-based packages people could use or get started? There's the big trifecta, which is QBO, Xero, and FreshBooks. Those are the big

ones. And QBO is QuickBooks Online. Correct. Correct. QBO is QuickBooks Online. The bigger thing where most people are in even bigger trouble is those things do not work at all unless you have a separate business bank account. So the first thing we always tell people is you've got to separate the activity. That's the first step. You've got to get your business activity overrunning through one account. That's the number one way to get yourself screwed in audit, right? Because what happens is you've got a business bank account. You point to it, to the IRS agent and go, okay, all that stuff in there is income and all the stuff going out of there is expenses. And they have to go in and

find examples of things that are not and make you say, okay, I think this is not, I think this is not. If you have that all in your personal account, you that are not and make you say, okay, I think this is not, I think this is not. If you have that all in your personal account, you point to that and go, oh, well, some of that is business and some of that's personal. They go, okay, it's all personal. Prove every single line in here is a valid deduction. That burden of flipping that burden of proof means you're basically screwed because you'll never be able to prove all that stuff, right? So once you've separated that activity out and you've gotten that habit, and it is a pain in the butt, but that's the first thing you've got

to do is, this is something that needs to be a business expense. I'm putting it on the business card or I'm depositing this in the business bank account. If you build that habit, everything else is robots. Plug it into QBO, plug it into FreshBooks. It'll download the activity. It'll, and even something like QBO has got a learning algorithm. After you've done it for a month, it recognizes 85% of the transactions and you can record them all in one click. It's not complicated. It's that habit. It's that decision point of I'm pulling out my debit card to pay for my lunch and I have to think, which card should I be using to do this? Once you've got that done,

the rest is really, really easy. Which if you're working for a business, you should have already done this, right? If you've ever had a business with an expense report or anything like that, you should already have. It's not that alien, right? If you have been doing that. I was just like, I order office supplies from Amazon. I need paper because I'm a lawyer. I print things, right? And last week, I ordered paper and I have my company card as well as my personal card in Amazon. And I just blew it and used my personal card. And as soon as I saw the receipt come in, I'm like, damn, now that's just like complicated. If anybody ever looks at this and I want to say, no, I bought this for my work, but I didn't buy it on the company card. I do an expense report myself and that covers things like mileage as well. And I

fill out a reimbursement form and all of that. And it's not ideal, but I do it. But it's still, you're tracking it one way or another. You need to isolate your business expenses one way or another. That expense report concept is a really good way to do that. It's a really good way to pick that stuff up. And then have you have the company cut you one expense reimbursement check that it then expenses as an office expense or meals entertainment, right? You know, whatever the makeup of that check is. Yeah, which is, you know, it has worked because you're going to make mistakes and things like driving is a good example where you know, mileage is reimbursable for personal vehicles. And I always did that at my old job too. And it's like, well, when I drive my car to Apple or something like that, that's

business, that's work. That's not my, you know, that's not a personal expense. And that is covered too. I wanted to ask you about payroll. Something that we did is not immediately, but not too long after we started, was we actually switched to payroll for, we set up payroll for my business. And my wife and I are paid by the business via payroll. And that had advantages for us. And I think we're pretty happy with it. But what do you think? What would be the advice you would give people if they're thinking about something like going through a payroll service and being, you know, being paid as if you are paying, you know, essentially you're paying yourself. You're the man paying yourself. Right. Absolutely. So payroll is, payroll comes in in a lot of different ways.

Payroll is a, is a tool we deploy tactically, I guess is the way we'd say that, right? So if you have a side gig, if you're working full-time someplace else and you're working on some stuff on the side, you probably don't need to set up payroll and things like that. If you are 100% a free agent, and I don't know if you want to go through the whole S-corp self-employment tax game, payroll is used in two main ways. It's used to provide reasonable compensation for your S-corp to keep the S-corp self-employment tax savings intact. And secondarily, most of the non-taxable fringe benefits that we use for corporations are built around an employer-employee relationship. And you have to have a W-2 to be considered an employee, right? So if you want to have

like a health reimbursement plan for your company, you want to set up a 401k for yourself so you can save money in a tax-deferred manner, you know, other things like that, all that stuff is built around, you got to have a W-2 to do that. I would, I consider that to be like a phase two type thing, right? Like the first step is everybody without exception needs to separate their business activity out from their personal activity and run that stuff that way. And then once you've gotten to a certain volume then we go layer in the payroll and a little slightly more sophisticated tools like payroll to help save some more money on taxes and run some other strategies yeah and that i think that's exactly why we deployed it tactically as you said for similar reasons in order to get the 401k going, get a healthcare reimbursement

plan going. And in the end, we have a somewhat low salary and then there's a bonus at the end of the year so that we can try to zero out the business so that it doesn't show much of a profit. Payroll can be tough. I would definitely be suggesting that people talk with an accountant about payroll because how much payroll you use and what capacity changes dramatically, whether you're using an LLC taxed as a partnership, whether you're using an S-corp, whether you're using a C-corp. Like I said, we deploy it tactically, which means you kind of need to know how that bomb's going to go off before you start flinging it around the battlefield. Talk to your accountant. need to know how that bomb's going to go off before you start flinging it around the battlefields.

Talk to your accountant. Yeah. Because how much you need to use for payroll and how your payroll is set up is completely different for your S-corp than it is for your C-corp. This episode of The Free Agents is brought to you by FreshBooks, where you get online invoicing made easy. Go to freshbooks.com slash free agents to get a free 30-day trial. During the show today, Andrew recommended using FreshBooks. He didn't know that FreshBooks was a sponsor of today's show, and that was editorial content, not advertising. But it certainly doesn't surprise me that he recommended it.

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All of these new features are coupled with a beautiful redesign, focusing on simplicity and clarity, giving you a bird's eye view of your business at all times. FreshBooks is focused on the age-old question of how is my business doing? No more do you have to guess what's owed or what's overdue. It's presented to you clearly and simply. And best of all, FreshBooks is offering a 30-day unrestricted free trial to listeners of the show. Just go to freshbooks.com slash free agents and enter free agents in the how did you hear about us section so they'll know you came from us. Thank you so much to FreshBooks for supporting the free agents and all of RelayFM. What about the listener who is panicking right now because tax season is here

and they haven't set up the separate accounting and they haven't set up the software? What kind of advice can you give them at this point? I usually tell people to triage 16 and put all your effort into making sure 17 is right going forward. So put most of the effort you can into getting the activities separated, get your book set up, things like that. Get yourself right going forward. The idea being that stop, stop the bleeding, right? We, I, we understand that there isn't a problem and we're going to have, it's going to be a pain in the butt to get 16 done because you didn't do any of this kind of stuff. Fine. But step zero is stop the

bleeding. Get this on the right path going forward first. And then, cause we can triage one year. We cannot triage every single year your tax return. That doesn't, it just doesn't, I mean, we can, there are people that do that, but you'll never get out from behind that, I promise. So that's typically what I recommend is get those things set up. And then over the course of the next month or two,

we just figure out, okay, find some way to plug the numbers in, figure out what you've got for 16, plug it in, hope it's close enough. Know you're going to take a hit and probably pay more tax than you need to. And that is your penalty for not doing the stuff that you should have been doing all along. But knowing that this will be the last time that happens. What about picking a CPA? If someone is out there and they see the light now,

not all CPAs are created equal. And I think free agents are kind of a special type of client. What should we be looking for? We could do a whole episode just on what is wrong with the accounting industry and CPAs and how they work. I will spare you and your poor listeners that piece. I could do the same thing on the law profession. I think we've done that episode, David.

We just didn't record it, maybe. So what I would say is this. You've got a couple of things to look for. First is pricing. I highly encourage people to find CPAs and accountants, and they're out there. They may be a little bit tougher to find, but they are out there, that can give you some sort of flat price or a fixed price or say it's going to be this amount of money. Yes, everyone's going to say, well, I don't know until I get into it. Well, that's true. But assuming nothing odd goes on, you shouldn't have to go in having no clue how much this is going to

If the only thing they're going to bill you is bill you by the hour, I'd probably be avoiding those folks for a couple of reasons. One, I don't like starting relationships when I have no idea how big the hole is I'm digging for myself. And two, that's a misaligned incentive, right? They're going to tell you that we need to go back and relook at every single transaction you did for the entire year. Why? Because I'm billing you $300 an hour to look at it. So you're gosh darn right I want to go back and spend hours and hours and hours looking at every single thing. And maybe that's not the best use of your resources and the best use of your time working on that stuff. The other thing you want to do is that, so building structure and

making sure that that's good. They definitely need to have experience with self-employed individuals. Although if you're hiring a CPA at that, if you're hiring a CPA level person, they'll all have experience with self-employed folks for the most part, if they're hiring a CPA at that, if you're hiring a CPA level person, they'll all have experience with self-employed folks for the most part, if they're running a tax practice. The second piece is a match of personalities and desires. There is a lot of subjective things that can go on in a tax return, right? I think about the idea of you have to have reasonable compensation coming out of your S corporation. Okay. Well, the only guidance we have is reasonable. What does that mean?

Well, your definition of that versus the CPA's definition of that, you want to make sure that you guys are on the same page from an aggressive standpoint. If you want to be really aggressive in your interpretations of these things to try to save maximum amount of taxes, you want to make sure that your CPA sees it that way as well. Otherwise, you're going to create conflict. If you are very conservative, you want to make sure that you've got a conservative CPA as well because you don't want to get in a fight with them. You want to have similar interests and similar ways of approaching problems as you go through and start making these subjective things. And you don't want to get caught off guard. You don't want to think, I want to be really conservative, but my CPA is aggressive. And so he was giving me advice that I was following and I didn't know it was aggressive and I wouldn't have done that. I had known that, but he didn't, you know, we never communicated

that difference. So I think it's important to make sure you've got the level of aggressiveness matched as well. That's good advice. Yeah. And I would also add to that. You want to ask if somebody has experience in your specific industry, whatever it is you do. I always feel like that helps. Would you agree? Not really. Okay. A lot of people do that. A lot of people say that. I will tell you that debits are always debits and credits are always credits. It doesn't really matter what that industry is. I would be more concerned with that they know the modality of your work rather than the industry you're in, right? So I understand how freelancers work. I understand how those kind of

groups work. So for example, in my business, I work with financial knowledge workers. Now, whether that person's doing design work or doing programming or developing an app, for my purposes, they all work the same way. They all have the same similar modes of operating. But the intricacies of the app world versus the design world don't really inform upon the accounting and business side of that information type stuff. Does that make sense? So I would treat the freelance lawyer who's a knowledge worker

the same as my freelance designer, and your product's different. But from my back-end perspective, they're almost identical businesses. Yeah, see, I'm applying the prejudice from the legal side, because in legal, it actually makes a lot of sense if the person is familiar with the types of issues you face. Yeah, and in legal, I think that makes a way bigger difference. You don't want someone that has written a will once to go build your multimillion-dollar estate plan because in that scenario, there's whole separate codes of law. Whereas the Internal Revenue Code, there's just one. It's just the Internal Revenue Code.

It's all the same rules for everybody. They all apply. You know what I mean? So we don't have multiple specialties really like we do in some places. Well, what I mean is actually like a lot of lawyers can write a contract, but not a lot of lawyers have written contracts for people doing this type of work. And there's different issues. And that's the kind of things that we deal with. There's definitely some of that knowledge, industry specific stuff in accounting for sure.

But it typically happens at much higher levels and with much larger businesses. Okay. If you need, if you want to go do transfer pricing between your Singapore subsidiary and your Southern California import company, then you probably need a CPA who has experience in transfer pricing and import export companies. But for free agents that are free agent knowledge workers, that kind of stuff doesn't really apply, right? You're pretty well contained in that one world. So what are, so I just want to break it down for people listening. What are two or three things you can do today to kind of get your act together with respect to accounting as a free agent? Separate the activity, always number one, and make, make sure you make it easy for yourself

to make good decisions about that. I'm putting expenses in the right place on the business card versus personal card and et cetera, et cetera, et cetera. That's step one. Step two is plug those things into some sort of accounting software. And then step three is look at it. Make sure you are looking at this stuff on a regular basis so you know where your business is headed. If you do those three things, A, you're probably ahead of 50 to 60% of freelancers out there. And B, you're now in control of your business. You are running your business instead of letting it run you.

Yeah, I guess the thing is, this stuff is super manageable, in my opinion, by anybody. If you'll just spend a little time dealing with it. I don't sugarcoat stuff anymore like I used to. People are like, oh, well, I don't know. I can't have time, blah, blah, blah. Then go get a job. Sorry, that's just the reality of the situation.

If you can't put this minimal amount of time into doing this, you don't belong here. Go back to your W-2 job and let someone else deal with it. People don't like it when I say that to them. But it's the truth. I think we talked about that on one of our earliest shows, that there is this fantasy that if you go out on your own, what you're going to have to do, you're going to be able to focus 100% on the thing that you love to do. And that is just not true.

Being out on your own means that you have to supply the support system for your business that used to be supplied by other specialists that your business, you know, your old employer hired to do the job. And if you can't do that, if you just really fancy yourself as a brain in a jar that does nothing but your fantasy work 100% of the time, you can't do it because there will be other work that needs to be done. Unless you, you know, married somebody with an MBA who's willing to do all of that for you on the weekend. But that is a very specific thing that not everybody has access to like I do. Or frankly, if you're willing to offload some of that. I mean, I think you can be a free agent and recognize that I'm not good with the accounting.

That's true, but you still have to get a credit you know, you still have to go to the, you have to get a credit card and a business, you know, an account, bank account for your business and things like that. You can't just let it ride and figure it out. You do need to put in some effort. But you're right, David, that if you can't do it, you can pay somebody to do it as long as you're making enough money for it to be, to make sense. You can absolutely do that. And that's actually a great calculation right is would i be better off using this time to make money doing what i'm good at or pay you know and so therefore it's better to just pay somebody to do it for me and we're going to do a show at some point about the various corporate forms and business entity

types that's one i can actually talk about but uh just to add on to andrew's point if you're just getting started, you don't have a corporation or anything, you can always do what they call a fictitious business name. And you can go to the bank. I think online in California, it's about 50 bucks to get it done. Then you go to a bank and you can open an account in the name of Acme Widget Company, whatever your company name is. So it's very easy to have a separate account, even if you don't have a company. So this stuff is manageable. And honestly, it's going to take you about three hours to get those pieces in place. And it's going to save you untold hours later and money.

Yeah. My favorite trick is the label maker. So when you have a couple of different businesses like I do, I just sat down one day and printed label makers out and I put business names on every one of my cards and put a little sticker on them. So now when I pull my wallet out, it just literally says CFO Andrew, personal, uh, Joy's business, Joy's my wife. And I go, what, which, what am, who am I, what, how am I wearing at this moment? This one. Okay, great. And it can be that simple as long as you're, you know, put the time in to get it done. Yeah. It's not that difficult. And that's the good news. But if you're listening out there and you haven't done any of this stuff, it sounds like it's not too late for you.

Yeah, nope. It's early in 2017. Get that straightened out. Get yourself signed up with someone that can give you some help and get yourself some of these services. And good luck on April 15th. CFO Andrew, where can people find you? I am CFO Andrew on Twitter and CFOAndrew.com. And don't forget, Andrew also has a podcast with my pal Brett Kelly that does a lot of free agency type talk.

It's called Orthogonal. And they talk about independent workers there as well. So if you like this stuff you may like their stuff too yeah and we'll put links to that in the show notes which you can get of course at relay.fm slash free agents slash 14 and or just look in your podcast app because the show notes probably in there too all right well andrew thank you so much for being on hey thanks for having me guys and david i guess we'll be back in a fortnight with another episode of Free Agents. Yes, we will. We have more planned for you. Oh, yes.

And thanks, Andrew, for coming in. And gang, let us know how you're dealing with this in the Facebook group. That's getting very active. And we've got a feedback show not far down the road. Yeah, absolutely. And you can always find us on Twitter at Free Agents FM. And I'm Jay Snell, and David is Max Barkey. So that's how you find us,

and we will see you in a fortnight bye everybody Thank you.