It's Not About The Money

Steve and Tyler pull back the curtains, open up the closets, and get very vulnerable about how much it has cost to start their businesses. 

Tyler proposes a rubric for evaluating expenses, which proves extremely useful: 1) Essential, 2) Have to Have, 3) Nice to Have, and 4) Shouldn’t Have. They break down what exactly is in each of these categories for them, as well as the totals and percentages for each category. 

The last 20 minutes is full of introspection about the experiential value of starting a business and the various phases a young business goes through. 

  • (00:00) - "If I understand your inflow and outflow of cash, I know exactly what's in your heart."
  • (01:55) - Opening up the closets on Steve and Tyler's business expenses
  • (04:40) - Essential, Have-to-Have, Nice-to-Have, and Shouldn't-Have
  • (07:26) - Tyler's expense breakdown
  • (14:35) - The power of retrospectives
  • (17:09) - Client experience, and other things we care about
  • (21:44) - Steve's numbers
  • (29:16) - Steve debates about his payment processing platform
  • (34:58) - Growing and experimenting versus optimizing profitability
  • (39:45) - Ratios of essential to non-essential expenditures
  • (41:36) - Tool churn, operationalizing, and more growth vs. profitability
  • (45:08) - Differences between personal finance and business finance
  • (50:46) - Learning business through experience

Links:
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Steve Nay: 

Tyler Smith: 

Creators & Guests

Host
Steve Nay
Strategic tax advisor for solopreneurs. Enrolled Agent; Owner of Daybreak Tax LLC
Host
Tyler Smith
Financial coach for working professionals

What is It's Not About The Money?

Solopreneurs and small business owners: learn about leadership, operations, entrepreneurship, productivity, taxes, client creation, marketing, bookkeeping, and more.

[00:00:00] Steve:

"If I understand your inflow and outflow of cash, I know exactly what's in your heart."
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[00:00:02] Steve: So, Tyler, this week, I was listening to a podcast that I really like called Planet Money. It's like an economics podcast from NPR. And this episode had on, a couple of authors of fiction who were talking about how, you know, fiction, uh... portrays economic concepts. But anyway, the quote that I liked that relates to what we're going to talk about today was from Minjin Lee, who wrote the book Pachinko, and she said, Tell me what you like by telling me how you spend your money.

If I understand your inflow and outflow of cash, I know exactly what's in your heart. I know what you care about. I know what you idolize. I know what you don't care about at all.

I'm curious what you think about that.

[00:00:51] Tyler: I think Miss Lee would make a great money coach.

[00:00:55] Steve: Yeah.

[00:00:56] Tyler: Yeah. I mean, this lines up with the saying, um, what, you know, actions speak louder than words. Right.

[00:01:03] Steve: Oh, yeah. Mm

[00:01:04] Tyler: I mean, I run into this a lot in my business since I am a money coach where people don't understand necessarily why they aren't achieving the things financially that they want to.

And really all it takes is a glance, like not even an analysis, but if you print out your bank statements for the last month, maybe and just kind of let your eyes skim down the row. And you see things that stick out, uh, you can see patterns and things. Yeah. I'd say this is, this is pretty accurate. What you spend your money on reveals what you care about more than what you say you care about, I would say.

[00:01:35] Steve: Yeah. That's interesting. So we're going to talk today about, the money that we have spent in our businesses and, and maybe analyze what that, what that says about us.

[00:01:43] Tyler: feel like this is going to be incriminating.

[00:01:46] Steve: Maybe. This one will never air.

[00:01:48] Tyler: Well, here we go.

Opening up the closets on Steve and Tyler's business expenses
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[00:01:55] Steve: Hello there, dear listener. I am Steve.

[00:01:57] Tyler: And I'm Tyler and welcome to another episode of It's Not About The Money, where we discuss a wide range of topics related to creating and running small businesses.

[00:02:07] Steve: Tyler and I both run small business owner, but I always say this wrong. Tyler and I are both small business owners like you. We run small businesses. We're going to open up the closets and see what things are in there today. And so this is, this podcast is our attempt to make sense of the world one episode at a time.

So I don't know. Let's, let's, uh, dive right into it.

[00:02:27] Tyler: Yes. By things in the closet, I assume you mean skeletons because that's inevitably what's going to happen here, I

[00:02:33] Steve: There and there, and hopefully some, some gems as well. Hopefully some useful things for the listeners of this fine podcast.

[00:02:41] Tyler: So to be clear, what we're talking about today is how much have we spent starting our businesses?

[00:02:48] Steve: Exactly.

[00:02:49] Tyler: Steve you've got a tax preparation business.

[00:02:53] Steve: That's right. My business is Daybreak Tax and I do tax preparation, a little bit of bookkeeping, some advising on, how to run your business, how to make, how to, how to get the best tax treatment for whatever you're doing. That's what I do.

[00:03:10] Tyler: Yeah,

I've got a coaching business Specifically, I coach people around money and insights related to personal finance and we've both started our businesses somewhat recently And we've got enough Experience now to be able to have a conversation about how much we've spent. It's like, we have real businesses now for better, for worse,

uh, that are spending and making money. So this is kind of exciting to take a look at our books and see how we've done from beginning until now.

[00:03:38] Steve: Yeah, a little bit of a retrospective. It's a nice time of year to do it as well.

[00:03:43] Tyler: Yeah, absolutely.

[00:03:44] Steve: I'll put a little plug in for it. If, if you own a business and your books are not caught up for this year, like now is the time to do it. Don't wait until January and drop your box of receipts on your bookkeeper's desk that they won't be happy with you.

But

[00:03:57] Tyler: But that is their job. I'm just going to

[00:03:59] Steve: That is their job, but you might just pay a little more

[00:04:01] Tyler: Yeah. Yeah.

[00:04:02] Steve: for the privilege.

[00:04:03] Tyler: So, um, Steve, tell me, how recently did you start your business?

[00:04:08] Steve: I started, uh, working on the thing that became the business in April. April of 2021.

[00:04:16] Tyler: It's been a while. I we've been talking about our business ideas and eventually our businesses for what seems like forever now, but a couple of years at least,

and it's been really fun to watch this evolve and I have to admit, I'm a little bit surprised that like we did it,

.

but we talked about it for so long and here we are.

[00:04:35] Steve: Yeah, the, the thing has materialized. It is a going concern.

Essential, Have-to-Have, Nice-to-Have, and Shouldn't-Have
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[00:04:40] Tyler: So Steve and I both did kind of an exercise earlier today. We looked at all of our business expenses, I think since inception, or did you just do last year?

[00:04:49] Steve: Uh, no, since inception, I went back through the tax returns.

[00:04:53] Tyler: And we categorized all of our business expenses, into the following categories, at least this is what I called mine, uh, essential, have to have, nice to have, and shouldn't have. In an effort to kind of analyze, how we are doing with our financial choices inside of our businesses. And maybe at least how I could do better going forward so that I can actually make some more money instead of spending it all.

[00:05:19] Steve: Right. And so I think the reasoning here is, with the benefit of hindsight, would you have made different choices on some of these things? Is that kind of the idea?

[00:05:27] Tyler: Yeah, yeah.

[00:05:28] Steve: have column.

[00:05:30] Tyler: We're basically going to coach ourselves on this or coach each other, maybe to have a discussion or two about some of these expenses that we incurred and whether we thought they were worth it or not.

[00:05:40] Steve: Okay, so essential, have to have, nice to have, shouldn't have. And can you describe the difference between essential and have to have?

[00:05:51] Tyler: sure. So essential is you actually have to have it. I know that's what the next category is called, but you, you need it in order for your business to exist, like having a business license or registering the LLC or

something like that, or some tool that's critical. Have to have is a little bit different.

You don't actually need it. Like you could do your job without it, but you're not willing to, because it makes your job easier, or it's just a sacrifice you're not willing to make because of the convenience or efficiencies that it provides,

or honestly, just cause you want, you want it, you don't want to live without it for any reason.

[00:06:30] Steve: Okay.

And then nice to have is things that you want that maybe make the business run smoother, but if you had to give them up, it would

[00:06:43] Tyler: Yeah. For me, the nice to have, this is where I'm going to look if I need to cut costs. And then shouldn't have are the costs that maybe have already been cut or need to be cut, absolutely. And I will hopefully not be incurring again. Mistakes in

other

[00:06:57] Steve: you regret. Yeah. Mistakes

[00:06:59] Tyler: I regret. And maybe, you know, I, some of these things are kind of obvious others. Maybe I didn't know if they were mistakes. I mean, uh, we're new at this, right? I don't know exactly

how to run a business and what things are going to have an impact.

Uh, or have the most value.

So I did a lot of experimenting. You'll see a lot of my shouldn't haves have to do with like different ways of trying to market. So

Yeah.

some of which kind of paid off and others of which did not.

Tyler's expense breakdown
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[00:07:26] Steve: Okay. So I would love to hear what is in each of these categories for you and, and maybe compare it to what I have in mine, because I think I may have broken these down slightly different. I used the same categories, but some of my nice to haves, now that we're talking, maybe I would have put them in have to have.

So we'll see.

[00:07:46] Tyler: Yeah.

[00:07:46] Steve: Do you want to start?

[00:07:47] Tyler: Uh, sure. Let me just run down the numbers, uh, at a high level so that we know what we're dealing with here. So for context, you said you started working on your business in April of 2021.

I started mine a little bit later in the middle of 2022. And I

[00:08:03] Steve: And it is November of 2023 when we are talking.

[00:08:07] Tyler: yes. So for me, that was a little over a year ago and I formed my business in September of 2022, like officially. So since then I have spent a grand total of 7, 697. on the business, uh, 3, 000 of that is capital that I just injected, uh, 3, 000 of my own money to get things off the ground. And the rest of that came from my revenue, which has been about just over 5, 000. So. I have currently not turned a profit in my business just over a year in, which is one of the reasons I wanted to do this exercise. So,

[00:08:47] Steve: Mm hmm.

[00:08:48] Tyler: uh, I talked about the essential, have to have, nice to have, and shouldn't have. Let me share the breakdown of how much of that 7, 697 falls into each of those categories.

And it's, uh, quite illuminating, I think. So, only 526 of those dollars For me, fell into the essential category.

[00:09:10] Steve: Oh, interesting. So that's a business licenses, LLC

[00:09:15] Tyler: I'll tell you. Yeah, actually, um, LLC registration, which is actually only 18 here in Utah, where I live, renewal, I should say. Then that's like a domain for the website, website hosting, and a few legal services.

[00:09:30] Steve: Yeah. Okay.

[00:09:31] Tyler: And that's

it. So the bare minimum, like I, I could run my business with nothing else besides a website, an email address, and a notebook and paper, basically, and a few legal services. And then in the have to have category, which these are things I chose to use. Not essential to like providing the service that I provide, but make my life so much easier that I chose that it was, you know, it was worth spending this money. Even though my accountant laughed at me for this one, one of those was paying a lawyer 750 to help me set up my LLC.

So, that's a lot more than it costs to do it yourself. What I valued in that though, was the education that I got with it. Uh, she had a nice handbook for me about how to maintain my LLC and like a lot of videos to watch about the laws around it and just, you know, whatever. If, if anyone's out there who's like experienced and done this before, you're probably laughing at me, including my accountant, it's fine, but I spent the money because it was important for me to do it right, make sure it was done right and to learn how to do it.

So that was a

big chunk.

[00:10:35] Steve: she's great. If I had been in Utah, I would have hired her as well, but I'm in Texas. So she can't practice here.

[00:10:42] Tyler: Yeah, no, she was awesome. And then I've also in this have to have category, I have a subscription to Zoom. I was using Google Meet for free, but I, and what I do, there's a lot of screen sharing and Zoom has the ability for me to like annotate and draw on my client's screens and like point at things. And that turned out to be priceless for me.

So

I coughed it up for Zoom because, just saved so, you know. Just a little bit, you know, without that, it's like, Hey, look at the top left side of your screen. Find the button. That's blue. Go down two inches. Like, no, no, no, no, we don't have time for that. So that was a lifesaver. Um, and then of course my CRM. Which is called Practice. That was another big expense. That's just made it so easy. Automates the workflow of like onboarding clients, basically signing contracts, collecting payments, integrates with Stripe, all those good things.

[00:11:30] Steve: Hmm. Yeah.

[00:11:32] Tyler: And then I paid someone on Fiverr like 75 bucks to help me make a logo. And those are the have to haves, for me,

[00:11:40] Steve: Okay.

[00:11:41] Tyler: or some of, most of them, almost all of them. And now we get into the danger zone. The nice to haves, which for me was just about 2, 400. And this is, I don't know what to tell you here. This is me trying to figure out marketing, right? So I paid for things in here like, tools to help with search engine optimization for my website. Now,

I had this in nice to have instead of shouldn't have because those efforts actually kind of paid off. I'm getting a lot of organic traffic right now, um, up to like 90 visits a day, which is kind of shocking. And it took a long time for that to pay off, you know, writing articles, search engine optimization, uh, keyword research and all this stuff, which took a lot of my time and took a lot of money. But from that, I've generated over a hundred, recipients on my email list. And like I said, all the organic traffic that I'm getting and have even booked a few, uh, calls with leads from that. So I'm going to call that a nice to have.

Could live without it. You know, it's spending money to get leads, but it's not fruitless. Also in this category, I've put our podcast expenses. Very nice to have. In theory, I could live without it. Although emotionally, I don't know if I could, but the business good. Uh, but it is nice. It's also kind of under marketing efforts, I would say. And

And now, drum roll, this is the big category, the stuff that I definitely should not have purchased or spent money on, in hindsight, in hindsight, okay, uh, 3, 400. And some of the things that fall into this category are a course that I took about branding and marketing, which was like, cool. But it was like, honestly, more entertainment for me. I, I didn't find that I used much of it to impact, you know, I picked colors for my website, maybe, which I could, you know, I could have done without a course, um, and I don't think this had like a direct impact on my bottom line, other than being an expense. I don't know if it generated any revenue, though. Um, I had a brief foray into Google Ads, that was expensive and didn't yield anything because I didn't know at all what I was doing, but that was fun. Uh, and then I spent some significant money on, uh, AI tools because ChatGPT is a thing right now. It's very hot.

Uh, generative AI, uh,

which I use to help with my SEO efforts. Uh, but a lot of this kind of was wasted my, it was basically me fiddling with learning how to see if AI could be helpful to me. And I spent hundreds of dollars on that. And then another course on, uh, SEO. And I paid for tool for a while to, back when Twitter was a company, before it was X, to help schedule tweets.

The power of retrospectives
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[00:14:35] Tyler: And I think that's the, that's the majority of it there.

[00:14:38] Steve: Okay.

[00:14:39] Tyler: you know, a penny saved is, is a penny earned, as they say. And cutting costs is a great way to increase your profitability, profitability as a business.

So anyway, that was

kind of a lot. That's, that's why I'm at. Yes, yes. Uh, all that said, you know, uh, there, there were a lot of these things were one-time fees, such as the, the lawyer. Right?

[00:15:01] Steve: Yeah.

[00:15:02] Tyler: helping with LLC, uh, all the shouldn't haves were one time fees. Um, and so basically what I've come to now is my actually monthly true costs of running this business is about 125 a month.

[00:15:15] Steve: That's it?

[00:15:16] Tyler: Well, that doesn't count any of my time, but those are like the, the,

the, the, the dollars going out, right?

[00:15:22] Steve: Nice.

[00:15:23] Tyler: Uh, which means it'll cost me this year, next year, I would say about 1, 800 to 2, 000, which is a lot less than it took me to get the business started. So I'm feeling like the trend here is good.

[00:15:37] Steve: That sounds very sustainable.

[00:15:39] Tyler: Yeah. Like I could just like, let's say I didn't get any revenue next year, which I don't anticipate at all being the case based on how things are going right now. I, you know, I could float that from my, my personal, I could. Inject capital to keep it alive if I had to

[00:15:55] Steve: Yeah,

[00:15:56] Tyler: and not suffer too badly. So anyway, that was a lot of numbers.

Sorry, but I don't know if that answered your question about what, you know, what, what are in these categories? I just think it's funny when I did this, I was like, man, it would have been nice to do this earlier on. But in the heat of the moment, you don't know if the SEO efforts that you're making are going to bring traffic to your website, you don't know. If buying an ad is going to bring a lead, I mean, you hope it will, right? So I don't know, lots of

lessons learned in here. Lots and lots of lessons learned over the last year.

[00:16:26] Steve: Buying ads is one I'm trying to figure out right now. Going into next season, like I just don't have experience with advertising yet. And so how much should I spend? How well will they convert? I don't know. I don't know these things yet. I

[00:16:41] Tyler: Yeah.

[00:16:42] Steve: out, but there's going to be some amount of trial and error in that process.

So I'll probably look back a year from now and be like, that was a really great decision and that one was not.

[00:16:50] Tyler: Yeah. I think that's a part of the power of these retrospectives, right? It's like, okay, what have I done? What did it lead to? And I guess it's hard to, to know causality of course, but, but there's some, there's some low hanging fruit here, like stuff that definitely felt like spinning my wheels. So

Client experience, and other things we care about
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[00:17:09] Steve: Yeah, cool. I really liked this, uh, way of breaking it down into categories sort of put a label to... How do I feel about having spent this money on this thing now that, you know, either close to when the expenditure happened or in hindsight?

[00:17:28] Tyler: yeah. And I want to reference that quote you shared at the top of this episode about, you know, show me how you spend your money, basically, and I'll tell you what you care about.

And I think a lot of the spending, uh, says a lot. I mean, it resonates with what I think about myself and what I think I care about,

which is, it is 100 percent true that to start a coaching business, there's almost no barrier to entry.

You don't even need a website. If you just networked with the people that you already know in real life, it might be a lot slower going, but you could do it,

[00:17:58] Steve: That's true.

[00:17:59] Tyler: uh, for almost no costs. Right. But I really, really, really enjoy these things that I spent the money on, right? Like the SEO, I loved learning about it.

I loved trying to use generative AI to write articles, to bring people to my website. I love having technology that automates the onboarding of my clients, because I'm not interested in chasing down emails and contracts. Right? Like I, so I, I

really do think that the way I spend this money is reflective of, of my personality and what I value. And it's also instructive because now I can see that I can't do this endlessly or else I'll be broke. Right? So I, I, I've had a year to, to experiment with all these things and to really like, give it, a go, if that makes sense. And now it's

time to kind of look back and learn and adjust accordingly.

And lean into the things that worked and maybe lean away from the things that didn't.

[00:18:53] Steve: Yeah. Okay. That's interesting you say this because we'll talk about my expenses in just a second, but one thing that kind of stands out to me looking at my numbers is that a lot of it is, about the client experience. Like I pay for a lot for the proposals, uh, billing system that I use. And I've been debating the last few weeks of like, should I keep that?

Or should I use this other thing that's cheaper and also does most of what I need to. But it has a really great client experience and that is important to me. And so that's kind of why I keep hanging on to it. I don't know. We'll see. And I've spent a lot on software, just generally speaking, which maybe is because I am a software developer as well.

And so I care a lot about good software.

[00:19:46] Tyler: Oh yeah. Well, I think let's talk about that client experience for a second, because I, I'm a member of, you know, a networking group of other coaches who do exactly what I do or similar to what I do.

[00:19:59] Steve: Mm hmm.

[00:19:59] Tyler: Maybe they focus on a different clientele or whatever, but we're all kind of focused around budgeting and personal finance. And within that group, there's an entire spectrum of people's approaches to this, like from bare bones, low costs. Like basically their website is actually a link to a Google Doc PDF. It's like, here's what I offer. And it's a PDF on Google Docs. Right. So like very low cost and guess what? Those people are getting clients too. So like, I, I think, you know, knowing that, what I've done here, it looks a lot like overkill, but I, I, I love the idea of having my customers have a really smooth, like really positive experience. And because I'm targeting my clients of a certain type and maybe income range. Like I feel like it's going to go better for me if I appeal to them with like this customer experience stuff, right?

Or if it's like, oh,

uh, at the end of our conversation, uh, I don't need to send them an email with a PDF that they have to like. Print out or digitally sign themselves and email it back to me. No, it's just like one click digital signature. They're onboarded. They can start scheduling their appointments without talking to me without back and forth. You know, these are busy people. These are people have a lot going on and I just want to like, yeah, I guess what I'm trying to say is I agree with you, I think for me, and it sounds like for you potentially that customer experience is super important and helps differentiate in the marketplace.

[00:21:27] Steve: that makes

[00:21:27] Tyler: That's what I tell myself. So I can spend, so I can justify spending the money. But that's, that's, that's the thinking behind it anyway.

[00:21:34] Steve: Right. Well, and you are getting customers, you have revenue coming in

and it sounds like next year, if revenue stays flat, you would be profitable.

[00:21:43] Tyler: that's right.

[00:21:43] Steve: So,

Steve's numbers
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[00:21:44] Tyler: Okay.

[00:21:45] Steve: Should we talk about my numbers?

[00:21:46] Tyler: I feel very vulnerable right now. Yes. Let's quickly change the subject to talk about your numbers.

[00:21:51] Steve: Turn the tables here. Alright, so I also used the same four categories that you had. Essential, have to have, nice to have, shouldn't have. And I may have broken things down a little differently, so we'll see. My costs are also a little different, because it's a different business. So, let's talk about it.

Before I get into... What's in these categories? I can say that my, my high level numbers are, I think, roughly double yours.

[00:22:24] Tyler: Interesting.

[00:22:26] Steve: is 14, 000. Owner capital is about 7, 000 revenues, about 11, 000. And I had a 4, 000 loss total over that time period.

Those are rough numbers, but that's about the ballpark. So. There's that that's after like, uh, I've been working on the business for three years, but I did not get any revenue until this year, 2023. So

[00:22:52] Tyler: Oh, that's worth, can I say that about my business too? I think that's,

that's important to note is that even though I started working in 2022 on this, I did not get my first revenue until like almost the last day of 2022. So basically 2023 as well. And a lot of the

money that I spent happened before, you know, before I saw any revenue, which is always, I guess that's part of the thrill of starting a business.

[00:23:15] Steve: Right. Well, and these numbers honestly are pretty small as far as capital investment that, that both of us have put in. So that's a risk you can take. Good. All right. So under my four categories here, let's start with essential. The main thing in here is the training and the exams to become an Enrolled Agent.

I don't have to do that because, I could be a tax professional with no credentials at all. But I did not want to do that because I didn't think it would be a very strong market position of like, here, come trust me with your money. And I have no experience and no credential.

[00:23:56] Tyler: Yeah, I can see

[00:23:57] Steve: So, so I invested quite a bit in getting that training and then passing the exams.

to have that credential. And like the main thing that the credential gets you is the ability to represent clients to the IRS, like during audits or, corresponding to letters that the IRS sends. And I do a little bit of that, but, mostly it's tax preparation and I don't technically need the Enrolled Agent for that, but I felt it was necessary for me to have a business that I wanted to represent in the marketplace. So I put that under essential,

[00:24:32] Tyler: Great.

[00:24:33] Steve: The other thing in there is taxes and licenses, like things to get the LLC formed, uh, all that kind of stuff, fees to the IRS for registering and then merchant processing fees.

I also put under there, uh, because the money will not come in unless I pay the credit card processor.

[00:24:55] Tyler: Yep.

[00:24:56] Steve: So that's in there. That's about 2, 000 total there. If we move over to have to have, most of my website costs are in there. Let's see, website, email, hosting, designing the logo, business cards, that kind of stuff.

Advertising is about 500 there. The other part of the website is I'm currently hiring a designer to redo it because the, the one that I made is, very bare bones and not pretty. And

so I'm getting somebody who actually knows what they're doing to make it look nice. Uh,

and that'll be another, you know, a couple of grand, uh, but I think it will be worthwhile.

He's good. So what were you gonna

[00:25:40] Tyler: as I say, if they do a good job, let me know. I might be

[00:25:44] Steve: Yeah. And he uses Webflow. So

[00:25:46] Tyler: Oh, definitely let me know. Big fan. Yeah.

[00:25:50] Steve: Uh, the other one, so quite a few of these actually are split between have to have and nice to have, because it's like, I need, you know, I need a website in order to run, run the business. Technically, you know, the business can exist without it. So that's why I didn't put it in essential. But, but then the other one, like software, I, I need tax preparation software in order to do the technical work of preparing tax returns.

But there are. There's, there's a whole range of tax software you can buy as a tax pro. Uh, and so, and I've tried a couple of them so far. And so a little bit of these costs here is the experimentation of figuring out which one I want to use, which one. Do I like which one has the integrations that I need it to have so that my workflow is easy for me to keep track of?

All that kind of stuff. So software, let's see, what else is in there? There's, tax prep software. There's practice management. There is, like Zapier for automation. There's Zoom. There's a few other things I can't remember now, but total there's about 4, 500 split between the two

Exploring the Importance of Continuing Education
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[00:26:58] Tyler: .

Uh huh.

[00:26:59] Steve: Uh, then continuing education is part of maintaining my credential.

And there's, again, here, various ways of doing it. There's lots of free options. There's lots of paid options. You can go to conferences and get a bunch of it. I haven't done a conference yet. Uh, those are a little pricier. I would like to do one next year actually, uh, just to, for the networking primarily, like, yes, you get your continuing education credits, but the main reason you go to those things is to meet other people, so we'll see.

But, anyway, total there is, what about a thousand dollars split between have to have a nice to have. Then we've got business insurance. And that finishes out that column. So there's about 4, 000 there. The other stuff that's in nice to have is like office and equipment. I don't know. This is probably getting boring.

I don't know. We'll see.

[00:27:49] Tyler: Also once, once you're finished with this, I think it would be cool to go over through for both of us, like the percentage breakdown, because I think that's more comprehensible than just a giant list of numbers.

It's like, here's what percentage was essential. I have to have, nice to have, shouldn't have. That might be interesting.

[00:28:02] Steve: Okay. Just totals for each of those.

[00:28:04] Tyler: Yeah. Or, you know, what, what percentage of total expenditures?

[00:28:08] Steve: Yeah, I like that. Let's do that. Okay, so there's, um, office expenses, this is all nice to have stuff where, like, I, I wanted to spend on it, but I could have done without it. Meals is several hundred dollars, and that's primarily, like, getting lunch at networking events, and I've actually gotten quite a few clients out of networking events, either directly or somebody there knew somebody else

[00:28:30] Tyler: Oh, nice.

[00:28:32] Steve: Uh, so that, is really kind of a marketing expense at this point. So, so I feel like that's money well spent. Uh, then there's, uh, I don't know, about a thousand dollars on memberships and subscriptions. This is things like newsletters and professional organization dues and stuff to keep me sharp and up to date on tax law changes that are happening all the time.

[00:28:59] Tyler: Yeah,

[00:29:01] Steve: And then podcasting. I split this one a little bit, between nice to have and shouldn't have, just because we've tried out various, software platforms over the months. And so some of it is, uh, we're not using them anymore.

Steve debates about his payment processing platform
---

[00:29:16] Steve: Then the other one that's under shouldn't have, I, I mentioned a few minutes ago. It's this, uh, payment processing piece where I'm kind of still waffling about it. Like, I really like it, but it's just, it's a lot of money per year. It's about 2, 000. So we'll see. It's

[00:29:33] Tyler: So, but It's not like a, it's not like a no brainer to you that this was like a mistake. It sounds like it's like maybe trying to decide if it's worth

it still. Like what is the trade off there? What is it? What is the value that it provides to you?

[00:29:46] Steve: The main features that it has are implemented in several other places. Like my practice management software has the bare bones of what I need out of it. And so I could just use that. And I've been using you as a guinea pig, uh,

the last couple of weeks, testing that out to see how it works. But the user experience is not quite as nice, and like you have to already have an account on the client portal before I can send you an engagement letter.

And I would really rather just like, we have the discovery call and I send you an email and it's in there and you decide which package you want and whether you want to hire me, and then you pay, and then we start the work, then I make your client portal account. Then I start collecting documents that kind of thing.

So I just like that workflow better. I think it, it makes more sense to clients that way. And the other thing that I really like about it, that is not really met anywhere else is it gives me the ability to... propose multiple packages. So if you just want the tax return, you can do that. The cost will be XYZ.

If you also want to meet with me quarterly, we can do it at this price point, or if you also need these other things, or if you want to do it monthly billing where I will work with you throughout the year. You can email me anytime. You can send me your IRS correspondence, that kind of stuff. You know, I can break out those different packages and, and somebody may get it and say, I was on the bronze package, whatever last year, but actually this sounds kind of nice and I'm okay with that price point and they'll upgrade.

And I didn't even expect it from that client. And so that's extra revenue that kind of materialized just because I put the option in front of the client.

[00:31:31] Tyler: Well, I'm not going to lie. That sounds pretty slick. So that's, that's going to be an interesting trade off to, to think about. Yeah.

[00:31:38] Steve: The company also invests a lot in their partners, in, you know, their clients, me helping us be successful on it and investing in the product so that it continues to get better and is well supported. So like, I, I understand where the money is going and I think it's probably worth it.

[00:31:56] Tyler: So that sounds like maybe you want to keep it for a little while longer and see. Perfect.

[00:32:03] Steve: so. I think I might, now that I, I've talked myself into it.

Keep it for the next tax season. And then maybe, uh, maybe next year I'll reevaluate or maybe the other, the other software vendors will have caught up and those things will just be a check box on the feature list and you can go anywhere and they all have it.

[00:32:23] Tyler: So, I mean, the, the cost to you is a couple thousand dollars. I guess the

questions that are impossible to answer, cause you can't predict the future, but you know, some guesswork as to what the answer might be would help inform your decision is like, you know, is, are, would a client base their decision to hire you or not on not having the software versus having it, you know, I, that's what you, you can't really know that, but

[00:32:50] Steve: Mm hmm.

[00:32:51] Tyler: it's an interesting question because what else is there? I mean, that's, you know, it's client experience basically is what I'm hearing. It's not necessarily more work for you to not have it. Although there are some nice things that it does for you that you probably wouldn't do manually.

[00:33:07] Steve: Yeah. It would be more work not to have it either because I wouldn't do the things or because they require more

manual work. Yeah. But would clients still hire me? Yes. Might I be leaving some revenue on the table? Maybe, you know, so then, then, then I guess it's a question of does, does it pay for itself in those, like upsell opportunities or something,

[00:33:37] Tyler: yeah,

[00:33:37] Steve: or just saving my own time, uh, in the, the processing.

Cause like you mentioned with your, uh, Practice software

that it does, it handles all of these things, your CRM, yeah, so that you don't have to. Think about those. They're all just kind of automated. Autopilot. Yeah,

[00:33:56] Tyler: mean, I've kind of decided that I run a coaching business and basically the single activity that I can do that produces the most value for me and for my clients is coaching. We've talked about this before on previous episodes. So

like anything that I can do to automate things that are not coaching people, the theory is just that that'll just allow me to put more time into the thing that produces the most revenue and the most client satisfaction, you know, and, and so that, that's the theory. Uh, fortunately for me, that software for me, the CRM software is not, you know, it's like a very small expense, like there's. I'm not even questioning whether I should keep it point. Like, it's just kind of a no brainer. Uh I haven't done the math. I probably should. It might be an interesting exercise, but like to see how much time it would take me per client to onboard manually and then see like. What my time is worth in terms of what I charge for my services. Like it would probably pay for itself real fast, basically is what I'm trying to say. So, yeah,

Growing and experimenting versus optimizing profitability
---

[00:34:58] Tyler: You know, can I just say, I, as we're having this conversation, I, I'm gaining a lot of understanding for a startup. culture and people who start businesses that I, that I didn't necessarily have before, most of my professional career has been in well established businesses. And for the last five plus years specifically, I've been really involved in the cost management side of things on the business, right? So like, it's interesting to me that in my professional, day job. The numbers I'm seeing in my personal business might haunt me a little bit. The costs, I mean, compared to the revenue or whatever.

Right. But as the owner of a new business, who's just trying to get it started, it's a totally different mentality. I'm willing to spend the money I'm putting in my own money. Right. Without even seeing any revenue initially. I've never really understood that firsthand. And so this has been a really cool experience for me. Just to kind of, you know, To maybe put the emphasis, not so much on the cost savings for the first startup period, but actually getting something out there that the world. Needs, wants, and can buy, which costs money. Uh, and so now that, uh, that, uh, we've both kind of got our businesses going. I wonder if the balance of our attention is going to start to shift towards optimizing profits. Cause I don't know, do you feel like you've done much to optimize profits so far, or have you just been more focused on experimentation and like figuring out what on earth is going on? That's how I feel.

[00:36:27] Steve: Right. That's a great question. And I think for, for almost all of this year, I have just been in the experimenting phase of like, let's just bring in some revenue and see, see what, what clients will pay for. What do they want? What do they need? And I have a better handle on that now. So just in probably the last month, I've started to think about like, okay, these are what, what can I optimize here to get the same results for my clients, but make my life easier or make it cost less or make it more profitable, whatever the question is.

So I, I do think over the next year, maybe two, uh, I will kind of switch into that mode once the, you know, once the kind of the engine is running. Clients are coming in, the work is getting done. That's when you can have the space to think about how do we optimize this, operationalize it. Uh, maybe even down the road, hire somebody to help with the work or to say, you're gonna do this piece of it so that I can take that off my plate and work on client acquisition or systematizing things or making the business get bigger.

[00:37:35] Tyler: Yeah. I'm, I'm excited for that. I mean, I think, you know, at this phase, I've obviously reinvested all of my revenue directly back into the business. Plus plus you know, the capital I've put in myself. And so I've kind of started to think about what would it look like, at what point will I feel ready and comfortable to like, you know, Take a paycheck from this. That's kind of fun to imagine, you know?

[00:37:59] Steve: All right,

[00:38:00] Tyler: I mean, it is a business after

all, that is the goal. Yeah. Like the point of doing this, uh, is to make money at the end of the day. And I think I've kind of defined what that looks like for me.

We could probably talk about that in more detail in a different episode, but, but I think if I have like a year of business expenses banked, like I'd be comfortable. Starting to, to pay myself, depending on, you know, how much or what I was interested in investing in. Although I feel like I've gotten most of the, uh, expensive experimentation out of my system for now, but I don't know.

We'll see what, we'll see what comes down the road.

Right. But anyway,

[00:38:33] Steve: yeah, I'm the same. I have invested everything. All the revenue has gone just right back into the business. I do foresee a time where it will be profitable enough that I can take money back out again. But I haven't been planning on that this year, and maybe not even next year. I'm just assuming that we'll take a loss or break even for the first while, and that's okay.

Because we're building the engine here.

[00:39:00] Tyler: Oh, that's interesting. It's not entirely what I imagined in the early phases of thinking about this business. I was like, Oh, you start a business. You just start, you know, boom. You're in, your income goes up. Like, why wouldn't anyone have a side business? It's like instant, instant money. Right. And I'm like, Hmm, in real life, like, Hmm, that could, I don't know, that might be possible for some businesses, but not this one that I'm running.

[00:39:26] Steve: That's interesting you say that, because I think coaching is probably one of the least capital intensive businesses you could start and, and taxes is probably up there as well.

[00:39:37] Tyler: Yeah.

[00:39:38] Steve: Like you don't need any physical infrastructure. You don't have to go buy a truck or rent an office or anything like that. You can just start doing it.

Ratios of essential to non-essential expenditures
---

[00:39:45] Tyler: Yep. Well, so to that, you know, to your point, I was looking at, I was looking at the expenses that we just reviewed a few minutes ago for my business and only 7 percent of everything that I spent from the start of my business until now, I would consider necessary to actually like essential. Right?

Everything else is at some level of optional and a full, let's see, a full 75 percent of my expenditures on the business so far, I either shouldn't have spent in hindsight or didn't need to spend, but did anyway. So yeah, coaching is a very low cost business to start. Um, I need to do some soul searching about why I didn't, why I didn't do it that way. I think a huge answer for me though, is honestly for the fun of it, right?

Like I said, I loved almost everything I did, even if there is a tinge of regret about, from a financial perspective, maybe this was not the best choice. But those failures, those learnings are part of me now. And I scratched that itch and some of them paid off a little bit. Many of them didn't, so it's onward and upward.

[00:40:55] Steve: Yeah, and if it's not fun to do, then you're not going to do

[00:40:58] Tyler: Then what are we doing?

[00:40:59] Steve: I, I, think there's room for that experimenting and learning and trying things just because it interests you.

My numbers, by the way, are 40 percent under essential and have to have and 60 percent under nice to have and shouldn't have.

[00:41:16] Tyler: that's a, that's a

much better ratio. good.

[00:41:19] Steve: Yeah. So yeah, this will be interesting to see how it plays out over the next year. Maybe we do another one of these end of 2024 and kind of compare.

[00:41:30] Tyler: absolutely. So hopefully I'll come back and report a profit next year. That's the plan for sure.

Tool churn, operationalizing, and more growth vs. profitability
---

[00:41:36] Tyler: So here's an interesting question now that we've used our hindsight, which as they say is 2020, to identify things that were nice to have or should not have. Like, how can we do better going forward at like preventing those kinds of expenses before they happen? Is it possible?

[00:41:54] Steve: Uh, well, that's a really good question and I don't, my answer I think is that I am not yet in the mindset of being able to answer that properly because I'm, I'm not in the cost minimization mindset. I'm in the growth mindset of I need to grow the top line, uh, even if it increases expenses as well. And well, we talked about that a little bit, like maybe next year or the year after will be when I really get into that phase of it.

[00:42:26] Tyler: you're comfortable right now. Just your priority is growth and not profitability and you're okay with that.

[00:42:34] Steve: That's right.

[00:42:34] Tyler: Okay, great. Well, see, uh, it's good to understand that because I don't think I understood that until now, it makes sense to me again, in hindsight about my business. Um, and it was hard not to feel bad sometimes as it was happening.

I was like, Ooh, I probably shouldn't, you know, I don't know if I had the healthiest mindset about it. So it's nice to hear you say that. And I'm going to have to ponder that myself and kind of decide. How I want to proceed going forward.

[00:43:05] Steve: Cause you could decide like it's been a year, it's time to be profitable now, or you could decide like, I'm not done experimenting yet and there's more to learn about what I want this business to be before I start to operationalize it.

[00:43:21] Tyler: Yeah. Yeah. And a lot of my expenses, especially in the shouldn't have category were educational,

[00:43:29] Steve: Yeah.

[00:43:29] Tyler: which feels bad calling those shouldn't have now, but yeah, like I said, like the marketing thing or the, the branding course or whatever, they ended up not really getting that much value out of, uh, and tools that I was trying and ultimately discovered were not going to provide the value to my business that I thought they might. And so you've had some of that tool churn as well. It sounds like with the various systems that you've tried and whatnot. So I do think regardless of whether we're in a growth phase or not, like some of that churn might die down once we find that, you know, settle on tools that we like, that meet our needs and we're doing less, maybe searching and more working with the tools that we have.

[00:44:10] Steve: Yeah, that's a good point. Cause I could, I could sit down and give you a list of like, here's all the tools that, you know, and after all my experimentation, these are the tools you should use, but really those are the tools that I should use. Those are the ones I want to use. And somebody else in exactly the same business as me will make different decisions about, do they want to use Drake or do they want to use ProConnect tax and like, that's, it depends on how you work and how you want your system to go.

Like there's, there's not a right or wrong answer there.

[00:44:37] Tyler: Yeah. And I also just think it's fascinating. And this is something we haven't talked about before, but what is the end goal? Right? So if you're going to be in growth mode for a couple more years, I think you have a bigger vision for what you want your business to be than maybe the vision that I have for what I want my business to be. And that would be an interesting conversation to have too.

[00:44:59] Steve: Hmm. Yeah, it would. And, and like you say, being clear of understanding, like, what is it you actually want to do with this thing is very useful.

Differences between personal finance and business finance
---

[00:45:08] Tyler: Yeah. Okay. Well, introspection is great.

[00:45:13] Steve: This has been fun. I don't know

[00:45:14] Tyler: This, this conversation has made me very thoughtful, actually.

[00:45:19] Steve: Yeah, good. This was a really useful exercise for me as well.

[00:45:23] Tyler: Yeah. I wonder, it might be, I might consider for myself doing this maybe quarterly or twice a year, just out of interest to see if, you know, how I'm doing on these categories. Again, it's funny also because this is something that I am very used to and comfortable doing with individuals and families on their personal finances.

Like this whole concept of categorizing expenses as essential, have to have, nice to have, and shouldn't have. Super useful exercise for you and your personal finances as well. And I guess it transfers to the business finances, but, uh, in the heat of the moment and trying to grow and put together and cobble together tools, like it's, it's maybe not top of mind, just like real life and personal finances.

[00:46:10] Steve: Yeah, I wonder, do you find in personal finances that the, that you, uh, get more mileage out of understanding expenses and optimizing them versus growing the top line income? I'm wondering if it's kind of the other way around for a business that's just starting where you, you have to focus on growing the top line, even as expenses also grow, you can't, you can't minimize expenses ruthlessly at the beginning, or else the business will never grow.

[00:46:43] Tyler: Right. Right.

[00:46:45] Steve: On the personal side, a lot of folks that just have, like a W 2 job, there's not a whole lot of leverage you have in the short term as far as growing that top line income that you're bringing in, but you can have a lot of control on the expenses that go out,

[00:47:02] Tyler: Yeah.

[00:47:02] Steve: find that to be a difference between working with business clients versus individuals?

[00:47:07] Tyler: Oh, yeah. Well, I mean, the concept is the same either way in general, which is, well, okay, let me speak first to the personal finance side of things. I have yet to meet a client who couldn't have the biggest bang for their buck from cost reduction as opposed to increasing their income. Most of the clients that I work with have, uh, do not have an income problem. They have moderate to high incomes and they simply spend it all or most of it, right? Or more, more than it, right? Which is where debt comes from. And

so you can sit, I mean, that's why I think working with a financial coach can get you such quick results in many cases within the first month to three months of working with a financial coach.

Um, YNAB likes to tout that for new budgeters, they save like $600 in their first month and like $6, 000 in the first year just from like noticing. How they're spending, right?

Uh, if you're working with a coach, it's going to be potentially more than that, depending on your income. So yes, just being mindful of your expenses, like we've done today with our businesses is like step one, because like, if this were my personal budget, instead of my business budget, I would look at this and immediately be able to save 44% That's crazy. You know what I mean?

And that's how a lot of us live in our day to day lives. You know, eating out, going to entertainment, you know, having all of our subscriptions and things. Like, it's really quite shocking. So I would say it's pretty similar that way. However, to your point, uh, W 2 job, you know, typically you're not able to just raise your income. You'll be lucky to get a cost of living adjustment or maybe a merit increase, right? Or promotion every few years if you're lucky. Um, and so most of the power that you have lies in cost management, unless you're willing to start working a second job. I guess what this, what I'm grappling with and what you're kind of challenging me on here is like, yeah, business is different.

See, I, you know, both of us are using money from our W2 jobs to like create this thing. It is a cost center right now for both of us. Right. I mean, it is, that's what we are spending money on these endeavors, in the short term with the hope and the belief that they will turn around and increase our income at some point, but not yet,

[00:49:28] Steve: Yeah.

[00:49:29] Tyler: or I'm sorry, they have increased our income, but they've all, you know, they've, they've come with their, their own costs that offset that.

So. So yeah, I guess, um, I'm not handling, okay, this is a confession. This is like super vulnerability time right now. I am not handling my business finances the same way that I handle my personal finances. And to answer your question, I think that is because it's building something from scratch and it does need an emphasis on growing the revenue first. And I'm willing to put money into that until it gets to a level of revenue where it can kind of sustain itself. And then cutting costs can just increase profits from there. So yeah, interesting.

You shouldn't run your

life like

[00:50:10] Steve: way to succinctly summarize it, I think.

[00:50:12] Tyler: Yeah, you shouldn't run your personal finances like this. Absolutely not.

[00:50:16] Steve: Yeah. Okay. That's really interesting. Uh, and, and it's been an interesting lesson for me to learn as well, because I tend to be a saver personally. I would rather sock the money away and not, and, and just have it there to, to have it there as a security kind of a thing. Uh, but the, but running a business is not that way.

At least at the beginning, you, it's just, you need it to, if you want it to generate income, you have to spend money to make that happen.

Learning business through experience
---

[00:50:46] Tyler: And can I just say, I, one of the things that I am loving the very most about this experience of having started a business is over my adult life, I have spent so much time reading books and listening to podcasts and watching YouTube videos about how to start a business and listening to other entrepreneurs talk about. Their learning, their success, their failures, and all of that has really not prepared me for the experience, like the lived reality of actually going through it. So, if I could do anything over again, I would just have started much earlier. I just started accruing the lived experience for this because there's no... I don't think there's anything that you can read, or watch, or listen to that's gonna be... As educational as just trying it and putting your money where your mouth is and like putting money into it and then realizing like, Oh, this is real. And it's not exactly, you know, I don't know. It's different.

[00:51:44] Steve: Yeah, I agree with that. The, the, uh, orders of ignorance of like, I don't know what things I don't know. Has really come into stark relief running a business because now I'm recognizing, Oh, I understand like the purpose of marketing. It's not just a, a thing that those, those weird people do where I'm over here writing the software that's actually doing the thing, but you know, you need marketers or else nobody uses the software and nobody will pay you for it.

And so, like, just kind of understanding, like, these are all the parts of the business that I've heard about, but not really understood. And now I have a framework for understanding, oh, that slots in here, and that's why we need this piece, and I've got to spend money on that to make these other parts work.

[00:52:23] Tyler: Yeah.

[00:52:24] Steve: It's been super instructive.

[00:52:25] Tyler: Orders of ignorance. I feel like that describes what I've experienced. There are many orders of ignorance in my life and related to business. Yeah. I like some of the things we're talking about. I feel like this conversation, particularly, I've really, uh, revealed a lot about my lack of, uh, business ownership acumen, perhaps, just because I've never done it before, right.

And we're, I'm just like discovering things and yeah, I understand concepts like profit and capital and revenue and you know, all this stuff, but like, that's just a concept. Now it's like real. Oh, it's so cool. I, anyway, sorry. That's my little side about what, like, this is like, it's been a fantastic experience, uh, just experientially and learning.

[00:53:08] Steve: It has. I'm interested to see if, you know, years down the road, if I ever get employees. That will be like a whole nother box of things that I didn't understand before and will probably give me a lot of empathy for past employers as well. Like, I understand why you did that thing, even though it didn't make sense to me or I didn't like it or whatever, you know.

[00:53:30] Tyler: Yeah.

[00:53:30] Steve: I don't know if that will ever be in your cards as a coaching business, but you have a lot of experience with that as in the role of middle management in your day

[00:53:42] Tyler: Yeah. Yeah. Uh, it's not in the grand scheme plan to ever have employees in the way I've imagined this to go. Uh. So I'm going to say no for now, unless something changes, but

yes. Yeah.

Yeah.

[00:53:57] Steve: Different kind of business than what I'm running. So

[00:54:00] Tyler: Yep. Well, we covered, we said a lot of things, some of which

maybe we shouldn't have said, and some of which we should.

[00:54:11] Steve: this is, I think the longest episode we have ever recorded. So

[00:54:16] Tyler: Yeah.

[00:54:16] Steve: if anybody listens to the whole thing, like congratulations, you are in like,

[00:54:21] Tyler: 1%. You're in the 1%.

[00:54:22] Steve: the 1 percent email us and we will, let you into the clubhouse.

[00:54:28] Tyler: All right. Well, thanks for joining us on this episode. And join us again next time on It's Not About The Money.