356 - Where is your money going? with Keila Hill-Trawick

Unf*ck Your Biz With Braden

On this episode, I chat with Keila Hill-Trawick, owner of Little Fish Accounting, about

Listen to episodes 125, 129, 131 and 132 of the Unf*ck Your Biz with Braden podcast to learn even more from Keila Hill-Trawick.

Keila believes that cash flow gets buried behind financial statements. Everyone wants to talk about their P&L and top line revenue, but that doesn't matter if you don't have any money. If the whole point is to earn revenue and keep expenses at a certain point so you have money in the bank account, but you don't, we need to talk about that. Why does it look like you should have profit, and you have it on the P&L, but you don't have it?

For example, I met with a client recently operating at a $9k YTD loss, but they were still running payroll and running distributions every month so the question was, how are you paying yourself more than your business is profiting? For them, they had a built-up savings from the past few years of business, but that isn't evident on the P&L.

People get caught up on payroll. You don't need to run payroll every week if cash flow is low. But payroll taxes aren't what's going to make or break you. And sometimes you have to take a lower pay if cash flow is low and your team needs to get paid.

This leads us into a conversation about Profit First. Keila doesn't think it's a bad method, but she's found that people are often not making enough money in the beginning to meet the percentages you set up and you're robbing Peter to pay Paul. She recommends that when you start you should at least have two - an operating checking account and a tax savings account so you can visually see that money doesn't belong to you, it belongs to the IRS. Once it's in there, it's no longer available to you. I suggest adding a sales tax account as well if you collect that.

When it comes to saving for quarterly taxes, these estimated payments are just you paying in advance what you think you're going to owe next year. Every time you get paid from a paycheck, only taxes for that paycheck are taken out, not the taxes for your other business. And if you rely on the voucher system, that's based on you making the same amount in your business that you made last year. If you made more, then you weren't paying enough by just paying the amount on your voucher, you're only paying the minimum. On the flip side, you could make way less than you made last year and not owe all of what's on these vouchers.

Going back to talking about understanding how cash moves through your business, if you aren't sure where it's going Keila recommends starting with the basics of accruel vs. cash. Accruel means you are recognizing income when earned, so when you send the invoice you recognize you've done that amount in revenue even though it hasn't been paid yet. Cash method only counts when the money is received.

Your baseline revenue needs to cover your fixed expenses, any expense you know you're going to have. You need a sense of what you need to always have in your account to cover your payments. Any time you have a fixed cost expense, it's easier to plan versus when you pay something, like a team member, who works hourly that can change month to month.

Sometimes your answers are not in your financial reports. Sometimes they're in a spreadsheet that has a breakdown of how much you're paying each team member to work on each client project or how much you profited on each project.

Your numbers are more than what you need to file taxes which is why there's no one correct way to do these things, it's about what systems are best for you. Don't stress about everything being perfect, instead ask yourself what you need to make better financial systems for your business. The whole point is you want to put money in your pocket so you want to be informed enough to know when cash needs to stay in the bank for things like payroll and when you can safely take an owner's draw to support the life you want to live.

Keila reminds everyone that when you get debt to pay debt, you still need to pay it off. We see people get loans to pay credit cards, but when you use the cash to pay it off, that cash won't be there for you as the business moves forward.

Get in touch with our guest

Keila Hill-Trawick, founder of Little Fish Accounting

Follow Keila on Threads @littlefishaccounting

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