Mastering Cash Flow: Essential Accounting Tips for Business Owners with Ronald Cook
Swell AI Transcript: Edited.mp4
Ryan Kolden:
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Ryan Kolden: Today on the show we have Ronald Cook. Ron is a certified public accountant in the state of Washington and a senior financial executive with over 25 years of corporate experience, including all aspects of CFO, controller, and financial reporting responsibilities. Throughout his career, Ronald has excelled in areas of oversight, including daily accounting activities, internal controls and processes, data management, FP&A, KPI management, strategy, systems implementation, and review. Ron's mission is to empower business owners with the tools and knowledge necessary to succeed. He specializes in helping entrepreneurs set up their business and accounting systems, allowing them to focus on their passions. Ron, thanks for joining us today and welcome to the show.
Ronald Cook: Hey, thanks, Ryan. Nice to be here. Glad to have you.
Ryan Kolden: Now, Ron.
Ronald Cook: Sorry, one clarification. I actually live in Los Angeles. I'm from Washington state, but I live in LA. I've been in California for almost 20 years.
Ryan Kolden: Okay.
Ronald Cook: No longer in Washington. Left the rain.
Ryan Kolden: Thanks. Thanks for letting me know. I forgot to put that in there, but I just kind of want to start by asking about your background. You know, how did you get to where you are today? So, uh,
Ronald Cook: Started by saying I'm from Washington, born and raised in Seattle, got my CPA certificate many, many moons ago, right out of college, started working for some big public companies, worked for Panasonic and for Kenworth Trucks. I moved to Los Angeles almost 20 years ago and about six or seven years ago, I had a good friend of mine who started a business and he was running a business for about a year, hadn't paid any taxes, wasn't doing bookkeeping. Called me in a panic one night and says, you're an accountant, can you help me out? And I did. That started me on a path of helping people and mentoring people. And first it was kind of for free. It was helping friends. I was helping some relatives. I had a relative that had some financial difficulties, a lot of credit card debt, and I helped that get resolved. So over time, then I started a website, started posting more on social media. Three years ago, I started taking some classes from Tony Robbins, who's generally viewed as one of the premier guys in coaching, training, positive mindset. have been working with clients on the side. I work full time. Like I said, I live in Los Angeles and I lead an accounting group of about 20 people and I do coaching on the side, helping people have a correct mindset. I think my experience has been if you ask people about money, everyone has a comment and probably eight out of 10 people, their comments are not positive. I don't have enough money, I'm afraid of money, I don't like my taxes, something like that. I see that death and taxes are the only things in this world that are for sure. So I enjoy helping people overcome their hurdles or their mindset difficulties regarding money. They don't know how to do taxes, they don't know how to set up a bank account, they don't know anything. I've had clients come to me. Our first conversation has been, I haven't filed any taxes for three years. That's a problem. You know, what's the first step? So I enjoy at the end of the experience, they always have a positive note to say. And a lot of people say, Ron, you're a safe place. I don't feel like you're judging me. I've been doing this almost 30 years. I think it would be hard. I'm doing almost 30 years and I live in Los Angeles. It'd be hard to shock me because I've seen a lot. So it's a safe space. People come to me, they feel with my personality and my experience, they're comfortable talking to me. And I enjoy working with new clients and helping them grow their business. So I take away blocks on mindset, help them to figure out what the administrative or business side is so they can spend time focusing on the business. Because not a lot of people, you say, what's your dream in life? Not a lot of people say, I want to do my taxes or do my accounting, right? They want to grow their business. They want to be creative. And I help them do that.
Ryan Kolden: That's great. That's definitely a very common thing that you see business owners make is just when they get started and get going, not knowing anything about the accounting side, which actually kind of leads me into the next thing I want to discuss with you is common mistakes that you see business owners make when it comes to their accounting. So just kind of, you know, your top five, what would you say are the most common business mistakes that owners make when it comes to accounting?
Ronald Cook: I think the number one thing, and this goes with life, not only business, but it's cash flow management. So if you're not managing your cash flow, especially when you're starting out or have a small business, you're not going to be in business long. So if you have obligations, if you have payroll, if you've taken on a debt, if you put things on a credit card, if you have expenses for training, other things, you're not managing your cash flow, meaning what's coming in and what's going out. You're not going to be in business long because unless you have an unlimited reserve and some people take a risk and say, I'm going to give this business three or six months and I have some savings on the personal side to set up, or I have a line of credit, or I took out a loan, that's fine. But you need to, from day one, be realistically about what is your cash flow, meaning what are you spending, and then what are you using, what money is coming in using to take that to pay that. The other big thing along with that, kind of my number two, is mixing business and personal accounts. So the reference that I had earlier is when a friend of mine came to me and said, I've been doing this for three years in business and I haven't paid any taxes. I said, okay, the first thing is, is let's look at your bank statement. He was co-mingling or combining everything from his personal life and his business life, which meant Painfully, we had to go through three years of bank statements and look at every single line and say, was this charged business or was this charged personal? Do you have receipts? And it much complicated and made the three years was already bad enough. It made it much worse because he didn't have a dedicated bank account. So the number one thing I tell people is when you start an account, when you start a business, make sure that you have a business account that's dedicated only to that business. If you have to fund it from your personal account, that's fine, but you transfer a bulk amount from your personal account to your business account. And then anything you spend on your business, you use in that account. And if you need to have a credit card tied to that account to make sure it's separate, it makes everything a lot easier at the end of the year. The other thing I think is that it's a common misperception is a lot of people, and I've had some questions on this, a lot of people underpriced their products or services. I think that there's nothing wrong with undercutting or trying to get your first lead or your first contract signed, but you need to be honest about what the value that you offer is and what the going rate is. And if you're always undercutting that, if you're looking at what your price is in the market and then saying, well, I want to be below that. You're not always going to get the best clients if you're only competing based on price, because someone is always going to beat you based on price. So make sure you understand the value you bring to the table and charge accordingly. Another thing is I think that you're not looking at your financial statements, meaning that you don't know how your business is doing. If you've been in business for a year or two, have you made money? Do you have accounts receivable out? Meaning what are your terms for your collections? If you're billing customers, are they paying? What is your policy? Do they pay up front? Do they pay a deposit? And you're doing that. Do you have a way to track that? I've had clients where I've said, how much money did you make last year? They said, I don't know. I said, how much money do people owe you? Because some of them, you know, pay by month and they get behind. And I said, well, what is your backlog? How much do people owe? They don't know. So this all kind of goes under the umbrella that you need a system, whether it be Excel, whether it be QuickBooks, something else online, something from your bank. track and make sure that you're on top of that. If you're big enough that you can have someone help out, that's fine. If not, I mean, it goes back to cash flow. If you are billing customers and they get behind, let's say they give you their credit card, their credit card declines or they change credit cards, are you following up to make sure that you're getting that money in? And then I guess the last thing is not failing to budget or failing to think long term. Because if you're in business, no one starts a business and says, I want this only to be a three or six month endeavor. You want this to be a long term. So if you're looking at something, I think that doing at least a one year plan to say, okay, I have a plan to bring in X dollars of revenue. What expenses do I know do I have to make? Do I have payroll or accounting or licensing or training, you know, taxes, that kind of thing, making sure that you're budgeting for a whole year in advance, thinking positively, but thinking realistically. I've had clients that started a brand new business and they said, oh, I want to make $500,000 this year. Well, who doesn't, right? But do you have a reasonable way to do that? If you break it down, you say, okay, what product or service do you sell? How many customers would you have to get per week or per month? What historically have you done and what makes sense? So I help people be realistic. I'm not saying I'm being negative to say you're not going to make 500,000, but if you're going to make 500,000, you better have a proven product and you better know how. So I said, okay, if you're gonna make 500,000, how many customers do you need to sign up this year? Well, I don't know. So just be realistic about what your product or service is, how much you charge, and then do the math. If you really want to make a half a million dollars and it's not impossible, it's hard, but it's not impossible. How many customers at that dollar price do you have to have per year? And then you break it down and you divide that by 12 and say, every month I have to have this many customers. If you go two or three months and you're behind what your goal is, it's just increasingly hard to catch up. So it's just being realistic and saying, product or service, my goal is X dollars. I've had several people that said, I want to do this to replace my full-time job. They start on the side. They say, I want to get out of the nine to five. It's a common thing I see. That's fine. Then do the math. How much money do you need to make? What is your product or service sale for? How many customers do you need? That will tell you each week and each month how many customers you have to do to make that goal.
Ryan Kolden: Awesome. So I want to go back to what you said about the first mistake of cash flow and kind of move into some practical applications. So what is kind of the best way for a business owner to track their income and expenses as well as prevent co-mingling funds like you mentioned?
Ronald Cook: So I think the first step is you need to set up a separate bank account. If you don't have one and you don't know where to go, I always suggest go to whatever bank you're using personally, because you have a connection there. So I personally bank at Bank of America. When I started a new LLC about three years ago, I went to Bank of America. I've been with them a long time. It was a very easy conversation. They were very happy to set up my business account and I did that. It makes it also easier if I need to fund money from my personal account when I was starting out to the business or in really good months where I've had excess money and my business is making a lot of money and I want to transfer it back to me. It's easy to transfer back and forth. So if you don't know where to go, start with your personal business or your personal account. If you want to go online, there's a lot of online banks. It's just you need to be realistic about what you want. Would you be taking cash out? The cash you generally have to go to brick and mortar. How do you take payments? You're going to have a credit card system. Is it only credit card? Is it online? So depending on what you're, do you have a brick and mortar? Do you have a storefront? Depending on what your business is will dictate what kind of a bank you need. Most banks allow you to download the information into a CSV file, which is basically a data file that QuickBooks can adopt. I'm a big QuickBooks fan. You can assign on QuickBooks online to get something for as cheap as $9.99 a month in the US. Almost all major banks will allow you to download transactions that you can then import into QuickBooks and track it that way. So if you're starting out, Go to a bank. If you don't know what bank, go to your personal bank. You can search online, you know, small business banks. Most of the big banks will have a fee. I think I paid $10 a month for my account for Bank of America. There are banks that are free. You can Google, you know, free account depending on where you are to do that. But most major banks will allow you to download information electronically and then import into QuickBooks, which is something Now, if you're starting out from day one and you have no customer, no revenue, can you do this on Excel and track it? Yes, you don't have to do that. But as you grow and expand and get a few customers. Spending your $10 or $15 a month to get an online subscription to QuickBooks I think is well worth it.
Ryan Kolden: Beautiful. I was actually about to ask you next about what type of bookkeeping system should people start off with, but you just answered that question.
Ronald Cook: There's Xero, there's Zoom, there's a lot of them. QuickBooks in the US is the leader and it's cheap and most, I mean, I think the big guys, Bank of America, Chase, Wells Fargo, they all download it. And one of the options like on Bank of America is do you want to download a QuickBooks? I mean, it's a default. It's the easiest and it's the biggest. It doesn't mean it's always the best. There's certainly probably free resources online you can look at, but I think the QuickBooks has been proven. It interacts with your bank and I think it's worth $10 a month there.
Ryan Kolden: Awesome. And one of the things you also mentioned was business owners not understanding the progress or monitoring their business. So how can someone monitor the progress of their business? Do they need to understand the fundamentals of a balance sheet, income statement, statement of cash flows? How do you recommend monitoring the progress of a business?
Ronald Cook: What I generally say is when you get started, at the very early stages, you can kind of monitor how you're doing by looking at your bank account. You log on to your bank account, and do you have money in the account? That's what you want, right? So I generally say that you should know what your monthly expenses are. Are you paying rent? Do you have training costs? Do you have debt by cell phone utilities? Do you have an employee? That kind of thing. How much do you need to spend each month to keep your business going? The goal would be you have at least three months worth of those expenses in the bank. So when you open your bank and you say, I'm making this up, I'm spending $3,000 a month. $3,000 times 3 is $9,000. That means you should, to be safe, have $9,000 in your bank account. So if your customers leave or something happens or we have another COVID or something drastically happens and you're not getting the amount of money you're used to getting, you can weather the storm. As you get more advanced, and if you're using QuickBooks or something like that, it will automatically, when you import transactions from the bank, it will automatically create financial statements. And it will track, for example, your accounts receivable, which is how much money do customers owe you. So in a perfect world, like in my coaching business, generally I get money up front. I have a deposit they pay up front for my services. There are times when I make negotiations and agreements and they pay monthly, right? But if you pay monthly and let's say the bill is $1,200 and you're charging $100 a month, how are you tracking to make sure that they pay every month $100? And so QuickBooks importing from the banks will allow you to track that. Accounts receivable is what a customer's owe you. and you need to have a policy. So if someone goes 30 days behind, 60 days behind, at what point do you cut off their service and say, hey, you agreed to pay $100 a month. We've been two months, you haven't paid anything. I know your credit card declined and you said you're going to give me a credit card. You haven't. So, you know, all these things as you grow and get more complicated in a business, you need to understand. And so knowing, if I ask you how much money do customers owe you, and you say, I don't know, that's a problem. That's kind of like your business can't keep going. You're not a charity, right? Or at least most, most businesses are not. So you can start off with Excel if it's very beginning, you just have one or two customers, but when you get, you know, get in the flow of things and start having more customers sign up, QuickBooks was something like that. contract, all of that. And cashflow is king, right? I'm not trying to be sarcastic when you say, how do you know your business is doing well? You log into your bank account. Do you have at least one comma in that bank account? I mean, is there something, you know, that's there that's worth talking about? So you want to make sure that you have enough money to keep going. Even if you're starting out and you're saying, I have X dollars in my personal saving account. I'm going to use that to help fund my business. You don't want that to be the long-term strategy. You want this to start making money and start bringing money in. And it goes along with that, that you want to keep expenses low. Some people say, oh, I want to hire an accountant. Well, how many sales have you had? Well, I've made $500. Probably don't need an accountant if you've only made $500 ever, right? I'd say when you get to the point where you're making $10,000 or something a month, you can start thinking about having someone else help you out. But again, it's all relative to what product or service you sell and what your monthly expenses are. If you're bringing in $10,000 a month, but your monthly expenses are $12,000, that's still not a good situation because you're negative every month. So you want a positive cash flow, meaning that whatever you're bringing in is more than what you're spending. So if you're bringing in $10,000, you want the expenses to be like $7,000 or less so that you have some profit left over.
Ryan Kolden: Perfect. Now, the final question I want to get into before we start wrapping things up is, and this is not meant to be, we're not going to talk about tax mitigation today, and we're not going to talk about entity selection, but from a high level view. What should business owners know about their tax obligation?
Ronald Cook: Organization is key, right? And so the IRS that I'm speaking about the US, although it applies to most countries around the world, IRS requires receipts for anything over $75. And so the biggest mistake you can make is one, not being organized, two is not keeping receipts. So another good thing about a system like QuickBooks, when you hook it up to your bank is it allows you to look at things over real time. And what I suggest is, The people who have the worst time with taxes are they're saying, I don't like taxes. I don't want to talk to the IRS. I don't want to know about it. And they just forget about it until March comes and they call me in a panic. Oh my gosh, my taxes are due next week. Okay, well, let me see your accounting. I haven't done any accounting all year. That's a hard task for me and a hard task for them because they basically have ignored it for a year. So then what I suggest is, you do a mini close or a mini tax return every month. So with QuickBooks, it makes it very easy. Once we're done, like today's the last day of January. So sometime next week, you should run a report for QuickBooks and look at what did you do, positive or negative? What did you bring in? What did you spend for the month of January? Make sure you understand that and download that. And once that's done a review, that's one month. If you do that every single month between now and December, By the time you get to your taxes, all you're really doing, and I'm not trying to minimize this, but all you're doing is adding up those 12 months, and that's your number. Now, your tax accountant is going to need some other data points. But it's much easier next week, in the first week of February, to look at what you did or spent in January and make notes on it. So like, I went to Starbucks. Well, what did you do? Well, that was what I'm meeting with customer ABC, and we're talking about the new contract. I guarantee you, if you forget about it, and a year from now, I ask you or your tax accountant asks you, you went to Starbucks in January of 20… Let's say that it's March of 2026. Let's say it's next year. Hey, in January of 2025, you spent $57 at Starbucks. In January of 2025, what was that for? guarantee you're going to say, I don't have any idea. That's what's difficult because now you're having to spend a lot of time doing something that if you do it every month is very easy. So put the organization in place to say, at the end of every month, I'm going to look at what happened in January, make notes on it, make sure it makes sense, save that off, do that every single month, spend a couple of hours to do that, A year from now, when you're doing your taxes, you will have all the notes from all the months of 2025. And it's a much easier process because it's very painful, especially if you have no receipts. If I come to you in 2026 and say, hey, Ryan, you went to Starbucks, you spent $57 in January of 2025. And you say, I have no idea and I have no receipt. That's hard to put on your taxes, right? So organization affects everything. Keep receipts, write it down. And then be aware of what you can. The biggest missed opportunity and also the biggest abused opportunity is the home office deduction. So in the U.S., if you have a dedicated space in your house that is used only for business, you can write off part of your rent or your mortgage and associated utilities or other things or taxes for your house for your business. So like in my case, I have a dedicated room and office in my house that's about 10% of my house, so I can write off 10% of my mortgage and my taxes and my utilities and insurance. I have dedicated space. Some people ignore it altogether. I've had other clients that say, I want to write off half of my rent. Well, I've been to your house and your dedicated bedroom is nowhere near half of your house. So don't abuse it. Because even though it's oftentimes overlooked, it's also the number one audit point of the IRS because it's sort of subjective. If your mortgage is $5,000 a month and you're writing off $2,500 of that to your business expenses, IRS is probably going to say, it's hard for me to believe that your office is half the size of your house. Right? I mean, it doesn't make sense. Use it the best you can, but don't abuse it. My comment.
Ryan Kolden: Well, Ron, I appreciate having you on the show today so much and we'll just kind of wrap things up here. So what I'll do is I'll go ahead and put Ron's information in the description or the show notes. But just so everyone can hear it, if someone wants to connect to you, what's the best way to get in touch?
Ronald Cook: My email is coachron911 at gmail.com. And my website is ron911.com. Perfect. Well, ron911.com should be easy to remember.
Ryan Kolden: Well, perfect. Well, Ron, greatly appreciate having you on the show today. And that's a wrap. I hope everyone enjoyed it and take care. And thanks for tuning in. Hey, real quick before you go, thanks for listening. And please remember to hit follow on your podcast player. You won't miss any episodes and it helps support us bring you the show. Today's show notes and resources are available to you by clicking the link in the description. The opinions and views expressed here are for informational purposes only and is not tax, legal, financial, investment, or accounting advice. This material is educational in nature and should not be deemed as solicitation of any specific product or service. All investments involve risk and a potential for a loss of principal. Should you need such advice, please consult with a licensed financial, tax, or legal professional. Neither host nor guest can be held responsible for any direct or incidental loss incurred by applying any of the information offered.
