Find Out How Cash-Flow Planning Transforms Your Business

Dec 06, 2023



Kevin Schneider: [00:00:00] On this episode of the Hidden Money podcast, we're going to have a bunch of accountants in the room, so stay with us, bear with us, 

but we're going to have join today, Mel Latu of B.O.S.S.- Back Office Support Systems. She is the cashflow queen and an accounting guru. So Mel, welcome to the show today.

Mel Latu: Thank you guys. Good morning.

Kevin Schneider: Yeah, and when we're talking accounting, most everyone says you're a CPA... accounting, right? They come into our office and they have- Hey, I need accounting, payroll... I need taxes. I need all this help. 

And that's when I - Can I raise our hand and be like - Okay, there is a need of accounting;

that is not our specialty. Not all CPAs are created in a way of accounting mindset or tax mindset. They are really 2 distinct fields. Think of it like a doctor. Doctors have specialized areas of medicine that they focus on. They may be well rounded in enough to diagnose some issues from a high level, but then, they may not have the skillset to go in there and fix it.

So, they always [00:01:00] refer out. Same thing with us. So, Mike and I, we're the tax professionals, and Mel, we network with her and her team on the accounting side because it's such a valuable piece of the puzzle, because it is impossible, and when I say impossible, it is impossible to tax plan

without financial data. You just can't. If you have bad data coming in I could throw a dart at the dartboard. That could get you a tax plan, but it's really not the wisest decision. So, we need to make sure that our accounting is up to date, and so, that's where Mel comes in. She comes and saves a day, gets us those financial statements,

and so, we just want to talk today on today's episode, the importance of that bookkeeping accounting, and not only that, Mel takes it a step further and she offers a unique skillset. So Mel, would you just tell us a little bit about yourself how you got into this field and let us know who you are.

Mel Latu: So, my background is in operations management.

I have always managed large teams of people and budgets. I would be given financial reporting that it didn't make sense to me how this report I'm [00:02:00] supposed to change the direction of a goal or get a team to move, and that's really where my passion for data started. And then being a female leader in Corporate America, I needed to be able to have data to move teams and rooms versus coming in with emotion and feelings- right here

I've got black and white numbers, no matter how you feel. This is what we're going to do today because the numbers don't lie. I moved out of Corporate America and started working for a turnaround consulting firm. And this firm, we would have companies come all the time that wanted to help with an extra strategy.

They were going under, they needed to be sold, what have you. And every business owner that needed help, it was they didn't have the financial foundation. Nobody did the bookkeeping. Nobody paid attention to it. It's not fun. It's a very unfavorable role to have in the team. Nobody wants to do the bookkeeping.

It gets left a month, week, now we're a year behind, and you end up [00:03:00] letting the business run you instead of being intentional and data driven, and so, it turned into a calling, and I wanted to create a bridge for small business to be able to have that executive level leadership with the ability to not only have real time reporting, but see the future.

We believe in 13 weeks cashflow forecasting and looking ahead and making sure that we're in alignment with tax strategy and critical costs that are coming up. And just tying back into data in is data out.

Mike Pine: Good data in is good data out.

Mel Latu: Good data in is good data out.

Mike Pine: When we have clients that aren't working with great bookkeepers or don't do the books that great themselves, we don't have good data to go in, and there's another analogy that's very similar to that one is crap in is crap out. 

I used to see those on my review notes my first year at PwC a lot, so it's super important to find a bookkeeper and it's really important and impressive if you can find one that has a passion for bookkeeping like you do.

Short [00:04:00] sidebar- Kevin and I, we had a bookkeeping practice here at Pine & Co from inception, from when we started the firm, and we weren't great at it. Kevin doesn't like bookkeeping. I can't stand bookkeeping. We love tax. That's where our passion is. But anytime we got a new client that came in, they don't see that there's a difference between bookkeeping and accounting versus tax.

They wanted a one size fits all shop, and we tried to be that. We tried that for six years, Kevin, I think?

Kevin Schneider: Yeah. Don't remind me.

Mike Pine: It showed through. That part of our business was not profitable. That part of our business wasn't awesome. And Kevin and I were so focused on the passion that we have for income tax planning and strategy and minimization,

there was a real disconnect, and when we finally decided, which made no sense, it was a very scary decision for us as a CPA firm- let's stop doing bookkeeping. Let's just get rid of our bookkeeping practice. One of the hardest decisions we've made, I think, in managing this firm, but once we did it and then started networking with awesome bookkeepers [00:05:00] like you, Mel, who do it so much better than we did, with so much more passion than we did,

our tax strategy services for clients just took off, like through the roof, because like Mel says- good data in means good data out. --Like Kevin will say, 'You can't do tax planning without good books.' --And we're just super glad that there's people like you, Mel, for some weird reason, whatever's going on in your brain, you like this stuff.

So thank you. Thank you very much.

Mel Latu: I definitely would have to agree with you both. I'm not particularly in love with bookkeeping. I too do not enjoy it. I have a team of women that love to do it. 

I love to cashflow plan and I need that same as you to come up with good tax strategies. I have to have good data as well to forecast.

So, the love for bookkeeping comes for- let's just let us put it in, and put it in right, and make sure we are getting the right data, so we can give you the right projections. And we want to stay in our lane. I never have a goal [00:06:00] to bring on an enrolled agent or a CPA that... you guys are geniuses in your lane, and I think there's a lot of profitability in staying in your lane.

One, you are making money at doing what you do well, but there's also the quality of life. You guys hated the drag of having the accounting part of your business, and we would sink trying to compete with guys like you in the tax field. So, we'll handle accounting and books and we'll learn from you guys. We also work with a few different CPA firms and like to work alongside the tax strategy, so that we make sure whatever your big picture for your clients for the year is, that we're making sure that's happening as the year's going and as things are changing or transactions are happening,

we're like- Hold on! Let's get with your CPA really quick and make sure this is how we should book it. And then, we also love these business owners have all these wonderful ideas of how they should categorize expenses and such. 

We appreciate that. We will give some counsel on what they should do, but in the day, we're going to let Mike and Kevin argue with you about it,

[00:07:00] and we'll just go ahead and book it with a really good note. let you tax guys handle that. We're going to kick it over to you guys.

Kevin Schneider: That's all well and good. And I always found it interesting, like Mike was saying, 

It was hard for us to make that decision, and for anyone listening who maybe be self employed, and you just have that one arm of your business, that is an anchor. It may bring in some money.

It may be generating loss year after year. 

It was a tough decision for us. And that's the exact situation we were in is our tax side was profitable, our accounting side was not, and we could not find the leadership. If Mel was an employee and went running our own business, I'm sure it would have changed our minds.

We just didn't have the accounting leadership to scale it because we didn't know it. I didn't know how to scale accounting because I didn't know accounting. I knew it was a necessity in the tax side. So, actually cutting business away freed us up to grow quicker and more profitable, even though we lost some clients from it, but it was addition by subtraction, and Oh! It was a very hard decision, but we're so glad we made it.

We're two years [00:08:00] into this now, and finding that good referral partner- that was golden for us.

Mike Pine: Let just tag on to that, Kevin, because there is hidden money in taking parts of your business that you think are needed, and I do think that we made profit on bookkeeping, just the margins were so much lower than on tax. Again, it was a tough decision. You have a marginally profitable part of your business.

That is your bread and butter. That's why most clients were coming to you before they even realized you could help them with tax. But by cutting that out, we found huge hidden money in getting rid of a big part of our business. It's a huge lesson to learn. I'm glad we took the risk, and I would have done it much earlier if I could have gone back, but that's 20, 20 hindsight.

Kevin Schneider: That's right.Mel, do you have any kind of, horror stories because on the tax side, I have hundreds of horror stories of new clients coming in, and just the mess that either prior CPAs have gotten them into just from lack of due [00:09:00] diligence on the professional side, but also just responsibility or ownership care.

At the end of the day, the owner's responsible for their books. Their owner's responsible for their own taxes. Now, they may utilize professionals to get those things done, but ultimately they are responsible. And I've seen a lot of just- 'Nah... taxes... accounting. Cash is coming in,

I'm good. I'll figure that stuff out later.' --Do you see that in your field too?

Mel Latu: A hundred percent, and then, what we see often is, in bookkeeping as an industry, we like to say at B.O.S.S., we're revolutionizing the industry in the way that we want to be incredibly granular with your bookkeeping. We want to know the details. We want to build out your chart of accounts with so many subcategories and classification, so much that we can do. Your CPA does not need that kind of granular activity, maybe. Maybe they can sub it up and they can do what you guys do. However, if we can present it with it broken down so granular, who knows what your tax preparer can [00:10:00] find for you because now they have that kind of broken down activity.

I'm thinking in alignment with your CPA. So, if you've got STRs, I want to break those up by property and I want to make sure your improvements and your expenses are by home, not just your series. I want to make sure it's very granular because I don't know how that's going to help you in tax time.

It might take us a little bit work up front, but data in is data out. So, I want to really just have all the information going in, and so, challenge wise, when we get started, that's a little bit hard for a business owner to get used to, because we have a lot of questions. We want to know every movement.

It could be stressful. It could be irritating. I always relate it to your personal trainer. When you first start a weight loss program and you get this workout plan and a nutrition plan and you're having to send your weight in and review your diet log, and that accountability piece of- 'I know I didn't lose weight last week, and yes, I had three Starbucks.' crap,

it's uncomfortable, and it takes a moment to get in a really [00:11:00] good rhythm with someone that you trust, but if we could break through that, and when we break through that, it's a whole different relationship going forward. Their minds start thinking as you're spending money and we even start this language and habit.

We create a habit that as you spend money, you are telling us in a different way why you spent that money as you're doing it versus waiting to the end of the year, just sending all your stuff in a big crap to a CPA, and they're trying to figure out what you did all year and what your plan was.

Like let's do it before you forget, we're busy. Real time accounting.

Mike Pine: Yeah. One thing I think you're amazing at is most people, even a lot of us CPAs, especially on the tax side, we see bookkeeping as just this kind of necessary evil. I think most entrepreneurs look at both bookkeeping and tax as just a necessary evil. Let me focus on our business. That other stuff doesn't matter.

But bookkeeping, good bookkeeping and cashflow forecasting can turn a business around, or it can [00:12:00] amplify a small margin into huge margin when you understand the numbers. Tell us about some examples of how you've helped some of your clients who have thought it's just a necessary evil. They don't know the difference between cashflow forecast and a profit and loss statement, or even a balance sheet where you've been able to help them make sense of their financials, and utilize the data in those to improve their business amazingly.

Mel Latu: Absolutely. So, my current boss's current favorite cash flow client looks like trade work. It looks like construction, roofing, trades where it's very cashflow heavy, where you have to plan everything you're going to pay after you get those draws, or those deposits, or those pieces of the income, but you're fronting all the costs going out. 

And so, what's really hard is to change the mentality in that industry that- We'll pay you when we get paid. --It's a very ugly thing that's in the world we all [00:13:00] encountered at some part. We're like- This guy owes me!

--'Sorry. I have to pay you when I get paid.' --And the only way you get out of a situation like that is stop doing that, and how do you stop? You've got to have a plan to stop. 

So, for this client, it was a new construction type company and they just couldn't get out of every time they got a check.

They were paying yesterday's bills. And so, we had to just stop and get into the bookkeeping, granular, really go into trades- like, let's just not call this subcontractors. What are the trades of the subs you're paying? Project costing- going in and making sure that they use their books to see profitability per job, not just at the end of the year how you did as a company, and changing those things. They were able to get- Our costs are changing. We're in a really crazy time where what we estimate today, what we pay for, it could be a lot different in 2 weeks from now. So it's using this data to help them see what they're really paying for a job. Feel comfortable to adjust your prices. Nobody wants to raise their prices, but we are [00:14:00] in a season where we're all getting hit at the grocery store, the gas pump, everywhere we go. It's okay to see this evaluation and analyze your business every day in your project costing, and that comes from bookkeeping and how your bookkeeper sets up your projects or classifications, et cetera. 

So, an example would be once we reconstructed this company set of books from just- 'Hey, I got cogs. I got some expenses. I have a net loss. Cool. What do I got to do about that?' --We broke it down and turned their P&L to 4 pages long where they could zone in and see- 'Oh, man, we're paying too much on plumbing.

We need to adjust our pricing for plumbing.' --They could really drive down and then they changed the revenue. So now, we're forecasting and we're forecasting differently. Throughout this process, this company was able to not only to get out of the hole they were in, they were able to have good reporting to give to a bank to get a line of credit to now buy them [00:15:00] runway. 

Sorry, Dave Ramsey, I will never say you shouldn't have business debt. I love business debt. I love smart business debt, and the smart business debt comes in cashflow planning. 

What is it? It's risk management and debt management. We all need money to make money. So, it is okay to take out that line of credit, borrow from a family member, whatever it looks like for small business. Sometimes, it's that rich uncle, like Coach Ross says, but you have to plan it out in your cashflow and see- If I take this debt, will it get me to where I'm going?

And then, you've got goals all along the way, and we were able to turn that company around simply from bookkeeping and cashflow planning. They now have six to eight weeks runway of cashflow at all times, and it's not- Can we make payroll? Can we pay these vendors? It's- The invoice came in, the work is done.

Let's pay it.

Kevin Schneider: That's awesome. Yeah. They're actually making management and business decisions off their accounting and not just just trying to stay alive. Trying to account for the past- we see that a lot in the industry of accounting, and I've seen it in my [00:16:00] experience of accounting like tax is always in the past.

You're recording something that has happened. What differentiates a good accountant and a good tax accountant is going to be the forward thinking, like you mentioned, what is coming up in the future and what am I doing today to prepare for that tax preparation? Absolutely. A necessity. You're recording things.

You're just putting numbers on a line, doing your compliance piece, but what are we doing in the future to make sure our tax liability's lower? What are we doing on our books? Yeah, we're recording things that happen. The month ends, you're going to reconcile that month end, but what's coming up in the next three to six months?

And that's why your business model is very unique is because you're actually an accountant. That's trying to project forward in the future to help you make decisions today to put your business in a healthier position.

Mel Latu: Absolutely what cashflow is for. It's an essential tool for any size business. It doesn't matter if you have a few weeks of runway and you're trying to make sure you cover payroll or if you're franchising and you want to see if you have [00:17:00] time, if you have the budget to open up that new location, if you are needing to hire and you want to see what those new salaries look like, you get past operating in the bank balance and start operating in-

This is our plan. This is what we're going to do. And as you mentioned, a lot of times we look at these financial reports as a report card, history, it's done, cool. Look, we lost money last month. If you're cash flow projecting and you're in the discipline of reviewing that cash flow every single week, it's a working budget.

Pretty much, your forecast is your budget, and every week you're truing it up to say, ' We were supposed to get $50,000 revenue in last week. It did not come in. Sound the alarms! Let's find that money. But it also shows you any expenses.. Small leaks, sink the boat. You might not see those little things happening every week because they're not in your scope.

And when there's also the feelings of what we think we make money on, we think, 'Oh, our customers really like this, we're making a lot of money at this.' --If we [00:18:00] know these different lanes of revenue in your business, we want to book them on your books that way so you can watch week by week- are you making the most money in that lane or are you over here and didn't even realize you're making a ton more money doing this? Let's shoot some marketing dollars and blow that up. So, it's literally the way we, and I think it comes from a history of operations management, like we bookkeep with an operational mindset.

We want it tax ready, but we also want these books to let you run and drive your business and where you're headed. Do you need debt management? Do you need really good books for a loan? Are you looking to take on investors? All of these things cannot happen with really poor books. I launched my company two weeks before quarantine.

Obviously, I didn't know that was going to happen. Left a very secure six-figure job and was like- Hey, I got this great idea. This is going to be great!' -- And then I get locked in quarantine, and with only one client, my job, I quit. 

Kevin Schneider: You retained them as a client?

Mel Latu: yeah, it was the only way to [00:19:00] quit. 

You're like, I've got to go If someone manages your money really well you're not going to let them go. And what's also very important and special to our team is we want these to be really long relationships. We want to grow that trust. We want to make sure you don't leave. Attrition would be because you sold your company, and then hopefully your new owner wants to work with us. But during that season of quarantine, there were so many companies that didn't know how to apply for PPP because the reporting that was needed, or the reporting that was crap, there were so many things that we were able to help for free during quarantine. What else are we doing? And that's really how B.O.S.S. Launched is when everybody went back to work, those clients that we helped with that financial reporting hired us as soon as we went back to work. COVID also helped us show that you can bookkeep from the moon. The whole world worked remote. That was really hard to break through when launching B.O.S.S., was getting everyone to outsource, knowing I don't have to come to your office with your computer and your things.[00:20:00] 

Thank you COVID. You helped us get the other side of that.

Kevin Schneider: Yeah, we experienced the same. I think I have one in-person consultation a month, and we just had this office at the brand new space. It's beautiful. And we're just like- I hope our employees enjoy it because our clients are not coming in. They just Zoom in and they, after the meeting, the Zoom ends and they move on. 

But it also... you got a ton of meetings in the day because you could fit twice as many meetings in because you don't have travel, you don't have all this other stuff. 

Mike Pine: Mel, there's probably a lot of listeners listening right now thinking, 'I'm just starting.' --Or, 'Bookkeeping really isn't that important. I know what's coming in and what's coming out. I got good bank statements.' --Or, 'I'm not thinking about opening a business until next year or two years. Why should they be thinking bookkeeping now versus sometime in the future?'

Mel Latu: That's a great question. One that we run too often. 

Starting off with a good foundation is important. No matter what size your business is, sole prop, you have a goal to incorporate whatever's going to happen with your business from [00:21:00] day one. The financial foundation is the most important thing you can do for yourself. You may not have the revenue to hire a bookkeeper, but you definitely can afford to invest in the consultation to come have someone help you.

We're going to be doing workshops where we show very small entry level businesses. Bring your laptop. We are going to show you how to start your QuickBooks you some basic tips until you can afford to outsource because waiting too long until you're big enough or you have a cost- No. 1- of when you start with an accountant and they've got to go back and figure out how far back they should go,

and No. 2- you lose so much opportunity for expenses you may not be aware of that we could have captured for your tax preparer. You don't know what you don't know, right? 

You're selling in whatever your business is, and an accountant, that's what we do all day. So, we see numbers and transactions and we're talking to tax preparers and CPAs all day long. So, it's just in your benefit to start as soon as you start[00:22:00] and get some help until you can afford to outsource it.

Kevin Schneider: Yeah, and I think that's two-fold. So, the first one is it's going to be a lot cheaper getting the foundation up on the front end. If you come to an accountant and you get into tax trouble, let's say even file tax returns for a couple of years, and you just got a bunch of bank statements. 

You're the shoebox client. You're like- Here you go. Here's my mess. -- That is going to be very expensive because typically, we bill on that hourly basis. And that- it's going to be a lot of work. So, getting everything created properly on the front end is going to save on cost. 

The second thing it's going to help you is what we've already discussed. It's going to help you make decisions. How do you manage a business without financial data? I'm a CPA, so everything drives financially for me, but as a business owner, you need to know what your overhead is, your margins are, you need to know those. And if you don't know what those terms are,

have an accountant or bookkeeper or CPA in your corner, who's willing to sit down and teach you. You can't outsource everything to professionals. You have to take [00:23:00] some ownership in your business. You have to take ownership of understanding these financial metrics and indicators to make good decisions and to be able to grow your business in a smart way.

And just completely relying on someone, I think is foolish. I think you really do need some education for yourself, but utilizing the very complex and niche things for your professional, and allowing us to walk you through those, that is what we're here for. I love it when I consult with a client and they ask me, 'Okay, but why?' --They poke me a little bit on why am I doing it?

Why am I doing this way? Or why does this strategy work, but not over here? And getting the education makes, as a business owner, makes a lot. It's just very important. So Mel, is that, kind of, how you work with your... I've seen you in a couple of consults with me actually in person, and you seem to be very educational, and is it also important? Do you have that same theology on the accounting side?

Mel Latu: A hundred percent. We want to empower. We are not going to run your company. We can not make the decisions for you. [00:24:00] We want to empower you with the data where you make those data driven decisions. Go back to- you don't know what you don't know, feelings over facts. We want to not only provide your financials, but make sure you understand them, make sure we understand your business. If your financials don't seem to be making sense of what you think, let's sit down. Let's talk about it, and there might be some education for us both, 

but I do believe knowledge is power, and the more you know your numbers, you're making the real decisions that are going to 1- be a good steward of your dollars,

and No. 2- move your company in the direction you had visioned or bigger than you ever imagined because your plan is working out. We like to offer advice while we're going through, but especially startups and sole props, entrepreneurs just have this heart to go start a business.

Going back to bookkeeping, accounting is so boring. How do you even market what we do? Yeah, we love to do bookkeeping, but it's the power we have with the data, like the things we can do if we know your numbers, and we like to share [00:25:00] that same education and passion back to the business owner, no matter what size their company is.

Kevin Schneider: Yeah, Mel, we had a shared client come in that oddly enough is a physician. He's an MD and he had a very financial, astute, drive. I guess, he was wanting to learn and taking classes, listening to podcasts like this, and he's really taken ownership of his practice because they're going to be growing. They're going to want new office locations in different cities, and all this stuff, and so, there's tremendous tax benefits to that, and him taking ownership of his financial picture was just so good to see, because those are the best clients because they're hungry for knowledge and they will listen to you, but they'll challenge you, and they'll ask you good questions too,

and I know you met with him, I think, earlier this week. So, how was your experience with that? Just curious. And how does that differ from, maybe, a stand-offish business owner who wants you to just reconcile things and move on?

Mel Latu: Yeah, we did have him in this week and I'll tell you [00:26:00] he is my first business owner, whatever industry it is that wanted... I had to kick him out. We had to get going. It was time to leave, but he wasn't just looking for someone to clean up previous year's messes. He wanted to really understand and be part of the decision-making and where he's going from here.

He has really big plans and great goals, but there's a little bit of commingling happening, which happens to us all- We're busy. This account had the money. Whatever happens. So, the cleanup and getting started looked like- Hey, I need statements from this account and that account. Oh, wait, you have this account too, which is fun... and he stayed here for six hours this week, printed all his bank statements that we color-coded by entity, like just really worked through, and talked through why it was important to never do this again 

But not just like- Hey, I'm the accountant. Don't do that. It was- This is why, and then him challenging some of the 'Whys' and telling me actually, and us getting to have that back and forth. And not [00:27:00] only did we have a really great plan to move forward, he has a different mindset of how he's going to execute payments and use the money because he knows what it's going to look like on the books, and what it looks like for us- like him sitting here and putting in that time and going through all those statements.

Now, he knows what it would be like for a team of us that don't move that money. We don't know. And so, his buy in is going to be amazing for our future working together because he's in it. In contrast, we've had clients that are just- Here's all my bank access, figure out. Good luck!' --And are not very communicative or responsive,

and so, not only does it inhibit us from being able to move quickly and get it turned around and finish, but also at some point when we can't get the data, we've got to go ahead and generalize the expenses of the income. 

So then, we're going back to that old way of- Okay. I guess it fits here. And it might not be in your best benefit. So, having some skin in the game is huge for us all. 

Not only are we [00:28:00] more affordable with your skin in the game, but then you operate and manage your business differently.

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