Business Reflections Podcast Episode #34 - Accounting Basics for Your Business
Episode Transcript
Meredith Matics: Welcome to Business Reflections with your host Meredith Matics, and we are here to reflect on the business topics that are affecting you today and how you can better run your business. Hi podcast listeners! Today, I have Linda Diakite Karressy, Owner of Insight Financial Group and Insight Business Academy. Welcome Linda.
Linda Diakite Karressy: Thank you. Thanks for having me.
Meredith Matics: What led you to starting Insight Financial Group?
Linda Diakite Karressy: I took my first accounting course in high school and it was the first course that I felt that was very easy.
Meredith Matics: Oh.
Linda Diakite Karressy: From then on, I was like I'm going to be an accountant. I didn't know what that meant at the time, but I knew that I was going to major in accounting. I started my business actually, when I was working full-time, similar to other entrepreneurs. As I get older, I'm like, okay. I feel like I need to do more. The corporate accounting is getting boring. I'm not liking the politics of it. Former manager said you're a natural born teacher. Also his wife had mentioned that she did bookkeeping. I didn't even know what bookkeeping was, cause I still worked in corporate America. Went to a couple of workshops and then from there one I've been on my own. I actually left my full-time job December 2017 and I've been doing it full-time ever since.
Meredith Matics: One, I'm amazed that you knew at such a young age that you wanted to be an accounting in that numbers were your friend. And then I love that you left corporate America because of the drama of it, which I think a lot of us do.
Linda Diakite Karressy: Yeah, we do. And now I know that, we leave jobs, not because of the job itself, I like accounting, but it's the people. If you love your job, you love the company, go for it. There was just something tugging at me that I knew that I wanted to do more. And actually I taught computer classes when I lived in Texas to individuals over 50. That was the first time in a long time, I felt energized. I really liked that and I never forgot that feeling of teaching. Actually seeing individuals say, oh, I can now email my grandkids. Teaching them how to open it up the computer, how to create folders, how to set up an email, how to look up recipes. I've never forget that feeling of, man, I can actually see how I can make people happy.
Meredith Matics: That's awesome. You're coming on today to talk a little bit about how we can set up our businesses for success and especially for entrepreneurs that are just starting out and maybe are like keeping their books in like a notepad. I don't know, but let's start with that. How do we set up our businesses for good accounting foundation?
Linda Diakite Karressy: This first tip may sound strange to people. You have to set up your dream team. I'm going to show my age here. Back, when was it? 92? Michael Jordan, Magic Johnson. That was the dream team. You want the best. Have someone you can contact regarding taxes. Have a lawyer, you don't have to pay a retainer, but at least have a number. Have a banker, a banking relationship, also have an accounting professional. A lot of small business owners do not realize there's a difference between a tax expert and an accounting.
In the accounting field, we all do different things. I just talked with a CPA yesterday. He doesn't do taxes. He does business evaluations. He works with nonprofits, their audits. Having an accounting professional, and then also getting a business coach or mentor. First, get your team together. Number two, set up a business account. That's still an issue. You would think that every business owner should know that, but you have to separate your personal from your business.
Meredith Matics: As a previous bookkeeper, I don't know why that is like the hardest thing for business owners to get.
Linda Diakite Karressy: Yeah. Yeah. And I don't understand it either. I always tell them because tax purposes. And then also, if you want to apply for a loan or you apply for a grant, you're co-mingling things. They'll see that on the balance sheet. They'll see that you have a large amount of funds that you have withdrawn on our owner's withdrawal. You want to separate, you want to actually know how much you're actually bringing in and actually going out.
I think sometimes people just want to get started and not realizing that when you start a business or a nonprofit there's things that you're going to have to do. There's paperwork. Administrative things you're going to have to do. And I think they just push it to a side and say, you know, I'm gonna get to it.
Meredith Matics: Even when I first started, when I very, very first started, I just QuickBooks what was like business expenses and stuff, because I started out as self employed. At that time there was no difference, but as soon as I started it as a business and not just me working self-employed per se, like once I got an office and all that. Even though I didn't have anything outside of my name yet, what I did was I still went and opened a separate personal account at the time, just to keep it separate. Because what I didn't want to be doing is spending my money on office rent that should have been like house rent or whatever, you know what I mean. I wanted to know if business was successful. And the bottom line is, is there money in that other account?
Linda Diakite Karressy: Yep, exactly. I think sometimes too business owners think, well, it's my business and I can use it as my own personal whatever. If I want to go on a trip, I'm just gonna pull it out of my account and no, it doesn't work that way.
Yeah. Also another tip is I tell individuals, as you're getting started, you may not want to use a software. I do recommend accounting software. There's free one at QuickBooks, Wave FreshBooks, at least start tracking your cash in and cash out. Cash in whatever your clients are putting in, deposits. If you're putting money into the business and then tracking your cash out. I recently met with a young lady. She just started her business last year and I'm gonna tell you she had the perfect Excel spreadsheet. Oh, it was so perfect because she listed out every expense. Here is marketing and she listed description. She had the vendor, the amount. That's all you need when you're starting out. She had her receipts back up. That's very important recordkeeping. Even if you just start there, that is the number one item you need in business. You need some type of tracking system.
Meredith Matics: At the end of the day, it's what do you have? What have you gotten rid of? What are you left with?
Linda Diakite Karressy: Yeah, exactly. That's a perfect statement. Technology changes social media, but accounting never changes.
Meredith Matics: You see a lot of these businesses owners, we see a lot of, we work in particular medical, and we see a lot of doctors that come out and go, I have a million dollar practice, but then we do their books and she's like, I don't know that they have a million dollar practice because they're at like negative $35.
Linda Diakite Karressy: And that's, that goes back to looking at your numbers, not like in your head, not what you think or what you perceive. But actually what does that P and L that balance sheet say?
Meredith Matics: Yeah. And you can bring in a lot of money, but if you spend more, it doesn't really matter how much you brought in.
Linda Diakite Karressy: Yep, exactly. A lot of times we look at what we're invoicing and deposits and not looking at what's below those expenses.
Meredith Matics: I also think recently with the PPP and all that, a lot of business owners have gotten a better idea of how important this aspect is. Because now they're asking for proof of like, did you lose 25% growth? And they're like what I was supposed to be keeping track of this.
Linda Diakite Karressy: It goes back to also understanding where is your revenue coming from? You want to make sure that if you offer more than one product or service, that you have different revenue accounts, so you know where did my revenue drop or where did it increase? This is why we need to keep on top of these things.
Meredith Matics: You bring up a really good point about keeping track of what is making you money. Every business is out to make a profit, to stay in business. More often than not, I think we pick up passion projects within our businesses. We don't always realize they're just eating into our ability to stay open.
Linda Diakite Karressy: Yes. Yup, exactly. Small businesses they paid invoice, they pay the bills, but the next step is taking that financial data and saying, okay, where am I making money? Where am I losing work? Where can I maximize? That's how you grow.
Meredith Matics: What would you say are the most basic tasks for accounting that every business owner should know how to do?
Linda Diakite Karressy: Number one is the bank and credit card reconciliation. I've seen this so many times where the bank account is not reconciled. A lot of businesses, they don't understand that concept of reconciliation. How I explain it is that you're just making sure that your accounting system matches what your bank says. The bank is that's the real that's, what's actually going on. Your accounting system is just basically taking those transactions and summarizing it and put it in nice reports for you.
That's also that record keeping. That proof. If you're ever audited, you have your bank statement. You have other support. I just held a QuickBooks class yesterday regarding the banking function in QuickBooks, you know where it downloads and I tell people it's just a download of bank transactions. That's all it is. It doesn't mean that it's actually in QuickBooks until you either add it or you can incorrectly delete it. That's why the reconciliation is so important. Also, it's important now, particularly these days that businesses record their revenue correctly when they are using Stripe or PayPal or other merchants.
Meredith Matics: So let's talk about that. What does it mean to record your revenue correctly with a credit card merchant?
Linda Diakite Karressy: A lot of people let's see are using Stripe. Their customers pay through Stripe. When the deposit comes across us, let's say the product is a hundred dollars and Stripe charges $3. When that deposit comes across in QuickBooks or whatever the accounting software, it's the net deposit. It's 100 minus $3. A lot of businesses and even nonprofits who get donations, they're just going to book whatever the deposit. The $97. Just the net.
And if you just booked that to revenue, in accounting, that's not factual because really your revenue is a hundred so you need to record 100 to revenue and then $3 to the fees. I've been telling businesses lately keep track of those fees because you may not be getting a good deal. It may be eating into your profit. You may want to look at different merchant and see who has a better deal so that's very important because you're actually understanding your revenue.
Meredith Matics: I think even I'm probably subject to that sometimes. I'm pretty sure that sometimes credit cards just processing. It just seems easier. But yes you're right.
Linda Diakite Karressy: And I understand there's people who, it's just only them and you can't do everything, but I said, if you can get in a good practice, there's apps. There's free apps that a lot of these merchants now connect with QuickBooks. Find a free app and what it will do, it will download the transactions from Stripe. It will book it to revenue and then book the fees for you.
Also too, making sure that even though you may be a solo entrepreneur, still get someone to review your taxes quarterly. This is what I'm doing. This is an update so they can actually help you prepare strategy. Our system it's set up to benefit businesses and so we have to make sure we're taking advantage of that. Depending on your revenue and then also personal side, they may say, well you know what, don't go collect all of those accounts receivable because it may throw you in a different tax bracket or something like that. You want a tax expert before you do your taxes, maybe you can't afford a quarterly, but at least do it like in the October, maybe September, October timeframe.
Meredith Matics: Yeah. A lot of smaller entrepreneurs or new entrepreneurs think like, well, I'll just turbo tax it. And, one of the things that I think we don't know about would be like quarterly payments and paying a little bit ahead of time so that you're not stuck with some big tax bill at the end of the year.
What do you think is the biggest mistake that businesses are making right now with their accounting?
Linda Diakite Karressy: I think not having good personal financial habits. I'll use myself as an example. I came out of college, had a degree in accounting and you would think I would know everything about money, not on the personal side. I struggled on the personal side. I actually applied for a contest with a magazine called Black Enterprise. They had this financial fitness contest. I was just fed up at the time. My grandmother had passed away and I had to ask my brother for money and I'm thinking, man, I just graduated from college. I got this accounting degree. Why do I have to ask for money? I need to figure out something so I won this financial fitness contest. They put me in contact with a financial advisor. He talked to me about how to pay off my school loans, how to get a new car with a car loan, how to pay debt, like how to create assets. I believe that helped me with my business.
Even though I'm an accountant, people just assume that I've always had it together, but I believe since I had my personal, like I have personal good personal habits, like I open the bills. I put them in a folder. I put things on the calendar when they need to be paid. I look at my account. I'm talking about those types of habits.
I think that one of the biggest mistakes is if we have bad personal finance habits, it flows into our business. That means that we don't look at our financial statements. We don't open up our bank statement. We don't keep up with, or we don't create a budget. We just go with the flow. Those habits do flow into the business. I think we have to look, like do some self-reflection and say that, okay, let me take a step back and let me create some good personal habits so I can have some good business habits in my business.
Meredith Matics: And at the same time in the reverse, a household is, is like a business in a sense. Let's say you're thinking of starting a business, start practicing those habits now at home because you have the income in, you have the income out and you would really like to not be sitting there with negative money in your bank account.
Linda Diakite Karressy: Yeah.
Meredith Matics: Understanding where your money is going is powerful.
Linda Diakite Karressy: Yep. I think so. I really do. If you can, what I call confront your personal finances, looking at the credit card, figuring out how much you owe for each credit card. I had to do the same thing after college. And then of course, got married, have kids and life happens. We had to get back on track so I got out the good old Excel spreadsheet listed out how much we owe and when you do that, you know what you're facing.
Meredith Matics: Yeah.
Linda Diakite Karressy: I think it actually brings more of a, a sense of calmness. You're not like scared because I think we're scared to look at the bank account. We're scared to look at the credit card, but I think if you face it, it gave me a sense of, okay, this is what I got to tackle. This is what's facing me. And that's what you have to do in business, because you just can't just keep operating and not looking at your bank statement or your financial statement or not paying bills.
Meredith Matics: Right. Yeah. It's all related. Anybody who wants to have a business can practice that at home. Having good financial habits is hard. But it's so good.
Linda Diakite Karressy: Yeah. Very important.
Meredith Matics: What is one piece of advice, Linda, that you've personally received that you want to share?
Linda Diakite Karressy: I think advice that I've received is be a lifelong learner and be self-reflective. I've learned that the business will only go as far as I'm willing to go. I listened to different motivational videos on YouTube, and I think this came from Les Brown or maybe Evan Carmichael, just be a continual learner. Take classes, even if you think you know everything, it's always good to go out there and see what's new.
And also with the self-reflection, as a business owner and a founder, take a step back and say, what am I not doing? Take responsibility. See where their gaps are and then show up. As entrepreneurs, that self-reflection is really key and that self-reflection actually has helped me because I realized last year that I needed to do things differently. With accounting, most of us are introverts, we don't want to be out in front. We just want to do the accounting and then go about our way. But I really said, since I'm a business owner, I need to let people know what I offer. And I had to do self-reflection and say, it's not my audience. It's me. I'm the one who's not telling them about my services or keeping up with social media. I had to take responsibility for that.
Meredith Matics: Yeah. When you bring up the learning thing, I 100% agree with that. And that comes from a place of, as like a kid in high school I hated school, but one thing that no one can take from you is your knowledge. No matter what, if you know how to do something, that's yours. The other thing that I had to personally realize at least is especially with like school is even if you go slow, wouldn't you rather have that extra degree or have a degree in five years or six years or seven years, then be in five, six, seven years with no degree. It doesn't really matter how fast you're going to be there. You're going to be seven years older and seven years. Wouldn't it be nice to have that extra certificate or degree or skill.
Linda Diakite Karressy: Totally agree. Yeah. So
Meredith Matics: Lifelong learning thing is important. It definitely is.
Linda Diakite Karressy: Yeah.
Meredith Matics: Where can our listeners find you on social media or learn more about you?
Linda Diakite Karressy: Okay. They can find me on Instagram and Facebook at Insight Financial GRP. Once again, it's Insight Financial GRP. I'm also on Youtube. I offers so many lessons like two to five minutes and that YouTube channel, it's Insight Financial Group.
Meredith Matics: Nice. Well, thank you so much, Linda, for coming on. Thank you for offering classes on YouTube. I hope some of our entrepreneurs or entrepreneurs in training will check that out so that they can have good financial habits too.
Linda Diakite Karressy: Yeah. Well, thanks for having me.
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