A conversation with the Construction Leading Edge Podcast!

This is The Construction, the leading-edge podcast from ConstructionLeadingEdge.com. This is the podcast for small construction business owners. This podcast is all about helping you avoid expensive tax mistakes. You’re going to learn about what are the 10 most expensive tax mistakes that cost business owners thousands of dollars. You’re going to learn about what is proactive tax planning and how can it minimize your taxes. What are you probably doing wrong when you’re dealing with your CPA. How often should you talk to your CPA. What does the CFO do and is there anything you can do besides hiring a full-time CFO. What’s some advice if you are getting ready to start your business and lots of other stuff. This is going to be extremely valuable. There’s also a free book in this for you if you want to learn about how to avoid expensive tax mistakes and it’s all coming from my guest who is Craig Cody. He’s a certified tax coach, certified public accountant business owner, and interestingly he’s a former New York City Police Officer with 17 years’ experience on the force, so before we get into that I want to tell you about a couple of things. If you are a construction business owner I want to make sure you know about the Construction Business Accelerator. If you want to get your business up to the next level, you want to increase profitability, increase productivity of your crews, improve cash flow, reduce chaos, and basically take your business to the next level then the best thing I can do for you is the Construction Business Accelerator Program. Go to ConstructionLeadingEdge.com forward slash community to find out more about that. And if you’re a project leader superintendent, foreman project manager, or if you want to move into one of those roles and you want to get to the next level, you want to shave a couple of years off the learning curve and move up faster, build bigger teams, manage more complicated projects, earn more money, the best thing I can do for you is the Project Leader Boot Camp. You can find out more about that over at ConstructionLeadingEdge.com forward slash boot camp. And if you want a free video series with some project management secrets and hacks, I’ve got a three-part video series I’m going to give you for free it’s out of the Project Leader Boot Camp. It’ll give you a taste for what the Project Leader Boot Camp’s about, and it’ll give you some really practical stuff you could put to work right now. You can go get your copy of that video series at ConstructionLeadingEdge.com forward slash packs. Now that’s enough about that. Let’s get to my conversation with Craig Cody. Craig, welcome to the podcast. Thanks so much for being on here. Oh, thank you very much for having me. All right, so we’ll just jump right into it. Let’s talk about one of the things that is probably the top of mind for most of our business owners who are listening to this podcast. What’s the biggest mistake that you see small business owners making when it comes to their taxes. The biggest mistake is failing to plan. All right they basically they look at taxes in March/April. I go see some tax preparer I get my taxes done and you know that’s it. They spend more time planning, you know, a vacation or up car purchase than they do how to reduce their tax liability, and that’s something that you go on throughout the year. All right so let’s talk about that. There’re probably a lot of folks who are thinking: what do you mean plan my taxes? Typically by the time I find out what my taxes are it’s too late to do anything about it, and then I just have to write a check. So what is that? What does a tax planning process look like? What should people be doing to be proactive about their taxes? So number one to be proactive. They need to communicate with their CPA or accountant and that person needs to communicate with them. That’s the first thing. Being proactive is looking for legal ways to limit your tax liability so if I can, you know, move money from one pocket to another pocket and do it, you know, legally and therefore save some taxes that makes sense. So unfortunately most people look at, you know, their accountant or CPA as an expense item. I always say, you should look at them as an income item because if you communicate and he’s the right person or she’s the right person, they can save you more than they’re costing you. Interesting, so let’s talk about tax planning other than talking to your CPA, before it’s too late and being proactive and we’ll get into what’s the right rhythm throughout the year to be talking with your CPA and your tax professional but what are some strategies? Like do you have any examples of clients you’ve worked with who have taken these legal steps and done the right thing? Can you tell us what doing this right might look like? Sure, I’ll pull a couple things out of my book which was the 10 most expensive tax mistakes that cost business owners thousands after failing to plan. We have the wrong business entity. Are they operating as a sole proprietorship? Are they operating as a limited liability company, a single member of limited liability company, an S corporation? You know you can be an electrical contractor and I can operate as, let’s just say, sole proprietor and that may make sense in my situation but it may not make sense in your situation, so it’s kind of like one size does not fit all. You need to communicate with your accountant CPA and figure out what is really the best entity to be in and sometimes that can be corrected. You know, a lot of times maybe an LLC might be better off being taxed as an S corporation, and we could actually make a late election and make that retroactive to the beginning of the year or to the prior year well. Let’s talk about that for a little bit. What are some of the factors that would sway that decision one way or the other? How much profit you have? Is it a side hustle type of deal or are you doing this full-time? How many employees do you have? Are they true employees or the independent contractors? You know, you have to kind of look at that. You know, am I working for somebody and also running my business, or did I work for somebody for the first six months a year and now I’m running my own business. So you have to look at all those and see what is going to make the most sense, you know, going forward, and sometimes you may make the decision to be one entity today and knowing that come January, I could change that entity. Interesting, okay sorry to interrupt, you were going to tell us about what doing tax planning right looks like, so I’ll let you get back. Okay, doing tax planning right is communicating. Okay, typically I’ll take you through a typical case study so we’ll communicate with a potential client. They’ll have a conversation. We’ll get an idea of what’s going on. They’ll send us copies of the last two years’ tax returns, business and personal. We’ll go through, we’ll do an analysis, and we’ll look for, you know, mistakes, missed opportunities, and come up with a number to quantify it. Okay, you missed, you know, $30,000 in deductions, or you missed, you know, $30,000 in tax savings, you know, this is what you’ve given to the government that you don’t have to give up. And let’s come up with a plan on how to how to actually make that stuff happen so you save that money. Sounds good, I think everybody would be in favor of not philanthropy the federal government. I know I certainly am. Right, okay, so talking to your accountant on a routine basis. What’s a good rhythm? How often should we be talking to our CPA? So, you know, I like to say once a month there should be some kind of communication whether that’s just an email, a conversation, but the more you talk and you don’t have to spend hours on the phone. This way, they know what’s going on and if they’re going to be proactive when they talk with you. They’ll come up with some ideas or they’ll point you in the right direction. Maybe you’re starting to do things that maybe don’t make sense and they could give you some guidance there, but, I typically, what we do when we work with the clients, we’re working with them on a monthly basis and we’ll send them a calendar link every month to set up a call, and we’ll go through the P&L, and any other questions that they may have just to make sure we’re up-to-date with everything and really able to give them the best guidance. Got it, you mentioned 10 most expensive tax mistakes that business owners make. I’ve got failing to plan, having the wrong entity. What are some other items that are on this list? We have a paranoia, which we won’t get into. We have the wrong retirement plan. All right, are they making money? Should they have some type of retirement plan set up? And, you know, what’s the benefit of the owner for that missing, what we call, family employment. Can you hire your kids? You know, Tax Court has ruled that you could hire your child as young as seven years old I like to typically wait till they’re around 11, and, you know, we make sure the client documents that, and they pay the child. And, you know, that’s a way to make whether it’s private school hockey lessons and stuff like that tax deductible indirectly, so you pay the child that goes into his bank account and then the hockey tuition comes out of there or the school tuition comes out of there, so they wind up paying no tax and you get a deduction for the salary. Interesting. Another thing is missing medical benefits. Depending on the structure, they have a big thing is what’s called a medical expense reimbursement plan, which allows you to write off things that may not be covered by insurance and not subject to the 10% of adjusted gross income rule. So if you’re making $200,000 the first $20,000 and medical expenses are not deductible but if you have a medical expense reimbursement plan set up, you get to deduct those right off the top, which could be a big savings. Another is missing the home office. You know, nowadays everybody is doing a ton of work from home, whether they have in office someplace else or not, so if you set up a home office and it’s a room that’s used exclusively for your home office you get to deduct the percentage of your repairs, your maintenance, utilities, but better than that, it opens up the door for a travel tool from your other location. It also opens up the door for what we call and on-premises athletic facility, which could be a home gym or a pool. Then it opens up, you know, increased car and truck expenses depending on where you’re going. Missing meals and entertainment. Those are just a couple of the main things that people are missing. Okay, good stuff. Yeah, it’s good stuff, and it’s even betters tuff when you’re looking at, you know, a $20,000-a-year savings and up. So let’s talk for a minute to the business owners who may be doing their own bookkeeping right now and maybe they’re doing their own tax prep. Could be that they’re in the first year or two of their business they don’t feel like they can afford to either outsource their bookkeeping or to hire a tax professional. What are some things that are not so apparent that those people should be thinking about when it comes to their bookkeeping and their tax preparation? I think the main thing they should be thinking about are what opportunities are they missing by doing their own bookkeeping versus working on their business so what is that opportunity cost that they’re actually giving up. And I talked about this in the last podcast episode. I was speaking with one of my coaching clients and in a nutshell. I had encouraged him to outsource the bookkeeping to his CPA and came back and he was a little frustrated, disappointed that he was going to have to spend like $80 or $100 an hour to have them do the bookkeeping. And as we talked through it, it became apparent that that was a bargain because the time he was spending on bookkeeping was worth way more than what he would have to pay somebody to do it. So for folks who are not familiar with opportunity cost, how would you explain that to them? Well it’s kind of like, you know, as the business owners, should you be making copies or should that $10 an hour intern be making the copies. Yeah, you should be spending your time on higher value services such as bringing in the business and, you know, delegate those lower-level services to people within or outside of your organization. Yeah, only do what only you can do is one way that I’ve heard it described. That’s right. You know, it’s tough though when you’re bootstrapping and especially if you’re a one man or one woman show just getting started. It can be tough to write that check for something that you can do yourself, but I can tell you, and I think Craig would, agree that you should be focused on other revenue-producing work and look for every opportunity you can to outsource things like that. So when it comes to outsourcing bookkeeping, is there any advice that you would, or how do you see this going or what advice would you give to someone who’s thinking, all right, you’ve convinced me, I need to stop doing my own books. What do I do now? Well there’s plenty of outsource companies out there that do, you know, outsource your books. We’ll do that for you. I guess you want to make sure that you actually have control of that file and you’re not going to lose it or you want to work with a CPA who’s going to do that for you so everything is at one place and it’s, you know, you don’t get involved and he said she said. So whose responsibility, ultimately all responsibilities should lie with that CPA or CPA firm to make sure everything is done correctly and if you’re using an outsourced company, that might be not be the case so that’s the only issue I have with people that are using another company. And then they’re bringing it into their CPA at the end of the year. Typically the CPA has got to spend a lot of time at a time when he’s probably busiest and it’s not going to work that well. That’s why with us our clients one of the precursors is we do their books because this way we know what’s going on and we get to spend the time with them throughout the year making sure everything is correct. Sure and there’s a lot of value in having the folks that will be preparing your taxes to do your books so that there’s not that translation and errors that need to be fixed. So makes a lot of sense. You know, one thing I wanted to ask you about is I’ve seen some really cheap bookkeeping services online like Bench, Bench Co., I think, and they say we’ll take care of your books. We have bookkeepers on staff and they charge $30, $40, $50 a month. That looks really attractive, but what do you actually get from those bookkeeping services? Are you familiar with them enough to speak to some concerns that people should be aware of? Like I said, I haven’t dealt with them because if you are a client of ours, we’re doing your bookkeeping. We’ve taken over clients that have come from other bookkeeping services like that and, you know, they are just that. There are bookkeeping services and, you know, it’s kind of—you put the stuff in one way, that’s the way it comes out. So it may not be correct, but I’m not familiar. I haven’t taken over any clients from bench, but our experience is when we take it over from any bookkeeping service, there’s usually a lot of cleanup work that needs to be done. Got it. So the takeaway here is that if you’re thinking about outsourcing your bookkeeping, what I’m hearing is, don’t just look at getting rid of the bookkeeping because bookkeeping is a means to an end. And ultimately you need to have good books so you can do tax preparation properly and take full advantage of all the opportunities that are out there and that all starts with keeping good books. And I did I had some conversations with somebody at Bench, I think, it was Bench Co. and my takeaway was, and maybe I missed something, but my takeaway was they would hook your bank statements, your credit card into some sort of a dashboard reporting system and send you reports and that’s really it. So my advice would be, if you’re thinking about looking at a service like that, be very careful. You may not get a whole lot of value. You certainly wouldn’t get any sort of one-on-one attention or advice. You’re just getting some sort of integration software but just interrupt that may work with your CPA that they may be okay with that, right? So it’s a good point, if it works for everybody involved, you know, give it a shot. Let’s talk to the folks who are listening to this podcast who are planning to start their own business sometime in the next couple of years. Do you have a couple of pieces of advice or common mistakes you can share with those folks in that situation? Yeah, I would I would make sure you communicate with your team ahead of time, which means, you know, have a conversation with an attorney, have a conversation with an insurance person to make sure you’re going to have, you know, the right insurance and so you’re covered from day one having a conversation with a CPA firm. So, make sure that you set everything up in the optimal way, versus trying to fix it all after the fact. Yeah, definitely. Let’s switch gears a little bit. I understand that you spent some time with the New York City police. Can you talk a little bit about that and maybe tell us a little bit about what you’ve learned as it relates to dealing with people or business or some of the key takeaways to hear from your career in law enforcement? Sure, well I spent 17 years there, working with, you know, some of the best people in the business of policing. So my key takeaway was I really learned how to communicate with people because you had to communicate with the guy that could be the corporate CEO, and then you had to communicate with the guy that might have been, you know, a recent immigrant, people making a lot of money, people below the poverty line. And you had to be able to, you know, communicate effectively. And I think that’s helped us, well helped me, greatly in building our business because the key is really communicating with clients and, you know, showing them how you could give them value, and save them money, and making them feel comfortable communicating with you and asking those questions. So what are some strategies or tactics you use when you’re communicating with someone for the first time? Are you trying to build rapport with them? Are you trying to…what’s going on in your mind when you’re talking to a potential client? Well you know you want to bring everything down to their level on account what as far as accounting goes. All right, so the guy can be the, you know, have a great business, but he’s really, you know, not that hooked into the whole accounting side, so you don’t want to be talking about things that are going to make them just kind of roll his eyes. Speak on his level, make your point, and make him feel or her feel, you know, comfortable communicating back and forth, because the more questions they ask, the more help you can give it. Good advice, good advice. Now let’s talk about the role of the CFO. What exactly does a CFO do in an organization? CFO is really in charge of world financial operations, so depending on the level that you’re dealing with, an outsourced CFO that can alleviate, you know, the business owners’ headaches. So on a typical CFO client in the construction industry, they’re running their business. They’re doing what they need to do to build it and operate it, and we’re handling all the back office, the whole financial. And for them, you know, other than paying bills and sometimes we just were using a service like bill comm, where we load the bills up they go in and they authorize everything to get paid, but they’re not worried about the financial end and they don’t have to have, you know, the bookkeeper or the controller or the CFO when the office next to them, thanks to the computer and the internet. So obviously there’s a progression if someone’s listening to this and they’ve got a growing business, it’s not a situation where you need to go out and hire a CFO full-time, but you mentioned outsourced CFO services. At what point in a business does someone need to consider having a CFO? Are there some milestones, like revenue or a number of employees? When should someone start thinking about having that? When they’re at the point where they need to bridge the gap between having somebody that’s handling the accounting. But now they’re at the point where they need somebody that’s really going to be looking at the total financial operation of the business. And maybe they’re not ready to hire somebody full-time yet because they’re not at that point, but they want to have somebody on board that they can rely on to help with those key financial decisions. And are there any metrics or milestones that that looks like based on the clients you’ve worked with whether it’s size, age, revenue? There’s typically a mature company you know that’s really the best way you know it really depends on how they’re operating but it’s a mature company that’s making money and they need somebody to kind of watch over things. And you know when you’re busy it’s easy to miss things and you know you want to have somebody that’s looking at all those things so you could just continue to grow the business. Sure, and it would seem like the challenge at least for the businesses that I’ve been around, they typically start off with an entrepreneur or maybe a couple of partners and they start off their bootstrapped and they’re doing everything themselves: project management, accounting, payroll, risk management everything like that and then the business grows hopefully to a point where they need to start divesting some of those responsibilities. What advice would you give to somebody where maybe they’re the flags that are going up that they should be looking for that? Are there indicators that they need to start considering hiring someone to provide some CFO services? That question, yes, it definitely makes sense. You know you’re a mature company, you’re making money, you’re growing and you don’t have the time to really be so involved on a financial side or if you spend the time on the financial side to really provide like a CFO service you need to hire somebody. Otherwise, if you’re doing it you’re just going to slow the growth of the company, so and that’s typically where we get involved in other outsourced CFO services, you know, get involved and you know it’s a fast-growing company and the owner or owners really want to maintain their hands-on approach to building the business and want to offload some of the controller ship responsibilities to, you know, a trusted partner. Makes perfect sense, Craig. I know we’ve got a time constraint we’re coming up against. You’ve got an audience of construction business owners and people who are planning to start a business sometime in the next few years. What advice or mistakes or what’s some wisdom that you can share with us? The biggest mistake is failing to plan, so the wisdom is really reach out to your professional. Communicate with them let them know that you know you want them to communicate with you and really, you know, solidify that relationship so it’s notan annual relationship—it’s more of a monthly relationship and that’s where you’re going to get the best value. Excellent, good stuff. Well, I understand you’ve got an offer for the folks listening to the podcast. If you could tell us about that offer and then if people want to find out more about working with you or more about the resources you have available. If you could share some information on how they can…I shared with you my first book was an Amazon bestseller but my second book is called The 10 Most Expensive Tax Mistakes That Cost Business Owners Thousands, and we will send a free paperback copy to any of the listeners that request it. I know you’ll have the link in the show notes, but it will be craigcodyandcompany.com/dentists/leading edge. Well, you can email at Craig@ccodycpa.com or call us at (516) 869-4051. Perfect, and I’ll definitely have those links and email address and phone number in the show notes. And at the end of the podcast, I’ll have a link where you can go find all that stuff. Where’s the best place for people to connect with you? Would it be to go to your website, social media? We’re on social media, but I would say go to our website craigcodyandcompany.com/dentists or just Google Craig Cody. Well, Craig Cody CPA, and that’ll take you to our website. And we have a YouTube channel so there’s a lot of information out there about us, and just remember about communication. Good advice. Well, Craig, I really appreciate it. This has been extremely helpful and yeah if you’re listening to this make sure and go get that free book, connect with Craig and be proactive and go find those opportunities that you’re probably missing out on when it comes to tax benefits. So Craig, thanks so much for being on the podcast. I really thank you very much and have a great day. Bye-bye. That wraps up my conversation with Mr. Craig Cody. Go to ConstructionLeadingEdge.com/064 for the show notes with links and all of the stuff that we talked about, the resources mentioned. You can go there: ConstructionLeadingEdge.com/064 for the notes and the links. And don’t forget that if your construction business owner, I want to help you out. I’ve got actually have a special offer if you would like to get on the phone with me. I want to help you with a free 30-minute strategy call to help you solve a problem strategize, prioritize for next year. 2018 is coming around the corner very quickly and if you want 2018 to be better than 2017 was, then you’re going to have to take some different actions that I want to help you do that. I want to help you get your business to the next level go to ConstructionLeadingEdge.com/call. You could schedule a free 30-minute strategy session with me. We’ll get on the phone. I’ll help you with whatever you need help with and help you get over that hurdle or get to the next level. You’re a business owner I want to help you take your business to the next level. We can do that with the strategy call or if you want to go ahead and jump in and get to work and take some action, I would encourage you to check out the Construction Business Accelerator Program that is designed to, you guessed it, accelerate your construction business. Go to ConstructionLeadingEdge.com/community to find out how that program will help you get to the next level. Thanks so much for listening. One last thing: if you enjoyed this podcast, first of all make sure and contact Craig and let him know if it was helpful. But if you enjoyed the podcast, you did me a favor if you could leave an iTunes review if you’re an iTunes listener that would really help me out. It would help get the word out to other folks and help other people learn more about that. Leave a review on iTunes, a rating that’d be great. If you liked it, let the world know. If you don’t like it, let me know how I can make it better. But I’ve got a quick video on how you can leave an iTunes review if you need some help with that go to ConstructionLeadingEdge.com/iTunesreview. Thanks for listening. I appreciate it. My name’s Todd Walt.