- Duration: 33 min
- Platform: meet
- Source: Read.ai 01J8TJKT0FA06JCH67H6BM36XF (https://app.read.ai/analytics/meetings/01J8TJKT0FA06JCH67H6BM36XF)
Transcript
[Michael Houck]: Thanks for making some time today. I really appreciate it. It won’t take up too much of your time. Just make a decision by the end of the week. [Evan Baldridge]: Yeah. How Blake? [Michael Houck]: Just through Twitter. [Evan Baldridge]: Twitter friends? [Michael Houck]: Sahil Bloom is a good mutual friend of ours. He introduced us a while back and we’ve kept in touch. [Evan Baldridge]: Cool. Yeah. I feel like the Twitter world is a small world. We have a lot of Twitter inroads into our into our, a lot of our clients are Twitter people, so. [Michael Houck]: Oh, cool. Okay, well that’s, I mean, that’s nice. You’ll have some familiarity maybe with the business setup, so that’s good. [Evan Baldridge]: Yeah, so tell me, what do you, so what do you do? Tell me a little bit about what your, what’s your business structure like and, you know, what are you looking for? [Michael Houck]: Sure, so I’m, I’ve been a founder for a few years, about like five years now. Before that was in big tech, Uber and Airbnb. [Michael Houck]: We haven’t broken out the individual revenue streams into LLCs yet. It’s all under one LLC for now. Thinking about converting that to an S Corp before the end of the year, we’ll see. But we have four main revenue streams in the business. One is a SaaS product that we have subscriptions for, and then we take a commission on money spent on our platform. So kind of two within that bucket. And then we have a media sort of like little enterprise, we have a podcast, big newsletter, and like an info product that we sell. The three of those make up a media brand. I do some advising and consulting, that’s kind of the third revenue stream. And then we also have a ghostwriting agency for other people who want to create content on LinkedIn, Twitter, newsletters, whatever the case may be. That part is new this year. The others began last year. Businesses, you know, we started, you know, incorporated into didn’t 2022, start generating revenue or being operated really until January 2023. So we’re on track to do about 800 to 900k in revenue this year. In, I think like 1.1 maybe in GMV for the money spent on the platform for SaaS product and we’ve doubled since last year and kind of anticipate that trend continuing into next year. So yeah, that’s the four kind of arms of the business. As I said, we’re pretty new. When tax season came around this year, we filed an extension at the time. And so as October 15th is coming up, I was reaching back out to our guy And he has just gone totally dark, no responses or nothing. So I hope he’s okay. I literally have no idea what is going on. But yeah, that was odd. So I just hit up some friends, Blake being one of them, to try and find someone who could, in the short term, kind of help us out with this kind of time-sensitive thing with the taxes. And in the long run, become a partner for quarterly tax filing, my personal stuff, and then also probably beginning in Q1, like bookkeeping and things like that. I have a P&L that I manage myself, but starting in January, I’ll probably wanna go to monthly bookkeeping as well. [Evan Baldridge]: Okay, so you said we, do you have partners in all of this? [Michael Houck]: It’s 100% the royal we. [Evan Baldridge]: No, it’s really funny, because it’s common amongst you guys to say we, and then I go, okay, so how many partners partners you have, can you tell me more?” And they’re like, no, no, sorry, it’s just me. It happens all the time, which is really funny. So the S-Corp does make sense then, because I was like, if you don’t need an S-Corp, I mean, if there is a we, then you don’t want an S-Corp. [Michael Houck]: No, no plans to raise any money. I’d raise a bunch of money for my last company and we had a venture fund as well. So I’ve done that whole, that whole thing. But for this, this company, the plan is to just bootstrap it and grow. [Evan Baldridge]: Yeah, definitely. [Michael Houck]: Yeah. [Evan Baldridge]: So do you think you are going to want to break these out? And what I’m you know, what’s the is the catalyst to break them out just so you can check all you can understand the revenue breakout? [Michael Houck]: No, I have a really good, pretty sophisticated like categorization and good tracking of revenue across the different lines. Happy to share that with you if we move forward and everything so you can see it. But the main impetus would be, we get a lot of offers just because of my sort of profile of people to buy one of the businesses at one point or another. And it just would be a lot logistically easier to if we ever wanted to take a win off the table and something like that, just to have it set up that way from Yeah, yeah. [Evan Baldridge]: I mean, so what I would say is pick the consulting one and turn that into an S Corp and then have all the other ones pay your S Corp. That would be the best option for The S Corp is going to be where you, and so you don’t have an S selection right now. I don’t, what, sorry? You don’t have an S Corp this year? For 23, you didn’t have an S Corp? [Michael Houck]: No, no, no. We didn’t have one in 23. This would be the first time. [Evan Baldridge]: And your net profit in $800,000? No, no, no, no. [Michael Houck]: So let me pull up the numbers here. So in 23, we did, $391K in gross revenue, and we lost $41.5K on that. This year, we're tracking towards $822K in gross revenue and a profit of $104K, $105K. [UNKNOWN_SPEAKER]: Okay. [Evan Baldridge]: So my rule of thumb is if you make $50K, you should take in a selection, net profit, if you net $50K. It’s worth, the juice is worth the squeeze. Under 50 grand, do you have other sources of income? Like, do you have a W-2 or anything else, like, randomly on the side? [Michael Houck]: No, this is it. This is what I do. Yeah. [Evan Baldridge]: Yeah. And then, I mean, so what we do, just to take a quick step back, is we provide monthly bookkeeping, quarterly tax estimation, and we do quarterly tax planning, we don’t buy it, you don’t have to file quarterly taxes, you just have to pay quarterly, right? So we’ll tell you the amounts that you need to pay on a quarterly basis. And you can make the choice on whether or not you pay them. And then we do at the very end of towards the end of the year, we do something called salary optimization, where we’re trying to maximize on this. Most of our clients are escorts. And so they get to tap into this QBI qualified business income. And we essentially there’s like a tipping point and you can pay yourself when you pay yourself a salary. There’s a kind of formula we run to see what’s the best salary to optimize the amount of tax savings that you can get. So as an S corp you have to pay yourself a salary. We do salary optimization just to make sure you’re paying yourself the right amount to capitalize on all the tax savings that are available. Then we do year end tax filings both for the business and for personal. So if you decide to, you know, create, let’s just say to make things simple, you decide you’re going to take, uh, you’re going to create an S corp and put all your consulting under there. And then you’re going to have the other business say, we keep it one, two, the business is just going to pay the S corp as, as management fees or consulting fees, essentially for all the work you’re doing for those other businesses. Um, we would have to file an S corp and then we would file that other return probably on your 1040. Because that’s where that’s what I’m sure where it lives right now. So and then as you kind of diversify, you may want to create a couple of those. Or if you decide to do a partnership, you can always morph them, you know, whatever it is you want to do. We have a integration, we use Plaid as our integrator. So you would go into our site, create a login, link your bank accounts and credit cards through Plaid, we have concept of business units in our system so you can create multiple businesses and see all of it together or break it out. And we use our own chart of accounts and our own kind of reporting to push into tax. The whole idea is that we are using our bookkeeping to be the tip of the spear into, you know, creating cleaner taxes, creating lower tax liability. We want to get in front of it. So we’re looking at not just your, you know, expenses, but also your tax story kind of throughout the year. So we’re not coming in in December saying, Hey, Michael, pay yourself 70 grand. And you’re like, well, why? Like, I don’t understand. You know, it’s like, well, because we knew we told you to pay yourself 70 grand months ago and you didn’t listen or pay yourself 70 grand and you’ll save this much in tax or, or whatever. So we, we try to keep an eye on it throughout the year so you can have your own and you don’t have to manage them yourself. And that way, we’re minimizing surprises at the end of the year. You’re not getting some tax bill going, oh, no, where did this come from [Michael Houck]: A couple of quick questions based on that. One is for the quarterlies. I’m a little ambiguous on the legal side of it. It’s a little ambiguous. I should be paying quarterly. Is that a legal thing, or is that just to make it easier burden on me? [Evan Baldridge]: It’s the IRS. That’s not legal. But it’s I mean, IRS, they will charge you penalties. I mean, you lost money last year, this month, this year, you’re making a decent amount of money. And if you don’t pay quarterly taxes, you’ll probably get penalized 500 bucks, you know, like, it’s not like a lot, but it’s something though. But it’s definitely something to where you get fees and penalties when you actually do pay your tax bill. [Michael Houck]: Okay, second question would be, this year I’ve paid, I’ve like drawn, I think 47k from the business to me personally, just for various personal expenses. Can that be sort of like, if we do the S-Corp, could that be sort of like converted into salary? [UNKNOWN_SPEAKER]: Yes. [Michael Houck]: Okay. [Evan Baldridge]: What we would have you do is pay yourself, we would basically mark that as a manual, we create a manual check and we as so is our preferred payroll provider. And we would have a manual check drawn that pays you the salary portion of like what you would get paid in your bank, but you’re not gonna actually get paid that because you’ve already paid yourself. And then it would trigger, the thing you have to pay that you don’t pay if you just do distributions is payroll tax. And that is by paying payroll tax, you get to deduct part of your salary as an expense You get to do all these different things. We don’t want you to overpay your salary. In fact, we probably would say pay yourself 30 grand a year. And then you can still take distributions for the rest. And a lot of times what our clients will do is they’ll pay themselves a salary and they will over withhold on taxes. And they just basically don’t actually get that paycheck. They’re just paying it to the IRS. [Michael Houck]: Sure. Sure. So basically the sort of game to play here is don’t pay yourself too much so that the savings work out in your. [Evan Baldridge]: Exactly. But the IRS, the IRS requires you to pay yourself a reasonable salary. That is what they say. Reasonable is such an ambiguous and, you know, easily interpreted term. [Michael Houck]: Yeah. [Evan Baldridge]: You as a person like we have a guy who came over to us and started a marketing agency and he’s like, yeah, when I was at the marketing agency, you know, I made three hundred thousand dollars a year. And I’m like, cool, but you don’t even make net 300 profit. So why would you pay yourself anywhere close to that? Pay yourself a fifth, a quarter of what you bring in, what you earn as net profit. That’s what you should pay yourself. That’s kind of how I look at it. So that’s why I’m saying if you’re netting 105, I’d say pay yourself 30 grand. And because you’ve already done distributions, we don’t even have to pay you that. But what we would have you do is pay payroll tax on that? [Michael Houck]: On the then 30 the other 17 would basically be- We call it a distribution. [Evan Baldridge]: Okay. [UNKNOWN_SPEAKER]: Yeah. [Michael Houck]: Next question. I am married and my wife and I file jointly on the personal side. Obviously we’ve been treating, I’ve been treating this LLC as like, you know, pass through, right? So I just want to keep that as simple as possible. And our personal filing for the year is also tied up in this extension. So we’d want to sort of have that all be processed initially. Together. [Evan Baldridge]: Yes, so what we would do for this year is we would just basically need to, since we’re so late and we only have a couple weeks before the deadline, we will work off of your books from last year. So we would have you just send us your P&L and all that and we would put together your return based on last year’s information. For moving forward, we will go in and want to get your books for in our system so that we would have them you know cleaned up and in that way we would also be able to file your 24 return not in October of next year. [Michael Houck]: Yeah the 23 everything is already categorized and set in QuickBooks because we had someone we were working with at the beginning of the year for that. For 24 have done it myself in just like a very optimized and automated Google Sheet. So I’m sure that We bring that into your guys’s system. I’ll help out with sort of like figuring out how to categorize everything in there But just yet that’s that’s two things and then the last part of that would be In April we paid sort of the estimated amount for the year obviously but I haven’t paid the Q2 or obviously q3 quarterly for the business The way that we would do this is we would have two kind of paths working in parallel. [Evan Baldridge]: One, we would have you give us your P&L, all of your tax documents for 23, everything that you need to do taxes. We are unique in that we are taking on people still. We only probably will take on one or two before taxes are due because, but we are not, we finished all of our tax returns, so we don’t have to file anymore right now, which is amazing. Yeah, it’s a big feat. To be done with tax season before tax season is over. So we are taking on clients, so if people bring on. But, you know, so there’ll be a fee for that, a fixed fee for that. And then we will onboard you. We would also want to onboard you then concurrently with 24. And part of the onboarding process is we get all of your everything in the system, share us with that. If you share that Google sheet to us, we could just use that as a reference point. Everything is easy peasy. Yeah, we would have you send us a does your wife has a w two? [Michael Houck]: Yep, she’s w two. She also has some like personal investments or like a Robin Hood and a Schwab account. [Evan Baldridge]: No real estate for we would just ask you to maybe send us a latest pay stub so we can see how much she’s withheld for the year. Because we look at her withholdings plus your overall net income and you know, whatever to see how much you would actually would owe, and we would do a quarterly tax estimate, tax planning meeting with you where we say, okay, here’s all the stuff we’ve gathered. Here’s what we think you owe so far this year. You can choose whether or not you want to pay it now, you want to pay it by January 15th. Like, there’s different deadlines depending on, you know, what and when. We’ve missed, obviously, the Q3 payment deadline. Next one is Q4. That being said, you could pay any time Like it’s not like there’s like a closed window. Like you can always go ahead and make a payment. If you wanted to go ahead and make a payment now and then pay the rest of the balance on January 15th, that’s one thing to do. So anyway, that’s going to be the best option for making sure you don’t get any penalties for not paying, you know, throughout the year for quarterlies. But we would make that as part of our onboarding process where we do that tax piece as a component of onboarding. And then that way also, if we, and then we, we would also take the, help you take the yes election. So my guess is either we would go ahead and take the yes election on the current LLC or go ahead and create a new LLC that you’re going to, that’s just maybe your, your personal LLC. All your consulting work would basically live in there. You could keep the other stuff in the other LLC. And then the LLC that we create for your consulting work would be just, we take the S selection on that. The other LLC would basically just drain its funds and give it to your S corp. But that way you could still keep like the media, you know, the SAS, all the kind of stuff. I mean, maybe you do eventually want to break those out and that’s totally fine. [Michael Houck]: want to break them out as part of this just because we’ve gotten interest on multiple different pieces and they are very distinct. [Evan Baldridge]: So what you could do is take what is the current LLC called? [Michael Houck]: Rye Valley LLC. [Evan Baldridge]: So if you would want to keep that as either you could keep that one, convert it to an S-Corp and let that one just be your consulting personal S-Corp. And then you could just go in and parcel out those other businesses, create bank accounts for them and everything. And maybe what you do is start January 1st, we move them into their own LLCs, create their bank accounts, move their cash flow, you know, move all their expenses and everything as of the first of the year. That would probably be the most efficient option. [Michael Houck]: I think that’s that’s most in line with sort of like my my initial thinking, like my gut thinking. [Evan Baldridge]: I agree. And then the other thing we would want to do this year is is set up a gusto, have you get gusto set up? It’s just, it’s not super expensive. It’s just kind of pain in the ass. What state are you in? [Michael Houck]: I’m based in New York, companies incorporated in Delaware, business addresses in Texas. [Evan Baldridge]: Where do you file taxes? [Michael Houck]: New York state. [Evan Baldridge]: Okay. So you’ll have to register in New York state for payroll. [Evan Baldridge]: Do you, you don’t have any, you don’t have any residence options in Texas? [Michael Houck]: I have a residence in Pennsylvania. Currently none in Texas. [UNKNOWN_SPEAKER]: No. [Evan Baldridge]: Okay. I live in Texas. So because I lived in New York for 10 years, and I know what the difference is in paying New York versus. [Michael Houck]: Yes. I’m sadly aware as well. [Evan Baldridge]: Are you in New York City or are you in the States? [Michael Houck]: I’m in Brooklyn. [Evan Baldridge]: Oh, damn, dude. You have to pay city tax, too. [UNKNOWN_SPEAKER]: Yeah. [Evan Baldridge]: Well, maybe you need to find a Apartment in. You need to go buy a buy a house in. Somewhere in the city. [Michael Houck]: Yeah, I get an office somewhere, at least somewhere. [Evan Baldridge]: Well, yeah, but we the office won’t matter. It’s your residence where you spend all your time. So, yeah. Yeah. But in any case, It is, it’s the price of doing business of living in the city. [Michael Houck]: For this year we’re screwed for sure. Yeah. Yeah. [Evan Baldridge]: Um, yeah. And so you’re going to want to pay some New York state tax estimates as well. [Michael Houck]: Yeah. We’ve already paid that. I think the total between me slash the business and my wife for the year was like 45 K. [Evan Baldridge]: So we paid that in, um, but not for 24, not for 24. That’s what I’m saying. You should probably go ahead and pay, you should probably go ahead and pay a 24 chunk for 2024, both to the state and the city. Like they let you break it out in the payment. So yeah, so that’s what I would do. And then, I mean, yeah, we can spin up all the other LLCs at the first of the year, but you’ll already be like, functioning all the important things for For the S Corp with the current business, so it should [Michael Houck]: should be easy to just add those other ones Okay, and then once we do that just maybe this is getting too far ahead of us. But once we do that If I have an expense for say the SAS product, right That needs to come from a bank account or a credit card associated with that LLC, correct? [Evan Baldridge]: Yeah, I would go in and create new Mercury accounts for each of them or whatever, just to keep it simple. And also, if you’re paying any contractors out of any of these, or payroll, you know, whatever it is you’re trying to do, like, you’ll want to start keeping them broken out. [Michael Houck]: Okay, yeah, my friend runs a YC company that is the payroll provider we use. And he’s like very flexible with structuring it however we need to. So we can. [Evan Baldridge]: Yeah. And if you want to pay yourself payroll, not through Gus I don’t care. It doesn’t matter. We just use them because they’re easy. But we work with other people, other payroll companies. It’s just we have a preferred relationship with Gusto. We have our own account manager, which means we have someone we can actually call and ask questions to. Seems normal, right? [Michael Houck]: But yeah, I think in this case, like the founder will build whatever features I ask him to build, basically. So we’re probably We’re probably covered, we’re probably covered there. [Evan Baldridge]: But yeah, but you’re, so do you currently run payroll for your team, for anybody on your team? [Michael Houck]: Yes, so I have contractors both in the US, a couple, and also a couple outside the US. And then on our SaaS platform, we also pay creators who are, you know, earning money on the platform through a separate account. [Evan Baldridge]: So you have no W2s though. [Michael Houck]: Zero, not even me. [Evan Baldridge]: And, but you like, do they issue your 1099s? [Michael Houck]: They can, they didn’t last year cause we had someone do it, but they’ve offered to, yeah. [Evan Baldridge]: Okay, I just was wondering about the 1099 process. We’re working on building out a 1099 process in our UI right now. Doing it kind of manually for some people, but most people run it through their payroll, so through their payroll provider, so it’s easier. But yeah, but for your, when you do turn your business into an S-corp, you will need to pay yourself payroll. So either you should get on whatever’s already existing or create a new payroll and do it You probably would just be on the existing one, given that it’s already, I mean, are they filing all your like, if you don’t have W-2, then you don’t have to pay payroll tax, but you’ll pay yourself as a payroll. You know, you’ll need to be an actual W-2 employee this year. [Michael Houck]: Yeah. Yeah. I mean, that’s fine. I think, yeah, I think that’s fine. Wouldn’t be too, too much of a burden. [Evan Baldridge]: So I guess just thinking about and how, what are, how our pricing works and what we would charge you. So for your 2023 return, I need to double check it with my CPA, but we’re charging around like $1,500 do 2023 returns. And then for 2024, charging any onboarding fees right now even though we're kind of catching up the year but just because it's we have a little bit of bandwidth we're probably gonna get busy and start charging onboarding but we're not doing it right now so you called me on the right day because you know who knows if you called me on if we could if we talked on Wednesday next week I might be like hmm and then we have a monthly bookkeeping We have a monthly fee that covers all of our activities. So bookkeeping, tax, you know, optimization, tax planning, quarterly payments, all those different things, and then all of your filings. So it's an all-in-one number. We have kind of a two tier, but it's more than that price. We have like a month price $600 where you have an S corp and a personal return, one business, easy peasy. When you start getting more complicated and add on businesses, we generally add around $200 to $250 a month per business. So I could start you probably at the 600. And then as we move you into adding in more businesses, we could add those on for, you know, 200 bucks a month. [Michael Houck]: Okay. Yeah, that sounds that sounds fair. That sounds not unreasonable. So okay, I guess confirm with CPA that were good for the… [Evan Baldridge]: Yeah, I would like you to send me your documents just so we can actually like we could review your P&L and if you can send us any like your Robin Hood and Vanguard or Fidelity or whatever those things are that you all that you guys have. Any 2023 tax documents that you’ve received that you already sent to the other CPA. Send those to us. Ideally send us a copy of your 22 return. I’ll send you a list Um, and then, yeah, and then I’d love for you to go ahead and connect your accounts and, you know, get everything. You can look around our UI too, so you can have a test login and you can look around and see, um, what it looks like, Um, but yeah, and then we kind of, we try to stay on top of you and say, here’s what’s going on. We send you monthly emails, tells you. So when you add the multiple businesses and you start breaking them out, you’ll get a report for each business every month. Um, but then your quarterly taxes are comprehensive. So we look across to you and we would probably, we generally send an email every quarter, maybe every six months and say, hey, send me a pay stub so that I can see what the withholdings actually were versus what we estimated for your wife’s W-2. [UNKNOWN_SPEAKER]: Cool. [Michael Houck]: Yeah, that’d be great. I can also send you the estimates that we got from earlier in the year. I think he went through and did everything that we needed to get to the point where we felt comfortable with the number, the estimate that we had and we could pay for 23. So maybe that’ll be helpful, cut down on time on your guys’ side. So I’ll just send it all over. I guess send me an email with everything you need and I’ll get it back to you probably over the weekend. And then we can go from there. [Evan Baldridge]: Okay, that sounds great. Yeah. Cool. Yeah, let me know if you have any questions in the meantime. I will, I’ll send you an email shortly. [Michael Houck]: Okay, great. Evan, thanks so much. Yeah, I’m ready to roll. Let’s do this.