Marketing is the Product Podcast
Podcast: Parker Stevenson on Keeping Small Businesses Profitable & Healthy
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Parker Stevenson is a Partner and the Chief Business Officer at Evolved Finance.

Evolved Finance is a bookkeeping and business education company dedicated to helping online entrepreneurs create profitable and healthy businesses.

Join us this week as we talk to Parker on the ways that you can keep your business healthy and thriving!

Evolved Finance: LinkedInFacebookTwitterInstagram.

Show Notes

0:10 – Introduction
2:00 – Where and how did you get started?
7:00 – Golf and San Diego
10:00 – Evolved Finance: what is bookkeeping?
15:30 – What mistakes do you see business owners make in bookkeeping?
20:15 – Setting a foundation for success: steps to make finances easier 
24:20 – Advice to better prepare for struggles in business 
34:20 – How much should a small business owner pay themselves 
39:30 – Expenses to keep in check and how to do that
47:35 – How did COVID-19 impact Evolved Finance 
51:00 – Final Thoughts and where to find Parker

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Introduction

Brandon: Hey everybody, welcome to the Marketing is the Product podcast. I’m Brandon Rollins here today with my co-host, Pierson Hibbs.

Pierson: Hello, hello.

Brandon: And our guest, Parker Stevenson, Chief Business Officer at Evolved Finance. Alright, so actually, to get us started, what I’m gonna do Parker, is something that I’ve done with the last couple of episodes, I’m gonna read your bio straight from your one-pager so that people know what you do. Okay, here we go. Parker is a co-owner and the chief business officer at Evolved Finance, a bookkeeping agency that specializes in helping online entrepreneurs to build more profitable and financially stable online businesses. For over six years, Parker has been advising some of the top coaches, course creators, influencers and thought leaders on how to make more sound business decisions using their financial data. Before joining Evolved Finance, Parker spent five years at Adidas America where he became the US product manager for a $50 million a year product category.

Parker: Well, hopefully that doesn’t sound like the most boring bio of all time.

Brandon: No, definitely not. The first thing that came to my mind is like, How do you get to becoming a product manager of something that’s worth $50 million a year? That’s a pretty big boast.

Parker: Nothing about my career path at all makes sense. So I’m proof that it’s never too late to pivot and you don’t necessarily have to have one straight line, you go down with your career.

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Where and how did you get started?

Brandon: Okay. I’m intrigued.

Pierson: Well, that being said, Parker, why don’t you give us a little bit of rundown of what kind of led you to where you’re at now, and that path of pivoting and going down different rabbit holes. What did that look like for you?

Parker: Yeah, let me just start off by saying that being a co-owner with my business partner, Corey Whitaker, at Evolved Finance, is one of the most fulfilling, challenging, amazing things I’ve ever had got to do in my life, right? That being said, if you told me 15 years ago, I would own a bookkeeping service, I would say, You are absolutely out of your mind, and the reason I’d say that was, we were just talking before we hit record about how I had this background in music in high school kind of doubled down on music, and I was a good student and got into a university in Los Angeles, but kind of fell in love with music, I have music in my family, I have a couple of cousins who have been successful in the music industry, and then also have other family members who don’t play professionally, who are just extraordinarily talented singers or piano players. And so when I was in college and going to school in LA, the guys I had started a band with in San Diego, they ended up moving up with me, played throughout my four years at University, graduated, played for another four years around LA, in Southern California, and at the time, we were coming out of the ’90s and into the early 2000s, the music industry was changing, so we thought we were gonna get a record deal, the industry changed, the money kinda went away, and I think the grind, or the seven or eight year of grind just kind of worn everybody and the band ended up breaking up.

Parker: So I kind of realized, Well, I really liked music, and it was fun to do that. But what’s the other thing I really like to do? Well, I was like, Well, I really like golf. I was golfing, I golfed in high school, and I was not great, but I was on the team, and then throughout college, I was this poor college kid, didn’t have any money to go play anyways, and I wasn’t really interested anymore, but once I graduated, we had this little golf course right by LAX Airport where I was golfing with my buddies after work, after band practice, and it was kind of my escape from essentially having two jobs, I was working in the auto industry for a consulting company out of college, and then I was also playing in the band and golf was my outlet. Well, being from San Diego, the golf industry is kind of, here in San Diego, it’s kinda like what Detroit was for the auto industry, San Diego is for all the major manufacturers. So, I moved back down to San Diego after the band broke up, and I said, I wanna get a job in the golf industry. I was fortunate enough to get a job with TaylorMade Adidas Golf. At the time, Adidas owned TaylorMade Golf.

Pierson: Oh wow.

Parker: Yeah, started at the bottom in customer service, and by the time I left, I was managing the US footwear, golf footwear category for Adidas, and I got to travel around the country, playing golf, meeting golf professionals like Greengrass and going to all of the big retailers, and having these just conversations and getting to be a part of the golf industry in a way I never thought, it was my dream to be a part of, but what I realized was working for a big corporation, as much as I really valued my time with Adidas and TaylorMade, and I had some amazing mentors. I just kind of realized I wanted to do something more entrepreneurial, maybe my punk rock days made me a little more rebellious or an oversized confidence level where I thought I could go do something better or I didn’t like other people telling me what to do. So my wife’s best friends, Corey and Anna, who are the co-owners, or Corey’s the co-owner of Evolved Finance with me, they had this bookkeeping service they provide, it’s this little bookkeeping business, and Corey would tell me about what they were doing, really interesting customers, ’cause all of their clients were online business owners, selling courses.

Parker: And I had no idea what this was. This was back in 2012-2013, when we started having these conversations. And eventually I realized I was going to leave Adidas golf, and I knew I wanted to do something different and Corey was like, I think you can help me grow this business. Like, why don’t we do this? And looking back, it seemed like an absolutely insane decision, I had a comfortable job, career trajectory, but after talking with my wife, I realized that I think I really could, all of the skills that I had learned, entrepreneurial skills I learned, being in a band and building an audience, and then essentially getting a Master’s in Business working for Adidas and TaylorMade and getting to be a part of some really amazing projects within that company, I learned so much that I said, I think the time is now to do something more entrepreneurial, and six years later, here we are, the business is four times bigger than it was when we started, we’re a seven-figure business, and I couldn’t be happier running a bookkeeping service, even though I don’t think my accounting grades in college would have warranted me getting into this industry.

Pierson: Oh hey, you and me both. On that part. [laughter] I will say as a little side note, San Diego is one of my favorite places in the nation, I myself, am an avid golfer, and my favorite two courses I’ve ever played at are in San Diego.

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Golf and San Diego

Parker: It sounds like you’re in the wrong… Wherever you live, I don’t know where you live Pierson, It sounds like you’re in the wrong place, Man, and you need to be out here.

Pierson: Oh, dude I would be out there in a heartbeat. San Diego is by far my favorite place in the US, playing at Maderas and Aviara.

Parker: Aviara is my favorite.

Pierson: Oh my God, dude that is the most beautiful… Might be just the most beautiful plot of land. It’s a beautiful course, take away the golf.

Parker: Yeah, for sure.

Pierson: Then you play on it. I think my favorite round I ever played was that course, both in score and just the experience of it.

Parker: You have very good taste my friend.

Pierson: Well, thank you very much. I have to give credit to Aviara. As soon as you said San Diego and golf, I was like, Oh my goodness, I guarantee you he knows both of the… [chuckle]

Parker: Yeah, and I’m in North County, San Diego too. So like Aviara is like maybe 15 minutes away, I don’t live in that fancy community, but yeah, it’s not too far away from there. It is truly a beautiful place, and they hold a LPGA event there every year, I think they still do it, so if anyone is ever interested in checking out the course, but they don’t golf, going to that LPGA event is an awesome, awesome way to see those grounds and see how amazingly manicured and taken care of those grounds are.

Pierson: Absolutely. And the tournament that they do there is, I believe the Kia Classic for the LPGA tour.

Parker: Yes. Yes, correct.

Pierson: Yeah, and correct if I’m wrong, but isn’t TaylorMade’s headquarters pretty close to San Diego?

Parker: Yeah, so like I said, San Diego is kind of like what Detroit was for the auto industry. So we have TaylorMade, you have Adidas Golf, you have Callaway, and TaylorMade and Callaway were built up in San Diego, so they’re locally built businesses, but Titleist also has an office here, Cobra, Puma. So again, all those golf manufacturers are all really within a couple of mile radius of each other.

Pierson: Wow, that’s awesome.

Parker: Yeah, if you like golf and you wanna get in the industry, this is the place to be.

Brandon: Hey, Pierson, I’ve just looked it up, it’s like a $200 flight to go to San Diego. It’s actually not that hard to get over there, apparently.

Parker: Wow, that’s good deal.

Pierson: Maybe I might have to take a trip some time this year. Go play Golf.

Brandon: Now, I did not look at the details of that flight, it could be a four layover, one that goes to Atlanta, Dallas and LAX, I have no idea, I have no clue.

Pierson: Honestly, I would do it, to get back to San Diego, Parker, we’re in Chattanooga, Tennessee. So we’re in the South, and right now it is blistering hot and incredibly humid, and I think about how lovely the weather is in San Diego on a weekly basis.

Parker: Try not to think about it too much, it’s just gonna make you angry.

Pierson: I mean you’re not wrong, you’re not wrong.

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Evolved Finance: what is bookkeeping?

Brandon: So I’ve actually got a business question, I wanted to ask you something about Evolved Finance. Now, you said that it’s a bookkeeping service. What exactly is bookkeeping for folks who don’t know?

Parker: Yeah, I think in general, most people know, yeah, bookkeeping is related to accounting and finance and stuff like that, but I think the financial side of running a business is probably the most misunderstood piece of running a business, because most people who aspire to be entrepreneurs, they wanna dive into their product strategy and their overall business strategy and marketing and sales, and then they’ll worry about the finance stuff later, no one really digs into financial courses before they start their businesses, ’cause that’s what they’re pumped to do, but the role bookkeeping plays is to organize the financial data in your business, to track all of the income, all of the expenses, usually using bookkeeping software like QuickBooks Online, that’s what we use for all of our clients, to organize that data into something that then the business owner can use to analyze the business, track the health of the business, but then also the accountant can use that data to file the taxes. So I think where it gets confusing is a lot of accountants will offer bookkeeping services simply because most business owners come to accountants and go, Hey, can you file my taxes? And they go, Sure. And they go, Let’s see your books. And the business owner goes, I don’t have any. And the account goes, Crap, I now have to do your books, if you want to get your taxes done.

Parker: So accountants will offer that as a service, but for us, we are a stand-alone bookkeeping service because there is plenty to do just from a bookkeeping standpoint, for the online businesses that we serve, and so our whole goal is to just be data experts, organize the data in a way that we can deliver to our clients on a monthly basis so they can track their profitability and make sure they’re moving their businesses in the right direction from a financial standpoint.

Brandon: This is really important for a lot of business owners I understand, and that’s one thing that in my earliest business experiments, I was not very rigorous about bookkeeping at all, and I would inevitably have at the end of the year, around tax time, a kind of panic where I’m like, Oh crap, I’ve gotta go through a year’s worth of bank statements and figure out what I spent on what and categorize this so I can file my taxes, and I’ve found that the easiest way to handle it, it’s like every week you just go into QuickBooks and you just categorize stuff and attach your receipts where necessary to keep you organized, and it sounds like bookkeeping is one service, and that’s what you guys focus on exclusively, and then tax accounting, the actual filing of forms to the government, that’s something totally separate.

Parker: Yeah, it’s a different skill set. Now, I know a lot of accountants, again, like I said, will offer bookkeeping what we’ve seen, and again, I’m partially biased here, but what we’ve seen is a lot of accountants, they just want to file your taxes, that’s what they went to school for. And that’s how they make their money. They’re charging you money to file your taxes properly, but again, the bookkeeping is a necessary evil, if they can’t just look at your bank statement and your credit card statement and file your taxes, they need the transactions organized in a way that they can see, Okay, what do we spend on cost of goods, what do we spend on marketing, what do we spend on contractors? Those transactions need to be grouped together in a way that the accountant can actually fill out your tax forms, so a lot of the times the accountant will do bookkeeping, but it’s not bookkeeping done in a way that really delivers value to the customer, it’s just for them to file your taxes.

Parker: So obviously, even just marketers, there’s way more data in the world of marketing since the internet than ever before, that if you just threw a bunch of data at a marketer and it wasn’t organized properly, they’re not gonna be able to do anything with it. And that goes the same for a business owner, if you have a business and I just give you a long list of transactions or I show you a profit and loss statement with a bunch of categories that don’t make sense for your business, that’s not gonna do you any good. Again, your accountant can file your taxes now, but you’re not getting a clear picture on what’s actually happening in your business, so that’s why we really, not only do we niche down to just bookkeeping, but we niche down just to bookkeeping for online businesses, because each business model, whether you’re like a retail business, a manufacturing business, a restaurant or an online business, they all kinda have different financial make-ups and you sort of need to have different skill sets from a financial standpoint to track the finances properly and consistently for all your clients, if you were a bookkeeper, that for us, we found by niching down just to the online space, we can deliver industry leading support.

Parker: We really do believe we are not only the best bookkeeping service in the country, but we are by far the best bookkeeping service for the clients that we work with, but also all we have to do is focus on doing this one piece really well, and by doing so we’re able to make sure an extraordinarily important part of running a business is done right for our clients, and then again, the accountant then can do their thing, the client can then have a separate conversation with their accountant about taxes. But all the heavy lifting, in terms of organizing that data is done, we do the majority of the work, then the accountant just jumps in and goes, Cool, thanks for the data, I’m gonna file the taxes, talk to the client and they’re done, but we do feel like separating those two things are really important because there’s different sort of… You wanna hold each section of your business accountable, the financial data organization, AKA the bookkeeping, and then the actual tax strategy AKA your accountant’s work.

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What mistakes do you see business owners make in bookkeeping?

Brandon: That’s a really good point, ’cause it’s a lot easier to actually file your taxes and do all the stuff you need to, if you’re just being very rigorous about bookkeeping and having somebody actually specialized in that goes a long way. So with that in mind, I’m curious, What do business owners tend to screw up when it comes to finances and bookkeeping, what kind of mistakes do they tend to make a lot?

Parker: I mean, just ignoring it, is probably the biggest one, I think a lot of business owners go, Ooh, I don’t know what to do here. No one’s ever taught me this. You do a Google search and seven different websites will tell you seven different things, which again, is why it’s so important to understand your industry and to work with people that understand your industry, because again, the financial advice for, again, I managed footwear in the US for Adidas golf, like the financial concepts and the metrics I had to pay attention to for a footwear business is dramatically different than for the client’s businesses we work with today, or if you showed me a P&L for a restaurant, like I’d understand it, but I wouldn’t know as much around the metrics, what are the norms, what should a business like this be striving for, and what sort of things do you need to be tracking? I mean, in a restaurant, you have sales tax and you have inventory, and it’s so much different than a lot of other business models.

Parker: So that’s where I think you do some sort of search online, and you have no idea if this information is relevant to you, it just overwhelms you as the business owner, so you just go, I’m just gonna focus on making money, if I make money, everything is gonna be okay. And that’s where I think as business owners, I talk about this a lot, but we have this extra responsibility that is just part of what you sign up for as an entrepreneur, most people who work a day job and you’re an employee of a company, you worry about your household budget, and that’s it. As soon as you start a business, you still have the responsibilities of managing your household finances, but now you need to make sure that the business’s finances are also in order, and that you understand the financial health of your business, so we don’t really have an option to not look at this, it will catch up to you eventually, and what I will say is that our clients who run profitable businesses, do so, because they intentionally are building profitable businesses by looking at their numbers, by paying attention to the reports we give them every single month, and that allows them to make better business decisions and not just kind of winging it or taking shots in the dark and hoping that the way they’re running everything, there’s gonna be money left over in the bank.

Parker: So I think we have to have the courage to go, Okay, I don’t need to do the bookkeeping myself, I don’t need to be filing the taxes myself, but I need to start bringing people into my business to help me build systems and get this stuff organized, so I’m covering my bases, that leads me to a second piece, again, I’m not an accountant, Evolved Finance doesn’t file taxes, but I always like to say, Do not file your own taxes yourself, that is just such a recipe for disaster, there’s a reason accountants go to lots of school to learn how to file taxes properly, that for business owners to think they’re gonna Google something and then fill out the tax form and not screw something up, is just a dangerous, dangerous game to play, and I’d say the only time I’ve ever seen small business owners regret starting their businesses, is when they trust the wrong person or they try to do the taxes themselves, but they essentially have an unqualified person file their taxes for them, and then they get some scary letter in the mail going, Hey, you owe x amount of dollars ’cause you didn’t file your taxes right, and now they have to dig themselves out of that hole.

Parker: So what I usually tell entrepreneurs, whether they’re large businesses or just getting their businesses started, we have to plan for the sunk cost of accounting every single year. But it’s like an insurance policy to help you not get audited, and it’s also going to just make sure you don’t dig a hole for yourself that you can’t get yourself out of. And honestly, if you just have some sort of financial system for tracking your finances, whether it’s you using a spreadsheet in the early stages of your business or finally making the jump to hiring a bookkeeper so you actually have someone going through the data in your business so you can see what’s going on, and then make sure you have an accountant actually filing your taxes for you, not your aunt, not your business partner, not your neighbor, a certified public accountant, or a tax accountant, those are the two things, if you just take those things seriously, as like now you’re gonna set yourself up for so much more success down the road.

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Setting a foundation for success: steps to make finances easier

Pierson: One of the things that I’m hearing from you, Parker, is how vital it is from early on and starting a business to set a foundation that gives you, I guess, the path to continue on in a good way without getting stuck in these bad habits. And I guess that being said, what can some business owners, whether that be online or in person, do to make their finances easier and better practice for them from an early stage?

Parker: Totally. The first thing is, we can’t be operating our businesses and our personal finances out of one account. That’s just a recipe for things to get confusing. It’s so important that, especially, if you’re making a full-time living from your business or you’re getting close to your side hustle becoming your full-time hustle, we need to have accounts just for the business. So checking account, maybe a savings account, a dedicated PayPal account, your merchant accounts, all of that need to be separated and operating on their own, which means only business revenue and business expenses go through those accounts, and then you have your personal accounts for paying your own bills, groceries, all that, and then we’re transferring money from the business to your personal account as you need money. It’s that simple. But it’s super important because it makes your bookkeepers life easier, it makes your accountants life easier, and then I think just from a mindset standpoint, we have to be thinking about the fact that, again, we’re not just managing our household budget anymore, we’re also managing a business’s budget and business finances, and usually if you’re like, “I don’t even really do that good of job on my personal finances”, then if you wanna be successful as an entrepreneur, one of the first things I would say is, get a personal budget locked down for your household.

Parker: We actually give away a free business and personal budgeting tool on our website with a workshop we have called Know Your Numbers Now, so if you’re interested in seeing how we look at that, by all means, go to the website and go to the workshop and get that free download, but I think setting a budget for your personal household using something like Mint.com, or YouNeedABudget.com to actually track your finances each month, because their software makes it very easy to sort of reconcile your transactions each month and keep track, but I think that’s such an important first step if you wanna have any chances of being able to also manage the financial side of your business. Again, even if you have a bookkeeper or an accountant to support you, I just don’t think you can run a successful business completely ignoring the financial feedback that your business is wanting to give you.

Pierson: Oh absolutely. And getting a dedicated bank account is just an easy step one, it does not take very long to set up, and if you do absolutely nothing else, that alone will make your life a lot easier. Yeah, just a dedicated business account.

Parker: Well, and I think the other thing too is keeping it simple. Entrepreneurs love to complicate the living crap out of everything they do.

Pierson: Oh, it’s so true. Try to make a process out of everything.

Parker: Yeah, and trust me, Cory and I have fallen prey to it as well. But I think the key thing is, I know there’s books like Profit First, and they tell you to open up a checking account, but what we found is that if you operate out off one checking account, one savings account, one credit card, one PayPal account, it’s when we start opening a bunch of different things where it’s like, “Oh well, I’ll have some money for this, that goes through here and some money over there”. It seems like it’s helping you to get more organized, but what we found is a lot of the time, it just makes the business’s finances more complicated, the business already just wants to put their head in the sand, ’cause now they’re like, “Oh, I got money everywhere and I don’t really know what’s going on”. The real replacement here is, let’s keep your account simple, let’s not open more accounts than you actually need, and then again, when you’re ready, let’s get a bookkeeper in there to actually start tracking this data for you, so you’re not kinda like putting these piecemeal systems together that honestly is just gonna make your numbers more complicated to track.

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Advice to better prepare for struggles in business

Pierson: Yeah. So getting into some more questions on, I guess, finances, one of the most tricky parts of being a small business owner is navigating the times that you can’t necessarily plan for. Do you have any advice or actionable steps that people can take to better prepare for those times that stuff might come up out of nowhere and you might get hit with extra fees or a payment that you weren’t expecting? What can you advise people on in that capacity?

Parker: It’s a very grown up boring answer, but the reality is, it’s the same thing we would do for unexpected expenses in our personal lives. Savings. We need to have personal savings, we need to have business savings as well. I think a lot of the times, or not a lot of the times, but there are business owners out there who look at their businesses like a picky bank to just pull money out of whenever they need it or want it, and there’s no question. We want your business to be something that builds your wealth. For our clients especially, they’re building businesses that likely aren’t gonna be sellable, at least not at this point, the types of businesses they’re running, aren’t businesses that people are running out to go buy. But our client’s businesses are super profitable. They can be. The business model for online businesses can be really profitable, and they can make a lot of money from the business while also making sure they’re protecting the business, protecting the thing that’s actually generating income for them. So the reality is, even with our most successful clients, our clients who generate a lot of revenue each month or each year, you’re gonna have a month where the timing of some expenses and revenue…

Parker: You might take a loss or you might break even that month, even though the profitability for the year looks phenomenal. But if we’re taking every dollar of profit out of the business each month, that when you have a month that doesn’t go exactly as planned, which we should all expect to have months where it’s not gonna go exactly as planned, then they’re scrambling, they’re having to run a balance on their credit card or get a loan, and the reality is, at least for the clients we work with, there’s no need to operate the business off of credit. Maybe some of the listeners here have different business models where that might be a little more necessary, but if you’re able to build up three months of operating expenses in the business, then we can operate the business knowing that if something comes our way unexpected, like a worldwide pandemic, you feel like you have at least three months to be able to pivot, adjust and adapt to whatever is coming your way, and even like this year with Apple and Facebook, with Apple no longer tracking cookies, that’s changed a lot of our client’s strategies with their Facebook ads and their funnels, and they’re having to make some adjustments there. But if they’re sitting on that three months of cash, they know, “Hey, we’re gonna get through this, we have three months to figure this out, we’re gonna be fine”. And they usually figure it out far earlier than just three months. Four weeks later, they’re back on track.

Parker: But it is so much less stressful to operate a business that does have cash in it. Now, if your business is just getting started, you might not have that luxury, but I do think it’s important you’re at least thinking about down the road, when I get to this place, I want to be able to start building that savings in the business because there is inherent risk to running a business, and the earliest stages of your business is when it’s the most vulnerable, right? Because we don’t have a lot of revenue coming in and we might have a decent amount of expenses coming in regardless, so if we can get through that period where the business starts to become more profitable instead of just taking all of it out and going cha-ching! We wanna kind of find a balance of, “Yes. Let’s get you paid but also let’s start to keep some cash reserves in the business to make cash flow dramatically easier to manage”.

Pierson: This is a really important point, ’cause I think if you take the pandemic as an example, I think the average American business had somewhere between 14 and 21 days of cash on hand. And that’s not a lot. That’s enough to cover your expenses for two or three weeks if you’ve got no revenue. And a lot of businesses during the initial quarantine of March 2020 had to fold or wait for some loans in order to stay afloat, and that’s really, really scary.

Parker: I mean the online industry.

Pierson: Oh yeah.

Parker: Huge multi-national corporations, they didn’t have enough cash for a month because they mismanaged their money, they wanted to buy back stocks, they got super greedy, and they know. These are executives that know that they’re in a very volatile industry and they just had no cash on hand, they barely got through a month, and then they’re like, “Someone please save us ’cause we’re completely out of money”, and I just find that absolutely mind-blowing. But I think it just goes to show, regardless of if you have a small business or a huge corporation, it’s easy to fall into this trap of, “I’ll save money later. We’re crushing it right now. I’ll just make more money next month”. Sure, we need to have that positivity and that belief in ourselves that we can generate sales, but sometimes things happen outside of our control that we need to be ready for at least if we wanna have any sort of risk management whatsoever.

Pierson: They know that Uncle Sam always has money in the banana stem when it comes to a very large corporation that employs a lot of Americans. [chuckle]

Parker: Exactly, exactly. Why save money when you know taxpayers will bail you out? But that’s a whole another conversation.

Pierson: Oh that’s a whole, yeah, that’s a whole other thing.

[laughter]

Pierson: That’s on the other show. Politics is the podcast.

[laughter]

Parker: Yeah. There we go. Count me in, I would love to politics in there.

Pierson: Politics is the product.

[laughter]

Brandon: Pierson is probably sick of hearing me use the phrase, 90 days cash on hand at this point, ’cause the pandemic scared the crap out of me, I think which is a normal response. And that’s my holy grail. Personally it has been like try to shoot for 90 days of cash on hand, and we did eventually hit that early 2021, I’ve been trying to maintain that ever since. And I’ll tell you that the day that I had to pay for a lot of travel expenses for a business trip, some quarterly filings, which were a little higher than anticipated, move for taxes, as well as rolling out our 401k and having to pay for the planned administration fees all at once. All of a sudden, I was very, very grateful to have that 90 days cash on hand, because that was a lot of bills all at once. And we had lots of receivables coming right after that. But because we had a big buffer of cash, we didn’t have to worry about like, “Oh, we’ve only got 1500 in the bank account or whatever”.

Brandon: It’s such a relief for small business owners. If you can get to that point, I highly, highly recommend that you do that. And also just having a tax professional who you can rely on makes you feel better every time you see a letter come from the IRS or from the Tennessee Department of Revenue, [chuckle] in my case, ’cause you’re like, “Well, I’ve got a professional who knows what to do with these”.

Parker: Well, and I think running a business is like chess. During the pandemic, Queen’s Gambit was really popular on Netflix. I don’t know if you guys watched it or not, but…

Brandon: Yeah, we both set up chess.com accounts for a short period of time after that.

[chuckle]

Parker: Who didn’t, right? It was just such a fun show and fascinating. But I think chess as a whole is a little bit what we have to be doing as business owners. You have to be thinking a couple of steps ahead. There’s no grand champion out there who just waits to see what their opponent does and just reacts. That’s just not how you become successful as a chess player. You always have to be thinking two, three, four or five moves ahead. And I think as business owners, especially if you’re used to having worked a job where you didn’t have to strategize as much ’cause you just went into work, you did your job, you ran your department or supported your department or whatever you did, and then you go home and you just react to whatever work is coming your way. As business owners, we do have to be thinking ahead. We have to be thinking, “Okay, when do we have money coming in? When do we have big bills that are going out? How do we plan and make sure we have a focus strategy for growing this business that we’re proactive with our strategies and aren’t just waiting for business to come to us?” We have to be thinking a few steps ahead.

Parker: And as business owners, obviously, if you don’t have a lot of support, it’s just you in the business to begin with. Yes, you have to wear a lot of hats. But you have to figure out some way to be strategic if you want to scale your business, so that you can get the support you need and you can start to focus more on the strategic side of your business and not just reacting to the day-to-day that happens in your business, but we have to set aside time for that strategy, we have to set aside time to plan, we have to be thinking about not just our sales and marketing tactics, but also what is our financial forecast and budget for the year? What do we want this business to look like from a money and finance standpoint? Because at the end of the day, the whole point for this business is to make money. But I think everyone here knows that you don’t get to just keep all the sales you make, right? If business was just revenue and no expenses, then obviously business would be super easy. But as you generate more revenue, you’re likely gonna have to take on more expenses, and that’s when things get cloudy without proper bookkeeping.

Parker: Then, we don’t know, “Well, what’s left over? What’s our profitability each month?” And if we’re not trying to figure out and plan ahead for the future around, “Well, when do we think we have revenue coming in? When are we gonna have a launch? When are we having promotions? When are we gonna have to hire that person?” If you’re just forever running your business, just going, “We’ll figure it out when it happens”, I just can’t help but feel like it’s only a matter of time before your luck runs out, and just that lack of planning is gonna catch up to you.

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How much should a small business owner pay themselves

Pierson: You know Parker, you said something a second ago that’s a perfect segue into another question that I have, and it’s one that Brandon and I were talking about earlier. How much should a small business owner be paying themselves rather than putting away to savings or investing in other avenues? What does that kinda look like?

Parker: Yeah, so this is usually a question that I think business owners go, “Just give me a percentage, so then I could just follow that percentage and everything’s good. I want simple black and white answers”. But the reality of that…

Pierson: [chuckle] Good luck with that.

Parker: Yeah, and there’s nuance, right? I know that there are sort of copy and paste strategies we can sometimes put into our businesses that can work. A business coach works with you, they have a strategy that they know works in your industry, usually around sales or marketing, or maybe something operationally. And you’re right, you can make some tweaks to it, adapt it, and you can be good to go. But when it comes to your finances, there are key metrics that we like our clients to be monitoring around what they’re spending on advertising relative to their revenue, what they’re spending on their team relative to revenue, their software, their continuing education. But at the end of the day, what you get paid is going to depend on really two things. Number one, what do you need to make? If you quit your job and you have to make $5000 a month, and your business makes $7000 a month, well, guess what? You’re gonna have to take that $7000 each month of profit out of the business, put $2000 away for taxes, $5000 to pay your bills. There’s not much choice there if you have to make $5000 a month after taxes.

Parker: So knowing what your monthly nut is, is really important, which is again, why I emphasize the importance of having a household budget. I think entrepreneurs or maybe more inexperienced entrepreneurs underestimate how important their personal finances are towards being able to scale and invest back into their business, especially in the early stages. And then on the flip side, we need to know each month, how profitable is our business? If your business is generating $20,000 a month in profit, and you’ve been paying yourself $5000 a month and you’re like, “Well, can I get a raise?” Well, if you have three months of operating expenses saved up and you feel like you’re consistently gonna be able to generate $20,000 or more in profit, yeah. There’s a good chance you need to bump up your monthly pay ’cause the business is gonna be sitting on more money than it really needs to. But this is where it’s like, if I gave you a car and in the car, you know it turns on, it works totally fine, but I blanked out the dashboard and I said, When do you go get gas? You go “Crap. I don’t know, like I guess I have to just guess. I’m gonna fill it up and kinda use fuel and figure out how long I feel like I’ve been driving it for the week and then go fuel up”.

Parker: But if you don’t know what the gas tanks are, you don’t know how fast you’re driving, you don’t know if the check engine lights on, the oil lights on, whatever it might be, yes, the car can function, but it’s gonna be extraordinarily stressful to make decisions to keep the car operating properly. And I think that’s the same with our businesses, is a lot of the times we go, “Oh, this finance stuff feels scary, just someone just tell me what to do there”. But as business owners, if that’s your mindset, I think you’re gonna have a really hard time scaling the business, because so much of entrepreneurship is, “Give me data, give me feedback so I can understand the situation I’m in, and then I make decisions based on tangible data, based on things actually happening in the business, and not just making decisions based on how I feel”. We need to have good instincts as business owners, that’s obviously important. But as your business grows, data and some sort of tangible feedback becomes crucial for us to be able to make these nuanced decisions as even as easy as how much should I be paying myself for my business. So is that pretty much a cop out for an answer for you there?

[laughter]

Pierson: No, not at all. [laughter] I was actually just thinking somebody from Craigslist actually tried to sell me a Buick Century in a PetSmart parking lot that had nothing on the dashboard that you could see. And of course, I wasn’t interested because I’m like, “Well, why am I going to buy this car if I can’t see how fast I’m going, how much oil I’ve got, how much gas I’ve got?” I mean, miles are on the odometer, right? It’s a completely absurd thing to do, so I walked away just as somebody should walk away from just flying blind in their business. You can’t just take cash when it’s like, “Oh, the bank account looks nice right now.” You’ve gotta take into account when your expenses are going to go out and how much revenue you can expect to come in.

Parker: Well, there’s a story happening in our businesses, and if we’re not watching that story unfold by looking at the right pieces of data, whether that’s the story around your paid traffic funnel and the analytics that are coming in from that, or looking at your profitability each month. If you don’t like looking at information and data and making decisions off of it, then you better get someone in your business that does.

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Expenses to keep in check and how to do that

Pierson: Let’s see, so with that in mind, are there any particular expenses that a business owner should be careful to keep in check, particularly an online business owner?

Parker: Yeah, so I was gonna say it really does depend on what type of business you’re running, but with our clients… And I do think that overall, this is fairly universal for most businesses, but it’s your cost to acquire customers, which is typically for our clients. Like in the online space, a lot of times, it’s gonna be advertising if they’re paying for it. Obviously, if you have SEO or you have really great SEO and people find you in searches, or you have a huge social media following, or your customers find you through the YouTube algorithm or Pinterest algorithm; there’s ways to generate leads, obviously, without directly paying for each lead like you would with Facebook ads, but…

Pierson: If you need them, book us with Calendly. [chuckle]

Parker: Yeah, and that’s the thing, but Facebook is, or Google Ads, for that fact. They’re, I guess, the quickest way to generate leads if you know what you’re doing, and we have some clients who are extraordinarily good at leveraging paid traffic in order to scale their businesses, but that’s a big cost. So for instance, like with paid traffic or paid advertising, we would want our clients to be spending less than 30% of their revenue on advertising. If it starts to get or go beyond 30% of their revenue, their profitability tends to be a lot more difficult to get into the zone that we want it to be in. And then team is gonna be the other big expense. So whether it’s contractors or employees or both, the cost of your team is gonna be one of the most significant investments you need to make. It’s one of the most important investments you need to make for your business to scale, but it’s also one that if we don’t hire with some sort of strategy and we don’t have good systems and processes in place, it can get super expensive.

Parker: So for our clients, we typically want them to be at somewhere around 20% of their revenue going to labor expenses. The smallest business we would be working with is maybe $100,000 a year business, so maybe wouldn’t expect them to already be spending 20% of their revenue on team members. It might only be doing 5%. But especially as they start to get closer to that $300,000, $400,000, $500,000 a year revenue line or beyond, we have a number of clients in the seven and multi-seven-figure range, that’s where getting to that 20% labor cost can happen really quickly and even start to creep up to 25%, 30%, or more if they’re not paying close attention to how they’re building out their team. And again, we’re not overly concerned about any individual metric like advertising or labor if the profit, overall, looks good. And for the clients we work with in online business, we would expect their profitability after all of their expenses are accounted for to be at about 30% or higher. We have some clients that are in the 40%, 50%, 60%, 70% profitability range ’cause that’s the potential of an online business, where you don’t have a lot of the overhead that maybe a classic business would have.

Parker: But just like any business, it’s easy for your expenses to increase faster than your revenue, so we do have some businesses that come to us or have maybe temporary periods where they drop below that 30% profitability range, and that’s where we would really wanna start looking at, “Well, is it coming from your labor cost? Is it coming from your advertising, not getting a good enough ROI from your advertising?” Or sometimes, it’s like your expenses aren’t the problem; you just need to go generate more revenue. That, sometimes, is a big factor, too, especially in the early stages of your business, where yeah, you probably don’t have any expenses you can cut, you need all of them; you just have to go out and generate more revenue.

Brandon: I think the only one that I would throw in beyond just that is keep an eye on subscription services if you’re doing something like what we do with consulting ’cause we buy a ton of software, and then find out that we don’t need some of it, and that’s an easy way to save a few bucks. Of course, labor and marketing expenses are going to be a lot more in terms of percentage of revenue, but if you want an easy way to cut costs and not actually hurt anybody, go after those licenses you don’t need for software.

Parker: Well, and what I will say is yes, software, that’s one of the first things we have our clients maybe just do an audit of when we start working with them just ’cause it’s, like you said, an easy way to save a couple bucks, but we’ve never seen a six-figure or seven-figure business fall apart because they were spending too much on software. So that’s where it’s like there’s always some areas maybe we can tighten up some things, but if we have a fundamental issue with the profitability of the business where the business model is not functioning properly, at least for our clients, it’s almost always gonna be because they’re not getting a good enough return off of their ad spend, or they’ve over hired for the size of their business.

Brandon: Yeah, that makes a lot of sense. Those are two really big levers to pull when it comes expenses, and it’s really, really easy to go overboard when it comes to labor. And the thing that’s tricky about labor is you always wanna treat people well once you hire them. That makes moral and business sense, but it’s a ratchet. It’s way easier to scale up than it is to scale down.

Parker: Yeah, and I think this is where, again, planning ahead, knowing when you can make that hire. Making sure that as you bring people on to the business that you have some manner to be able to control leads coming in and seeing the revenue growth. This responsibility to plan ahead, ’cause as soon… For instance, at Evolved Finance, we’re at 16 full-time employees, including my business partner, myself. I mean, if there’s anything that’s gonna keep me up at night, it’s gonna be the fact that there are 14 other people, plus myself and my business partner who rely on this business to feed our families and make a living. That Corey and I have become increasingly better planners because we don’t wanna leave anything to chance. And so that’s, again, this extra responsibility. I think, yes, entrepreneurship is super sexy. There’s more content and more interest than ever before around starting a business, but I think sometimes, people don’t realize how much responsibility can come with that and how much they’re gonna be pushed out of their comfort zone around needing to learn new skills and needing to get their minds in the right place in order to be leaders in their organization and not just using their business as cash machines.

Parker: That you’re absolutely right. When we bring these people on to the business, there’s this extra responsibility and extra pressure that comes with that. But if we are running businesses where we have our ducks in a row, and we’re running professionally, and we’re taking that responsibility seriously, there’s no way Evolved Finance would have scaled to where it’s at without the amazing team members that we have. Our offer is our people. Our people follow our processes and our standard operating procedures from a bookkeeping standpoint, but finding talent and getting really great people in our organization to serve our customers has become the most important process in our business, is hiring talent and making sure we have the best people we can find, and making sure we’re compensating them competitively to want to show up and serve our clients really well is super important. But we also charge our clients an appropriate price for the level of service and the quality of service that they receive, so that we’re not playing the low price wars of, “Yeah, let’s just see how cheaply we can do your bookkeeping, and let’s see cheaply we can hire out our labor.” That’s just not a game we wanted to play as a business. So it definitely can feel scary to make these hires and there is that responsibility, but if you get it right, it’s going to be what takes your business from wherever you’re at now to two, three, four levels above that.

Brandon: Absolutely. That’s good advice. Pierson, do you have any more questions?

Pierson: I think one of the only questions that I’ve got left for you, Parker, is specifically for Evolved Finance. How did COVID impact you guys?

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How did COVID-19 impact Evolved Finance

Parker: Well, it’s funny, we were talking about the three months of operating expenses during COVID and how important that was. And last year, we were very fortunate that we were sitting on that savings, but we ended up having the best year we’ve ever had. We lost some clients at the start of the year, for even reasons outside of COVID, ’cause we were adjusting our service, we were making some big changes in the way we operated so that our business could scale even more. And then of course, we did that right when the pandemic hits, and so some of our clients had to pause their businesses or had to go get a job or whatever situation they were in. But then, because so many people were now at home on the Internet, I’d say at least half of our clients, their businesses grew significantly, and the other half of our clients, their businesses stayed steady, at the very least. So for us, even though it was the biggest year we’ve ever had, it was still extraordinarily stressful, because no one had ever been through anything like this, while the first three months, we really weren’t sure what’s gonna happen. And then even when we had lots of clients coming on later on in the year, as things started to settle down, it was still this uncertainty of, “Well, how long is this gonna last? Is there a whole another level of this pandemic that’s gonna happen that might make things even worse, and it really will affect our business?”

Parker: But that’s where I was able to sleep at night because of that three months operating expenses we had saved up in our business before the pandemic that really made that uncertainty a lot more easily digestible, I guess, but it was still very stressful. But all in all, we saw, I think, the online space, ’cause again, a lot of our clients are selling courses, membership sites, hybrid group coaching programs, one-on-one coaching, one-on-one services, and then we have some influencers like some audience-building sponsorship deal kind of business models, and they had more customers, more eyes on their businesses than ever before because everyone was online. So that was one of the reasons why I got involved in this business is, when Corey and I were talking about bringing me on, and I was thinking about, and again, this just goes to show how neurotically planned, a neurotic planner I am, but I was like, “Cool! What happens when a recession hits? What do we think that’s gonna do to our industry?” And when Corey and I sort of thought about it, we went, “I think we’re gonna be recession-proof because when people lose their jobs, they go out and start businesses.”

Parker: And the Internet’s made it easier than ever before to start a business, and so many of our clients aren’t business coaches who are coaching small business owners how to grow their businesses, that we thought their businesses would grow, too. So the pandemic really put that to the test. I wish we didn’t have to have that recession theory tested last year, but all in all, our hypothesis ended up being right, and we were able to grow our business, and probably the most stressful year I’ve ever experienced in my life, and I feel very, very grateful for that.

Pierson: Well, I’m glad to hear that. Not that it was a stressful year, but that you were able to come out from it, and the perspective you probably gained from that time.

Brandon: You made the most of it, and that’s about the best that anybody could ask for out of a year like that.

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Final Thoughts and where to find Parker

Parker: Yeah, we were able to hire more people. We were able to create job opportunities for people, create job opportunities where people could work from home. Our team is completely remote, our teams across the country, and they all work from their home offices. So it made us feel like we could at least do something even in a very, very small scale, to feel like, “Alright, we’re having some success. How can we spread that wealth a little bit, and obviously, continue to serve our clients, and support the team that we did have?” And yeah, it was, again, it was a very trying year and it tested our leadership, for sure, as business owners, but yeah, definitely very grateful that we were able to get through it. Our clients succeeded, they were able to hire more people, create more opportunity for people on their teams. And I think the rest of the corporate world is starting to see the benefit of having remote teams and being more present online, that’s for sure.

Pierson: Absolutely. Well, Brandon, do you have any other questions?

Brandon: All my questions have been answered.

Pierson: All of mine have been answered as well. So I guess with that, we will say thank you, Parker, for coming on the show. It has been an honor to have you on and listen to your advice. And if you’re interested in checking out our show, you can go to Spotify, iTunes, Google Podcasts; wherever you find your podcast, we’re on it. Leave us a five-star review and give us a like. And for Brandon and Parker, I’m Pierson, and this is the Marketing is the Product Podcast, and we’ll see you soon.

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