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Managing your agency’s financials for better results (featuring Chris Hervochon)

Understand how to increase your profits through improved reporting

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Chris Hervochon, a CPA with extensive experience working with small agencies, shares his advice on how to manage your business more effectively by understanding and using your financial reports.


The following is a computer-generated transcript. Please listen to the audio to confirm accuracy.

Chip Griffin: You’re listening to Chats with Chip on the FIR Podcast Network, featuring conversations with agency owners and experts.

Hello and welcome to another episode of the Chats with Chip podcast. I’m Chip Griffin, and I’m very pleased to have with me today, someone who’s going to help illuminate your agency financials. He is Chris Hervochon. He’s a CPA with a ton of experience in this space, working with agency owners. just like you.

Welcome to the show, Chris.

Chris Hervochon: Thanks so much. I appreciate you having me.

Chip Griffin: It is fantastic to have you and why don’t you just give a little bit of background on yourself and then we’ll jump into the conversation.

Chris Hervochon: Sure. So a little bit of background. I live in Hilton head, South Carolina. We’ve got a team of four and I started this business as a side hustle.

10 years ago, went full time about three years ago. And we’ve been helping agencies. Actually, my second client was, was an agency. So just about 10 years. So it’s been quite a bit. and we operate virtually got four people all over the country and that’s pretty much the nuts and bolts of it.

Chip Griffin: Well that is, and that is a fantastic background because I know one of the things that a lot of agencies struggle with is how to properly report their financials and make sense out of what they are seeing.

So, you know what, in your experience here, what is the most common problem that you see when you first enter an agency?

Chris Hervochon: A lot of it circles around margins, cash flow, focus. You know, a lot of the times what we’ll say is successful agencies do two things really, really well. They’re focused on their strategy.

So they’re either picking a vertical niche or a horizontal niche and they’re focused on one or the other and then they understand and manage cash flow really, really well. So those are the first two things that we really say. we see the absolute gamut as you would expect. And based on our conversation, we got a few minutes before we started recording.

We see the absolute gamut. Everything from P&L to. When do I file taxes? What, what taxes do I have to file? it, it really runs the gamut.

Chip Griffin: So it’s, it’s a combination of helping them run their business better and also frankly, keeping them out of trouble.

Chris Hervochon: Yeah, exactly right. So there’s a, and we say that there’s two things, to any accounting engagement.

One, it’s a compliance type function and a compliance type function is we’re filing your tax return. We’re filing it on time. We’re following it. Accurately. If you’ve got any sort of bank covenants where you’ve got loans or, you know, certain circumstances that you have to meet in order to stay compliant with the bank.

There’s that too. That’s all well and good. That’s not the fun stuff. The fun stuff is being able to ask questions about your agency and then get accurate timely and reliable answers back and that’s really what the accounting function provides So whatever questions It is that you have about running the business.

What is my profit margin broadly? What is my what are my margins on these types of services? What are my margins on these clients? those are probably the most the most common the other favorite question that we get is My P& L says I made all this money. My bank account says that I didn’t. What happened?

And that, that’s a fun conversation too. Yeah. So really it’s that second piece. That’s the most fun. It’s asking questions about the business, how to run the business better, and then being able to answer that with financial data.

Chip Griffin: Yeah. And I think one of the things that I’ve seen with a lot of agency owners is they don’t really understand the difference between tax accounting and management accounting.

And, and there are, they’re very different from the perspective of from a tax accounting perspective, you want to typically minimize your, your tax, hit as much as possible. And so, you know, you may. Manage your numbers a certain way there, but from a management perspective and understanding how the health of the business is and what your growth trajectory is, that’s a different way of looking at the numbers.

Chris Hervochon: 100%. Those are two totally different worlds. Totally different worlds.

Chip Griffin: And you can do both at the same time, right? You can manage for growth and yet still minimize your tax burden. And I think, I imagine that that’s a lot of what you’re doing when you’re working with clients is helping them understand those differences and make the appropriate choices.

Chris Hervochon: Exactly right. I mean, you can walk and chew gum at the same time. It’s a, it’s a combination of things. It’s, it’s managing for growth and it’s trying to get to some sort of a level where you’re either planning on exiting the agency or you’re planning on, selling it or, or, Passing it off to employees or whatever that is.

So there’s gotta be some sort of a long term goal. There’s gotta be some sort of management from here to there to manage the growth and make sure that you have the appropriate cashflow so that you can scale, making sure that you have cash reserves so that you can hire people and invest back on a business so that you can actually get to that end goal.

So that’s part of it. And the other, other part of that is just balancing the tax consequences of all of those things together to make sure that we’re minimizing the tax impact, which also maximizes cashflow or helps to maximize cashflow. And really helps to facilitate you getting from here to there.

There’s a couple of things you gotta balance there.

Chip Griffin: Yeah, and I think, you know, one of the things that I’ve seen, particularly with small agencies, which is most of the folks who are listening to this show, say 25 or fewer employees, one of the big things that drives both sides of the equation is the owner’s compensation and how they’re taking it.

Right, because if you’re, if you just call it all profits and you’re just taking draws, it can make it look like you have a giant profit margin, whereas if you’re paying yourself a salary, it may look like you have a smaller one, and the tax consequences may be different depending on how you’re structured.

Chris Hervochon: Exactly. A lot of, the vast majority, actually, of our agency clients are S Corps, so you have to take reasonable compensation anyway. So there’s this tax game that you’re playing because you want your compensation to be as low as possible, but it still has to be reasonable. So there’s an analysis that has to go in there, but then there’s also this management game that you’re playing because it’s got to be reasonable for other reasons.

Profit margin being one of them, you know, making sure that you’re at an accurate profit margin. You don’t want to be at 30 and be like, oh man, i’m totally killing it, but your owner’s compensation’s at zero So really you’re not at 30. You’re at some you’re something lower. That’s more reasonable that you know So there’s downstream impacts of that.

Chip Griffin: Yeah, and so, you know, sometimes you need to keep you know I won’t say necessarily parallel sets of books, but you need to when you’re looking at it Add back your own compensation if you’re looking at it from, you know, what’s that healthy margin standpoint. So even if you’ve done something to help get the lowest tax burden possible because that’s the advice that you or another accountant is giving them, you still need to understand what your quote unquote real profit margin is.

Chris Hervochon: 100%. Absolutely right.

Chip Griffin: So I, I think one of the, the other things that you mentioned is cash flow. And, you know, one of the things that I see with a lot of agencies is when you, when you look at their P& Ls, it shows a lot of spikiness. And in part, that’s because they’re using cash accounting, which typically is what agencies would want to use for tax purposes.

But it, it doesn’t have the smoothing out effect of accrual. So you may be, you know, retainer based, you may actually not have much fluctuation in what you’re invoicing each month. But based on timing of payments, it can be going up and down. And so you need to understand, you know, what the, the source of your cash flow problems is.

Is it that you’re not selling, you know, on a, a steady basis, or is it simply that you’ve got a collections problem?

Chris Hervochon: Exactly.

Chip Griffin: Why don’t you explain the difference between cash and accrual just briefly, because this is a question I get a lot from clients.

Chris Hervochon: Yes, absolutely. So cash based accounting, you’re recording transactions when cash moves.

So when cash comes in, when cash goes out, you’re recording transactions. When you receive cash from a client, you’re recording revenue. When you’re paying for something, software, subscription, when you’re paying your people, you’re recording an expense. When the cash moves, if you pay it today, you record it today.

It’s that simple. Accrual based accounting is much more complicated. It’s much more involved, but it’s also the more accurate way to, to manage your books and to measure what’s actually going on in your business. Accrual based accounting. We are recording transactions as the economic impact happens. So in other words, if you sell a, if you sell a project and it’s going to take.

Let’s just say it’s going to take a hundred days and you sell it for a hundred dollars. Well, and you’re going to complete it, you know, rateably over those a hundred days. So you’re going to do an equal amount of work over a hundred days. In theory, you would record revenue as at 1 per day. However, if that client pays you upfront on the first day under cash accounting, you would record that revenue on the first day and it’s all done, even though you still have all this work hanging out there.

So one of the things that we see. Is, deferred revenue and managing deferred revenue, which kind of gets in the managing capacity, realizing that you’ve got all this cash in the bank, but you’ve really got a liability because the work still has to be done. It’s going to be done at a future date.

There’s still a risk that a client comes back and says, Hey, you know, we’re not doing this project. We’re not moving forward. Give me a refund. That happens. We just had that happen with a client last week. so it’s really just two different ways of, of, of keeping your books. One is more accurate than the other a girl being more accurate than cash.

One is much more involved than the other, accrual being much more involved than cash accounting. But it’s really, you need to find that balance in your business as far as what do I really need to know? How much time and effort am I really looking to put into managing my books this way? What accounting team do I have?

Because if you’re going to do cash accounting, it’s going to be cheaper. And if you have an ability to get these other reports that kind of facilitate the answers that you’re trying to get to with accrual accounting Anyway, that’s a good that’s a blend of both worlds and that that’s okay it’s really just the balance that you’ve got to find

Chip Griffin: and when you’re working with clients Do you do you typically?

Still work with them on a cash basis or do you try to get them to do accrual since you’re now the professional involved with doing things

Chris Hervochon: It’s a mix. It’s a mix. It really, it really depends. for some agencies, it just doesn’t make sense. They’re, they’re doing millions of dollars in revenue, but they’ve only got a couple of transactions a month and we could answer those, those questions that we’re trying to get to with accrual accounting with management reports that will take us a fraction of the time to, to pull and you know, that’s the way that we’ll, that we’ll answer that.

It goes back, it goes back to that second point that I made. Okay. Is that accounting is really about asking questions about your business getting accurate timely and reliable responses back There’s really no right way between cash and accrual. It’s What’s going to facilitate the answer. So if we can do cash, if we can get management reports, that’s a good way to go.

If it’s a more complicated agency, if there’s a lot of moving parts, if we can build in automation that will facilitate a cruel, then we’ll go with the cruel. if there’s the budget also, because a cruel is much more expensive. It’s much more involved. There’s much more, touch points. It’s, it’s a whole different, that’s a whole different sport.

if the budget doesn’t exist, if it’s, if it’s not able to be automated, if we can answer the questions with, you know, separate reporting anyway, we’ll go with cash. It’s, it’s easy enough and it, it kind of ticks all those boxes.

Chip Griffin: So, you know, one of the things, you mentioned budget. One of the things that you, obviously you have to encounter when you’re talking to a prospect is, at what point does it make sense for them to start outsourcing?

Yes. This work. I mean, most agency owners are outsourcing at least their tax preparation. and, and some are outsourcing the actual day to day bookkeeping. Some may just be using QuickBooks or FreshBooks for a while. But how do you, how do you figure at what point? Is it just when it becomes sort of overwhelming to you as the owner?

Or are there some trigger points that you would recommend agency owners look at when they should seek professional help from someone like you?

Chris Hervochon: When it becomes overwhelming, it’s probably too late. Well, not too late, but you probably should have done it before. You probably should have done it at some point before.

Yeah, like legal, HR, accounting, like those things should all be outsourced, and you should probably be doing that sooner than later. The reason being is when you get to the point, if you don’t have any sort of, financial background, if you’ve never used QuickBooks before, if you never took more than one accounting class in college, you Like, you’re probably not qualified to do your, your bookkeeping or accounting on any sort of level.

You should outsource it. when you’ve taken that on yourself, when you’re using QuickBooks, when you haven’t really set it up properly because it’s just not your bailiwick, right? You’re a marketer, you’re not an accountant. And then the agency starts to grow and then you get to the point where it’s just too much.

You probably already have a mess that you probably have to untangle. So you’ve, you’ve probably gone too far down that path. You know, those three things, accounting, legal HR, I would outsource those as, as soon as possible, because those people are going to help you grow your business and they’re going to help, they’re going to help you stay on the right track and they’re going to help you stay out of trouble.


Chip Griffin: and I, and I think that’s key. I think, I think it’s, it’s so important that agency owners are talking to those professional advisors, legal and accounting before you even started the business, right? Because there are some steps that you need to take when you’re, when you’re first establishing the business, that there’s some choices you need to make.

And if you’re not getting professional advice from your lawyer and your accountant, you may make decisions that, you know, You know, they’re certainly not irreversible, but they’re a lot harder to deal with later on. Same thing with hiring. Before you hire, you should be talking to an HR advisor to make sure that you’re setting things up properly.

Chris Hervochon: A hundred percent. Like, the best thing you can do is when you’re in a full time job and you’re getting ready to go out on your own, is to go talk to an accountant, go talk to a lawyer and say, Hey, I’m thinking about going out on my own. What’s this going to look like? What does this mean? You know, what do other people experience what you, we do not want to do and what we have seen happen and what is very expensive and very frustrating and very time consuming as a fix is, okay, I went out on my own, I went and I opened up a corporation or something like that.

And I did it on legal zoom and I’ve, or I’ve got, you know, three partners and we don’t have a partnership agreement. And one partner’s leaving and this was three years ago. And oh, by the way, I’ve done my own bookkeeping the entire time. What do I do? And that that’s a mess. We’ve seen that. That is a mess.

You’ve got to unwind it. It’s frustrating. It’s time, it’s time consuming. It’s expensive. So talk to those people before you actually are thinking about going out on your own. Just get advice, because these people have seen, they’ve seen what you’re trying to do before. And they know where the pitfalls are, they know where you need to focus, and they can, it’s money well spent, 100%.

Chip Griffin: The work you do as an agency may be unique, but the way you set them up, it isn’t all that unique. It’s something that a lot of folks have experience with, and someone like you who’s worked with a lot of agencies can really help. Avoid those pitfalls right from the get go. And I really want to underscore what you said, particularly if you’re starting a partnership.

Partnerships, I have spent more time working with failed partnerships that don’t have the appropriate paperwork in place, don’t have the right structures in place, and those are just, they’re incredibly difficult to unwind and deal with after the fact.

Chris Hervochon: One million percent. One million percent. Talk to an attorney.

Talk to an accountant before you even go down that path.

Chip Griffin: Right. And make sure if you’re doing a partnership, make sure you’re thinking about all of the things that could go wrong. Because that’s what all of the things are about. The paperwork and structure is all about. It’s not, it’s not for the start when you’re all excited about it and you’re like, this is great, you know, we’re coming together, we can be creative together, we can make a lot of money together.

It’s for when something goes wrong down the road, someone loses interest, some, someone gets divorced, all those different things are things you need to account for in that initial paperwork. And if you don’t, it’s really difficult to handle after the fact.

Chris Hervochon: Oh, 100%. you know, there’s a honeymoon period to everything, to everything, you know, it can be as simple as, hey, we started this partnership.

We all lived in one state. And then we all kind of moved and then we opened an office in another state and then, oh, by the way, a pandemic happens and somebody has got childcare at home now and somebody needs to exit the partnership. Like those things happen. Those aren’t necessarily like, oh, we got into this huge fight and we decided that we don’t want to be partners anymore.

It’s just life happens sometimes. so you need to make sure that you’re considering all of those things and that you’re covering your bases because it is expensive and it is time consuming and it is, exceptionally frustrating to unwind that when it’s not done properly to begin with.

Chip Griffin: Yeah, when I started my first partnership 20 some years ago, our attorney sat down with the three of us and he walked through a lot of really uncomfortable questions.

What happens if this happens? What happens when that happens? And they were things, frankly, we hadn’t thought about. But it was really helpful that he made us go through that process because then we made sure that we had our T’s crossed and our I’s dotted. But you’ve also touched on something really important there too when you talk about, you know, people moving.

Yeah. And this is something that a lot of agencies are experiencing now, particularly, you know, post pandemic, is you’ve got, employees moving, partners moving. There’s a, there’s a lot of moving parts, and it is, in the United States, as you start crossing state lines, that has potential tax and legal implications.

So, can you talk a little bit about how that changing environment is really impacting agencies and what they need to be thinking about if they’ve got employees who are moving out of state or they’re hiring remote workers in other states and those kinds of things? Sure.

Chris Hervochon: Yeah, I’m going to give you the famous accounting or accountant response.

And which is it depends. Yeah, it depends.

Chip Griffin: Which is the tagline for my other podcast that I do with Gini Dietrich, we conclude every episode. So yeah, so I’m fully on board with it.

Chris Hervochon: Yes, it depends. So if you’ve got people in in different states, you may or may not have nexus in that state, you may or may not need to, to register in that state, you know, payrolls, payrolls, its own thing.

Some states tax services, taxes being a great example. so there’s sales tax on services. So you may need to file sales tax in your state. It depends on, because every sales tax goes state by state. Income tax, some states have income tax, some states don’t. depends on the structure of your business as well.

And so it really just depends. That’s one of those things where if people are moving, if your employees are moving, if you’re moving, if the business is moving, if the business is going virtual, if the business is going back to brick and mortar, just have a conversation with, with an accountant. Don’t leave out any of the specifics, just lay out the whole thing.

This is what’s happening. This is what we’re thinking and do it before it actually happens. And what are, what are the tax implications going to be? Because you, it, it, A lot of times you can’t stop that. Like you can’t stop if you’ve got good people working for you and they’re like, Hey, I’m moving to New Mexico tomorrow just because I’m working virtually and I can, then that’s fine.

You probably want to keep that person, but you also probably want to understand what the implications are going to be to the agency from a compliance perspective. So just, you know, know what’s happening, looping the, as always looping the accountant, looping, looping the attorney if, if you need. before you make any drastic changes and just understand what your, what your liabilities are because they do vary state by state.

Chip Griffin: Yeah, I think that’s critical. Before you make a decision, before you say yes to Sally when she asks to move to New Mexico, or before you decide to move to another state, make sure you’re having those conversations. Because, I always tell people, don’t be afraid of Having to deal with these issues right because it is becoming more common and you know, yes It may suck that you have to do some more paperwork and so you may have to pay a little bit extra to do it But more or less it often comes out in the wash And so you just need to figure out how to do it appropriately so you don’t get in trouble You’re minimizing your risk and you’re you’re still able to get the talent that you need.

You’re getting the clients that you need And I think the other thing is this is a constantly changing environment, which is why it’s so important to be working with a professional like you because, you know, we’re just seeing now, I think Maryland just added a new digital services tax in the last few months.

And so there’s, there’s a changing landscape, particularly as states feel more pressure on their budgets, post pandemic, they’re going to be looking for more ways to get cash into their own coffers. And so you’re going to need to be aware of these changes and that’s where professional advice comes in.

Chris Hervochon: A hundred percent. It’s always changing. And especially from a PO perspective now, the horse is out of the barn now that we’ve had the pandemic. And now that everybody’s gone virtual, that’s, that’s not going to change. You know, it’s going to be something that we’re gonna have to deal with forever and people move.

So, you know, you just have to be aware of what, what, what your requirements are.

Chip Griffin: Yeah, and issues that weren’t an issue 18 months ago are becoming issues, right? We’re seeing this actually between the states of New Hampshire and Massachusetts because there’s discussion over how you tax employees who are working from home, even if they’re technically assigned to an office in another state, and if they’re there, you know, part time or mostly remote or all those kinds of things.

And so a lot of these things still need to be sorted out, frankly, by the courts, which is, you know, another wrinkle in the hole. But I, you know, I, before we run out of time here, I, I also want to talk about the, the value of having a relationship with your professional advisors. And so I, I wonder if you can speak a bit to the value of having an ongoing relationship where you start to understand the agency business.

And it’s not just, you know, that, that, that call out of the blue, Hey, you know, I’ve got an employee who’s looking to move and you have to get up to speed all at once. Because I think that’s something that a lot of agency owners overlook and they, they simply make the call. You know, when the crisis erupts and it’s not that ongoing conversation where, they’ve got a professional advisor like a CPA plugged in on a regular basis.

Chris Hervochon: Yeah. So I think there’s a couple things there. you know, when, when the pandemic happened, one of the things that we, we had a playbook, it was like a five step playbook. And one of the things that. We started to tell our clients coming out of that was you need to make sure that you’ve got a relationship with a banker.

You need to make sure that you’ve got a relationship with an SBA person. You need to make sure you’ve got a relationship with an accountant. Obviously, we, we had that covered, but you know, an attorney, those sorts of things. So even just go back to PPP, that’s a great example. If you didn’t have a relationship with a banker, the beginning stages of the PPP process were not, were not good.

same thing with, with like an SBA person, just having a relationship with an SBA person who can just. You can talk to who you can go to lunch with once a quarter or something like that is fantastic. but one of the things that we hear a lot when new clients come to us is, it’s two things. Usually it’s one, my accountant’s not responsive.

And then in two, it’s usually my accountant doesn’t understand the agency business. We hear both of those things in equal amounts. And sometimes at the same time, if your professional advisors don’t understand your business, they’re not going to be able to help you as much. So whatever issue that you’re going through, they haven’t seen before.

So it makes their, their response a little bit less efficient, or it makes it a little bit less accurate, a little bit less helpful, whatever, whatever you want to call it. so that’s part of it. The other part of it is if you’re having these constant conversations, if you’re talking to people on a consistent basis, you can start to see a little bit more through the, through the windshield, as opposed to the rear view mirror, you can start to see what’s coming like, Oh, we talked about this last month.

And we just talked about this and oh, I remember we talked about that last month. So what are we thinking about for next month? And what are we thinking about for six months down the road? You know, the advisor can start to connect those dots. Super important. You know, if you want to, if you want to be getting proactive advice, the first part, the first place to start is to actually have a relationship.

Very difficult otherwise.

Chip Griffin: Yeah, and I, I think, you know, starting with someone who has experience in your industry, in other words, who already works with agencies, is very beneficial because they’re, they’re not learning on the go. I mean, it’s, you know, if, if you have, if I have a broken wrist, you know, I, I don’t generally want to go to a dermatologist, right?

Yes, they’ve got medical training, but. My first choice would probably be someone who’s actually, you know, used to dealing with broken bones, right? And it’s the same kind of thing. Just because someone’s an accountant or a lawyer doesn’t mean that they understand your kind of business. So you want to start there.

But then if you do that, and then you have the ongoing conversation. So, your advisor gets to understand, you know, your approach, your risk tolerance, the nuances of your business. You start to get better and better advice that, as you say, is more looking through the windshield. Which means that you can head off problems and take advantage of opportunities.

Chris Hervochon: Exactly right.

Chip Griffin: So, as we wrap up our time together here today, are, are there, are there other final words of wisdom that you would have for agencies as they’re, they’re looking at their numbers? I mean, maybe, you know, what, what should they be looking at on a monthly basis, a quarterly basis? What are the things that they really should drill in on to, to know the health of their business or, or other tips that you might have to offer?

Chris Hervochon: Ooh, I love that question. So at a minimum, you should be looking at your financials on a quarterly basis. What’s better is on a monthly basis. You need to make sure that your books are being closed timely. So by the first half of the following month and so that’s a conversation you should have with your account to make sure that That’s actually happening so you can get at least somewhat timely information That’s the first

Chip Griffin: explain what you mean by closing your books.

This is a question. I get a lot from agency owners

Chris Hervochon: Oh, yeah, absolutely. So closing the books means that all of the transactions have been classified. They’ve all been entered So the transactions that are in the books are the totality of everything that happened There’s nothing that that happened that’s not in the books and there aren’t things that didn’t happen that are in the books You Okay.

So that’s the first piece. The second piece is making sure that everything’s reconciled at a very bare minimum. You want to make sure that your bank account is reconciled. You want to make sure that your credit card is reconciled. In reality, everything that goes on the balance sheet should be reconciled, but that’s, that’s a big lift.

That’s that a lot of times it’s beyond the scope of, of anybody who doesn’t have an internal accounting department. So everything’s classified, everything’s reconciled, that’s closing the books, and reviewed too, obviously. Things that you want to be reviewing, and we go, this is the order that we go in when we do financial reviews.

So number one, we want to talk about cashflow. Cashflow is the cashflow statement. And there’s three pieces of the cashflow statement. Cashflow from operations, cashflow from investing and cashflow from financing. Super important to understand what, those three distinctions are and super important to read the cashflow statement because that question of, I made all this money, but I don’t see it in my bank account.

That’s the reconciliation. That’s, what’s going to tell you where it went and why your bank account does not necessarily meet expectations. Cashflow statement is super important. Then you wanna look at the p and l. The p and l is gonna provide more context to the, cashflow statement. The p and l is your profit and loss.

So it’s revenue minus expenses. Super simple, right? and then finally, you wanna look at your balance sheet. And you, this is the, this is the one that probably falls by the wayside the most. The balance sheet is where all of the bodies go to get buried. So if there are problems in the financial processes and the accounting processes.

They’re going to be on the balance sheet for sure. So understanding those three statements, reviewing those three statements on a monthly basis, or at least quarterly, making sure that the books are closed timely, that’s what you need to be looking at. And that’s how, you know, you’re going to be able to scale your, your agency most effectively from a financial perspective, and that’s how you’re going to start to get your arms around.

What’s actually going on.

Chip Griffin: And I, on closing the books, I think that the biggest problem that I see in agencies, I’m curious if you do as well, you know, typically relates around expenses or the owner’s credit card. And those are the things that are not necessarily being recorded. you know, most people think, okay, well, I’m, you know, the, the checks that go out, the wires that go out or come in, you know, I’ve got all that taken care of, but they’re, they’re not necessarily working with their employees to make sure that they’re submitting their expenses in a timely fashion.

And more importantly, a lot of the owners aren’t doing their own because they’re like, well, it’s my money anyway. So, you know, I’ll just deal with it come tax time.

Chris Hervochon: Yeah, we see that a lot. The biggest mistake that we see is personal expenses that run through the business. Run through the business credit card or the business debit card or whatever it is It’s problematic because number one it’s creating transactions that have no economic connection to The actual operation of the business number one, but number two It also creates legal problems where, and I’m not an attorney, so go talk to an attorney about this, but, it can also potentially create legal problems where you’re piercing the corporate veil, so to speak, where if somebody can make an argument that the business and the entity or the business entity itself, and you personally, there is no distinction there because you treat it basically like a piggy bank.

So those, that’s probably the biggest mistake that we see, especially from, Newer agency owners and freelancers, That’s, that’s, it’s exceptionally common.

Chip Griffin: Right, and at a bare minimum, you know, if you’re the agency owner, get a separate credit card, even if it’s on your main account, just so you can segregate those transactions, right?

Because, you know, sometimes when you’re just getting started, it can be hard to do a business credit card for your agency. But at least get a separate card with a separate number so that you don’t have those commingled transactions. And it makes it so much simpler on everybody, but also helps with, with some of those protections.

And again, I’m not a lawyer either, or an account, or any of those kinds of things. So, take everything I say with a grain of salt.

Chris Hervochon: See, that’s why you gotta talk to the attorney before you get started.

Chip Griffin: Yeah, exactly. So, well Chris, this has been really fantastic. You’ve offered a lot of practical advice, for agency owners If someone wants to learn more about how they can work with you or learn about the resources that you have available Where should they go?

Chris Hervochon: Sure. I appreciate that best way to get a hold of us is betterwaycpa.com That is the website and if anybody’s interested in how you can kind of take these concepts to another level that we’ve talked about on the podcast today betterwaycpa. com slash data driven agency. That is a free ebook that we’ve got out there.

It’s very digestible and it kind of walks you through step by step. Here’s how to take your financial data and here’s how to use it to scale your agency.

Chip Griffin: That’s fantastic. And if you take nothing else away from this, it’s the importance of knowing your finances, knowing your numbers, and working with professional advisors who can help you both grow your business and manage your tax burden simultaneously.

So, Chris, thanks for being my guest today. Again, my guest has been Chris Hervochon, an expert in finances for agencies. Thanks for listening.

You’ve been listening to Chats with Chip. For more information about this show or to listen to previous episodes, visit chatswithchip. com.

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