Tips for easing the overwhelm of tax season

Every entrepreneur knows the hustle of getting tax information together to prepare for end of year tax returns.

While in the middle of gathering documentation and receipts each year, you often mutter “next year this will all be automated!” Yet taking the time and figuring out the process to do so can seem overwhelming.

In this 30 minute interview, I talk with my friend Micky Deming from Kahuna Accounting about the ways that entrepreneurs can get over the hurdle of disorganized bookkeeping so that they can focus on growing their business.

We discuss:

• Why you don’t need to wallow in shame or guilt if your bookkeeping is disorganized
• The key things you need to prepare for a stress-free tax season
• The power of cloud-based bookkeeping
• What organized financials can help you do in growing your business

 

Listen here, or download the Mp3 file by clicking this link:

To find out more about Micky and Kahuna Accounting, go here:
http://kahunaaccounting.com/community/

Here is the complete transcript of our conversation:

Pamela: Hello. This is Pamela Slim and I’m so excited to be joined by Micky Deming who is the Director of Marketing at Kahuna Accounting, and it is the time of year in which many people begin to freak out when it comes to thinking about preparing your taxes.

And I thought, let’s get ahead of the curve, knowing that we’re in February with plenty of time to get things together, in order to understand how it is that you can really best organize your finances. So Micky, thanks so much for joining me today.

Micky: Thanks for having me. This is a pleasure.

Pamela: Well I have to tell the story of how we met. I was, I think, first walking down the street in the streets of Phoenix before Infusionsoft’s User Conference last year. And I ran into this friendly looking group of people from Illinois who were there for the conference and we started chatting as we walked into the convention center.

And I learned more about your business, that you have an outsource accounting firm. And we got along well, talked in the escalator on the way up to the convention center, and then when I delivered a talk at Infusionsoft I think I gave you a shout-out in the audience.

Micky: Yes.

Pamela: I could tell you were the kind of brand of people who were just so friendly, approachable, and I imagined that it had made a difference in how you ran your business. And then from that initial connection we just stayed connected and then you ended up being a sponsor for my community tour, which I appreciate so much.

Micky: Yeah, we love it. That’s our strategy. We go to conferences and we just say, “Who can we stalk?” and try to find the speaker so that they can mention us from the stage.

Pamela: Exactly. That worked.

Micky: Our plan worked out really, really well.

Pamela: I fell for it hook, line and sinker. So I want to just talk about one of the things that many people really get a lot of anxiety about when they’re preparing their taxes at this time of year. It’s just feeling overwhelmed because they may not have everything together. What are the kinds of things that you see every day from clients that come to you freaked out about tax season?

Micky: Sure. You make one good point right way is that we see it every day and that’s important to realize, is that freaking out is something that a lot of people do, and that’s because this situation is intimidating. The financials are intimidating it’s almost, you feel it’s demeaning to feel like you’re behind, or that you don’t fully understand. And so I guess the number one thing is don’t freak out and don’t take it as an insult on your intelligence.

And I guess I can say that because for us we do see this every day, and so for us we’re consistently hearing from people who are freaking out. And so if that’s you, if that’s your situation, you can take comfort in knowing that you’re not alone and it’s not an insult on your intelligence if that’s the situation that you’re in. So that’s step one, is just to realize that you’re not the only person in the world and it’s not the end of the world.

And step two is, I guess the best way to put it, if it’s already behind, it’s already kind of a mess and you realize you haven’t done the things that you needed to do this year to have things ready, don’t freak out, but it probably would makes sense to look to find help in some way.

So whether that’s someone on your team who can help with organizing things or help from whoever is filing your taxes, you really want to be working with someone that you trust who can walk you through the steps, because it’s only going to create more chaos and distraction in your life if it’s three months behind of playing catch-up.

The other thing though, and we’ll talk about this more, I’m just giving a summary, is to take this pain, any time you’re in a situation that’s painful or creating anxiety, it’s always good to get through that, to fix and overcome it. But then to look at the situation and think “How can I keep this from happening in the future?”

And so I would encourage anyone who’s in that situation now to understand, yeah, it’s probably going to be painful this year, but what are some things you can do to make it less painful going forward and so that the next year is not the same thing. We can talk more about it, but that doesn’t have to be that way every year. And for some people it’s not all that terrifying and so this pain could be a good motivator to keep that from happening in the future.

Pamela: I love that and really it’s a triage perspective because you do need to get things done right away. But it’s almost looking at let’s say, every year around the holiday time you find you’re totally crunched, and you haven’t prepared your gift list. And you’re out shopping at midnight amongst the throngs of people cursing saying, “I’ll never do this again.” You really do need to figure out the short term answers and the longer term strategies which I find are really important.

So let’s talk about the category of things that need to be done in order to be prepared. A lot of people do end up working with an accountant if you have a small business where you’re delivering your services. What are some of the things that need to be prepared?

Micky: The accountants you work with they’re going to ask for your financial reports. They want to see a balance sheet and a profit and loss statement. That’s going to be the core components that they are going to ask for. And so if that’s a foreign language for you, then the CPA typically what they’ll do is just want you to compile as many bank statements and invoices as you possibly can.

A best case scenario is if you have an accounting system like Xero or like QuickBooks. Those systems will generate those reports. Now if things are not up to date, those reports aren’t going to be accurate. So it really just depends on how bad it actually is. But if you’re in a system like that . . . a lot of people have a system like QuickBooks, but it’s not necessarily together and so what you need to have together to get this report that a CPA needs, is reconciling the transactions that have come in.

So everywhere cash has flown through the business your bookkeeping system is accounting for those transactions, giving them a home so to speak, with a chart of accounts. And so the goal is to account for them. If you’re in the system you can produce those reports really, really easily. But the ultimate thing that the CPA is going to need is the record of those transactions. I’m probably making this sound scarier than it needs to be.

Pamela: No.

Micky: But if you’re in a situation where you haven’t been keeping up with it, then what they’re going to look for are probably your bank statements, PayPal statements if that’s where you’re collecting money and just a record of the transactions.

Pamela: That’s great. I think that’s actually part psychologically of what can help from the project management perspective is where you just know the categories of things you need to gather. If you don’t have anything in place at all is one scenario, where you gather your bank statements.

If you don’t have physical copies of them, then you can go online and you can usually print them out or if they’re not accessible you can usually go to the bank and get those. And then as you said, depending upon how you’ve been accepting payments, if it’s through PayPal or another kind of merchant processor, you can track down a record.

So just pulling those things together, pulling together even if it’s a big box of receipts or something like that is a good way to get organized. That’s one category a person who maybe does not have, as you said, a system already in place. There’s usually another category of a person where you have been running really quickly in your business. Maybe you’ve been manually entering in some things in QuickBooks or Xero, but you know that it’s not totally accurate and you need to dig in and make sure things are correct.

Micky: Right and I think this goes to an important point of how valuable it is to be in a system that works because when you have cloud based tools like QuickBooks or Xero your CPA can get accurate information quickly. For us, we’re not a CPA firm. We work with CPAs who do the tax returns.

And a lot of CPAs, their feedback has been that it’s frustrating to them because they’re not really able to add value with clients if clients aren’t that organized. And so getting into the system is not only valuable in terms of keeping this whole situation from being quite as painful, but it also allows CPAs to do more. And if you’re spending all of your time gathering information for a CPA, they’re not adding any type of strategic value. They’re not able to say, “Well you could have done this or you could have done that.” You’re spending all the time doing catching up.

And so like you were saying, some people are making that effort to have a system that works and falling behind is exponential how much different that is than just being in spreadsheets. Because a CPA is at least able to come in and say “You’re behind. Here’s a couple of ways you need to catch up” and it’s easier for them to collaborate. And so being organized is not only helping take care of a necessarily evil, but it allows your CPA to be more valuable and probably less expensive than they are if they are just catching everything up.

Pamela: That sounds exactly right. I know for me it was a shift working with our mutual friend Kyle Durand who you know as my tax attorney and his wife Cynthia is my CPA. So I was more on the . . . I didn’t have everything in the cloud, I didn’t have everything automated, and so it felt like this big effort of things that I needed to pull together. And then they introduced me to what was the revolutionary, changed my entire life which was beginning to automate things so that the systems would work together.

What is possible? When you’re using a cloud based tool like QuickBooks or Xero and you have PayPal and you have a bank account, what is possible in terms of automating the initial step of your bookkeeping?

Micky: I love that question. Well so what’s possible is, and this sounds crazy to people, it’s possible to literally never enter any data at all. We have that all the time with our clients. We are in Bloomington, Illinois. We have clients that are in Phoenix where you are, we have clients that are in Seattle and California and Texas. To a lot of people it’s like “How is that even possible? How do you do bookkeeping like that?” And that’s what’s possible with technology.

When you integrate with the bank feeds the transactions come in, and if you have an invoicing system that you’re confident with, those can integrate into Xero, and then your bills you pay by credit card and those show up in Xero. And what Xero does and QuickBooks . . . I’ll speak on Xero’s behalf because that’s what we’re used to and what we use. I think QuickBooks online does a lot of similar things. So don’t hear me as this is a dis to QuickBooks online, but we’re used to Xero. And you really can. You can automate everything and you can reconcile with a click of button.

And I’ll tell you where people go wrong. I bring this up a lot and I’ll say, here are the things to can do to make it really automated, to make it streamlined, to get to the point where you’re not even entering data. Ideally you have it where you have a team that does it for you. That’s the Holy Grail in this. This is where you’re out of it and you’re not doing it. But not everybody is at that point. But even if you’re doing it and having to automate it to where it’s clicks of a button, and it’s organizing things that are already coming together. People say “Then why don’t more people do it? Or where did I go wrong?”

Well where it goes wrong is nobody was ever setup correctly to begin with. And I think that’s by far the biggest challenge in this, and the people that are struggling right now and saying “Gosh, how am I going to get this together?” Because if you don’t get setup correctly in the first place, then nothing is ever going to be right. And even if you say, “Okay, I’m going to really buckle down this month and focus on reconciling,” but you didn’t have a chart of accounts set up from the beginning, you didn’t have things organized from the beginning, that effort is not going to go anywhere.

And so when you get things setup properly you really can automate almost everything in terms of bookkeeping. Then you just need to take the steps to reconcile and organize what’s going on. But you’re not entering data, you’re not re-keying invoice numbers. You can automate pretty much all of it.

Pamela: That’s great. It’s just a classic example and I speak with such raw emotional experience about it, where I used to think that I didn’t like accounting and bookkeeping, and it was a big hassle and this whole thing. What I realized is that’s totally not true. I actually adore having business information at my fingertips, up-to-date information where I can use that data to understand what I need to do. Do I need to be following up on collecting past due invoices, or do I see my cash flow projections are low in a particular quarter so that I can do some business development?

Micky: That’s the next level, and is what’s possible. You can automate it and get it off your plate, you can make it to where it’s not taking up all of your time. But the next level is what if your bookkeeping actually helped you make better decisions as a business owner? What if it helped you look forward instead of backwards? Almost everybody having this conversation right now about taxes, it’s all reactive. It’s all looking backwards. Its all how can we get this together so that we can get it over with.

What if you’re able to look forward and think what would hiring someone, what impact would that have? How does this advertising campaign do? Which product is outperforming another so I can invest more into it? Those types of things is where what’s possible you become, and the way we describe it to people is, you become an empowered confident business owner. What’s the ROI of that? When you are scrambling and uncertain of how things are, uncertain of whether you’re winning or losing, you’re just not as confident.

When you’re in a position where you can produce financial reports on demand, look at them and know what they mean, it’s not only informative, but it does something for your confidence and the ownership you feel in the business. And I think that’s probably one of the most powerful things that people see when they have this in place.

Pamela: I love that and it goes to what I talk about a lot with folks in terms of building their leadership capacity as a business owner. There are many creative people who I know where finances and accounting and details are not our strength. And really strategically it’s not the place where you look at growing your business, where you should be putting that effort and energy. I could learn how to do it all myself but that’s probably not where my business is going to grow.

But I will argue sometimes to be all life coachy for a moment, that very often we begin to tell ourselves stories as creative professionals of saying “that’s going to limit my creativity.” And I don’t want to get bogged down by it. For many people it does create a bit of an emotional trigger, where it’s like when I start to think about that it just becomes overwhelming, and I shut down and it’s really hard.

And what I often say when I’m coaching people through those conversations is, I hear you and I know it feels hard right now and it’s important for you to walk through this process. Because having a clear understanding about what’s actually going on in your business financially and also making sure that you’re taking care of things, so that you don’t run into trouble down the road. If you’re audited or things like that it really is a necessary part of what you need to have in place.

So it’s a little bit of tough love. I understand that overwhelm and having walked through the whole process successfully it really does change the way that I look at the importance of a solid financial foundation.

Micky: Yeah, that makes a lot of sense. Its like not to be all scary, but this is one of those things it doesn’t go away, it never goes away. And so to put in effort upfront, to get a handle on it, if you are a creative person that’s freeing when you have the system in place.

I think for some people, and this is an interesting point too in that conversation, some people it’s like this mountain that can never be climbed or it’s so overwhelming that it’s like I’d rather just hope it goes away, or suffer through the pain of tax season just to get over it. But I’ll never really prioritize it because it can’t be done simply.

And another thing we’ve seen too is its embarrassing. You don’t want to admit the challenges or admit that you need help, and so we prefer to just dismiss this or ignore it and hope it goes away. I think you’re right, that’s always going to hang over you and really that will be detrimental to creativity rather than freeing you up by ignoring it.

Pamela: I love it. And probably most of the reason why you have been busy is because you’ve been delivering services and selling and growing your business. And I think one of the things that is really important, is to take any kind of shame or embarrassment or regret out of it. And unfortunately I’ve met many financial professionals throughout the course of my life where some of them, I’m sure not intentionally, but they may throw some judgment, make people feel bad.

And if that’s the case, then I just think you move on. You want to be working with a partner who is going to understand that you had a different priority in your business, maybe this is something that is overwhelming and intimidating. For some people accounting is overwhelming. For other people marketing is overwhelming. So just don’t worry about that.

Micky: That’s a good point.

Pamela: The key is to begin to take action and move forward.

Micky: That’s a good point. It really goes to a bigger conversation about entrepreneurship. You have audiences all over the place, some have escaped from cubicles and some have just been entrepreneurial from the start. But that’s something that we’ve seen a lot too is like the mindset.

When you’re an entrepreneur, you have to do everything and we have seen people that have come from a corporate environment who from day one they’re like “I am outsourcing my bookkeeping because I know what’s it’s like to see systems that work and to have things off my plate,”

And you see others who just really wrestle with, “Okay, I started this business and its working, and its growing. Where does that go? Like where does that lead? Is it a lifestyle business? Is it something where I scale it into a team?” Those are questions that people really wrestle with. And your financials kind of tell you that story.

If it is a lifestyle business, okay, what is the bank balance you need to get to be comfortable? If it’s looking to scale, okay, what is that have to look like and that story is told in the margins. And I think that entrepreneurial conversation really comes back to this in a lot of ways just because you have to deal with it and it tells you a big part of the story.

Pamela: I love that. So it sounds like step one is just getting rid of any shame, fear or doubt. Just lay that down. No matter what your situation is gather your information together.

Micky: You can cry for a while but then . . .

Pamela: Exactly.

Micky: After that you let it go.

Pamela: Which we have all done. But then gather stuff together in whatever form it is because you can start with that. Take care of this year’s returns because that’s what you need to do. And then you want to start right away. I always say to clients “If not now, when?” Are you really going to be less busy later on in the year? This could be a good time in which you get a new system in place.

For some of the nuts and bolts of doing that . . . I know you and I share huge bias towards automation and cloud services. Sometimes people have a fear having their financial information in the cloud. So what’s the reality about the risks of something like that?

Micky: Well I can’t get into the technical details. I know for Xero’s side this is something they have invested a ton into. And everything is backed up multiple, multiple times, and they’ve put a lot into it and they have a statement on their security.

But the reality on that is that a lot of people that fear the cloud and their alternative is having it on their own desktop or having someone in-house do their bookkeeping. Sometimes that can be equally problematic in terms of security. And so we all have heard stories of “My computer crashed I lost everything” or “I had someone steal my information from my own office.”

I think that’s one way that we usually bring in the conversation is that there is no more security in your own desktop or your own office than there is in the cloud. It’s still the same thing. It’s on servers and these companies have put a lot of thought and effort and money into backing up and securing and keeping that information secure.

Pamela: It’s true. It’s funny and not funny. When I first moved to Arizona and I was meeting people, I heard two stories in a row of people that were working inside the companies of these brands who had their own businesses, who had ended up siphoning off like hundreds and thousands of dollars.

Micky: That’s crazy.

Pamela: I was like “Oh my gosh. Is that what Arizona is like?” The whole state is not like that but I’ve never heard those kind of stunts before.

Micky: That blew me away too. We started asking those questions kind of researching as we were doing marketing and it’s unbelievable how many people have that story, of like “Yeah, the bookkeeper stole from me.” I didn’t think that happened that often but apparently it does so. That was an eye-opener.

Pamela: It does and it goes to part of what I was talking about earlier where you can decide as a business owner that accounting and finance is not your strength, and you want to have somebody else do that primarily. And you need to be aware of what’s going on, and you need to be familiar with how it is that you can watch what’s happening on a consistent basis.

Because that’s really the case, in both of these instances they thought they were trusted folks who were just taking care of all of it for them, and they had no visibility into what was going on. It ended up being very problematic. Not to be melodramatic and frightening, but it’s amazing to me how often that happens.

Micky: And it goes to another point too, and this comes up in technology stuff too. Like if you hire a developer, how do you manage that developer? Is he playing video games or is he working? I don’t really know so it’s hard to really coach or manage that. It can kind of be true with accounting.

This is something we talk about with our services, the fact that we have a team here, and we manage ourselves. That can be comforting for a business owner because is my bookkeeper doing their job right? I don’t know. Looks like . . . It’s all reconciled. Here’s your reports. Did you get it all? I’m not 100% sure. And so you run into that too with challenges in managing that when it’s in-house.

Pamela: Totally. So in overall terms, as you start to look at what it is that business owners are doing as a best practice, as having kind of automated ongoing accounting services, what is the vision of what you guys are growing in terms of how it is that you want to be working with the entrepreneurial community?

Micky: I can share really quickly our story because I think it helps put texture onto it. So our company is actually a 20 year company, and did not start out as an accounting company. In fact our founder is not even an accountant. He is an entrepreneur. He’s very entrepreneurial. He started over 20 companies. The original was Kahuna ATM Solutions. So that was the original big Kahuna. And that grew really fast into a $20 million a year company.

And when he was growing that he was probably like a lot of you. At this time at tax season, was dreading it a lot of time. And for several years that was always a huge pain for him. It was a very capital intensive business. He had to be producing reports for banks, and just felt like he could never get a handle on his financials.

And so finally he broke down and invested in a full accounting staff. He had a CFO, he had a controller, he had a bookkeeper just because he was like “I have to get out of this.” And so when he did that it was a total game changer for him and his ability to understand the business.

And so I always tell that story because I think it helps people understand even a guy who’s started an accounting business doesn’t necessarily get this stuff. But he was smart enough to admit “I can’t do this any more. I need to get help.” And so fast forward several years later as he sold that business, he kept that accounting staff because they had done so well, and he is like “I know this is important.”

So as he invested in other companies he offered to have that accounting staff do the work for them so there could be transparency. And then in 2012 with the cloud and all that had happened, we started Kahuna Accounting so that we could say, “Well what if that same accounting staff, same transparency was available for people all over the country?” And so we started doing that.

And I say that to say, what is the ultimate goal? And not everybody is at this place. But the ultimate goal would be to get it out off your plate, get it into the hands of professionals. So I think the best case scenario is a situation where you as an entrepreneur, you’re really, really good at something.

You’re really good at web design. You’re really good at meeting people. You’re really good at sales. Whatever that thing is, you want to do as much of the things that drive the business forward as possible, and you want to do as little of bookkeeping and things like that as possible.

And so the best case scenario and what we’re doing for clients is where they do exactly that. They focus on their business and through automation, through technology, through Xero. In our case, we’re able do everything that an in-house bookkeeping accounting staff could do for a monthly price.

And so the benefit in something like that is you have a team that has your back, you have open communication, you have transparent financials. And at the end of the year when it’s tax time, you go to your CPA and they say “Hey, I need these financial reports,” and instead of crying and freaking out, you could say, “Hey, Kahuna, we need these financial reports.” And boom there they are.

And so the best case scenario is not like “work with Kahuna.” The best case scenario is have a situation like that where you can produce financials on demand and you can spend as much time as you possibly can on things that really matter, but not at the expense of actually getting these things done.

Pamela: That’s awesome. I love it. Well I’m so glad that we connected, that I talked to you when there was a red light, when we were waiting on the street corner in Phoenix, and everything happened. It’s really one of my favorite parts of being an entrepreneur, and really having some kindred spirits. I know on behalf of people who are on the community tour, I really appreciate the fact that you guys helped me. You helped me get out there, travel around 25 different cities. So thanks for that. I appreciate that . . .

Micky: Well we’re proud of you for that big effort in getting to those cities. That’s what we’re about. We’re entrepreneurs and what you’ve always been about is connection, community relationships, and adding value, and so that’s something that we want to be a part of as well. And so we’re grateful for that relationship and we’re definitely coming back to Phoenix this year too. So we’ll find you on the street again.

Pamela: I know. I can’t wait to see you guys again. If folks want to get in touch with you, what’s the best way for them to connect and I’ll definitely put a link for those folks listening to this interview on audio. I’ll put a link to the page so you can go directly but where can they find you?

Micky: Awesome. Very simple. KahunaAccounting.com is the website with all the details that you can very easily find anything you’d want. You can reach me directly if you’d like at micky@kahunaaccounting.com  But if you fill out a form on the website I’ll be probably the first one to see it anyway. You can do that at KahunaAccounting.com where all the info is.

Pamela: That sounds great. Well thanks so much for helping out, and again, don’t let yourself get stressed out if everything is not together. The best time to start to pull it together is today. And take my own personal stories and example that it can really get better, and not only get better but really transform the way that you think about your business. So thanks Micky.

Micky: Thanks a lot.