Accounting for your Travel Business with Jeri Ann Cook

Welcome to this strategic travel entrepreneur. My name is Rita Perez. Hello. I've been a travel advisor for over ten years and I'm navigating this winding road of entrepreneurship with you. I created this podcast because I wanted to share all the things I've learned from leaders both in and out of our industry that I really wish I would have known way back then. But, alas, the important thing is I'm aware of them now, and I want you to be too. Ready for this week's show? Let's jump in. Hi, everyone.

Welcome to have you on again today. We have another special guest with us, with us. Her name is Jeriann. As the owner and managing partner of Sunstone Bookkeeping LLC, Jeriann Cook helps small business owners organize, understand, and use their financial information so they can pay themselves more. Yes. Jeriann received her MBA from AB Freeman School of Business, is a certified advisor of both QuickBooks Online and is it, is that zero?

Yes, it is.

Okay, cool. And is a member of the American Institute of Professional Bookkeepers and the Institute of Certified Bookkeepers USA. Welcome, Jeri Anne.

Thank you. Wonderful to be here.

Yes. I know it's, not such a sexy topic that a lot of people want to discuss, but it is a very necessary topic to be discussing bookkeeping and accounting for our businesses. Absolutely. So at what point would you say somebody needs to start hiring you in their business?

I would say the minute the bookkeeping feels overwhelming and you just can't keep up with it. Now a corollary to that is when should you start bookkeeping, and that would be the minute you start your business. So somebody needs to be managing the, information for the revenue, the expenses, and all other financial transactions from the minute you start the business. There should be no hesitation. It's really easy to fit into your schedule in the beginning, because you're starting out, and there's not as many vendors. There's not as many customers because you're you're new. It it's like you're crawling instead you before you start walking.

Mhmm.

But it does need to be a focus. And once it becomes overwhelming for the bookkeeper I'm sorry. For the business owner, and or his employees, then that's that needs to be hired out to be maintained, ongoing even if it's not by you personally.

Mhmm. I had been using software in the beginning of my journey and, no, I'm not using software. So every time it comes around to tax time, I'm calling myself out. It's kind of like scrambling, like, ah, I gotta figure everything out again.

Yep. And and the thing that is a bit of a a misconception, you don't have to have software. Okay. You do need to track things. Now when you become a larger business where you're dealing with payroll and you're dealing with assets, like major assets, like, property and equipment and, you know, possibly even you know, and any other kind of inventory, you do want to start using something that is designed to track those things. Okay. But in the beginning, you can just use a spreadsheet. Or if you wanna go old school and major props for you to do it, you can use actual paper ledgers.

It's just the matter of keeping those records because what happens is those receipts, if if I mean, look. As a girl, I know this for a fact. I carry a bag. I get a receipt. I stuff it at the bottom. I forget about it. Yep. But there are a lot of times when you don't even get those receipts and you're looking at your books going, what the heck was that for? And you don't want to just automatically assume money came out of my account.

It must have been a taxable, deduct tax deductible expense. You can't assume that because you have to be able to prove it.

Mhmm.

Now if you want to say, well, I don't know what that was, so I'm just gonna classify it as an owner's draw so I can't claim it on my taxes. It's not clean, but at least you don't have to defend yourself in front of the IRS potentially. But it also is good to know how your business is doing. Okay. I mean, the money that goes out of your account is not always going to be an expense. It might have been an investment in the business. It might have been sales tax that you had to pay on behalf of your state or your town. It might be payroll taxes that you withheld from employees so they weren't your money in the first place.

Uh-huh. And it might be pay money that you paid to yourself. And depending on your structure, that's not taxable. That's not an expense. That's just kind of flowing through the business in and then to you. Okay. So you need to be able to understand the purpose of money coming in and the purpose of money going out to fully understand how healthy your business is, not just for tax purposes, but for growth purposes and Right. For paying yourself.

Yes. Yeah. Now I was I wanted to ask, what do you mean by owners draw? Okay. I have an idea, but I'm not exactly sure.

That's okay. The the concept of an LLC, a a limited liability corporation, is what's called a pass through where the money is and I I'm very I'm oversimplifying this on purpose. Please. Do not rely do not rely on this for your own personal tax planning or tax, tax preparation. This is just, like I said, a very, hyper helicopter view. Uh-huh. An LLC or sole prop, are what's called pass through. So the money comes in and goes out, as far as your own income as you being able to take out the proceeds of an investment from the business.

So when you put let's say say you put $5,000 into a business, that's called owner's contribution as equity. Okay. So that is your money that you put in, and you can take that out. And it's not necessarily taxable because that was money that was yours after tax. You put in and you take out.

Okay.

So you have to report that. You have to keep a record of that. But when you take the money out, that's called an owner's draw. That is different from paying yourself in payroll, which is required if you do something like a you you elect what's called s corp and c corp. And, again, this is not a tax seminar, and I am not Right. I I'm really giving very hyper helicopter level of of information here. Yes. But the important thing about Owners Draw is you are not treating that as income or business is the money that the business earns.

Okay. From sales, from services, or from selling assets and having a gain. Okay. So you that's part of what gets, you know, gets complicated when you're dealing with what money what was the purpose of this money coming out of the business? Was this well, it's my investment, so I'm taking money out of it Mhmm. Or is it this was an expense of the business set like subscriptions, like supplies, like paying, you know, paying for advertising, paying for, meals out, the things like that. So that's where you need to be very hypervigilant on knowing the purpose of the money, knowing how the money flows in and out to be able to understand the health of the business. Mhmm.

Now going off of that, I know not a lot of people start off with this, but is it when you start off your business, do you recommend, like, people operating in and out

of, like, their one checking account or should people open up that second either a second personal checking account or just a business account? Absolutely open your own business account for two reasons. Well, actually for three reasons. The first reason is it makes you official with you know, it it offers a sense of officialness with the, state and with the federal government because you need an EIN, an, employer identification number in order to open a business account. Okay. So you get that, you open that, then there is a record. Yes. This is a company that has this business.

Mhmm.

Second of all, it puts it, it makes it not official, but it makes it proper for accounting. There's something that we, baby accountants and bookkeepers learn called the economic entity principle.

Okay.

Yeah. I know. But what it basically means is a business's finances must be kept separate from everything else. The owner's finances, the partner's finances, other, you know, related business finances in order to keep things as clean as possible. So you know that if the money came out for an expense, it was to that business. Okay. And having that separate checking account, have a separate PayPal account, have a separate credit card as soon as you can, it keeps it all clean and no confusion. And the third reason is because it makes you feel like a grown up entrepreneur.

I know that sounds silly. I know that sounds silly, but it is it really does give you that mental boost of I actually have my own business account. It gives you a little bit of an elevated self esteem about the fact that you're not pretending anymore. This is an actual factual business with its own account, and you take yourself a little bit more seriously that way.

Right. Right. Which is a huge thing, especially in the travel industry. And I think it's, it's been starting to shift for the past couple of years that people are starting to see themselves as that entrepreneur and that this is not just a hobby side business. Exactly. For some people, it can be a side business, but meaning that this is not, like, break even. This is I am making some sort of income from from my efforts.

Right. But it's not difficult to get a business account with no fees and a relatively low minimum balance. I mean, it's it's really not difficult to do. There are I mean, I I was able to get a community, an account for, a community bank in my area when I first started out, and I've been extremely happy with them. They gave me a debit card. There's no minimum balance. Now I'm not saying that's guaranteed at every brand at every location, but it's a lot easier than you think Yeah. To get that even for a side hustle.

Because what if that side hustle takes off? Yeah. You know? And that's the other thing that I say. And and I know earlier I did say that, you can do your books with with journals and, you know, with a physical journal or and I seriously mad props to you if you do that. I'm really impressed. That that's some hardcore accounting right there. Yeah. Or or spreadsheets. But as soon as you can, I recommend going to an accounting software of some sort because just like newlywed couples go buy a starter home with two or three with two or three bedrooms because they plan on having a child

Mhmm?

You should plan on having a bigger business. You should plan on growth from the beginning. It's not overly expensive Mhmm. To have the software. If you go with the, online cloud based, they're you know, the maximum I've seen is $75 a month for every single bell and whistle. Okay. Nobody needs that. There's there are lower tiers that are available to people.

But you want to be able to grow. You want to be able to have a system that grows with your business. Just like newlyweds, you know, like I said, they buy a house because they know they plan on having kids, and you don't wanna try to buy a house when you have an infant.

Yeah. You

want that set up long before. Yeah. So this is the same concept. And they are, there are tons of software and tutorials out there to help out with with getting through. And every business owner should have the basics of book of bookkeeping to understand the difference between most terms. But the one financial statement that people don't fully embrace is the balance sheet. Okay. Everybody knows what the p and l is.

I prefer to call it income statement because I don't like the word loss. I never wanna see it. I don't wanna see losses. I don't wanna even think about them. Yeah. But, that's just me personally. So the incomes everybody knows what the income statement is because you need to have that to fill out your schedule c.

Mhmm.

But the balance sheet actually shows the health of your business at a snapshot. It shows everything the business owns, everything the business owes, and everything the owner can claim as his or hers. Okay. So your your balance sheet will tell you how much cash you have in the business, how much cash is in that bank account, how much cash is in the payroll account if you have payroll, what's the value of your inventory, and what's the value of the vehicle that you have plus any kind of what's called depreciation, which is you know how they say your car loses 30% of its value when you drive it off the lot? Right. That's that's a fan that that's a simple way of looking at depreciation. Things wear out. There's an expense that you can use. It's complicated with taxes.

We won't talk about that right now. Yeah. But there are ways to to calculate that so that you recognize my my asset isn't worth as much as it was when I first bought it. Right. But it also shows what your business owes. If you have any loans, if you have, credit cards, that is also shown on there to balance out what the you know, what's in the cash. So if you take a look at your balance sheet, you'll know I have this much cash, but I also have this much in credit card debt that I have to deal with over the next however long it is that you've got the interest free terms or what have you. If you have a car loan that goes on there, if you have a biz if you have a business mortgage for the property that goes on there.

So that is not easily created from spreadsheets in the same way. Right.

And it's not very like talked about that you should be looking like, normally people just talk about tracking your income and expenses.

That's because that's all anybody needs for taxes in a in a smaller schedule c business.

Mhmm.

But, you know, forget just laying aside the fact that if you start getting bigger in any other kind of form, like, if you go if you talk to an attorney, a tax attorney and say they say go s corp or what have you. Right. Those will need those, but I still think everybody needs a balance sheet. Because if you wanna go for a loan at your bank, that is going to be one of the things they're gonna be looking at. They want to see what's called leverage. How leveraged are you? How much cash do you have, and how much do you owe over the next year or beyond that? Okay. And in the chaos that was 2020, that was something that that people didn't have. They didn't know what their leverage was.

They didn't know whether or not if for some reason the loan wasn't forgiven for PPP, how they were gonna be able to fair out because loans do have to get paid back Right. Usually. And if you got the EIDL, that's not forgivable. That is actually, you know, decent terms, but you have to pay that back. And let's say you want to go for a business property for for whatever reason, they're gonna wanna see that you've got the capability to pay that back. They're gonna look at thing they're gonna look at the cash you have on hand and the assets you have on hand and the debt you already have outstanding and be able to tell whether or not you're gonna be a good risk. Mhmm. They'll also be able to tell you it'll also put you in a better position to know what kind of loan you want.

Mhmm. Do you want a line of credit that you can tap when necessary and pay back quickly? Do you need something that's a longer term because it is for equip like heavy expensive equipment? I know that's not usually in the travel industry, but, what if you wanna buy the building you're in? Yeah. That's a long term loan. You don't want a line of credit for that. You're wanting a lot more time. So knowing all of these things may seem overwhelming, but what it gives you is the full picture of your business's health, not just what it looks like right, you know, in the past, but what it looks like over time.

Mhmm. Yeah. Yeah. So if if we're going back to a little bit of the basics, because I feel like a lot of this stuff too is probably what why I would want to hire an accountant to kind of, like, take care of that stuff and start tracking it for me because I'm like, I just want the baby stuff. So if we're talking about the baby stuff. Yeah. What is the bare minimum that you see? Like, if I'm using an Excel sheet or a Google sheet? The strategic travel entrepreneur is brought to you by mailbox power. Harness the power to attract and nurture your clients through something many entrepreneurs have forgotten about, the mailbox.

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You're not gonna like my answer. Okay. Let's, let's do it. Everything.

Oh, all right. And what is everything?

Kidding. In every because here's why. You have to pretend in your mind at tax time that there is an IRS agent sitting outside your door, sipping on a Starbucks, playing candy crush on his phone, waiting for the text message from his supervisor saying, alright. We've got their we we've got the file processed. Time to audit. Ring the doorbell. I know that sounds paranoid. I know it does, but the bottom line is that's what we as tax preparers have to be we have to do that when we are preparing taxes for other people.

We have to assume there's gonna be an audit, which is why we have to have backup for everything that we do. We don't guess.

Mhmm.

We will not guess. I the the wonderful thing about the software is you can actually attach receipts to every single transaction. So there's proof right there. As soon as you open the transaction, there's your receipt. Does it seem crazy? Maybe. Uh-huh. But it is a good habit to get into because you'll be again, when I said earlier, like, the bunch of receipts that are in the back bottom of my bag from the grocery store and and and, you know, Barnes and Noble and all those things. Well, first of all, you need to process them quickly because that thermal paper will will fade real fast.

Yes. So I recommend taking a picture of the receipt with your phone. I know it's so silly.

I would like say are is this as simple as, like, downloading an app for, like, whatever software you're you're doing and whenever you get the receipt, just take a picture and there you go?

Absolutely. Or if you just wanna go truly old school, just take the picture. It'll be in j it'll be in JPEG format instead of a PDF, so it'll be a little bit bigger. But the file share programs like Dropbox that you can put on your phone will have a scan feature through the through the camera. And you can just take a picture, save it wherever you want it to go Okay. And it's perfect. Or Xero and QuickBooks online and the other accounting software have the ability to just say, here's my picture, send it to you know, this is the transaction, and you're finished. Mhmm.

You don't have to keep the papers. I mean, there are certain papers that you should keep in hard copy, and you can find that list on, IRS. But the IRS has accepted electronic forms of of paperwork for decades. So, I mean, that's all fine.

Mhmm.

But you do want to keep every and also because if I go to the the grocery store or if I go to Walmart or if I go to Best Buy, I don't necessarily if I'm, you know, if if I see those transactions come in for my clients, I don't know what that was for. Now if I see something from the Shell station, I know that was gas for the car. That's Yes. Pretty self explanatory. I mean, that's, you know, that's the you know, that that's especially when you see gallons and cost per gallon. I can figure that out. Right. But things like an Amazon receipt where it comes through for $257.92, cents, that could be anything.

Right. I have no idea what that is. If it comes from Walmart and I don't see a receipt, I have no clue, and I don't guess. And sometimes the, you know, the it depends. If it was grocery store food for, a meeting, that may not be a full 100% deductibility. So I need to be able to classify that for the tax preparer to make sure that it's the right kind of classified meal, if you you will.

Okay.

Because they're changing this stuff all the time.

Yeah. Yeah. Hi. Yeah. I mean this past year.

And and for for for, travel, a sign up for for meals in particular, we got a nice little little boost for the years 2021 and '22 in that restaurant meals, which had been changed to 50% with the 2017, jobs and tax cut act, they got reduced from a % to 50%.

Mhmm.

But because of COVID, the the the last, legislation actually said for two years they're gonna be at a %. Oh, good. Let's just

go out eat out everywhere.

Well, now it's got to be ordinary. You can't go take your clients to the Russian tea room and buy $500 an ounce caviar. That that's not gonna fly. Mhmm. But but it but it they do change these things. Okay. And so that's why business owners shouldn't be expected to know all the tax laws, but they should provide their bookkeeper with all the information possible Mhmm.

To

make sure that they that they can do their job and and maximize the tax deductions legally Right. To make sure that they can tax deductions legally Right. To make sure that they can get everything. Because, again, you need to you need to track everything. And in the beginning, it's not hard.

Yeah. Yeah. Because, I mean, I'm just thinking about just a simple, open up a spreadsheet, put where you spent money from, what you spent money for, and what the amount was. Three columns. The end.

One more column. Okay. What account did it come out of? Did you pay for it through your checking account? Did you pay through through PayPal? Did you pay for it through your credit card?

Because that okay.

Well, because you want for tracking purposes to make sure that you know which account it came out of so that when you're at the end of the month and you're and you're reconciling to make sure everything matches up, you know where it came from. Okay. And that's for your that's not for tax purposes. That's for records. You wanna make sure you always have an accurate, account for accurate balance numbers for everything.

Okay.

And also PayPal can be interesting because the problem is if you would if you use let's say you're using PayPal for both sales and expenses. It's you have to track it very carefully separately because if you've got a balance and then you spend something out of that balance, you need to account for that. Mhmm. You can't just say, oh, well, I'm gonna spend this money and then move it over and that's income. No. You had income in that PayPal account. You had expenses in that PayPal account. You need to treat it like it's credit card.

Okay.

And then if you move money from your credit card over to PayPal, you have to make sure you match that so you don't duplicate your expenses or your income. Mhmm. So that can be a little tricky. Just as a warning for those who use it. Yeah. That I

was gonna say, this is, like, a lot of information all at once. Before before we wrap up, is there anything that maybe we didn't talk about that people should just be a little bit mindful of or maybe a tool that that is helpful to help with the accounting before somebody hires on an accountant or a bookkeeper?

Well, the one thing that you should definitely recognize and remember is you went into business to pay yourself. You went into business to to write yourself the biggest paycheck possible. Yes. You need to pay attention to laws. Yes. You need to treat your customers fairly, and you need to treat your customers fairly and you need to treat your employees fairly and your vendors fairly. But the ultimate goal is you are as a business owner, it is to pay yourself. Right.

So keep that in mind when you start getting overwhelmed by the concept of bookkeeping. Now when and I say the concept of bookkeeping because you don't have to know all of the rules when you first get started other than make sure you record everything so that you have a full picture of your business, how much money you put into it, how much money you've earned from it, how much money you've needed to spend to run it, and how much you have been able to take out for yourself. Those are all key thing those are the ultimate key things you need to remember. Okay. Is those those aspects of it. And if you can re you know, I I know a lot of people who are totally enamored by watching their Facebook ad goo their and their Google Analytics and their Facebook Analytics, and I am all for that

Mhmm.

Think of your bookkeeping the same way. This is an analytic that is key to your business success is knowing your numbers. Obsessing over them? No. I don't think you should obsess over your Facebook analytics. I don't think you should, you know, obsess over your bookkeeping. Mhmm. But knowing them, understanding them is going to be the key to help you make the decisions to continue growing, not just, you know, that and that's the whole concept of this is if you're paying attention to your numbers and you're spending and you're comparing things in the right categories that are appropriate for your business, for example, if you don't sell anything, on a retail level, you don't have to worry about knowing inventory. Forget it.

It's fine. Don't worry about it.

The beauty of being a travel entrepreneur. Exactly. If you don't have

payroll, don't stress over that aspect. You know? Focus on what your business is is needing in terms of the types of expenses and the types of of of revenue. But you can pay attention to these things and know, hey. You know what? My business is really slow at this particular time. I should probably spend less on payroll and more on or, you know, less on this or maybe I should be focusing on increasing my promotions and trying to drive more revenue in. One of our clients came to us and said, look. I I'd like to hire a receptionist because I don't like all of my groomers having to work the desk. It's getting a little bit cumbersome.

What can we do? I said, well, let's take a look. How much are you planning on paying this person? Well, this much per hour. Okay. Let's bump it up a little bit to account for the payroll taxes you have to pay. Now how many hours a week? This many hours. Okay. Calculate. This is how much it's gonna cost.

How many grooms can you get in during that amount of time? Oh, I can get a lot more than that. I mean, that's the kind of analytics you want to use your business numbers for.

Right. And I I love that you mentioned that part because that's all about kind of what this podcast is, is being a strategic travel entrepreneur so that you can make those types of decisions. It's these types of things that in our industry, it wasn't really taught in the beginning, but it's something that, that everybody needs to know. And I really like where you said, especially like you can get your ebbs in your flows. So when things aren't flowing so much, what should you be doing during that period to kind of bring it back up again? Or what should we, you'd be doing to prepare for when that period starts to slow down again?

Ex exactly. And the same thing, if you know your business expense patterns, you'll know when you're going to be spending more money for whatever reason. Mhmm. Your insurance, you know, your insurance bill comes up and it's paid twice a year. You know, alright. I gotta save up money over the next five months so that I have enough to pay that when it comes due in August because I just paid it in February. Yeah. You you know that you're gonna have travel coming up for your own conferences that you're going to for the industry knowledge.

You know, your Zoom is paid on you know, a lot of people pay for their Zoom annually. Yes. That that becomes a very obvious thing right now. So it also helps you plan for your spending.

Yes. Yeah. I I love that. Yes. Yeah. Well, cool. How can people get in touch with you if they need to start using your services in the future?

Well, they can reach me at my business, website, www.sunstonebookkeeping.com, just like it's spelled just like it sounds. Mhmm. They can also find me on LinkedIn under Jeri Ann Cook, j e r I a n n c o o k, or they can email me at jacook@sunstonebookkeeping.com.

Perfect. Thank you so much for coming on, Jeri Anne.

Thank you for having me, Rita. That was really, really fun.

Yes. Likewise. Everyone, you have a great week. Thanks for joining me on the joining me on the strategic travel entrepreneur. Please subscribe and leave a show rating on your favorite podcast platform. Oh, and don't forget to take a look at the show notes for important information and links. See you next week.