Essential Bookkeeping and Financial Strategies for Real Estate Agents

0:00Have you ever wondered how much money you're losing every single year because you don't understand write-offs? Is your financial life a hot mess and do you dread tax season? If you said yes to any of those things you're in luck because Michael Glassby is here today to make finances fun and easy for us Mike is an army green beret turned real estate entrepreneur and he and I have actually known each other since we were Babies in the real estate world and we have done so much together from the beginning We built a real estate team. We've invested in real estate. We've done flips short-term rentals long-term rentals You name it conferences the whole shebang and bike is a straight-up G So a few years ago he pivoted to start G2 business solutions Which is company that specializes in bookkeeping tax prep and CFO services for real estate business owners and y'all in today's show You could expect to learn where to start if you really are hot mess whether or not you should get an LLC What you can and can't write off How you know it's time to hire out bookkeeping services and stick around to the end for the four red flags that you might see in V.A

1:05Bookkeepers that could cost you Thousands guys you're listening to the real estate rock source podcast the show for agents who've been around the block and are ready to build sustainable scalable businesses that you actually love my name is Shelby Johnson and quick surprise in case you haven't heard after a Viewer of hosting this beautiful podcast. I have decided to hand back the reins so I can fully focus on building my agent business from the ground up Here in Lexington, Kentucky. So y'all August 2024 this month is my last month hosting If you want to follow my journey head over to Instagram at the Shelby show, but for today rock stars welcome Michael Glassbeam I'm getting Michael Glassbeam. Let's pretend I'm an agent. I'm out there swinging. I'm hustling. I'm generating leads. I'm like Get in I'm closing deals and you know the last thing on my mind is keeping track of all these little financial details

2:09So can we start like big picture? Why should be care? We know we should care, but look why and yeah, let's go from there So ultimately the biggest reason why is because we go out here We bust our ass we make a ton of money, but we want to keep it all right And if we don't actually track where the money's coming from and we're not doing our books appropriately You know who's gonna take it from us. Good old uncle Sam right or somebody else could be creeping in our pockets And we don't we have no idea because we're not actually tracking those expenses. So ultimately we earn money because we want to keep it And that's the most important thing Okay, gotcha so now I'm bought in I don't want to give my money to the IRS or to other people so What how do I get started? What is that like I've been an agent hypothetically a year and I've done nothing properly So what steps do I need to take to get my shit together when it comes to this? If we have absolutely no idea where we are in our business the first thing that we can do is just Print out our bank statements see where we're spending money how much money we're making and start to get a picture of

3:13Okay January comes guess what I have my MLS dues or July comes and guess what I have my previous license in the in the appropriate states or I have my License renewal and so now we start to get a pattern of how much we need to spend and what key areas Once we understand that then we can go back to doing what we enjoy doing which is sales working with people We can have a good understanding of all right You know what I have more expenses coming in September so Let's see what I can do to increase my sales in September or make sure I have enough money stored away if September is a slower month for me Okay, so it actually it's it's kind of beneficial to have history to look back on because hypothetically this agent's been doing this for a year They can go back and pull like they're past 12 months Export their bank statements which in theory and can you talk a little bit about Business banking versus personal banking Yeah, yeah 100% so business banking and personal banking is the exact same thing The difference is

4:14You know if we get in real technical here. It's who owns the bank account So on a personal bank account. It's going to be your name, you know my name Michael Glassby your name Shelby Osborne But the business bank account is going to have the business one two three LLC or Michael real TLC That's who's actually going to own it as far as the functionality of it. It's all the exact same Right, it's all the exact same there. So business and personal as far as creating it is very simple Now to your point, you know, what's the difference as we're tracking it is most of us have heard this before There's this there's this evil thing that exists out there called co mingling Which we're all guilty of in the beginning for sure But it's hey make sure that every business expense that I'm swiping on my credit card or my debit card actually belongs to the business Not for my Uber eats or not for my Walmart grocery store or whatever the case is Let's make sure that it belongs to the business. So there's some nuances with that But ultimately they're pretty similar Okay, so you do it sounds like you recommend like hypothetically

5:16I'm that agent has been in the business a year and so far it's all been in my personal it's all commingled Should I go out and get a separate business banking whether or not I have an LLC? Should I get a business bank account? Should I get a business credit card and you know bonus question? There's a lot of agents who ask should I get an LLC? Do I need that? Great questions. All right, so let's break it down Here's the biggest thing that we are concerned with as entrepreneurs the newer agent We want to be able to take Into account all of the business extra deductions that we can so we can save in taxes because we're going to earn a lot of money Right, if we're not treating it like a business Then the only deductions that we can take are our personal deductions which are far less than what we can on the business side I'll give you an example a Standard deduction for a single individual if you just piled it all together and went to the IRS is going to be $12,500 that means if you made $50,000 and you took the standard deduction They're going to subtract that 12,500 and whatever that remaining amount is going to be your taxable income

6:18But when it comes to business Instead of just we're going to avoid that standard deduction there or we can keep that on the personal side But now we also get mileage we also get meals We also get our conference tickets that we pay for our airplane tickets All of these other things that are associated with the business that we can also tack into there So if we're not treating our finances like a business That's where we miss out on all of that so to answer your question brand new agent But I recommend is you at least get a separate bank account Period doesn't have to be business it can be personal but a separate bank account that you run all business activities out of All right now at that point in time you have proof that you're treating it like a business So that's the first step all right now the question becomes do I create an LLC or not The whole concept of an LLC There's so there's two things either you create an LLC to limit your liability meaning if somebody sues you They're really suing the entity. They're not suing you personally But right before that step and you're still treating it like a business. It's called sole proprietorship

7:22All right, sole proprietorship you get all the business deductions But you don't have any protected liability very easy to do Okay, highly recommend that realtors at least Recognize that speak with their tax advisor CPA or whatever the case is and make sure everything is in order So they can get the deductions as a sole proprietor because we all are Now the idea of the LLC is what are you trying to protect All right If you're going out there you're dealing with buyers and sellers and you're dealing with maybe like property management Where you have tenants that you're controlling and investors Every person that touches a piece of your deal potentially could sue you So now what we're saying is hey look if you sue me sue my business sue uh mic real to LLC Don't don't sue me Michael Glass be as a person and that's where that conversation starts But with that okay, so Byth there's like a million different ways. I want to take this right now But on this track just because I know I get asked this question all the time too. Should I get an LLC like everyone asks that getting started So my question to you would be most brokerages depending on your firm. They have some sort of

8:26You know insurance policy and or maybe they require coverage So you know covers you enough or should I still get an LLC Or and then also if I do get the LLC. I know for personal experience. There is that right there is cost required So can you kind of just talk through like the pros and cons of all of that? Yeah, 100% if you're gonna ask me I always get an LLC That's just me because I want that extra protection So just to your point if somebody goes to sue you you do have errors and emissions insurance. You know insurance And the question is is that insurance going to be enough to cover that specific incident or that specific lawsuit that amount Okay, anything above that they can essentially go for you or to the brokerage depending on how you're a You know agreement is set up with your brokerage So if you have an LLC now what you're doing is saying okay, okay Attack everything in this LLC and keep me separate. So me personally I always recommend an LLC is that a extra layer of protection Now with that being said there are some brokerages out there that say hey look if you're gonna have an LLC

9:27I don't care if you're running business through your LLC or personal you need to have a firm license And so now to your point that's extra upkeep Right, but the extra upkeep the small amount is it worth is it worth the protection for you Depends on your own risk tolerance exactly Okay, I think I'm good enough for that one right now. I had okay. Let's go back to the LLC Versus sole proprietor versus if I'm listening to this and I'm like I don't think I need an LLC right now You know, I know there's gonna be upkeep. I have a lot of coverage through my you know insurance like I'm good I'm good on that But you mentioned sole proprietor so that way you could have the business deductions So what do I have to do To formally become a sole proprietor if anything Yeah, great question. So Formally all you need to do is go to the secretary of state website and quite literally start a new business or file for a new business or a business registration Depending on your state and just look for sole proprietor

10:29And it takes you maybe five minutes to complete. It's a small fee and you're good to go all right now in reality You can operate as a business and most CPAs will still treat it as a business all right for your first couple of months or so But unless you actually create that actual entity then what's happening is you're you haven't legitimized it And so if you continue to operate outside of some sort of formal structure like a sole proprietorship Then the IRS could potentially come down and audit you You know during that range or during that time frame and say all right you took all these deductions But it wasn't officially ran as a business Okay, at this point I have listened to you and I've gone out and I am a sole proprietor Formally or not whatever. I'm I'm my own business. I have started my business banking account I also got a business credit card of course because I'm gonna Rack up those points because I'm smart and at this point you mentioned deductions a few times

11:29So I am like I did all these things and I'm I don't know what is a deduction Which isn't these waters are muddy can you help us with that piece? So the primary thing that all of us can do in the beginning is just keep track of what expenses that we're paying for Keep a note of it. Maybe highlight it. I don't know a lot of people like to just print off their bank statements Maybe highlight for different colors So as an example all the expenses would be read any major expense might be blue And anything that's unordinary might be you know orange or something that effect And then when you deliver it to your tax repair They know exactly what these different things are and they know how to properly Account for them Because if you're trying to do it yourself and you just turn in say that's how much money I made is how much money I lost Go ahead mr. Mrs. CPA go ahead and file that for me You could potentially be shooting yourself in the foot And causing yourself a lot of money Okay, so I am looking at I'm keeping track of everything. I'm spending money on and I'm going through it And I'm generally categorizing with my highlighters hypothetically or however I want to do right right some main categories

12:35Before earlier you mentioned mileage meals conferences I know that a lot of agents want to write everything off like literally they're writing off like their haircuts Their new shoes their groceries the wine that they bought for the Party that was a business party that wasn't so can you can you or maybe it was but can you walk us through kind of like the major categories And what we should be tracking because if they're definite write-offs versus hey, you shouldn't probably do that Definitely so when we look at expenses, there's a few primary ones. It's going to be your advertising and your marketing Okay, anything that we're spending on that that could be your Zillow subscription or whatever the case is You are going to want to look at any type of wages contractor wages a virtual assistant wages anything like that You're going to want to look at all of your travel expenses, which includes Airfare again, it includes rental cars things of that nature Uh, you're going to look at any office supplies or office expenses and that's going to be I got to buy more listing packets or more buyer's packets

13:41You also want to take a look at Different uniforms if you guys are buying uniforms with your brand on it those are that's a great opportunity to have a deduction Um, and the list kind of goes on from there now when we're thinking about The different things outside of that that you want to make sure you're tracking But you may not necessarily want to just do your own finances and write it off will be things like mileage Okay, and the reason why is because oftentimes people get it confused they'll say hey, I'll pay for gas Right, but I also want to get mild just like no you only get one or the other and so if you're sitting down writing off gas But you try to claim mileage you might again put yourself in a bad situation For an audit so mileage meals things like that you do want to keep track of but allow your tax professionals to tell you exactly how much of that Um gets broken off another really good one is Home office expense that a lot of people don't know about too right where you can actually take a piece of your home and say

14:47The hypothetically, let's say it's 10% of your home you use for your office Mike you said keep track of several times and this is a something that I know that listeners are feeling anxious about because they're like man I track almost nothing and now I have to keep track of Meals and whatever so my question for this is do they have to keep receipts for everything or is the fact that it's on a bank statement in their business banking account enough What's the deal with receipts? That's a great question. So honestly Can you deduct it with it just being on the bank statement answers? Yes, absolutely you can okay The whole idea of the receipts is that's the right way to do it all right and reason I'm using parentheses here are you know Skymarks is because let's be honest if you do not get audited Then you're okay like the bank statement is gonna hold up if you do get audited One of that that audit agent may come down and look through those different line items and say all right This one here show me proof

15:49And now if we don't have a receipt all we have it all it says is Venmo Our cell and we just classified it as something you know And then when they go to your we go to our Venmo and our zeal or something and it says uh, you know something obscure whatever it is Then we potentially are going to calls that auditor to start diving and deeper and asking more questions Which none of us want especially if we don't like tracking things right So the idea is the receipt is the right way. It's the best way But the bank statement can can allow you to at least take the deduction What's the worst thing that can happen if you do get audited like what actually happens like as everyone going to jail We're all just going to jail or we're paying like a million fines what is you know some people are having nightmares help When I said I this uh, I started to age myself I was talking to my little sister and I was like yeah, you don't want tax fraud You don't want to be like Wesley Snipes as she just looked at me with a blank stare like who is Wesley Snipes?

16:50I'll like Jesus Christ. All right, so um So the worst thing to do are the worst thing that can't happen with the audits the worst thing is that you get Identify for tax fraud that comes with jail time and in major files That's the absolute worst thing that can happen They could seize your assets all that good stuff to to liquid force you to liquidate and all that Now what's most likely going to happen is something's going to be found as long as it wasn't negligent It was a mistake somewhere Then they're just going to make the adjustment and if there is any difference and payment of what you owed in taxes They're just going to ask you to pay that And a rural road scenario they're going to ask for it, but they are also depending on the amount give you a Period to pay it back so you can even create your own payment plan if you will for some of those So it's not the end of the world But what we don't want to happen is What it says is the higher You know when we look at the code it says we can go back or the iris can go back up to seven years But in reality if they start pulling at strings they can go back even further And we don't want them to go back any further

17:51We don't want them to ask questions because once you get something amended or changed It's not just for right now or in 2024 they go back to whatever say it's 2015 if they amend 2015 will 2016 2017 2018 2019 All of them have to be amended and it is just a pain in the ass to deal with Yeah, this is actually a legitimate nightmare Yeah exactly Like please never happen to me. Good to that sound your mark. He's up Okay, let's I'm not quite done with receipts so Or tracking so I got the receipts now. It's like yes We should cover you know cover your ass keep all the receipts keep all of your Tracking and bookkeeping like immaculate of course Do you have any tips on actually maintaining this because there's agents out there right now listening and they're like man Every single month goes by and I'm like I know I should do that and then another month another month And now they're like looking back on three years So what is the what do you recommend you mark like monthly going back and looking this weekly

18:52Daily is there like an app that you prefer where I found useful hit us with all that Perfect here's the easy button Every time you guys have a receipt take a photo on your phone and then in your in your photo album Just create a small little album called receipts all right if you can even break down that album to January February March receipts and all that good stuff. That's even better. Okay. That's perfectly fine So that's the easy button because that way at least you have it stored somewhere Now from there Making sure it's all up to date you want to make sure that you are updating Your own record somehow at a bare minimum once a month at a bare minimum because let's be honest If you ask me what I did last Monday. I'm a I have no clue. I have no clue Go back to my calendar, but I mean like even that. I'm like. I don't know So asking somebody would you do seven months ago? Which is just annoying. Hey Because I know you've gotten this we've seen this together

19:54Hey, what was this transaction two years ago and October flight proud Talk it up owner contribution. I don't know You know, yeah, I mean not me hypothetically this All right, so in a situation like that you want to make sure that you're going back every month at a bare minimum and say and okay All these numbers make sense. I'm good to report this Now here's the best app to do at all. It's quick books online in my opinion There's a ton of different apps out there there there are there's a way to record receipts in this that in the third But as a pure Platform that is meant for accountability and financing Quickbooks is one of the most universally known So once you get kind of just used to uploading your receipts in there Anybody who's trained in Quickbooks can just go in there and do the rest Right, but if you have a special app or a private app that only a few hundred people use or a few hundred thousand It's going to be harder to find somebody else to go in there and kind of clean up your mess

20:55All right, so my recommendation is always Quickbooks online. That leads me straight into my next question But real quick before I ask my next question just a note on the cheat You know take a picture of the receipt and put it in your photos and a folder Something that is really helpful now too is the fact that you can now search Within your photos like you used to not be able to like literally type a word and have it search and pull up And now that you can do that it's amazing amazingly helpful if you didn't know that surprise you could search your photos For keywords The other thing is if you're listening to this I used to use herdler I used to use herdler and that is a really cool app if you are looking for like a Simple solution that's geared towards real estate It makes it really easy to track your mileage and you can just swipe left or right for whether next success in expense or not So check out that one. I haven't used it for a couple of years But I remember it being pretty good But mine this what you led me right into Mike was my next question Which I hear this all the time when should I hired out at what point do I know I should take this off my plate at what point is it

21:57Worth my time to focus elsewhere versus like the cost of bringing someone on What about that? That's a great question and here's here's what I always ask the individual back because they always ask that as well to me My question is do you understand fundamental accounting can you explain debits versus credits And do you know what expenses that you can take today versus what you can only take later on if the answer is no You need to hire it out right now, okay? Because ultimately If as you're tracking these Items money. This is this is typical happens. Let me put it this way When we don't really understand accounting what we're tracking is money in and money out That's what we track as a newer entrepreneur as a newer agent It's like all this money came in all this money came out. I'll give you a perfect example credit cards One of us gets a credit card early because we needed to kind of set up our business So we swipe that credit card our credit card payment. Let's just call it $200 So you know what we do an expense of $200

22:59That's not that's not accurate It's not because the only expense that we have is the interest that we paid on that payment So the interest could be whatever called $100 All right, so as we start to calculate all of these things and then we go to our CPA and say here you go There's how much money I made and how much money I spent This is what I should be taxed on the CPA is going to fill it out but all right great All you showed him was bank statements in the next sale spreadsheet go got it done I'm a charge of 700 bucks 500 bucks. We're done But if you go back and get audit it all of that is incorrect You you have no idea How much money your company really made on the taxable side All you're really looking at is cash flow So if you don't understand these things I always recommend out the gate leverage it out now if you got a good general idea of how it's going Then leverage it out as soon as it's You know you push it to the back of your agenda because you have too much on your plate Right as a realtor we worried about deals one of our first recommended hires is typically a TC

24:02Right, so we can put more deals on our plate And now we may start marketing to get even more deals and now we're going to hire our first agent So the accounting side can trickle to the back of the mind very quickly as soon as you see it fall in a part And you're like oh, I can't keep up with it once a month then leverage it out It flies to so many people listening So the next question that they're thinking is first of all, you know, agents be cheap You know, I'm saying I don't want to spend any money so Regardless of the fact that they're probably missing out on Tons of money at cash at tax season because of their improper bookkeeping It's one of those things where people don't want the upfront smaller expense and they would prefer to have the long-term pain It's just that's what a humanity is interesting Um, but when it comes to hiring because because they're like I don't want to spend money right which no one really does Because the thought is I'm just gonna go on fiber. I'm gonna go on up or whatever I'm gonna go and I'm gonna hire some VA who says they can do bookkeeping for five dollars an hour Do I do that do it or or I mean that could possibly a good be a good option maybe

25:04But what's the difference between that versus hiring a bookkeeper like an established one and if I hire the established one Which I'd be looking out for just this whole category Michael, please Right for sure for sure because I'm a let's be honest And we've been in this game long enough that we know that not every practitioner is created equal and their ability to do things It's just it's not so you're gonna run across you're gonna run across a bookkeeper says yeah I'll do it for four dollars an hour I'll do it for a hundred dollars a month and the problem is they don't understand real estate They don't understand your market. They don't understand your the trends. They don't understand the terminology And so when you're trying to explain to them like what does this mean and they're like oh, well, you know Technically because in the the college says this about accounting. This is what it means I said that's not even useful for me as an entrepreneur So when you're looking at these days perfectly fine to hire a VA for five dollars an hour perfectly fine matter of fact we have some Overseas Independent contractors and our company that do some of our bookkeeping for us These are the things you want to look at when it comes to that

26:06One do they know your more your industry. Excuse me your industry. Do they understand real estate? Do they understand real estate agency? Okay Two so you can look for that in their resume have they worked for somebody else at another agency things that nature The second one is do they understand us accounting Because us is unique as always right we like miles when everybody else in the world use kilometers Right, we have a specific Accounting system that we use that other countries do not use so do they understand the US accounting system um, the third thing is can they explain it to you To where you understand Because it doesn't does is no good if they're using those big terms your gross profit margin of the Crawl current ratio is two point. You're just like bro Just tell me how much can I spend this month? Right that's what you need And those are the primary things that I would look for the fourth thing is Speed of delivery or consistency of delivery So there's a lot of bookkeepers and I know that you've experienced this too where bookkeeper says yeah

27:10Yep, yep, you give me everything. I'll get it done and then three months later they're they're back behind again We can't afford that in our business. We can't we got to know what we can spend this month so we don't overspend So making sure that that bookkeeper is timely delivery and you could do that through Hiring won't hiring them offer probationary period and things of that nature But those are the four top things I would recommend looking into At this point we've talked about bookkeeping, but we've also dabbled on you know talk to your CPA or your tax I forget the word to use tax person So can you help bring clarity for those who are like wait? I thought like books and taxes That was all kind of the same thing like what are the roles and responsibilities of the bookkeeping realm versus the tax prep slash whatever you tell me Now I'm glad you asked that question because everybody thinks the CPA does bookkeeping and the bookkeeper can do taxes or CPA work So what a bookkeeper does a bookkeeper is data entry what they're doing is they're consolidating everything that you've done And they're making sure that your financial statements your your books are clean and accurate

28:15That's what they're doing They're trained on that they're trained on basic accounting They understand kind of what goes where which financial statements, you know all that good stuff Now the tax advisor or the tax preparer Often referred to a CPA but just so everybody's aware they do not have to be an actual license CPA to be to be authorized to file your taxes Okay, so your tax preparer is trained in taxes They're the ones that are going to see everything that you did ensure that it's correct Say maybe we can move this and they're only their primary focus Let me put it this way is to help you pay less in taxes that's their primary focus. They are not A business minded Finance here. They're not helping you decide. Hey, instead of spending this on marketing. You should spend your money over here Okay, their specific lane is helping you pay less in taxes If you're looking for something more you're like hey bookkeeping is good, but they don't really have enough strategic insight for me My tax repair is great, but they only focus on taxes and what what I have done

29:17I need some more forward thinking strategy that need to be looking for something else and in in our realm That's called are referred to as a fractional CFO Down the line, but just to be clear those are the specific roles of each Okay, that's perfect. Okay, what did we not talk about today in this realm that would be important for our listeners to hear from you or understand The the biggest thing that as entrepreneurs is we don't often have a lot of time to make decisions Right, we often don't have time to decide or are two months or two weeks to decide I need a hire to T.C. Who's the best one oftentimes like everything is falling apart. I've let it go on too long What do I need to do right now? The easiest way for us to be able to make logical decisions instead of a motion-based is to simply know where we are financially All right, the one of the biggest stressors in the world is a lack of finances, right? We have all been there So if we have control over our finances We've now gotten rid of one of the largest stressors and we can think clearly in those times of distress

30:22That's honestly the difference between somebody who can live in this entrepreneurial realm for decades versus somebody who gets in and gets out in less than a year or two Totally, and that's the difference to between being an actual business owner versus just Keeping your head up at water every single day You know the business owner so that once you are able to like really have clarity on their numbers and look at where they are Now pass trends and then look into the future and Project make smart decisions for you right not just today, but for five 10 15 years Down the road, but like what do you what do you do and how can you help our listeners? Of course We do it all we do bookkeeping we do help with tax strategy and we do fractional CFO services The biggest difference about us is we primarily focus in the real estate industry That's our background Collectively in the team we have over four decades of real estate experience real estate practitioner experience So we really understand the space and we really understand how the nuances of the financing work

31:26So if anybody is interested and looking for some of that entry-level bookkeeping We can definitely have a call and go from there And for those of you don't know a mic is actually my business partner And not in this space not in the bookkeeping space But Mike and I were introduced back in when he was just getting out of the army I had just gotten out of the army. He was an investor. I was an investor and we built Fipellars Realty Group in Fitville, North Carolina together He and I have done so many flips and we currently have holds I don't even know how many units together In our rental portfolio and we have gone through every up and every down in this Crazy business together and of course now after he and I have like literally worked four years trying to find the right bookkeeping team and You know tax provider all that stuff. He is my bookkeeper and CFO so Obviously, he's awesome You should check him out But Mike, where's the best place for people to reach out to you? The best place is to simply just go to the website you guys can find us there if for any information

32:30But if you guys want to reach out to me Instagram is probably the best way to get to me And all all that tags will be there in the show notes. I'm sure but Instagram at michael.s.glaspy LinkedIn would be another good way to get to me and just reach out connect and we'll go from there And it's glass B with i.e. Not why yes. Yes People often don't know how to pronounce it So or spell it once I say it. So that's right. It's g-l-a-s-p-i-e Cool love it and guys you know the drill if you want to hang out with me and the owner of the show We are the Shelby show and air nooo to segi on the cram But otherwise that is all we have for today. Mike Thanks so much for hanging out with me and real estate rock stars. Thanks for listening

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