Welcome to episode 204 of The Food Blogger Pro Podcast! This week on the podcast, Bjork talks about how we’ve structured our businesses and the tools we use to manage them.
Last week on the podcast, Bjork chatted about how we’re strategically targeting our low-hanging fruit. To go back and listen to that episode, click here.
LLCs, S-Corps, and Accounting, oh my!
If you’re generating income with your blog, it’s important that you have your business structured in a way that you not only understand, but that helps you make strategic decisions in the future.
Bjork is here today to chat through how we have our businesses set up, as well as the tools we use to keep track of our financials. You’ll learn why it’s important to separate your business income from your personal income, how to make sure your books are in order, and more to give you a better idea of how you could be managing your blog expenses and income.
In this episode, Bjork shares:
- How you can be strategic with your losses
- Why it’s important to separate your business income from your personal income
- What an EIN is
- Why we’ve separated the financials for each of our businesses
- How we make sure our books are in order
- What tools we use to keep track of our purchases and income
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Transcript:
Bjork Ostrom: Hello, hello, hello my friends. We are back here for number three, episode number three in our project series, and if you’ve been following along, you know that last episode, number two in the project series, was our first ever outdoor podcast episode. But I am back indoors and it is a lot easier to record a podcast inside then on a random picnic table on a bench with people walking by and suspiciously looking at me. I can be in my own quiet space and nobody’s looking at me. It’s a beautiful thing.
Bjork Ostrom: So for those that have followed along with this series, you know that essentially what we’re doing is we’re talking through the projects that we’re working on, things that may or may not apply to what you are doing right now, but probably at some point in your business and your blog and your online thing that you’re building, it might apply to what you’re doing. And my hope is that by sharing projects, by sharing the things that we are working on, you can find some different nuggets, some different things that you can come away with as actionable items.
Bjork Ostrom: And you might not be going through the exact same project but maybe wondered how other people do the things that we’re talking about and that’s what this series is all about. It’s a chance for us just to share a little bit about what we’re working on and to go behind the scenes to kind of pull back the curtain on some of the projects that we have in hopes of inspiring you to either take action on something you’ve been waiting on or haven’t done, or revealing some information that might be helpful for you as you build your business.
Bjork Ostrom: Today what we’re going to be talking about is tax and accounting, and I’m not going to go super deep into it, and this isn’t going to be a long podcast episode, so if the idea of legal stuff and taxes and accounting sounds super boring to you, don’t worry. This isn’t going to be a long podcast episode. We’re going to keep it short. We’re going to keep it sweet and we’re hopefully going to make it as useful as possible to you.
Bjork Ostrom: The idea with this project series is we’re talking about projects that we are currently working on, so these are things that are happening right now behind the scenes, and different than a podcast interview in that we might flavor in some of the things that we’re working on on Pinch of Yum, or on Food Blogger Pro, or WP Tasty or Nutrifox, these businesses that we have. But we don’t dedicate an entire episode to talk about what’s happening behind the scenes.
Bjork Ostrom: So let’s jump in and talk a little bit about it. Why is it important to have a really good understanding and to be really solidly set up when it comes to your taxes and your legal setup for your business? Some of you might be thinking, “Yeah, I can put that off. I can do that a little bit later.” But for those of you even in the early stages, I want to encourage you to think about this really strategically because even if your business isn’t making any money, there are considerations that you need to make in terms of leveraging that loss.
Bjork Ostrom: Meaning, if you are spending, let’s say $200, $300, $500, $1000 a month getting your business up and running, you can still leverage that. You can still be intentional about taking that loss and using it as you structure your books in your accounting in a way where that money is not entirely lost.
Bjork Ostrom: And here’s what I mean by that. Now with any of this stuff, disclaimer here, is you need to talk to somebody who’s an expert in accounting and somebody who understand this and works with it day in and day out. But I want to paint this picture for you, for those that are in those early stages. When you have a business, there’s two ways that it can come out at the end of the year when it comes to your profit and loss. You could either have a profit or you could have a loss. And if you have a loss within your business, there’s a lot of disclaimers in terms of how this works and how it’s set up and how your business entity is structured, but if you have a loss in your business that’s like negative income. That’s income in your business that wasn’t a profit, it was actually a loss.
Bjork Ostrom: When you structure your taxes at the end of the year, when your accountant goes in and says, “Okay, you made this much from your job,” and maybe you had a contractor role and you made this much, “Oh and your business, there is actually a loss there that’s counted as an income loss.” So a loss is not a loss entirely. It can be used strategically with your taxes at the end of the year. Even if you’re not making a profit, this is going to be important stuff for you to know and to understand because you can be strategic in about how you’re structuring this, even in the early stages.
Bjork Ostrom: Now, again, lots of disclaimers in how that’s set up. But the point is, if you’re just starting out you need to be keeping track of your business expenses and to be working with the team member, your CPA, your accountant, whoever it is that understands this stuff, and you need to go to them and say, “My business made this much this year.” Or maybe the case is, “My business lost this much this year,” and they’re going to know how to strategically use that in your taxes in really smart ways. So even if you’re early stages, be sure that you are aware of that.
Bjork Ostrom: Here’s what we’re going to talk about for this podcast. We’re gonna talk about the changes that we made this year to have a better understanding of how much profit each business is making, why we did that and some of the specifics around how we did that, the way that we automated that process. And then we’re going to be talking about some of the ways that some of the things that we’re testing out as it relates to that.
Bjork Ostrom: First, let me explain a little bit about how we were set up before. So 2018 before this year, we are set up where Pinch of Yum was one company and it was separated out, and if we had expenses it would go under the Pinch of Yum side related to Pinch of Yum. If we had income related to Pinch of Yum, it would go on the Pinch of Yum side, and that was separate.
Bjork Ostrom: And then we had Food Blogger Pro, and Food Blogger Pro also had two additional sites under it. One was WP Tasty, the WordPress plugin site that we have, and the other was Nutrifox. So even though Food Blogger Pro was set up as Food Blogger Pro LLC who has its own business entity, and there was Pinch of Yum LLC, Food Blogger Pro actually had two kind of children underneath the structure. So it was Food Blogger Pro, WP Tasty and Nutrifox. All of those businesses, all of the income expenses related to those, it was all kind of mushed up together in a month-to-month sense for the books of those businesses.
Bjork Ostrom: We would log in and we use QuickBooks. We would log into QuickBooks and see, “Hey, we had a good month this month. Food Blogger Pro made an income. But, in actuality, there’s these other businesses tied up in that and we didn’t have a clear picture of which business was the most successful and which one needed some help. Or maybe there is a month where we invested a lot in a certain business, we did a lot of development, and maybe that meant that that business had a loss that month because of the investments that we made in it. We didn’t have a clear picture of what was going on behind the scenes because all of those things where mushed up together.
Bjork Ostrom: Now for you, there’s a good chance that you don’t have multiple businesses. There’s a chance that you have your one business, it’s your blog, you’re working on that. But there’s also a good chance, if you’re in the early stages, that businesses is mushed up and mashed up with your personal finances. So if you just have the one business, the message to you is to separate that out to make sure you have separate business accounts for your business. All of the income related to your businesses is going in there, and all of the expenses for your business are going through that bank account, and your personal income is separated out.
Bjork Ostrom: We had a version of that issue, but it was related to the individual businesses that we had and it was all being combined together. So the project that we had, the project that we did was separating out those other businesses. The first step that we did is we went through the process of making each one of those business its own LLC. And again, for us the process that we went through, I’m just going to let you know that it might be different for you depending on where you are, and would really encourage you to seek somebody that you trust to help you with this process, to set these up.
Bjork Ostrom: But for us, the project was separating all that stuff out. So how do we go about doing that? First thing we did was we went through the process of applying for each one of the businesses to get an LLC. For your given state, wherever you are, you’d go through the process of setting it up as a limited liability company. And way back in the day when we did this for Pinch of Yum and Food Blogger Pro, we just went to the state of Minnesota and went to the process of setting up an LLC. It was under $200 and we just did it on her own. We didn’t have a budget for it and I knew that I wanted it, but I couldn’t invest $1000 or whatever it would be to work with an attorney. N
Bjork Ostrom: ow that these businesses are more established, we have an attorney here in the twin cities that is familiar with this. So we went through the process with her to get these set up as official LLCs. That was the first step. We went ahead and we said, “Okay, we want to break out these businesses, make them their own entities and we want to make sure each one of these is responsible for its own income and its own expenses,” and the first step of that was setting up an LLC.
Bjork Ostrom: The next thing that we did is set up an EIN. What is an EIN? Well, an EIN is like a social security number for those in the United States, but for a business it’s a way for you to say, “This is our tax identification number. When we are doing anything related to taxes, we’re going to use this number because this number is attached to this business.” We set up the LLC and then after that we set up the tax identification number, which is the EIN, and the reason why that is important is because an EIN, now that it has its own identification, it allows you to set up bank accounts more easily.
Bjork Ostrom: After that we did the LLC, we did the EIN, we went through the process of setting up a bank account. Now for us, I like to keep it super simple, so we have a checking account, a savings account, and then recently we set up for each business a credit card. And the reason we did the credit card, I was long, long, long against credit cards until just this year, is because we’ve been spending enough within the businesses to justify the one-and-a-half percent cashback that you’d get on the cards, at least for us.
Bjork Ostrom: And it’s not a crazy amount and if you’re just getting started out, I would say it’s not worth it and you don’t want to go into debt. That would be my opinion. You want to hustle and put in some sweat equity, but you don’t want to leverage a credit card just to start a business. Again, my opinion, other people would disagree. If you’re in the early stages, all that you’d need really is a checking account or a checking and savings account. That’s what it was for a really long time for all the different businesses we’ve had until just this year.
Bjork Ostrom: But right now if you’re looking, the bank accounts would be checking, it would be savings and then it would be a credit account, so that’s what we did. We went through the process of setting up a checking account for each business, savings account, and then we have a credit card account that’s paid off every month, so now each business has its own set of accounts and it has its own bank account.
Bjork Ostrom: Then what we did is we went through the process of going through, reviewing the payments that are coming through each month and saying, “Who’s responsible for this?” We would take that and we’d bring it over. If it was a hosting bill related to, in our case a Digital Ocean where we host Nutrifox and all the data around that we’d say, “Okay, we’ve got to update the credit card account number for this and bring it over to Nutrifox.”
Bjork Ostrom: If this is you for your personal account, what you’re going to be doing is if you are setting up a business account for the first time, you’re going to be looking through and saying, “Okay, what are the things that I can be bringing over? How can I be strategically taking over the business-related expenses and assigning those to the business?” Now, you might need to kind of invest a little bit into that business to get it going. Here’s what I mean by that.
Bjork Ostrom: For us early on, let’s say with a WP Tasty as an example, we knew that we had to put some money in, we had to kind of seed some money for that business to get it started. So we transferred over a certain amount. We said, “Hey, this is a safe amount to have in the business bank account. You know, it’s not $1000, it’s not going to be this point where might dip under and we might need to seed some more money into it.
Bjork Ostrom: You’re going to have to put some money in. And maybe that for you, if you’re trying to get profitability with your site, maybe that for you it’s kind of like you’re viewing it as your own investment. You’re investing into your blog and saying, “I’m going to put …” Maybe you’ve saved up and you have some cash reserves and you have a little bit of a seed account for your business, and you say, “I’m going to put in …” Maybe it’s $3000. Or maybe you’ve saved up and you say, “Hey, I have $5000, I’m going to transfer this over. This is going to be my business launch plan. And I know that I’m going to lose money for a little bit each month, but I want to get to a point where eventually that number is going up as opposed to going down each month.”
Bjork Ostrom: But you know that you need a little bit of a buffer to get started. That would be the third step in the process. It’d be LLC, you get an EIN and then you’re able to set up a bank account. And that’s what we did for each of … It was WP Tasty and it was Nutrifox, so now we have those all separated out. It feels good. We’ve assigned the transactions that each account is responsible for to the given account, and it’s all nice and clean and it’s separated.
Bjork Ostrom: The next step is making sure that our books are in order, and what does that mean? How does that work with books? Well for us, we use QuickBooks and we use QuickBooks online, and essentially what QuickBooks does is it’s the central hub for you to look and say, “How is my business doing? How do the numbers look within my business on a month-to-month basis?” Now, you could just do that with an Excel spreadsheet, maybe you’re just kind of roughly doing that by logging in and looking at it each month in your bank account and saying, “Hey, is it more than it was last month? Great. That’s really good.”
Bjork Ostrom: What I would encourage you to do is to get in the habit of being really intentional with looking at your books each month. And the reason this is important is because a software service like QuickBooks is going to be able to allow you to look at the different parts of your business in a way that just logging into your bank account won’t. For instance, it’s going to allow you to see really clearly a profit and loss statement.
Bjork Ostrom: What is a profit and loss statement? Simply put, it’s a little bit of an x-ray, it’s a look into your business to say, “For a given period of time, the last month, the last quarter, the last year, here’s how much profit or loss the business had.” Now, where this gets really powerful is you can look at a business and compare it month over month. Now, not just that, but you can go even further and you can say, “I want to look at the profit and loss statement for January of 2019, and I want to compare that to the profit and loss statement of January, 2018, and I want to look specifically at how much my advertising dollars have changed. How much did it change last year to this year in terms of how much I made from ads?”
Bjork Ostrom: And then you can look and say, “I actually wonder has my have my expenses changed? You can look and say, ”Show me last quarter, quarter one of 2018, and show me quarter one of 2019 and show me how my expenses have changed.” Maybe something has happened where I’m starting to spend a lot more and is that justified spending? You can get a better idea. Maybe you’re working with somebody to help with photography, and last year you only spent $500 on that and this year he spent $3000 on it. You can look and see and start to understand your business a little bit more, and having your books in order allows you to do that in a lot easier. It’s going to automate that process.
Bjork Ostrom: Now, there’s still the process of correctly categorizing and keeping up your books. So how do we do that? Well, we work with a local bookkeeper here, but we’re also actually test driving, we’re piloting a service. which ironically is called Pilot, and you can find at pilot.com. Pilot is, if you don’t know a bookkeeper, if you don’t have anybody that you’re familiar with that could do this, Pilot is a company that is starting up that uses QuickBooks. They use QuickBooks as the service that they build on top of, but then they do your books every month and they’re familiar with online businesses and how they work, and they bill it on a monthly or annual basis.
Bjork Ostrom: Now, it’s not cheap, it’s the lower plan is $225 a month, and that goes up to, they bill in increments based on how much monthly expenses you have. That goes up to, it’s like a $12,000-$13,000 or something like that. Maybe it’s $15,000 is where the cutoff is. I’m using the slider on their website right now. But what they’ll do is if you set up QuickBooks, if you connect all your accounts, what Pilot will do is they’ll go in and say, “We’ll do your books each month, give you insightful information, will deliver reports, we’ll put all of this, we’ll package it all up and we’ll take care of it each month so you don’t have to do it.
Bjork Ostrom: You just connect your accounts, make sure that all of your business expenses are running through those accounts, and we’ll do your books for you.” We’re testing that out to see what it would be like just to create a little bit of an automation in terms of the services that we use. And they understand startups, they work with startups, they work with bloggers and similar people that are running businesses that listen to this podcast.
Bjork Ostrom: Again, we are just starting out with that so it’s not necessarily a recommendation, but just a tip for something to look for if you need to find somebody that would potentially fill that gap of bookkeeping for you. A couple of other important elements in terms of how we automate this, we use a service called Shoeboxed, and Shoeboxed is a place where we send all of our receipts.
Bjork Ostrom: It’s really important to document all of your receipts so you have those saved. It’s really important for me to not have a huge physical pile of receipts, so what I do is every receipt that we get, if it’s physical I take a picture of it and I send it to our Shoeboxed account. There’s an email address you get, and any email that comes in, I’ve set it up so it automatically forwards. Any email receipt or invoice, it automatically forwards to our Shoeboxed account.
Bjork Ostrom: I have that set up for each separate business. That was another change that we made. As I talked about before, each business is now accountable for its own expenses and every receipt that comes in, it’s automatically routed to that storage tank. So Shoeboxed is our storage tank for all of our receipts.
Bjork Ostrom: Now here’s where it gets cool. If you are working with a bookkeeping service, you give them access to Shoebox so they can see what those expenses are and they can correctly categorize those. So you’ve just automated that process. You’re not having to go in and do this on your own, with all the receipts going into Shoeboxed and the bookkeeping service having access to that, they’re able to correctly categorize that and know without having to ask you what that expense is related to.
Bjork Ostrom: Now, there will obviously be questions that come up. Maybe it’s something unique or it’s not explicitly explained what that expense is or what that’s related to. And so with any bookkeeping, good bookkeeping service, they’re going to ask for clarifications as it relates to certain expenses. But after a while what you notice is that will get fine-tuned and your books will be able to be automatically kept up.
Bjork Ostrom: Related to that, another really important part of the automation process is any time that you are doing business expenses or business purchases, you’re needing to use a separate card for those, and you’d have your personal card for personal expenses. and you have your business card. All that you’re doing is just really making sure that anytime that you make a purchase in person, you’re using that card for your business. Anytime you’re making purchase online, you’re using that card for the purchases, sending those to Shoeboxed, and then your bookkeeper has access to those.
Bjork Ostrom: That was the process that we went through. We separated out all of our businesses. We made sure that we switched over all of the payments that would come in and the expenses related to those businesses, to each one of the siloed business so we had a really clear picture of, at the end of each month, how much money is each business making. So it didn’t all get sloshed together and kind of be this mucky interpretation of the strength of each business. So we separated that out and then we set up QuickBooks. After doing separate bank accounts we set up QuickBooks for each business, and then within QuickBooks we are test driving, we’re piloting pilot.com to see if that works, and then connecting up Shoeboxed, the receipt tank for us, the place where we send all of our receipts, we connected that up as well.
Bjork Ostrom: They have read access to that so they can see what all of that, those expenses are. And now we have a really, really clear picture of each business. And the other reason this is really beneficial is we can start to understand the impact of certain things that we’re doing over time, we can start to see the growth of the business or the growth of expenses if expenses get out of hand. And we have a really good understanding of what that is.
Bjork Ostrom: If you haven’t yet gone through the process of officially creating a business related to your blog, I would encourage you to do that because, like we said, there are positive tax ramifications that can come from that. Even if you have a loss within your business, we’re not going to go deep into that, but make sure to look into that. Make sure that all of your expenses are separated out so you have personal is just personal, and business is just business, and those are really clean and separate.
Bjork Ostrom: We would recommend QuickBooks. We really liked that QuickBooks online, and that’s going to be a universal service that many people are familiar with, bookkeepers, accountants. It’s going to be the most popular boo keeping and accounting software that there is, so that would be a great one to check out, especially if you’re just getting started, and then look for a bookkeeper. There might be somebody locally that can help you, or you can look for an online service.
Bjork Ostrom: Now there’s lots of comparables to Pilot and that’s just one that we’re testing out. We may or may not use it going forward, but it’s currently a project we’re working on, so I wanted to mention that as something that’s happening behind the scenes. Last thing that I’ll say here is it’s also important to think about how you are paying yourself from your business. If you’re at a point where your blog is starting to have some success, your website is having some success, if you lived in the US one of the things that you could look at doing is this thing called an S Corp, and I’m not going to go deep into it, but there’s some really important strategies related to how you’re paying yourself once you get to a certain point of profitability with your business.
Bjork Ostrom: So let’s say it’s at maybe $50,000 or maybe you’ve had a lot of success and you’re starting get to the point where maybe there’s $75,000. You’re getting to the point where you have an amount that you could pay an actual salary out of. Plus maybe you’re going a little bit above and beyond that. That would be the point where you want to have a conversation with your CPA or your accountant about this idea of structuring your business as an S Corp.
Bjork Ostrom: I’m not going to go deep into that, because number one, I’m not qualified to do it, and number two, that may or may not apply to people. But if you are at that point just make a little note and say, “Ask my accountant about this,” and if they’re good, they’ve probably brought it up already, and if not, they should be able to explain at what point you should do that, think about structuring or being taxed as an S Corp and why you’d want to do that.
Bjork Ostrom: Now again, with any of this stuff, my forever and automatic disclaimer is like not the ultimate tax or legal professional, but these are all things that we are working on behind the scenes and I wanted to mention as a part of this series. And so for this series, this episode three, it was all about the changes we made in terms of how we are structuring our businesses.
Bjork Ostrom: The next step in this is we’re starting to think about what does it look like to have a holding company or some people would call it a parent company? Now, I would kind of go over all of these companies to simplify things even more. Now, the process of setting that up is a little bit complicated, but once that’s in place it simplifies how things run.
Bjork Ostrom: That’s kind of where we are right now. We’re right in the middle of this project, like any of this stuff we wanted to report on it live as it’s happening so you can get an inside look behind the scenes of stuff that’s going on. Would love to take this moment to say, “Hey, if the Food Blogger Pro podcast has ever been something where you’ve gotten something out of it, where you’ve had a little tip or takeaway, where you’ve been able to improve your business, one of the greatest ways to give back is to leave a review on iTunes, and you can find the iTunes review area within most podcast apps.
Bjork Ostrom: Or I’ll say this, there’s a way to review a podcast within any podcast app that you’re in. If you use the podcast app on your iPhone, there’s going to be a really easy way. If you go to the main area for that podcast, you’d be able to see where you can leave a review and that would mean the world to us. What that allows us to do is to show up a little bit higher in search ranks. It’s a variable or it’s a consideration that Apple makes when they show rankings and so if we have some authority as a podcast, we’re going to show up higher, we’re going to get more downloads. It helps to justify the time and energy that we put into creating this podcast every week. So that would be an awesome way to give back. If you have the time for that, we would greatly appreciate it.
Bjork Ostrom: And also if you are interested in going a little bit deeper, check out Food Blogger Pro and you can do that by going to foodbloggerpro.com, sign up for the waiting list and we’ll let you know when the doors open to become a member of Food Blogger Pro. We would love to have you as part of that community.
Bjork Ostrom: To those who are already part of that community, we love you and you guys are great. We still love you if you’re not part of the community, but if you are part of the community, you are extra special today.
Bjork Ostrom: Thanks for listening to the podcast, for tuning in. It is one of the great joys that we have in producing this each week, sending it out and to sharing the things that we were working on in this project series. We will be back here next week for our last episode in this series. and can’t wait to share that with you. Until then, make it a great week. We’ll catch you around. Thanks.