Free-Spirited Entrepreneur vs Systemic Taxes. How can you win?

TRANSCRIPT

Episode 12

Mike Pine: [00:00:00] Welcome to The Hidden Money Podcast today. Kevin and I are excited to have David Flanagan, a good friend of ours. David, thank you so much for joining us today. Before we get into the business, the whole point of us having you on this podcast, besides that, we just love you and enjoy speaking with you, is there is hidden money in having a small business.

Obviously, it can help if you're successful to grow your financial freedom, but for a lot of people there's W2 employees- there's not many tax benefits in there. With a business, the world of tax benefits and opportunities gets much, much larger, so that's the focus of today's podcast. But David, thank you for joining us.

Who is David Flanagan?

David Flanagan: Great question. I've spent a lifetime trying to figure that out, and I'm just now beginning to understand who I am, but it'll change tomorrow. I love being here and thank you so much. The fact that anyone has an interest in who I am and what I do [00:01:00] is amazing to me.

Because I started out in my twenties, in my early twenties, without a clue who I was or what I was all about all my friends were going off to college, and I was left to figure things out on my own. And so not knowing anything about anything, I got the great idea to start a business.

So, I was the last person that should ever start a business and yet there I was starting my own graphic design business and just learning by doing. And one thing led to another decade became the next decade and in my thirties, and in my forties, I found myself having built several businesses and figuring it out. Just figuring it out in terms of what, how you run a business, how you build a business and and how to pay the rent. I had in the process several children, had to put food on the table, [00:02:00] and the idea of building a business, this whole world of 'entrepreneurs', blossomed in front of me.

I remember when I first saw a copy of Entrepreneur Magazine, it was like, 'Entrepreneur!' that's a cool word. What does that mean? And come to find out, I was like, I think I'm an entrepreneur. I think that maybe that's who I am inside, and it sounds highfalutin and stuff, but this idea of building a business from the ground up, it just thrills me.

And now I'm 62 years old.

Mike Pine: Young..

David Flanagan: Yeah, he's still young. Just sold my business. I don't know if I told you that, Mike and Kevin- just sold my shares in my business and so now I'm semi-retired. Yeah, it's great! In trying to, you asked the question at the beginning, 'who's David Flanagan?'

Here we go again, because after selling the business, Now I have to figure it out all over

again.

Kevin Schneider: Yeah, an entrepreneur selling a business. My next [00:03:00] guess is you're gonna be starting something else in the short term, so you can't take that entrepreneur spirit outta somebody. So you got something on the runway? What are you gonna be doing next?

David Flanagan: On that note Kevin, building another business, don't tell my wife that

Kevin Schneider: She's like, ' We just got outta here!'

David Flanagan: No more! What's next? So, I'm dabbling, I'm consulting, and that's fun... that's a lot of fun because it gets me back involved on a smaller, intimate level with people, which is really part of the process that I really love. The larger companies, and in my case, marketing companies, branding agencies, the larger they grow, the more you start moving away from the day-to-day client interaction and the actual work, which I love. And so what's next for me? My first introduction to both of you was through vacation rentals and that has, and is, occupying a great deal of my brain power these days and time.

So, [00:04:00] I'm gonna focus on that for a while and see where that goes as well. In addition to that, writing more books. I'm a writer from the get-go, took me years to figure that out, but I love writing and so there's always a book in the works.

Kevin Schneider: That's a hard transition. That's a hard, but having that intelligence, you're such a smart guy, David - just being able to diagnose that in yourself and having that intelligence about it and you're able to be emotionally healthy about it and continue on.

Because owning a business, there's no hidden money in emotions, but it plays such a big part in how you're able to function. If you're healthy emotionally, you're gonna run your business better. And so having that intelligence about yourself and it's gonna make your day to day a lot better. I know it's a hard transition for you, but I'm... it makes me happy knowing you're finding it. That is good.

David Flanagan: Call me next week, Kevin, 'cause

Kevin Schneider: It might change. Okay.

David Flanagan: Different story.

Kevin Schneider: Fair. So what do you think if, let's say, we have a [00:05:00] small business owner and they have a few employees and they do feel rudderless. What's their first step in finding that strategic plan and getting a rudder on their boat? What would you advise someone who just feels a little lost like that?

David Flanagan: Buy the book! Buy the book! haha! It is all in the book, but I often begin workshops in the discovery phase of this very thing and it isn't always with a business startup from ground zero. Many times, it's with a company that's 30, 40 years old that has somehow lost its way and doesn't know.

I've had many clients say, 'Look! We've been in business for 35 years and we still don't know who we are!'

And that happens more often than you'd like to think in terms of losing your way, with no rudder... losing your way along the way, and then trying to get back into [00:06:00] it. But from a startup company, which I actually prefer working with because it's fresh, you get to, there's no clutter, and in the process of building a brand you want to come to the place of... Let me define a brand by the way, 'cause that word in and of itself is a marketing buzzword, which carries a lot of baggage and people don't know what a brand is at the end of a day.

A brand is nothing more than the way your customers, or your potential customers, feel about you... It's just emotional. When I say 'Pine and company' what com, what, not to you guys, but to your customer or your potential customer, what comes to mind? What is that gut emotion that I think of or feel, when I say 'Pine and company'? And if that is in line with what you want it to be, guess what?

Congratulations! You're in [00:07:00] control of your brand.

To take that step of - How do I want my customers, when I say X, Y, Z company, what do I... or they see my logo or they hear my name mentioned at the cocktail party... that feeling, what is it that I want it to be? That's a huge, very simple step in terms of defining how you want to appear in the marketplace.

Then you... let's take for example, (and I'm gonna make this up), but 'Trust'; let's just say that trust is an issue. Is that... when I say Pine and Company.. Boom! I oughta.. I just wanna say, 'I don't know what those guys do, I don't know how they do it, but I trust them.'

What's that got to do with accounting, by the way?

Zero. That's where a brand lives is. You're not really in... I often ask companies, what business are you really in? So regarding Pine and company, I would say you're not really in the accounting [00:08:00] business- you're in the business of, let's say in this case... and I'm making this up by the way, you're in the business of trust.

You're in the trust. You don't

Mike Pine: trust us? Is that what you're saying?

David Flanagan: No! You're in the business of trust, and if you can do that... Now you take that- 'Okay, we're in the business of trust. Got it.' and you build your rudder on your boat running. Everything we do has to align with trust, trust, trust, trust, trust.

Now you take that and you compare it to your competitive, the industry, your competitors.

If everyone in your industry is promoting trust, now what do you do? Now, what do you.. now.. It's okay. That's difficult because even though it might be true and authentic and relevant to Pine and company, your competitive set is saying and doing the same things, and now you just blend in. Now you just look like everybody else.

So, you have to find a [00:09:00] way to position yourself- that feeling, that brand- that is different than your competitors. Say it a different way or come at it from a different angle, and while everybody's in accounting is beating the 'You can trust! The people with the trust!' It becomes so common and so vanilla, I can't hear it anymore.

If you stand apart and start saying something different, all of a sudden your brand is really powerful; really powerful in terms of differentiating yourself from the competitive set.

Kevin Schneider: That was great, David. That was absolutely great, and to let you know, and our listeners know, Mike and I, we've... we've been in business quite a long time, but we just now, (it was like three weeks ago) laid out our mission and vision to our team.

So, we have a mission statement now, believe it or not, and we have core values. So, people who come to work with us and clients who work with us, they know what [00:10:00] we're about and our mission here, and it took us years to even think about it because we're too busy servicing our clients, but we weren't providing a clear vision to our team members and to our clients of who we are and what we're about.

And it took us a while to get there, but now we have that in place. It's on paper. If it's not on paper, it doesn't exist. Mike and I had a vision. We always had a vision in our head of who we're about; what we're doing, but we needed to communicate that, and so that was a lesson that we just recently learned.

So we should have talked to you about seven, 10 years ago.

David Flanagan: So, I would like to... I would like to encourage you, and by the way, Bravo! On mission and vision. Mission statements and vision statements are powerful tools, however, I'd like you to add one to your list, and that is- you got mission statement, you got vision statement- I'd like you to add brand position statement, and that is the rudder on your boat.

And a brand position statement [00:11:00] is the... so you got your mission and your vision- now, how do I want each and every customer to feel about me, to think about me when they hear my name... not my name, but Pine and Company in this case?

Side note. So a very brilliant brand; the King of Brands, a guy named Michael Bedbury developed a brand, 'little' brand called Nike. And, and this... another man named Howard Schultz from Starbucks says, 'That guy's smart. I'm gonna... I'm gonna have him come build my brand at Starbucks.' and he built the Starbucks brand around the brand position statement. The rudder on their boat is 'Uplifting moments for people every day.' 'Uplifting moments for people every day.'

What has that got to do with coffee? Zero. Nothing. They... there's a statement I have- clip that I use in workshops from Michael Bedbury that says when he [00:12:00] says, 'Uplifting moments for people every day, and I didn't say coffee.' (quote, unquote), they don't even... Starbucks doesn't even consider themselves from a brand perspective in the coffee business, which is outrageous!

... Wait a minute! If ever there was a coffee company, it's Starbucks. Is it the best coffee in the world? Is it the cheapest coffee in the world? No, and yet as a company they're dynamite, but they don't even consider themselves, again, from a brand emotion, they don't consider themselves in the coffee business.

So Pine and Company, or a startup company, ask yourself the question from an emotional standpoint, 'What business are you really in?' and that's how you drive your marketing, your beautiful website, all of your conversations when someone calls - a sales call or whatever is - you make sure that (your mission and vision, those help [00:13:00] drive the company), but that brand position statement- that needs to be front and center in terms of how do you want your customers to feel about you.

Mike Pine: Man, that's really great stuff, David. Thank you so much. Getting back to Hidden Money and on the tax side of things, 'cause that's where Kevin and I love to talk about (the branding stuff's a little bit hard for us, but that's why we have you)... you've had multiple exits at this point, and I'm curious of how important has tax strategy been and how those exits have been structured, and is there any time where you realize, 'Whoops! I should have thought about this sooner in taxes- I should go with that.'?

David Flanagan: Yeah, another lesson learned! So, the first brand agency that I sold (I sold my shares in - I guess my partner sold too), the first agency that I sold, I got eaten alive by taxes. It was I hadn't anticipated... in my [00:14:00] negotiations and agreement to sell, I hadn't taken into the equation what taxes were gonna do to me and...

Mike Pine: Ouch!

David Flanagan: ...took a major hit.

I was young and able to rebound. This time, I knew going into it, is that I'm gonna sell my shares of the company for X amount and taxes are going to take (capital gains and all of that), a good chunk of that, and to the degree that it almost made selling not worth it. It was like- I worked for 12 years to build this company and I'm going to lose at least 20% of it or more.

That's not okay - that hurts. And so Knowing that... but then in talking to you guys, it's, 'hold on! Don't jump off the edge of the building just yet.' There are legal ways to (in fact, the government wants you to take advantage of these ways of protecting your [00:15:00] investment), protecting those 12 years of hard labor and the income that I got from selling it.

There are ways to make sure that I don't end up giving the majority or a good portion of that... just give it away. That's a lot of money - just give it away. And so that's an area that is near and dear. I know you love that; I love that part of it, of 'I don't have to give it away' and, okay, so tell me how to do that.

There's the area that we talked about - of finances, and that is not my gift. That is the understanding of the need for it, okay, I got that... But the actual, 'how do you do that?.. you could sit me down in a room, Mike and Kevin, and for hours on end, tell me how to do that, and my brain would explode.

It's just not where my comfort zone is, but having someone on my team provides just a real sense of, 'Okay! we [00:16:00] can do this!'

Mike Pine: So I guess you would agree then, having a team around you, financial planning, tax, a business attorney. That team is incredibly important and integral to accessing your hidden money, and leveraging and building financial freedom. Without 'em, doesn't go so well, it doesn't.

David Flanagan: Unless you enjoy paying taxes.

Kevin Schneider: Unless you're a creative mind who can create an ad agency, and you understand the tax code, and you understand legal, and unless you're some sort of unicorn, yeah, go for it! Yeah, that's hard, yeah. And Mike and I always stress the importance of a team - always. 'Cause to our point earlier, it's like - Mike and I, our specialty wasn't bookkeeping, but we know good bookkeepers and we're the first to raise our hand when we get to a topic and we're like - I need a buzz in a financial advisor. I need a buzz in somebody else to get this good holistic team approach. Yeah, you're spot on.

[00:17:00] David, we learned so many lessons early on in our, career journey, and you've been transparent enough to tell us some of yours in your twenties. And one of those that we see as CPAs is the need for financial planning or financial structuring or clarity on the finances early.

Did you ever run into that hurdle... helping with the organization and the accounting and the taxes? What would you say to someone who's in that position? How do you break that mindset of just pushing it aside, but actually tackling it? And how important is it?

David Flanagan: Interesting question, and there's two sides... or at least where my brain goes, is there's the professional side... and there's the personal side. And the professional side, I learned very early on 'bookkeeping' as a subject, Mike - Bookkeeping was something that I tried to do myself at first for a couple of months and realized this is not working, and so professionally, I [00:18:00] was able to make that leap fairly early on in terms of - If I'm going to make a living at this, if I'm gonna make a career at this, I need financial team members with me - bookkeeping, accounting, so on and so forth. That is just not an area so that I can tackle. So in making that decision, even though it cost me money, it was saving my bacon, and I could see the results immediately.

And by the way, some of those results were emotional, meaning I don't have to worry about this stuff in the way that I was worrying about it when I was doing it myself. On a personal level, i.e.. my personal finances - different story. I don't know why, but it was always - knew the need for financial planning for the future... but I just never could wrap my arms around it.

And it was an area of blindness for me, maybe. On purpose, [00:19:00] I just would do this with my personal finances, and I'm talking about when I was in my twenties... and on, is the area of personal finances was a mess! It was I would... the money I would make, I would spend the money and I would... it was just... it was really not well put together.

And I lived the majority of my twenties and thirties that way... until I met my wife. My wife has the gift... I would like to say that's why I married her, but that was a side benefit.. she just has a brain that works in a way that mine doesn't and she took over the personal finances.

And if I'm successful on any level, on a personal financial, it's not because of you guys, it's because of wife. And she really became the rudder on my boat, if you will, to use that term again financially, in terms of[00:20:00] getting me in line. Without her (or someone in your life that understands and can handle that) I'm afraid to say my life would probably still be a mess on a personal financial level. I just don't have that gift.

Kevin Schneider: I love the phrase, 'it's easier to earn $10,000 than to save $10,000'. A lot of our instinct is - we have money, what could we do with it? And it's a lot that discipline and that clarity on your personal finances... 'Hey, I made money, but what do I do with it? 'You can save and invest it.

You can. That is an option, but there is a component to business to saying you have to spend money to make money. There's that side of the coin too. And so you have to be proactive and on your brand, you have to be able to spend those advertising dollars when it makes sense. Now, throwing advertising dollars on a business that may not be succeeding may [00:21:00] not always be the right answer.

There may be a deeper issue in your business or something like that, but advertising dollars is a hurdle for some people who are just like - 'Eh! I'm just gonna pay Google and forget about it.' Are you utilizing your Google Ads, Facebook Ads, the way you should be? What's your brand feel?

And that's where a lot of money in could be hidden - is in those advertising dollars, as long as we're wise about it and smart about it, and don't just think, 'Advertising's gonna fix it.' We need to get the brand right, it sounds just as what you're saying, David, and then we can throw out what we want the public to feel.

Then we can now start pulling in some really good leads.

Mike Pine: That was a good

David Flanagan: summary

I want to... That was good. I want to pull it back to the idea of hidden money.

Mike Pine: Glad we have you on here.

David Flanagan: The idea that, you know, early on in my twenties and thirties, making that $10,000, and then spending that $10,000, or in a sense, losing it - the return on investment there, I had it [00:22:00] up here. I understood that return on investment often means you need to pay people to do things for you, like accounting or bookkeeping.

But down here it didn't... it's like, I'd rather spend it on a new car. I'd rather spend it on a vacation or whatever. I like the idea of return on investment in terms of being some of the hidden assets or the hidden money, is that the reason you would spend money on developing your brand or the reason you'd spend some money on accounting practices or bookkeeping, or what have you, ... is not because that's what you do when you're in business- 'I guess I need to do it...' because emotionally that doesn't feel right, but if you think about it in terms of, 'No. Hold on, take a step back. It's return on investment. It's, 'I'm going to spend a dollar on my accounting.'

Why would I do that? Because you're gonna get $2 back. Okay, that's interesting to me. [00:23:00] Now, emotionally - now the heart part of me is, 'I'm all in! You got me! So now I not only understand it up here; now I understand it down here as well, and that's the part that was missing with me that my wife just naturally has.

She gets the connection there- is that you're not spending a dollar on accounting or a dollar on branding and losing it like you would a new car or a vacation. You're actually doing that consciously, strategically, so that you can get a return on investment twice that, three times, five times that. It's an investment.

Mike Pine: So hidden money in investing and spending money is - one of the tricks is - consider and figure out the return on investment and spend wisely with the higher returns, because you only have so much to start. (and you'd only ever have so much), so you gotta find the hidden opportunities out there to get the ones that have the biggest ROI.[00:24:00]

David Flanagan: Again, I don't want this necessarily to be a shameless plug for me - this is you guys' show. The only thing I would say is, like accounting, branding is another business discipline that is not about creativity; it's not about 'warm and fuzzy.' Even though it does deal with emotions, it's all about return on investment. It's all about making a conscious business decision to invest in your business so that you can see a return on your investment. My book 'Rudder' is available on Amazon under David M. Flanagan, or you can log onto my website, which is - flanaganspeaks.com

Kevin Schneider: Thank you David. You have been just terrific and entertaining person to have, and it is just a pleasure to have you on. So, thank you for being here.

David Flanagan: Thank you, guys, so much for having me. Thank you![00:25:00]

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