Financial Business Basics Made Simple With Hilary Hendershott & Stefanie Gass

Hey Friend!

This is an interview I did with Hilary Hendershott of Hendershott Wealth Management. You’re going to love her.

We went over how to get started in business on the right financial footing. I know how confusing setting up your business can be. You’ve got questions?

• What do you need to have in place before starting your business?
• What is an LLC? S-Corp? C-Corp?
• Does a business owner pay themselves?
• Should I do my own bookkeeping or hire someone?
• How do I maximize the tax benefits of owning a business?

We covered all of these questions so grab your notebook and pen and get ready to dive into all the financial basics to make it super simple

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Last but not least, if you have a question for me and you want me to answer it live on the air, or you have a testimony I can read on the podcast, go to stefaniegass.com/thepodcast and record it.

How Did Stef Gass and Hilary Hendershott Meet?

Stef: Hello, my beautiful friend, Hilary. I’m so excited you’re on the podcast today! Welcome!

Hilary: Hi! It’s been great to meet you and get to know you. First to have you on my show and now to be here on your show. It’s just great!

Stef: Yes! I met you back in February at a mastermind and with my crazy in-your-face self, you had to learn to love me very quickly!

Hilary: There was nothing to do but to love you. It feels like so much has happened since then.

Stef: One of the incredible giftings you bring to the table is that you are a financial powerhouse; an absolute expert. You can talk about beginner financial topics to very advanced financial topics, including wealth-building.

Who is Hilary Hendershott?

Stef: Tell us who you are and tell us your money story.

Hilary: I’m the owner and founder of Hendershott Wealth Management. When we started, it was about serving women, but now 40% of our clients are men. We serve our clients with feminine-based principles of compassion, empathy, and humility.

About eight years into my career, I was advising millionaires and multi-millionaires on how to build their portfolios. I have degrees and professional certifications yet I went home nightly to a stack of bills I couldn’t pay.

I was a massive over-spender earning $100K/year while spending $120K. After a couple of years, I had dug myself into a big mess. At my financial worst, I had about $150K of combined debt between student loans, auto loans, and credit cards. I drove a convertible BMW, but couldn’t afford to put gas in it. I had $420K in mortgage debt; a condo that in 2008 fell to $190K in appraised value.

My parents had to bail me out. One time my boyfriend had to write me a check for $1500. I needed the money but I felt like the worst kind of failure. I was so ashamed.

In this moment, I could see into the future. I could see that it was filled with more and different versions of the same kind of mess. I couldn’t let that happen and decided that whatever it took, I would turn it around.

What was the difference between me and other people? We all want to have financial health but they’re winning and I’m failing. It comes from behavior and behavior comes from psychology. I have a degree in economics and I’m a certified financial manager, but nobody ever talked to me about money psychology.

How Did Hilary Turn Her Financial Situation Around?

Hilary: I became a student of behavioral finance, money psychology, and neuropsychology and studied the impact of the words we use. The words we use about money which come from our childhood experiences are very impactful.

When I grew up, my perception was that there was never enough money. I would find out later my mom was a good saver; a fiscal conservative, but I couldn’t have brand-name stuff or things I wanted.

At some point, I picked up that if people think I’m financially successful, they’ll like me.

I twisted the emblems of wealth with the realities of wealth and played a destructive game; throwing good money after bad, buying approval; meanwhile, my bank accounts were empty and my FICO score was in the 400s.

I got completely financially transparent. Whatever my natural inclination was, I did the opposite. I lived on an $8-a-day food budget and didn’t go to a coffee shop for two years.

After a few years, I paid off the debt, rebuilt my retirement savings, and was on my way to a downpayment on a home.

I’m a graduate of the money school of hard knocks which gives me compassion and understanding. No matter where you are financially, I’ve either been there myself or know someone who has. It takes almost as equal attention to money mindset as it does to money tactics. I have a textbook education in the tactics, plus real-world experience in the mindset.

What Does Hilary Hendershott Do Now?

Hilary: I share this part so people know my transformation is real: I own homes in California and Puerto Rico. My account balances are such that I could retire right now. I work because I want to not because I have to. 

No matter how money has gone for you, you can have an abundance in your future. I’m living proof. It gives me a purpose because so many struggle with money. My intention is to shorten your learning curve. 

Stef: That’s interesting. Our trials and what we walk through in life are such clues as to what our calling is.

What does it look like when you meet with clients and what services do you provide?

Hilary: The first thing we offer is traditional, comprehensive, fiduciary wealth management, where we manage people’s money on their behalf. We include what insurance to buy, what kinds of accounts to have, and how much to save. We help with budgeting, discuss income tax, and do tax estimates, but we don’t prepare returns.

Once you’ve extracted money from your business accounts, paid taxes on it, and then deposited it in your personal accounts, that’s when it’s time to grow your nest egg or personal net worth.

I only sell my advice; I don’t sell any products. That’s important because the advice your financial advisor is giving you lines your pocket, not hers. 

We also have a Fractional CFO offer for business owners. We are Profit First certified professionals. It’s a year-long container where we engage neuroplasticity to change your money mind while teaching you everything you need to know about how to manage money.

Lastly, we have a low-cost money coaching offer; live money coaching to talk through these things.

Understanding the Financial Basics

Stef: Amazing! My listeners come with the heart to start a new business. Or, they are new in their business. They have just started or are about to start their podcast, and I teach coaching or online courses as a way to monetize the show. 

What I find is that they’re most confused about the financial basics. I want to pick your brain about the basics, so people know it’s really not as hard as it seems. I’m going to spitfire these questions at you so you can help us understand the basics.

Financial Basics #1: Getting Started

Stef: What are some things a person should put in place before they start their business?

Hilary: In the beginning, I would say you definitely need separate bank accounts: business accounts and personal accounts. What you want is an intuitive interface to log in to your portal and a mobile app. You want to have a firewall between your business money and your personal money. This will make it much easier to do your taxes and bookkeeping at the end of the year. Keeping those accounts together means you’ll have to manually separate the transactions. 

Anything you spend on your business is a tax deduction, meaning it comes off your top-line revenue. It’s the equivalent of saving 25-30% on every transaction.

All I carry in my wallet is one personal credit card and one business credit card. As long as you can pay your credit cards off at the end of the month, you should definitely use them. That business credit card will still be in your personal name unless you own a warehouse with a lot of expensive equipment in it. You’re not going to get credit in your business’ name because a business isn’t an entity. A business has no ability to pay bills without a human being to pay those bills.

It’s also a good idea to set yourself up on payroll, but most likely for the first 12-24 months, you’re not on payroll. Eventually, the IRS wants to see you on payroll and paying payroll taxes.

When you transfer money from your business account to your personal account, that’s you paying yourself as the owner of the business. You’re going to owe income taxes on that amount. You want to be cautious, careful, and conservative about when and how much you do that.

Financial Basics #2: Incorporating

Stef: Does it matter if you’re profitable?

Hilary: No. You’re not going to know until the end of the year if you’re profitable. 

Side Note: Instagram financial advice is almost always bunk.

The idea of being an S-Corp or a C-Corp is something to be in contact with your tax planner about because it has to do with the construction of your business. It’s a tax thing.

Then there’s an LLC – Limited Liability Company. That’s a legal protection.

S-Corp and C-Corp are tax-related; LLC is legal. The reason you would have an LLC is if you are in a litigious business, such as finances, cyber security, child care, or others like that. For the most, part, your clients aren’t likely to be sued.

Stef: Some are health-related or counseling-related, for those, I would consider it. For me, I formed an LLC because I didn’t see why not, and then an S-Corp. It isn’t expensive, at least where I live.

Financial Basics #3: LLCs

Stef: Hilary, we are not lawyers, but can you explain why an LLC protects someone’s assets in their business versus their personal life?

Hilary: It is sort of like a cloak of protection around your business. It separates the business legally from you as a human being. If you are a parent and have written a trust document tying the mortgage to that trust, then you default on a credit card, your creditors can’t come after your house.

If your business were to get sued, the attachable assets are the current bank accounts and future income of the business only, not you personally. But it’s not 100%. There’s a thing called Piercing the Corporate Veil which is beyond the scope of this conversation. What I’m saying is that it’s not bulletproof.

I want to encourage people. I see them not selling and not starting a business out of confusion. Look: your business is the income earned by the business. So not starting the business because you don’t know if you need an LLC or an S-Corp is silliness.

Start your business. At the end of the year, consult with your tax person. You can always become an LLC during the course of your business. It’s not a reason to not earn money.

Stef: Yes, there are layers and levels to this. What we’re saying is, “Get started!”

I didn’t know that the LLC was on the legal side and the S-Corp and C-Corp are on the tax side. So we’re going to have separate bank accounts and separate credit cards; using them only as long as we can pay them off every month.

Financial Basics #4: Business Expenses

Stef: You touched on payroll. Let’s say someone got started and has their first five coaching clients. They are pulling in $1K a month. Talking about paying ourselves gets very confusing. What does paying yourself look like? What’s the threshold to decide if it’s worth pulling that thousand out?

Hilary: Money earned by your business is in your business account. That’s not your money.

Can you spend that money on a tank of gas if you’re traveling around for business? Yes. It’s a business expense. The same thing for your office rent.

Once you’ve paid your overhead, the money you would put into your personal account for groceries, new shoes, tuition, etc., those are not business expenses. You have to pay yourself in order to do that.

Don’t pay personal expenses from your business account. Move it to your personal account first. You will owe income tax on that amount.

Financial Basics #5: Payroll

Hilary: The right time to start thinking about payroll is when you bring on employees. Some of you are terrified of having employees or don’t need them and just want to go with 1099 contractors. That can work for a while, but it gets into subjective conversations about what works best for your business.

If your business takes in $250K a year and you are not on payroll, you might be flagging yourself for an audit. Payroll forces you to pay payroll taxes – employer/employee taxes you owe the government. Every time money changes hands, the IRS taxes it – sales tax, gift tax, income tax, etc.

The other thing payroll does is it allows you to maximize your deferrals into a 401K. As soon as you have employees, you can start a 401K. It is kind of expensive and we’re jumping the gun a bit because there are other startup accounts I’d start before that.

If you’re making $1K a month and that works for your family, you may never have to go on payroll. Keep it simple.

Stef: We didn’t start until we became an S-Corp and we were probably close to a half-million dollar company at that point. I became an employee and I moved one of my contractors into being an employee. It was cool to cross the bridge when I came to it instead of panicking about all these things before I needed to do them.

Financial Basics #6: Outsourcing 

Stef: How long should you do things yourself before hiring someone to help you? At what levels should those hires take place?

Hilary: I’ve always had a business coach and as a Certified Financial Planner, I’ve never done my own books. 

It’s time to delegate when you don’t have time to do the selling things that are making you money. In the beginning, you’re likely wearing all the hats. Quickbooks isn’t that hard to figure out for ten transactions a week. You may not set it up right, but it’s also not that hard for a professional to go back and fix it a year later.

You need to know how many selling activities you need to be doing and the minute that gets invaded, it’s time to delegate or outsource. Bookkeepers are not expensive. That goes for tax prep as well.

If you have a wage income and you own a home, you might be able to use TurboTax just fine, but the minute you have a business, a good tax person is worth their weight in silver. A good tax strategy person is worth their weight in gold. Tax prep is backward-looking; tax strategy is forward-looking. The most frequent complaint I hear is that someone’s tax guy didn’t tell them what to do for the next year. Those are two different services.

Tax strategy is looking at your life, family, and how you run your business. You might be able to hire your kids as models and pay them from the business, but that’s something I’d need to figure out. But my team doesn’t do tax strategy.

Stef: Sometimes you don’t know what you don’t know. You’ll hire a CPA to do your taxes. Are they the right person to help you with that forward-thinking tax strategy?

Financial Basics #7: Tax Prep vs. Tax Strategy

Stef: Ask the questions. “What do you think about next year? If I’m making this amount of money, what should I be thinking about?” If they don’t have answers to these questions and just hand you your return, you might want to shop around a little bit.

Hilary: What you want to ask them is, “Will you offer tax strategy or tax planning?” They may require additional payment for that. It’s a separate engagement. Tax returns cost X, and tax strategy costs X + Y.

Stef: Because I was making money in the business and was able to sell the things, I was able to get a package deal with the bookkeeping, strategy, and filing for a monthly fee. That’s something you can grow into as you grow.

Financial Basics #8: Tax Benefits of Business Ownership

Stef: How can you maximize the tax benefits of owning a business?

Hilary: The biggest tax deduction we have is probably the mortgage interest deduction. If you can own a house with a mortgage, that’s a great tax deduction.

The next biggest deduction is the 401K. There are other versions like the SEP (Simplified Employee Pension) which is a lower cost, but also a lower tax deduction version of the 401K.

As soon as I could, I set up a full 401K with matching for my employees. In three years, I’ll be allowed to deduct $30K per year, plus my Safe Harbor match which is an additional $5K a year right off the top of my income. I’m taking money away from Uncle Sam and giving it myself. I get to keep that tax savings until I turn 59.5 until I pay myself and owe it back, but I earn compound returns which grow – and grow fast.

That’s really the benefit of saving in a 401K plan. A SEP is also compounding.

Those two things, if you can take advantage of them, will do you favors.

Financial Basics #9: 401Ks and SEPs

Stef: Do you have to be an LLC or S-Corp to set up and invest in your own 401K?

Hilary: No. If you don’t have employees, you can start a solo 401K. As soon as you start having employees, you can change that. I started with a solo and then changed it to an SEP when I had employees. With a SEP, you do have to allow employees to contribute, but you do not have to match their contributions. 

Contributions from you to your SEP are limited to 25% of your profits. If you want to put $5k into your SEP, you have to show $25K in profits. With a solo 401K, you can put in almost $20K with no profits. It’s not limited by the profits you’re showing on your P&L.

The right one for you depends on your business income, your profits, and your household income. If your spouse is making enough money to pay the bills, then you can afford to save almost all of your business income for your future, and that may be appropriate for your financial planning.

Stef: What would you say to those asking where or how to set these up? 

Hilary: Most custodians – places where you can have investment accounts – will allow you to have a solo 401K. I use Gusto for my payroll and my 401K. You’re looking for low-cost and a great portal.

They’ll be able to tell you right away if they allow solo 401Ks or SEPs. Do a Google search for solo 401K to find companies that allow this.

Wrapping Up Our Financial Conversation

Stef: Is there anything else that comes to mind, Hilary, that would set someone up for success who is new in their business? Maybe a last word on savings or anything you think we’ve missed.

Hilary: I’ve seen too many business owners get distracted by the busyness of running a business. They forget that the whole purpose is to capture the value you’re creating for yourself and your family.

I agree with a ramp-up phase in the first 12 months or so. You’re not able to pay yourself or save money typically. You want to make plans in your business to have your prices and sales high enough so you can pay yourself and save for your future. Saving money on a consistent basis is the quickest way to compound returns.

Until you hire someone as your VP of Sales, you are it. 

On Monday and Tuesday, I work on selling activities. I make sure that’s handled early on or my North Star is off. I don’t have a VP of Sales; I’m it. However you set that up for yourself, this kind of thing is the lynchpin to having enough money to pay the tax bill when it comes, and when you need to pay a contractor, like a bookkeeper, it’s there. 

In your personal life, it’s more about maximizing what you get for what you have; keeping your expenses low, and saving the rest. For your business, it’s about filling those coffers and keeping an eye on your ROI (Return on Investment).

Finding Hilary Hendershott

Stef: Such good advice. This has been amazing! Thank you, Hilary Hendershott, for pouring out and helping us understand these seemingly scary concepts that can, in reality, be simplified. 

Where can everyone come to listen to your show and learn more about what you offer?

Hilary: You can find everything about my business at HendershottWealth.com. In your podcast player, look for Love Your Money with Hilary Hendershott.

I pray this blesses you!

Xo,

Stef

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