In this episode of Building Infinite Red, Jamon, Ken, and Todd touch on the exciting world of lawyers, accountants and bookkeepers, as well as a variety of finance-related topics such as cash flow and different types of accounting. Be sure to listen to the end of the episode as Jamon shares the vision for Season 2 of Building Infinite Red.
In this episode of Building Infinite Red, Jamon, Ken, and Todd touch on the exciting world of lawyers, accountants and bookkeepers, as well as a variety of finance-related topics such as cash flow and different types of accounting. Be sure to listen to the end of the episode as Jamon shares the vision for Season 2 of Building Infinite Red.
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TODD WERTH: Hello, everyone. Today we were talking about which topic to talk about, and we had the idea, how can we come up with a topic that's extremely boring, that no one wants to talk about, but actually is super important? So, we're going to talk about lawyers, accountants, bookkeepers, finance, and other things. Basically, how to start a business and still feed your family.
Let's start off with you, Ken. If I were starting in business and you and I are sitting in the airport and I knew you had started one and I asked, "Hey, Ken. What should I worry about first off when I'm starting a business?" What would you say?
KEN MILLER: I would tell you to go find a good accountant and a good lawyer right away. You don't need to pay them to set up the business for you. You can do that yourself or you can use a service like LegalZoom or something like that. But you need to have somebody who is familiar with the kind of business that you're planning to do. We have a great lawyer who happens to specialize in digital agencies.
I've got an accountant that I've personally worked with for many, many years. It's not the cheapest, like you want your accountant to be good. A bookkeeper is sort of a different matter since your accountant is not doing your day to day books, and you don't necessarily need a bookkeeper right away because you're probably not going to have a lot of transactions right away. To be honest, I found it was helpful for me to just do it personally for a little period because then I understood what was going on better.
JAMON HOLMGREN: Ken, what's the difference for those who may not know between an accountant and a bookkeeper?
KEN: Well, I'm told bookkeeper is a little bit old fashioned, but it's still very descriptive. Your accountant, aka your CPA, your Certified Public Accountant, that is someone who will do your state and federal and maybe even international taxes for you. They may or may not have people who will keep your books and stuff. Now, bookkeepers, they're the ones who will record transactions coming in and going out basically, so that your books are an accurate reflection of what's happening in your business.
Todd, do you want to interject?
TODD: Yeah, just real quick. Sorry to be pedantic, but my wife's an accountant. Bookkeepers often are not accountants. Some of them are just people who started doing books at their company and continue to do it. When you get to accountants, you have two types of accountants: One is CPA, which is a tax accountant; and then there are other accountants who specialize in corporate stuff, like my wife. She went to college for it and is highly trained.
KEN: That's the kind I recommend you get, is the kind of who is trained in accounting practices.
JAMON: First of all, what's the more modern term for a bookkeeper? Is there?
KEN: I think Heather liked the term, what was it? Financial assistant, something like that?
TODD: I think that's what she said. Heather is my wife, by the way.
JAMON: And then secondly, what does an accountant give you that a financial assistant does not?
KEN: Well, A, They are literally certified by the state. And B, They have experience in tax law.
JAMON: CPA does, but they're more corporate accountant. They're going to bring more like ... It's my understanding that they can bring more strategic ...
KEN: Yeah, they can be more strategic help, they can help you design your practices for paying people, for collecting money, because there's just a lot of i's and t's that need to be dotted and crossed.
JAMON: Yeah, that makes sense.
TODD: Yeah, not to keep on interrupting about accounting. Sorry, my wife's an accountant.
JAMON: We're gonna play a little game. How many times will Todd mention that his wife is an accountant?
TODD: All CPAs are accountants. Not all accountants are CPAs. My wife has absolutely no interest in being a CPA, she never did, it had nothing to do with her job. However, if you need ... One of the things she specializes in is international accounting. So, a bookkeeper is someone who enters data, basically. They're gonna get bills in from the outside via mail, they're gonna enter those into the bookkeeping system, or the accounting system, they're gonna pay invoices, whatever. They're a clerk.
An accountant is more like a programmer. They investigate where things went wrong, they figure out the best ways to do things. If you have a half million dollars in pounds in the UK, and you need to transfer in the US as US dollars, how do you go about that? There's very different ways. Some are very expensive, some are not. So, that's ... An accountant spends a lot of time doing strategic-type accounting stuff, as opposed to data entry, which is more what your bookkeeper does.
JAMON: Yeah, so when I started ClearSight back in 2005, one of my early employees, his dad was a controller, which is like kind of an accountant, but it's specifically to a-
TODD: That's really interesting, Jamon. Did you know my wife was an accountant?
JAMON: I did not know that, Todd. I hope you remind me again. A controller is basically, it's a type of accountant that's kind of high up in a company and focused on ... Basically, in charge of the company's finances, and ... So, he was a controller and I went to lunch with him and I asked him for advice. And the first question he asked me, this was kind of interesting because I did not expect this, he said, "How's your accounts receivable?" And I was like, "Uh ... I know what that is, but what do you mean by 'how is it'?" And he kind of helped me think through my terms, like how long until the payment was due, and was I taking money upfront? Which I wasn't, weirdly, I wasn't taking money upfront. I was just doing the work and hoping I'd get paid.
TODD: Hoping is the key term.
JAMON: Hoping, yeah. And more than once I didn't get paid. And that sucked, especially when I wasn't getting paid very much.
KEN: That's definitely one of the harder things to learn when you start doing this, is if you've only ever worked at a company, you don't realize how much effort goes into just getting people to actually pay you, right? 99% of the time it isn't out of any malice, it's not people trying to mess with you, it's just their processes are also run by humans. Maybe they're a small company, maybe they're a big company and something got lost, or things didn't get signed off correctly, right? There's just a million little things that have to be kept track of. And so, whoever is doing your day to day accounting, be nice to them.
KEN: Be nice to them because you really need to trust them to be on top of what they're doing.
TODD: You do not want to piss off an accountant if you value eating, for sure. Cause they won't do anything wrong, but they will sure drag their feet on your particular account. One other things I wanted to add, especially with larger companies or companies that have accounting departments, accounting is never personal, okay? And Ken said they probably don't want to mess with you. They may not want to mess with you, but they may actually have a policy not to pay their vendors, which seems absurd but it's true. So, in other words, if you're sitting in an executive meeting at a company that has 5,000 people, and your cash-flow ... you need some cash or whatever. The directive to the accounting department could be, "Only pay the vendors with the highest interest, the top 25% of them. Do not pay anyone else." And so, it's not ... they're not trying to get to you, it's just business.
KEN: I think it's also very tempting when you're ... If you're a creative person and you're getting into business and you wanna be able to be a partner to your clients, and that's all very laudable and we wanna do that and we strive to do that. But at the end of the day, when you're negotiating a contract, you have to take it seriously. You have to take what it says seriously because there may come a situation where it's no longer you and the friendly person you're talking to, it's just you and the contract and someone unfriendly.
Or you and the contract and someone not unfriendly, but as Todd says they're just ... implementing a policy. It's a lot harder to do something about it than possible which ... It really highlights how important the relationship is, as well. So, you need to have a good contract that actually reflects what you and your counter-party actually mean. And you have to keep that relationship good all the way through.
JAMON: Absolutely. We had a client a while back that wanted to use their own contract, which is not uncommon. I mean, we have our own kind of Master Services Agreement that we'll send over, but in this case they had their own, they wanted to send it over. And this sort of brings it back to having a good lawyer, because in this case, something fell through the cracks and we signed it without sending it over to our lawyer. And this was a big mistake because-
TODD: Big mistake.
KEN: Big mistake. Did we mention it was a very big mistake?
TODD: My wife, who's an accountant, by the way, said it was a huge mistake.
JAMON: Oh, she is? Oh, that's interesting. But what happened was the project started off really well, and it went very well through the first month. And then, abruptly, we don't know what happened because the whole way through the client was telling us we were doing good work. Even after things went weird, he was telling us that we were doing good work, which really didn't make sense. But he wanted out of this contract, or he wanted to hold our feet to the fire. And we realized, and we sent our contract over to our lawyer, and Ken ... Wasn't his response something like-
KEN: He said it was the most punitive contract he'd ever seen.
JAMON: And he said that it was designed to be used as a weapon.
TODD: Yes. That's what he said.
JAMON: Which was not a great place to be in after we had already signed this thing.
TODD: Against us, by the way. Not for us.
JAMON: So, luckily this particular client ended up taking a route ... It wasn't an easy route, but he took a route out of our contract that let us off the hook, essentially, with some work from Ken. So, thanks Ken. But we made it through that one, but not everybody would. That could be a really big problem. So, having a good attorney, which we did, and actually using him, which we did not, is really important when you're putting these contracts together that you're talking about. And then, of course, there's a certain amount of teeth to it, so they will pay you.
KEN: We designed our standard contract to be, we think, really, very fair.
JAMON: I think so, yeah.
KEN: And so, if a client wants to use their own contract, we now ... It always goes to the lawyer. It doesn't matter what it costs. And he's very reasonable with how he charges for that-
TODD: Sorry to interrupt. That's a good rule. If you don't feel that it's worth paying your lawyer the $300 an hour, or whatever your lawyer costs, it goes up from there, trust me, because this project isn't big enough, then don't take the project. And that sounds harsh, but if you can't pay your lawyer to look at the contract, then don't sign the contract. It's not worth it to you.
KEN: If it's a small project, we don't accept-
JAMON: Yeah, and that's why we have a standard contract, because the lawyer drafted it. And so, we can send it over and we don't have to pay him every time. Of course, it costs more to have him draft it, but then if they sign it then we know that we're good to go. But if they want their own contract, you need to have it reviewed by your attorney. And if you don't know of an attorney, you can ask around on social media and stuff, you can generally get some recommendations.
TODD: One thing I do wanna say, though. And this is often somewhat shocking to people who have never ran a business, who worked for other people or other corporations throughout their career. The world for you as a business owner, is very different than the world for you as an employee. If your employer doesn't pay you, you can go to the labor board, and the government will come in and they will sue that company and they'll get that money for you. Because of that, your employer's gonna pay you.
KEN: And your wages are legally privileged. So, if they're in bankruptcy, you get your money, not necessarily the very first, but it's a very high priority. It's a very high priority debt.
TODD: Correct. If you have a personal contract with ... between two people or between two companies, or between you and a company, there are no such protections whatsoever. You will get paid if the person who's paying you wants to pay you. If they don't pay you, there's no government agency you're going to go to who's gonna help you-
KEN: Well, there's the courts.
JAMON: The court, basically.
TODD: ... other than the courts. And if you're talking about a $10,000 bill that they owe you, you are not going to court for that. You can try to go small claims court, that kind of thing. But the reality is you're not going to go to court for that. And people know this. And there's a lot of people ... And you're like, "Well, you know, I did this contract with Bob, and Bob's wonderful. I mean, I love Bob. He spends his time saving orphan kittens on the weekends." That's great, but Bob's company was just bought by Joe, and Joe is a complete jerk. And Joe now has all your contracts. And Joe used to be a lawyer, bless his heart. And Joe knows that you're not gonna do anything when he doesn't pay your $10,000, so he just refuses to pay you.
JAMON: By the way, this is not a hypothetical, this happened to me.
TODD: And so, we changed the names, obviously. But Joe does that, and there's really nothing you're gonna do and you're just gonna lose that $10,000. You can try to do collections and irritate them into paying you. But here's the raw fact, if they need you for something they will pay you. Meaning if you still have work to do, they will pay you because they need you. Be very weary of the end of a working engagement when they no longer need you.
KEN: This is not to say that everybody is like this. There's plenty of extremely honorable-
TODD: Like Bob, Bob's one of them.
KEN: ... companies out there. Yes, there's many, many, many great, wonderful, honorable clients who pay what they owe, and they would never screw you.
KEN: But there's more people out there who, like I said, not necessarily even out of malice, sometimes just out of laziness, kind of don't get around to it.
TODD: Another example is if you get a contract where you take liability for stuff that you really have no control over. So, you're like, "Well, Bob's not gonna sue me. Bob's a great guy. He has the same values as I do." But Bob gets successful and Google comes and buys Bob, trust me. Google's lawyers will sue you. If they can, they will. It's not personal, it's just business.
JAMON: Beyond accounts receivable, which is obviously a big topic ... And by the way, get as much money upfront as you can. That's a very straightforward way to fix some of this stuff. But beyond that, accountants can also give you a really great insight into the engine of your business. So, they're sort of like your oil pressure. They're your check engine light. And they will give you information that allows you to make decisions, business decisions, going forward.
So, an example of this is how much are we gonna pay our employees for bonuses? We need to know what we can afford and what's budgeted for that. Other examples are could we go out and maybe acquire a small business? Or can we invest a bunch of money into R&D? These are all things that we've actually looked at within Infinite Red over the past three years. And we needed to have good information from our bookkeepers and our accountants. And we haven't had always that. That has actually been one of the stumbling blocks that we've run into with Infinite Red, is that we've run into situations where we've been fed what turned out to be inaccurate information. And we've made decisions based on that, and it's caused the engine to run more roughly.
KEN: Suffice to say, you really need it to be accurate. So, one of the things that we've done to help make that be the case is that we have our CPA, our tax accountant, and our bookkeepers are totally different, so that we at least have two competent people looking at it periodically. It's not a perfect safeguard by any stretch of the imagination, but it does help a little bit.
JAMON: And it's tempting to have one company do both, right?
KEN: It is tempting. And I would argue you should not do that.
JAMON: Always keep them separate.
TODD: Yeah, I would say at the beginning, you do your bookkeeping and then let your CPA do the taxes. And we get to a point where ... For instance, this is the difference between a bookkeeper and an accountant. If you're setting up your books and you're setting up your own chart of accounts, and that kind of stuff, a bookkeeper will just do it. They'll do what you say. Put this in here. Do this, do that.
An accountant will say, "Okay. You see how you set up your accounts here? Later, when you get audited ..." And then you're like, "Why would we get audited, what does that even mean?" Well if you need a big loan, the banks are gonna require an audit your finances. Obviously that's the audit on the tax side, but that's your tax accountant. And so, what she'll do is she'll say, "Look, I've been through many audits, this is what they're going to look for. You should set it up this way so that that audit goes smoothly so that loan you need ... Say you get a big new client and you need $250,000 to service that client, and you're gonna make millions? Delaying that loan by a week or two could be disastrous." So, that's the difference between an accountant and a bookkeeper. They know what they know, and they know what's possibly gonna happen.
JAMON: Yeah. Banks are a whole other aspect about this that we could talk about. One of the things about banks is that they are generally very slow. You're just one file on their desk. They're not particularly invested in making sure you succeed. And it can really trip you up. Like if you need that loan ... We've been in a situation where we said, "Hey, we wanna borrow some money for a particular thing." And it took ... I think ... I don't remember the timeline, but it was months longer than I expected. Like it was a lot longer.
KEN: It took forever.
JAMON: Yes. And it felt like most of the issue was on the bank side. Now, being prepared for that, as Todd said, is really important.
KEN: In that particular case, there was something that didn't get filed correctly two years ago with the ... I mean, it's ...
JAMON: So, another aspect of this, and we can touch a little bit on another property of our business, and that is remote work, is the-
TODD: Oh God, banks and remote work.
JAMON: Banks, as well as government agencies ... Ken, you've had to set up I don't know how many states now for Infinite Red employees.
KEN: Seven, and I need to set up an eighth.
JAMON: Yeah. So, this is a whole aspect of kind of the boring ... We're talking about the boring parts of business. But if you're starting a remote work company and you're hiring people from all over, you need to keep this in mind that you're gonna have to set up, what's it called? Nexus? If you have nexus, you have to set up the state ...
KEN: Yeah. And having an employee-
TODD: What is nexus, by the way?
KEN: Nexus just means that you legally exist in a location. And typically the place where you have nexus or not have nexus, as a US company, is in individual states. So, if you have ordered something online and you live in a sales tax state, but they didn't charge you sales tax, the reason they didn't have to do that is because they don't have nexus in your state. So, famously Amazon, for a long time, didn't have nexus in California, or at least they argued that they didn't. And so, Californians didn't have to pay sales tax when they ... I mean, nominally they were supposed to be paying it to the state, but Amazon didn't have to collect it for them. So, that's nexus, and it applies to all kinds of tax, not just sales tax. So, for example, basically everywhere we have an employee, we have to pay taxes.
KEN: This is one of the less glamorous, less wonderful parts about remote work, to be honest.
JAMON: There are PEOs or POEs ...
JAMON: PEOs, and those will ... They're basically companies that have all this stuff figured out already and you hire your employees through them.
KEN: Yes. I believe there's some issues with that. If I were doing this over again, I probably would go with a PEO to avoid a lot of that stuff.
JAMON: They're expensive, but they kind of ... They make it ... It's sort of like, in a software engineering world, using Heroku, which kind of spins it all up for you, versus setting up individual Amazon AWS servers.
TODD: The other problem with banking, especially with governments in general, is their complete ignorance of the laws about things like signatures. So, I think this is a funny story. So, Ken sent over something that needed to be signed. And I have a bunch of digital signatures of mine that I apply to PDFs. Which is my real signature, and it's perfectly legal, as my wife, who's an accountant, would say. She actually worked for a company that did digital signatures-
JAMON: You said your wife's an account?
TODD: Yeah, my wife Heather is an accountant. I don't know if I mentioned that. But the signature's legal. So, I legally signed the document Ken sent, and Jamon legally signed it. And they're like, "Well, we can't accept this. We can accept a fax." Okay, so a fax. So, I'm going to go back to 1995 where my fax machine is, and I'm gonna fax it over. "So, okay can't do a fax cause you don't live in that decade. But it can be digital, right? But it can't be digital, it can be a picture of my signature, right?"
So, you take the PDF you just signed digitally, you print it out, then you take your camera out and you take a picture of the digital signature you put on the PDF. And then you send them the picture, and then that's fine. It's this kind of ... In some cases we had to have things overnighted between the three of us to sign things. In some cases, we had to go in to the local Chase branch or Bank of America branch or wherever and sign it. And none of this is required by law, at all by the way-
JAMON: It's just their corporate policies.
TODD: They probably have pneumatic tubes in their offices where they send things to each other. It's crazy. I literally took a picture of ... I made it quite obvious I took a picture of it, too, just to be a jerk.
JAMON: So, another aspect of finances is budgeting. So, one of the things I did was I ran a budget with my business, was very happy to hand it off to Ken once we merged. That was one of my favorite parts in the merger. But it was really, really important. So, I did it on just a straight up cash basis. So, money would come in, and I would use a program called youneedabudget.com to enter these transactions, whether they were in-flow or out-flow. And then they have this zero-based budgeting system that lets you allocate money for this and that.
It's really good because then you know if you had a couple hundred thousand dollars in the bank, and you needed a certain amount of money for payroll, or you needed a certain amount of money to pay your SaaS products, like your GitHub bill, things like that, you know that you had the money or not in the bank. And it gave you really kind of granular data there. It's not quite the same as using QuickBooks. QuickBooks has a useless budgeting feature. I've looked at it. It's just not ... It's sort of like, "Hey, let's plan out the next year." Which you hardly even know what the next month is gonna be like. But having some sort of zero-based budgeting system is quite useful, I think, especially at first.
KEN: Can you explain what zero-based means?
JAMON: So, essentially, a zero-based budget is where you start with the amount of money that you have, generally, in the bank, and you take that money and you start moving down the line of categories, allocating bits and pieces, subtracting it from that total until you get to zero. So, such and such for payroll, and such and such for your credit card payment, and such and such for your SaaS products. And maybe you need some for team dinners and travel. And you're just moving down. And eventually, the money runs out, right? You hit zero. Or you run out of categories, and you're like, "Okay, I've got money left over and I'm gonna put this into a kind of slush fund or something that just kind of like keeps it for a rainy day."
TODD: Isn't slush funds illegal? We should probably just use a different term.
JAMON: Okay, maybe I used the wrong word there. Did I use the wrong word? Sorry. A rainy day fund.
TODD: Ken would know.
JAMON: An emergency fund. And then eventually, you could even bring that money home if you're the owner. But that's what zero-based is. You always get to zero, and you don't go any further than zero because there's no more money. If you don't get to zero, then that means there's money just kind of hanging out not-
KEN: Yeah. So, the amount of cash you have determines how far into the future you can budget, basically.
JAMON: Exactly. Yes, that's right. So, when you're starting up, it's really important because you don't actually know what kind of expenses are gonna be coming in. You just can't really predict that. So, doing budgeting gives you that insight into where is your money going. You have to allocate for it, and then you enter it into the system. Once you've got a pretty good rhythm going, it's less necessary because you know where the money's going and you can keep an eye on sort of more macro numbers that will give you ideas of health. I would definitely recommend it for probably the first ... I would say, probably the first three years.
KEN: And to be clear, it's not a substitute for real books. But I did find it very helpful in just thinking about how money moves around.
JAMON: It's also a little bit inadequate in that it is cash basis. And while cash flow is king, and we need to talk about that, Ken, there's also accounts receivable and accounts payable that will affect the money going in and out.
TODD: Yeah, there's something called cash basis accounting.
KEN: Yeah. Talk about it just a little bit, which is if you're starting up a business you should be cash basis. Like almost full stop, unless you're doing a hardware startup, right? If you're doing something which has a ton of physical inventory, then you might not want to, but frankly if that's true, I mean you need to be talking to a professional, already.
TODD: The other one's called accrual basis.
KEN: Accrual, yeah. So, cash basically is very simple. It's like money coming in, money going out. Period.
TODD: It's what you would do at home.
KEN: Exactly. It's what you would do at home. It's what you probably think accounting is already like. Accrual is like as soon as we have agreed to pay something, then it immediately goes out-
JAMON: And as soon as someone agrees to pay us, then it immediately comes in.
KEN: Fancy ways of accounting for inventory, and I personally don't actually understand it very well, so that's about all I can say about it.
JAMON: It's useful because it gives a more accurate model of where your business actually is, versus cash which can lag or be ahead of itself. But cash is so much simpler that it's definitely worth doing for a while.
TODD: Not to turn this podcast into a company meeting, but Heather actually said we probably should consider going to accrual.
KEN: Yeah, well we're large enough now that-
JAMON: Wait, Todd. How would Heather know to do that?
TODD: Oh, Heather, my wife, she's actually an accountant.
JAMON: Oh, okay. Okay. That's helpful.
KEN: She's been helping us with our books lately. Anyway. So-
TODD: Joke never gets old. Never gets old.
JAMON: We gotta liven this up somehow. I mean, it's about accounting and lawyers.
TODD: And she's gonna listen to this podcast and today's our anniversary, so this is a special "I love you" to my wife.
JAMON: Oh, yeah. Well, happy anniversary Todd and Heather, the accountant.
TODD: Twelve years.
KEN: Of accounting.
TODD: Of marriage.
KEN: Oh, I see. Okay. I know this has been a very dry podcast, and I apologize but I tell you what. If you guys are thinking about doing this, if maybe you're already doing this and you're feeling the pain already, this stuff is absolutely vitally important-
JAMON: It really is.
KEN: ... to what you're taking on.
JAMON: If you have a solid basis, if you've got some professionals working with you, it gives you so much more confidence and the ability to sleep at night if you know where things stand and what you need to do.
TODD: And here's the truth. Many of you are just gonna ignore us. Cause I heard this, too.
KEN: Yeah, I know what you mean.
JAMON: I did, too.
TODD: It's like, "Okay, yeah. Sure. That sounds like the right thing to do. I should do that, but I'm not going to because ... " for whatever reason. And then you learn and suffer like we have, and you eventually do a podcast where you tell others about it, and they ignore you.
KEN: You whistle into the wind.
TODD: And the perpetual cycle of business stupidity continues.
KEN: So, I'm gonna talk about cash flow last.
JAMON: Oh yeah, please.
TODD: Make it impassioned, Ken. We want some fire here.
KEN: So, I remember my very first job that the controller ... So, the controller is sort of the chief internal accountant. Not the CFO, but the kind of hands on-
JAMON: Sometimes it's called the comptroller for some reason.
KEN: I think that's a British thing.
JAMON: That's a British thing?
TODD: In government call them comptrollers.
KEN: So, they're the ones who would be doing this at a typical company. So, I remember he had a little sign on his desk that said, "Happiness is positive cash flow." And I remember a client saying, "Cash is king." And I remember hearing these things, but I didn't have anywhere to file them. I didn't understand what that meant, right? And I really understand it now. I really understand it now.
Where it's basically, cash flow, it's very simple. It's literally the flow of actual money in and out of your business. So, the money you pay out to payroll, the money that your clients actually pay you, not that they have on contract, but they have actually paid you. And what we found is what you think of a business is trying to do is create a profit. And that is true in the long-term. What you want to do is create the largest profit you can. However, to get there you have to keep operating as an entity. And the lifeblood of a company is cash. The lifeblood of that company is that cash, it's the food. So, if you don't get the food in time, it doesn't matter how much you were gonna get. If you run out of money and don't make payroll, something like that, that company will cease.
JAMON: I think that's actually a good analogy. If you're playing Minecraft or any other game where you have a health or a hunger bar, and if you're planting fields and fields of wheat and you're waiting for it grow and you wanna go harvest it but you die of hunger before you get there, that's a problem. That's a cash flow problem. It's the ability for you to pay your bills on a day to day basis. So, yes, cash is extremely king.
KEN: Well, yeah, imagine your business is collecting Beanie Babies. And you're like, "I'm gonna buy a bunch of Beanie Babies and I'm gonna wait for them to become valuable." That's not a business. Maybe it's an investment, maybe, right? But because you don't have this cycle of things coming in on a routine basis that lets you continue to operate, you just spend a bunch of money and then you wait 20 years. Right? So, it may be profitable in the long run, but it's not really business.
JAMON: So, Ken, how does that look in practical terms for Infinite Red? How do you apply that principal of cash is king?
KEN: So, yeah, for example, I was very resistant for a long time to take credit cards. This is another thing you learn once you're on the business, you're like, "Holy crap, the credit cards, they take a lot of money out."
JAMON: Yeah they do.
TODD: Three percent.
KEN: Three percent.
TODD: Which is a lot on $100,000.
KEN: Yeah, exactly. On a $100,000 project, that's actually a lot of money. I think I'm a little more nuanced about it now, because what they do is they make it easier to pay. They make it easier for someone mid-level in a company to pay. They reduce that friction, and it means you get paid sooner. Getting paid a month early is worth actual-
KEN: It's actual money to you. It is worthwhile getting paid early. And so, we're a little bit more lax about how we accept that.
TODD: Why is that, Ken? Why is it when you get paid sometimes more important than any profit you made from that money?
KEN: Well, for us our biggest expense is payroll. And that happens twice a month no matter what, right? And so, having that money in hand now-
TODD: Knock on wood.
KEN: That's right. Having that money in hand now makes a real tangible difference. It's not that you don't wanna pay attention to profit at all. It's like there is this ... I remember back in the original dot com boom, there was a Saturday Night Live spoof where they were like, this business was like, "We make change." Right? They're like, "We make all kinds of change. How do we make up for it? Volume." You can, in fact, cash flow yourself into the dirt if you're not paying attention.
JAMON: It is interesting to see in situations where we're really monitoring our cash flow very closely, and we do some things that we know maybe they're not going to pay us for a few months and you're maybe struggling through. And then boom, it does come through. And you see that profit actually hit the books, and that is actually a cool feeling, as well. So, you do need to obviously pay attention to your profitability-
TODD: Profit matters long-term. Cash flow matters to stay in business.
JAMON: That's right.
TODD: Cash flow's also power. And this is something that not everyone groks, to be honest. There's a reason that congresspeople like their job. And it's not because they may not personally be getting rich, and the reason they want to get on committees, especially the finance committee and that kind of stuff, is because what really gives you power is not wealth. Cause wealth sitting in a bank account gives no power, cause you're not transferring it. But control of cash flow gives you power. Now, in the case of Congress, congresspeople or senators, most of that's just evil. But in the case of your business, what I call power isn't necessarily a negative thing. Power means you can buy services. Power means you can give that bonus to your employees and that sort of thing. And really how much cash flow you have flowing through is how much you can do, more so than the profit.
JAMON: And this is one of the things that if we can point to anything that is sort of a mission for Infinite Red, a lot of it, I think, centers around enabling remote work and the lifestyle that we all want from Infinite Red. And having the ability to pay for that and enable that through our cash flow is what you're talking about, Todd.
TODD: Yeah. So, a lot of lawyers and accountants, to be honest, suck. And that's true of all professions, whether it's doctors, programmers, or whatever. So, I know it's not like you can just Google it and find a good one of them a price that you can afford. So, I know we went through a variety of stuff, a variety of people and/or companies, and I was just curious your experience in how you find a good lawyer, a good bookkeeper, a good accountant. That sort of thing.
JAMON: I needed an attorney ... I forget when it was. It was during the ClearSight days. And an employee that worked for me at the time, he was my creative director, Mike [Wozezak 00:37:49], really great guy, he knew an attorney that specialized in creative agencies. And I went and met with him, and talked with him, and I really liked him. He was a former CPA, so he knew kind of the nuts and bolts of accounting, which was helpful. And he also specialized in companies like mine. I kind of brought him along to Infinite Red afterward, and we sort of just adopted him as our corporate attorney. And that was really helpful. So, it was a word of mouth thing, for sure.
I think one piece of advice that I would give to people is treat it sorta like you would a doctor. It's okay to go someone, have them do something, see if you like the way they operate, and move onto the next one. If you have to do 10 different lawyers before you find one, do it. Don't settle. Do not settle for a bad one. Keep moving until you find a good one, because I can tell you, I think our lawyer is so great that he is absolutely worth every penny that we pay him. And he's helped save us from bad situations, he's helped us get out of some scrapes, and it's totally been worth it. So, definitely treat it more like you would a doctor.
TODD: His name is Josh, and he is wonderful. I've had other lawyers at other companies and I wish I had Josh back then.
KEN: Do some networking. Talk to other people in similar positions to you. See if they have someone they can recommend. I would also say, for both, having someone who is always willing to take the time to actually explain to you what they're doing in language that you can understand. That is vital. If you feel like you're being snowed, if you feel like you don't understand what's going on, keep looking.
JAMON: Yes. And there are professionals that will do that.
KEN: They do exist. They're doing a very important service for you, you want someone that you can trust implicitly, they're gonna be interested in earning that trust.
JAMON: There are also specialists. So, we had looked into some legal implications surrounding some blockchain work that we were doing. And we talked to Josh, and he said, "I can't provide the insight that you're looking for. This isn't something that I have training on." And so, I did find another attorney. We didn't end up using her, because we went another direction with the service we were looking at. But she was a former FCC attorney who really understood the blockchain legal ramifications. That was helpful.
KEN: Once you start getting into specialized stuff it's a little different. But that's where having that primary counsel-
KEN: ... is very helpful, because they can help translate.
JAMON: Now one of the things that attorneys do is they ... A good attorney will do, is they will inform you of the risks, but they will also let you make the decision. They won't try to control the process. So, one of the things that Josh will do is say, "There is a risk. I think it's a fairly small one, but here's the risk that I see. And if you feel that it's worth it from a business standpoint, then go ahead and pull the trigger." But he'll let you make the decision, and he'll give you the information to do that.
KEN: Yeah. And a not as good lawyer, will be like, "Oh, no, no. Don't do this because there's this horrible risk." Right? Guess what. Every single deal you do has risk. Every single one. And the truth of the matter is, people will sue you, not usually because they have a case, but because they're pissed, right? A lawyer who understands the limits of the legal process is also really important.
TODD: I'd like to add that some previous companies that didn't have a Josh or a good lawyer, and a couple things. And it's true of accountants, by the way. Both are true in what I'm gonna say here. So, Ken said the worst ones are ones that think everything you're doing is horrible and you shouldn't do it. I mean, they only care about risk reduction. Of course, you can reduce your risk by simply not being in business. That is horrible, for sure.
But there's another one that I think is even worse. One that's doing that on their side, and they won't even tell you to begin with. So, anything that's risky that they don't wanna ... I mean, they basically just cover their ass at all times, they don't tell you anything. They only do what you tell them to do. I'm not sure how you're supposed to know what to tell them to do because you're not a lawyer, you're not an accountant. I deal with that a lot. They're just an assistant, they just do what you tell them. Well, I don't ... If I could do that, I wouldn't need you. And it's actually something that ... With our clients, we're really trying not to do. We don't expect our clients to know anything. That's our job, to guide them through, give them good, coherent options. Tell them the risk and reward of each option, and let them choose.
TODD: That's our job as professionals, and sadly it's kind of rare, unfortunately.
JAMON: Yeah. I'm glad we're taking on this topic. Obviously, it is sort of more of a dry topic, but we can only go so far with the series. And this is our last episode of the series.
TODD: Of this first season.
JAMON: The first season of the series. We are gonna do more seasons.
TODD: Unless you're in the UK, and then in which case it is the first series. They call a season a series.
JAMON: Oh, funny.
TODD: A little factoid.
JAMON: Yeah, I'm sure that our UK listeners will appreciate that.
TODD: That sounded snarky. We have people in the UK who love us.
JAMON: Do we? Awesome?
TODD: Why you so mean, Jamon?
JAMON: I didn't mean it to sound snarky.
TODD: That's why my wife, who's an accountant, doesn't like you. No, she loves you.
JAMON: I like Heather. Even if she is an accountant.
No, it is good. It's ... This is what ... Well, we took on two topics at once and we were able to kind of lump them in, but it's something that everybody who's starting a business ... And I know, cause we get feedback that there are some people who are listening to our podcast and using some of our advice as a guide as they start their businesses, this is something they need to pay attention to. And when I started my business, it took me many years to get a lawyer and many years to get a good accountant.
I did have a bookkeeper, or financial assistant, I guess, for some of those years because once I started payroll, I started getting out of my depth. I had no idea how to do that. And she was great, I could ask her for advice. She was actually trained as an accountant, as a CPA, actually. But she was, at the time, sort of semi-retired and just kind of doing her thing. Now, with Infinite Red, I feel like we have a really great attorney. We have good accountants. We're still working on figuring everything out, but having Heather help us has been really helpful, as well. It's nice to have professionals that know what they're doing.
TODD: Thanks so much. Maybe a little dry, but I think super interesting to people out there, especially when you're starting. I've actually found-
KEN: Bookmark this, like when you're actually starting this, bookmark and go listen to it again.
JAMON: Yeah, it's a good reference.
KEN: If your eyes glazed over, I totally understand, but trust me.
TODD: I actually found it pretty interesting. I'm surprised how that flew by. And a podcast that flies by when you're recording it, it usually comes out pretty good. So, I would like Jamon in the close to explain what our plans are for this podcast going forward, since this is the last episode of this series/season.
JAMON: Yeah, absolutely. Well, I'm really pleased with how season/series one went. And it was a ton of fun to do with you, Todd, Ken, Chris. We do plan to do more. We probably won't take a really long break. I'm hoping to maybe take a month, or at the most two, and then hit another season. This season we really wanted to kind of get our voice out there as a founder team. So, Todd, Ken and myself, as the founders of Infinite Red, we wanted to talk from our perspective on building Infinite Red.
But as Todd mentioned, I think in one of the early episodes, it wasn't just us that built Infinite Red. It was definitely a team effort. It was, in a lot of ways, our vision, but there's so much impact that our team has on what Infinite Red is. So, for season two, the intention is to bring in key team members, and have them sit around the round table, so to speak, with us. They're not gonna be interviewed. We're not gonna be talking at them. They're gonna be just involved in the conversation as we go forward. And we'll be talking about more things that are, I think, a little more specific, a little more even maybe situational, or things like that. I think it'll be interesting, from a standpoint of getting to know some of our team members. They're really great. We-
TODD: They are, they're awesome.
JAMON: They're so awesome, and I'm really excited to give the world a glimpse into who else is here at Infinite Red. But it will probably be one, maybe two guests on, and just co-hosting with us. They're not going to be an interviewee. I also wanna say thank you to everybody who has listened and promoted our podcast, who submitted questions to us. It's an incredible honor to actually to be in your podcast rotation. We don't take that for granted. I know there are a ton of really good podcasts out there.
I had one person, actually, I went to lunch with Bruce Williams, a really great guy here in Portland. And he said, "Jamon, there a lot of good podcasts out there, but I think one of the things about Building Infinite Red is that you are doing an important podcast. The message needs to get out there about our remote work and the way that we do work." Which was a huge compliment. Bruce isn't the type to just hand out compliments lightly. He's a great guy.
We take it seriously. This isn't something that we're just doing as a marketing stunt, or anything like that. We really do believe in the message that we're putting out there. So, thank you all for listening.
TODD: Yes, thank you.
About the Show
The founders of Infinite Red share stories and insights into creating and leading a software consultancy on the edge of tomorrow.