What Small Businesses Miss About Cash Flow and Bookkeeping: Lessons from the Applewood Estates Transformation

Many small business owners believe their finances are under control because revenue is coming in and taxes are being filed. But what happens when you take a closer look at the systems behind the numbers?

In this candid and educational episode of The Real Estate Connector, Kathy Wright of Applewood Estates and Jermaine Whiteside of EWTECHNERD LLC discuss the financial discoveries made during an ongoing business transformation project. Together, they explore common bookkeeping communication gaps, cash flow misconceptions, and the operational blind spots that affect many small businesses.

Listeners will learn why revenue does not always equal financial stability, how bookkeeping depends on accurate owner communication, and why understanding monthly cash flow is essential for long-term success.

In This Episode:

• The surprising financial lessons uncovered during a business review
• Why bookkeeping is not a passive process
• Common transaction categorization mistakes
• The difference between revenue and cash flow stability
• Practical systems every small business should implement
• How structure creates financial confidence and operational clarity

Whether you own rental properties, operate a small business, or manage a growing organization, this episode provides practical insights that can help you better understand your numbers and strengthen your business foundation.

Key Takeaway

"Structure creates stability. The businesses that survive long-term are usually not the ones making the most money—they're the ones that understand their systems." — Jermaine Whiteside

Hosts: Kathy Wright & Jermaine Whiteside
Series: The Real Estate Connector
Season 2 | Episode 2

#PropertyManagement #SmallBusiness #CashFlow #Bookkeeping #BusinessSystems #RealEstateConnector #ApplewoodEstates #FinancialManagement #BusinessEducation #Entrepreneurship

Transcript

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Alright, we're here with Miss Kathy of the Real Estate Connector. I'm so excited. Welcome back to the Real Estate Connector. On today's episode, it is a little bit different than what we've been talking about before. We're talking about some of the behind the scenes uh financial and operational issues that many small businesses, business owners experience. But very few people talk about this, or they don't understand it, or they're not even educated on it. So this is something that I've been going through in my transition, and I wanted to share it with others so that no one goes through what I've been through. Well, as as Kathy, you know, as you said, one of the things we've discovered working through Kathy Systems, um, and for transparency, Kathy is actually going through the process of with the EW Tech Nerd and on a total system uh and governance uh uh rebuilding of her of her office. So, you know, one of the things we discovered through working with Kathy is that many small business owners are operation operating successful on the surface while lacking the clear financial structure underneath. Yeah, so one of the biggest realizations that I had was understanding how disconnected I had become f with my previous accountant and and tax preparer is actually from the actual flow of the business financially. So they didn't ask me any questions, they went ahead and did prepared my returns, never discussed anything or gave me advice or went through the books and said this is where the problem is. They just said, Well, you're not making money at this time, so you don't have to really, you're not paying any taxes. Um I assumed that bookkeeping and taxes were simply being handled, but I realized that I did not understand a lot of the importance of categorizing all your items and segments in the tax return because things can be itemized incorrectly, and in my business as a property manager, we have one of the most convoluted um categorization than any other companies because we have handle so many things. So um hopefully you guys can learn, and I have definitely learned from my experience. And as you and and as you see, the uh this episode uh is going to be structured around five major areas. Um these five areas is the discovery process, the bookkeeping communications, the cash flow realities, the structural lessons, and the practical advice uh that we can apply. And these five areas are critical to really assessing uh a business operational cash flow and accounting and financial systems. In in Kathy's uh case, we started about 30 days ago and we we did the discovery process, but a part of that discovery process was educating the business owner about what we're discovering. Because as Kathy told you earlier, she had no framework, no foundation uh from her uh previous accountants uh and bookkeeping uh a part of her business. So first we had to educate her on what that meant by discovery process, you know, and then we had to uh establish a true cu uh bookkeeping and communication uh framework on every aspect of her her books. And then we had to develop a true chart of accounts and educate Kathy on what this chart of account means to her her business structure as a property manager, uh, as well as what does this mean to her daily operation. Um and as we get in, as we get through that process, then you get to understand her the cash flow reality. As she told you earlier, uh at the end of the year, they say, hey, you didn't make any money. But from a small business uh standpoint, and from any business standpoint, understanding your cash flow reality on a daily basis is very important so that you can make adjustments. Hey, I'm spending too much uh on this particular, do I need this particular service? Or uh so I need to cut that off. I can't wait 12 months, and I've got 12 months of money, I've been bleeding, not in use that that service. So that uh when we talk about that and from this, uh from that good communication and understanding those cash realities, then we get some structural lessons. And from those structural lessons, we can now apply practical advice. Yeah, so I realize that if I'm not communicating what transactions actually are, then someone else is making assumptions when they categorize them. And so I learned that you know that some of these categories could come back and taunt me later on. Hopefully that doesn't happen, but hopefully moving forward I can avoid that situation. And I've also learned that just because money is coming in, it doesn't mean that the business is financially healthy. And that is so true. You know, Kathy, what surprised you the most during this process? Just how disconnected I was with the accountant. Um I was relying on them as the professional to walk me through this. And I figured since they didn't ask questions that everything was okay, that there was nothing that they saw, no flags or anything. Um it just at the end of it, here's your return turn and uh sign the paperwork. So um as time went on, I decided I need to do something different, and I contacted EW Tech Nerd uh Jermaine to get some information, and um other than giving him a heart attack almost, um, we were able to get this reined in and we're working on it. And uh Kathy is so true. You know, one of the things that a lot of um professionals, especially in Kathy's field, we discovered a true gap in what they trained her as a property manager in the schooling for her licensure and what the actual reality on the ground and her function. Uh and it's a um a major disconnect because the most important role of the property manager is a fiduary. And if anybody understands what that fiducies is, that's somebody who manages other people's money. Yeah, if you want to look at it that way. And that means that that role, the primary function, uh is an accounting role. And that's where the disconnect is come uh is coming in in the training. And so, you know, bringing that reality to Kathy, uh, you know, being uh a property manager for over 15 years, uh going through training, doing uh continuing ed um training, none of the training focused on the primary role as it relates to the state law, is what uh the requirements for a property manager as that fiduciary requirement. So when you have a fiduciary requirement, you that means a strong accounting burden, and it's not an end-of-the-year accounting burden. So, you know, that was you know one of the biggest uh biggest things that I think that uh Kathy uh uh once we got past that and she and and we understand that now we can really move forward uh in that. So, you know, a s it's just really, you know, what she's kind of describing is extremely common. Many owners assume uh bookkeeping and taxes are simply handled correctly because the business is still operating. But operations and visibility are two different things. Yes, and um there's a chance that um I could be audited by several different entities in this state, South Carolina. That would be the licensing board, and then there could be other issues that come up that they would audit. So we're structuring everything to be streamlined. Um I would suggest that you don't avoid your not to avoid your numbers, those are very important, um, and meet with your accounting team on a regular basis and learn what your monthly cash flow is so you understand where you are at all times and build the systems before problems happen. I didn't do that when I had my business. The problems were happening, and I was like, you know, in the weeds, basically. So you never you want to wait until there's a problem to understand your business financially. A lot of small business owners just go along to get along every day and look for new clients or new jobs, not realizing how unstable they can become, especially if you do grow. Things could happen. Um you know, there could be tax issues, you could be uh payment issues, there could be all kinds of issues that shows up show up. So you don't want to repeat bad habits and you want to make sure that you are moving along in a correct way. And always think in the back of your head, I could be audited at any time. So always keep up all your contracts up to date, um, the insurance is up to date with all your clients so that you don't walk into any problems in the future because the one time you're not prepared, that's when something would happen. So true, so so true. And you know, when we talk about in our framework, uh the bookkeeping and communication, as Kathy talked about, that's where we identify the structural gap. You know, uh and it and it's so easy uh to happen because a lot of business owners don't want to get involved in the minutiae, but the but it goes back to that I call it onboard and establishing that relationship. There's no way as a bookkeeper I can look at uh 300 transactions and properly categorize those in the chart of accounts without having a conversation. You know, if you don't, if the business owner don't explain the transaction, somebody else who's categorizing for them, that's gonna create a media gap. And because every transaction is a business owner might have context. And one of the things that um me and Kathy discovered uh uh when we we just took one account one month and we just set down transaction to transaction and she explained and uh this is what I bought this for. I couldn't look at this bank statement and properly categorize her account without sitting there for two hours or so with her going through each transaction. So that was one of the gaps. The reality of that is bookkeepers and accountants can only work with information they actually receive. And but that's their um uh firewall, but it's their responsibility to properly interview Kathy uh about these transactions without blindly uh basically uh categorizing them and then at the end of the year, here's your tax returns. So that's a structural gap uh in the industry, and that gap impacts small business owners who don't understand these fundamentals. The fix, of course, is the regular communication between the owner and the financial team. This is a non-negotiable structure. So it is no way you can get accurate without that communication. I don't know the contents of why you had this transaction. Um it could be categorized several different ways. I could go and buy a new printer from Amazon, and that I could uh they could see that transaction from Amazon and just put it in office expense. But uh that became an asset for Kathy, so that needs to go to the balance sheet. When I brought that asset, uh starting this depreciation cycle for the count. So without Kathy telling me that hey, I bought a copy machine from Amazon uh for this amount, I wouldn't know. So think how many business owners um have this issue with their books today. And that's why a lot of them balance sheet is not accurate. And that balance sheet is so critical when they start walking into a bank and asking for money, the bank wants to see that balance sheet to see if you got assets uh to secure that loan. Uh so the lesson is the bookkeeping is not a passive, it requires ongoing owner engagement and explanation. Yes, I wish I had known that early on about the monthly financial reviewing to communicate um that my system was set up for failure. Um and if I like I said, if I ever got it audited, it would be a big problem. I could get into um some issues with that, not only with the state and the licensing board, but with the clients. Uh the clients could have a problem if if someone had an issue or questioned some uh some of my standards. They don't typically, but everyone should. Everyone should ask questions, ask as many questions and know exactly what you're what's going on and document everything, keep good records, um, and just don't shove papers in a corner and forget about them, because those papers you may need one day. That is so true. That is so true. And you know, now uh as we look at that, all of this organization, all these structures bring you, and that's why this five-point structure is so important. As we get into looking at your cash flow reality, and this is where it's so important for a small business owner. You know, we uh every month we're looking at, okay, boom, we got to make this money uh so we can pay these bills. But uh how we pay these bills, the structure of when money leaves our bank account and when money comes in, I've always operated on a 30-day cycle. Uh, you know, I always say every every first of the month, I'm starting at zero. So I need to uh uh my overhead is X, I need to work to gain that. Then I gotta be real strategic in how I pay my bills. If I if my business model is I don't bring income in for on a 30-day, but I have let's just say employees, I gotta pay every two weeks. How do I manage that cash flow to have that gap? So that means that hey, I need to have money aside a cushion to be able to pay that uh payroll in two weeks, then I'm not gonna get money for three weeks, I mean for four weeks. So those cash flow realities, when we talk about uh money uh revenue versus stability, money coming in does not mean the business is financially healthy. Understanding when money enters and leaves matters. Uh without a clear view of cash flow, decisions are made on assumptions and not facts. And the facts is your bank account. So just because money is coming in doesn't mean that the business is financially healthy. Uh, Kathy, what did you learn about cash flow from this process? Yeah, so um I had to restructure what bank accounts I had because cash flow wasn't working well in my account or accounts the way I had it structured. So now I'm going to be much more clear, much more um uh I don't know how to say it, more structured than before. So that anybody looking at this, it they don't wouldn't have to ask me questions. They could see for themselves how things are coming in and going out, and if they're coming in the right way and going out the right way, and that they're also categorized the correct way, so that I don't have any problems in the future. You know, as time went on with my business, I got busier busier and grew. I just kind of let that all go by the wayside, like that's not that important. But now I realize how very important it actually is. So true, so true, so true. Because all of this is interconnected in this five points. When we talk about uh the structural lessons that Kathy is telling you, the monthly financial review, communicating with your team, cleaning systems, um documenting categories, um, understanding your cash flow. Uh these help you make the decisions, like she talked about the banking and structuring that properly. And in our later episodes, we're going to get into how to properly set your uh banking accounts uh up to properly be able to identify um uh your cash flow and monthly output. By just you know, properly aligning your your um bank accounts, that could give you a uh kind of daily shot of stock. I know a lot of business owners, they go log into their bank account on their mobile app, see, oh, I can see what kind of money I got. Uh and a lot of times they're using one account so they don't know what's going out, what's in, they just see a balance. So rearranging and establishing it, uh uh your bank accounts so that you see these buckets. I call them buckets uh for all our QuickBooks uh people. QuickBooks got this new feature called uh their QuickBooks checking account, and they have envelopes within the checking account. I need to put back X in this for this envelope. So when I log in there, I can see, oh, I got $300 in this envelope, $200 in this envelope, and then when it's time to use those envelopes, transfer it to the checking. I think that's a great uh feature because it kind of helps you as you're on the go and you want to see, hey, do I got what money in my account without having to go from uh you know, kind of say, well, what's my financial position? But one of the things that's so uh important is that monthly cat uh uh financial review is non-negotiable. Yeah. And I think it's non-negotiable. You can't go through a month, and especially when you're on uh a business that is receiving the majority of its revenue on a monthly basis. It's too late to make any adjustments by time. Now you gotta look at the uh next month. And what you find, and what I found in my 30 years' experience is people don't look at any of this to the end of the year and they get their tax returns, and then you have the tax returns finally come in, they've already started a new fiscal year. So they don't even get a chance to process the previous year tax returns and say what kind of adjustments I need to make so that I can have a better outcome. You know, uh communication with the bookkeeper uh on in the context of every transaction, uh uh clean systems, messy books, messy decisions. You know, as we build this framework, now decision making in the business becomes more um imperial, analytical based on your numbers. You know, you make a lot of times we uh we are all human, we we make a lot of business decisions based on emotion and assumptions, as cat uh as Kathy said earlier. We assume uh, and you can't do that because this is a math game. Uh and document it and categorization within the rules, preventing, you know, uh guessing, you know, making sure it's documented. Uh and so lock 30 to 60 days ahead when you start, you know, looking at your cash. Forecasting. And when you're looking at cash for forecasting, you're taking those monthly reviews to say, hey, let me change some spending habits for this month. I want to stabilize my cash flow. So guess what? I need to make a decision to reduce these expenses for the next 30 to 60 days to uh stabilize that. Yeah. Yes, and um I'm feeling much better about things now that I know where I went wrong and how to it's never too late to fix it. So um you may want to check with your accountant or your CPA who you're working with. If they're not communicating with you, you may need to interview and get another one that is and can help you with this setup so that you're not uh held liable. Um like you explained to me, Eric, that the CPAs aren't really liable. They just prepare the taxes, and if it's uh if it's wrong, it comes on us, not them. That is so true. You know, yeah, you have to look at your level of engagement with your CPA. You know, some CPAs you can engage to, hey, you're gonna do bookkeeping and taxpaying. But that's with a heavy lifting, and you need to really understand that engagement agreement. What is your requirements? What kind of information is your requirements, and what kind of uh uh information that they require? You need to check that, and that's with that month review. Did we provide you the adequate information you needed to compile my financial review? Uh so this is a constant, it is not sign up with a CPA and forget about it. And then at the end of the year you scramble to send him all your documents and and think that he's gotta now take the time, categorize all your transactions for the whole year, and prepare your taxes and believe that we're gonna have some level of accuracy. So, you know, it's this uh having a system is our responsibility, just like when the IRS comes to you to say, hey, it's your responsibility as a business owner, and that's where we go back to understanding your role. Whatever business you you have, you have a fiduci responsibility. Uh most of the state laws tell you that. When you set up your little LLC, you have a fiduciary responsibility by law. When they and when you have that fiduciary uh responsibility, you need to uh basically exercise that. You need to understand when you spend money what's the context of it for the business uh and how that's gonna flow and be able to document what you spent that money on and be able to communicate to that uh CPA or your bookkeeper because a lot of people got it kind of confused. I got a CPA, uh, but you might have that CPA just for tax preparing. What that means is at the end of the year you're going to send him a profit loss sheet or um for him to do your tax returns. Now you have another level of engagement where the CPA is doing your bookkeeping. If a CPA is doing your bookkeeping, that needs to come with monthly financial review. And it needs to come with constant communication uh to understand your spending habits. And then you have the third element when you just got a bookkeeper that is doing your uh internal books, you maybe use a third-party service, then at the end of the year is an eye on the bookkeeper to get your profit loss statement to send to your CPA. But all of those components come with constant communication, a system of you understanding on a monthly basis uh your financial position. So, Kathy, what advice would you give another business owner after going through this? Well, even if it's a small company, because I see a lot of small companies make big mistakes, such as they have an LLC, but they file everything under their personal taxes, uh their social security number. Um, the purpose of having an LLC is to set the set the tax structure so you don't have that mingling of personal funds and business funds. So um that just because they're small companies doesn't mean something could happen to them. Yeah, they may not be on the radar, but those big companies don't get audited. It's the small companies that they go after because it's easier to get to them and find these mistakes that they're making. So you want to be ahead of the game so this doesn't happen, you're not blindsided, you're stuck doing scrambling getting paperwork ready because somebody sent you a letter and said, We're gonna be coming and auditing your office in two weeks. Two weeks is not really enough time to get everything in shape. You should have it all ready and be breathing a sigh of relief. I'm ready for them, they can come in anytime and I'll be ready to show them my paperwork. So that's where you want to be, so that you can rest assured that that nothing happens and that you don't all your hard work of having a business doesn't undermine everything that you're planning to do moving forward. So true. So true. So when we talk about um uh from our perspective, what is the practical advice? You know, don't avoid your numbers, face them monthly. Um, no expectations. And and I'll give you a tip that I actually implemented five 10 years ago 10, 15 years ago. I do a weekly review. Monday, uh, we I see no clients, take no calls. I'm every Monday, I'm actually doing a financial review uh at that time. That really helped me because it helped me make quick decisions of, hey man, gosh, I'm I'm my I'm I need I'm spending too much or I don't have enough, I need to make some adjustments before that monthly cycle. And it's because of that philosophy, I I start at zero every month. Uh meeting with your accounting team regularly and explaining your transactions. You know, we're bad as business owners, we'll go out and we'll take Kathy out to lunch and put it on our business credit card. And then we'll um uh uh they'll see, hey, I took Kathy to some, you know, I'm real poor. So I took Kathy to Mike Donald's with a big dump. The bookkeeper sees a Mike Donald's charge on it. How does he categorize it? If he understands the nature of your business through those conversations, uh that is with the client. Um so is it documented past that though? Do we have the receipt, the meeting that we uh met with Kathy to take her to McDonald's? Um so we'll you'll see a lot of that. A lot of times we'll pull out that business debit card or credit card and we'll buy food. Or we'll buy food for our staffs. All of those things has to be uh documented and notated so the bus so that the bookkeeper or the accountant can be able to properly categorize those because once it gets to your taxes, you come with this section called meals and entertainment. So you need to know that uh know the difference. Uh learning your monthly cash flow, knowing what's coming in and what's coming out, and you know, build systems before they become problems. That's our that's that's the service that we're rolling out this year. It's help you build a system to manage these components and get organized. That's my goal. Uh, you know, coming from uh being in business myself for 30 something years, always had a small team, and coming up with systems on how do I manage large projects and large companies. Um how do I get that done? How do I how do I make that happen? So this is where that experience is coming from. Um don't wait until there's a problem to understand the business financially. Exactly. Um I didn't have too much problems, but I could have had a lot worse had I waited longer before contacting the team that I have now. Thanks, Eric. Well, um I've been with Kathy, I've known Kathy when she first started the business. I felt it was uh my obligation to pass this information and help her uh you know prepare her business for growth and transition. Um you know, structure creates stability. The business that survives long term are usually the ones making the most, uh not the ones making the most money, but the ones that understand their system. And that's where your priority uh needs to come because you can grow to scale once you establish that system. Yeah, and I think some of these smaller business owners get real excited when the money comes in and they want to spend it on you know new equipment and new this and new that and uh take a lot of people out to dinner and lunch, and you have to be really careful of how you spend your money. You do, you do, you really do got to um uh really uh understand uh the that every in especially in today's uh society, because everything is coming into a subscription model. You know, every it's so many different expenses, uh compliance expenses, fees for uh business, and it might not have been the same the year before. And if you don't make adjustments and understand those, you could have a uh you know a serious serious problem. So the moment uh you realize uh that as we summarize this, financial uh stability, communication, and structure. And as this season in the real estate connector, we're going to drill down real Pacific on these five areas and and from and see a real life project going through, and I and as you business owners and people that listen to this podcast, a lot of it's gonna be so relatable about uh the structure and understanding. And I hope that uh through Kathy and myself, we provide something of value to that can transform your business um uh governance and financial stability. Uh no, that's it. I mean, that's says it all in a nutshell. And I think that people can really take away a lot of information from this. Well, again, thank you, Kathy. Um uh and thank you, listeners. Um, I hope today's episode resonates with you. Share it with another business owner who needs to hear it. The goal is always education for me, not embarrassment. We are all building uh as entrepreneurs. I find I feel kinship with all small entrepreneurs in the world. And uh my legacy is to pass on this experience to you um so that uh the next generation will be uh ready for what's to come.