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Guest: Pat Darby

Release Date: 5/8/2023

Welcome to Trulyfit the online fitness marketplace connecting pros and clients through unique fitness business software.

Steve Washuta:  What are the real perks of attending industry conferences? Should you attend other industry conferences for better networking or client access? are you confusing your tax advisor with a certified financial planner? Is there a specific profit margin before you should consider changing your business into an S corp? I discuss all this and more in the upcoming episode.

Welcome to Trulyfit. Welcome to the Trulyfit podcast where we interview experts in fitness and health to expand our wisdom and wealth. I’m your host, Steve Washuta, co-founder of Trulyfit and author of Fitness Business 101.On today’s episode, I have on Pat Darby, you can find everything about him at the Pat Darby on Instagram.

He is a tax advisor. He is a certified financial planner, he runs Darby wealth planning and also Sin City CFO. He’s going to talk a little bit about that what a virtual CFO is. And Pat and I are going to be broken down to two episodes, we had a really long conversation, the first of which here, we’re going to be talking about the conference, he recently attended conferences in general, if they’re important how we use them to our advantage.

We also talk about the different roles that a tax advisor would play as opposed to a certified financial planner and why we might get those confused. We as the general public or we as fitness and health professionals, and then pack goes into specific answers and conversations and questions that he may have with his clients that I throw out to him.

It was a great conversation on the second half of the podcast on Thursday’s podcast, it’s really a little bit more about just the state of the dollar, what’s going on with a failing banks, that sort of thing, just in general economics and finance questions about what’s going on right now with the US dollar and things of that nature.

So because it’s that’s a little bit more, I guess you would say off the cuff spitballing. I made that a Thursday episode. And then this episode is a little bit more targeted, the whole conversation was fantastic. I really enjoy talking to Pat, he’s been a three or four time guests now. And I’m sure he’ll be on in the future.

And again, if you are somebody who is starting a fitness business, have any sort of coaching model, it’s really imperative that you have a financial planner like Pat to make sure that you’re not behind the eight ball that you’re starting with a proper game plan going into your fitness business, and that somebody is taking, which Pat talks about he is the quarterback.

And he’s going to make sure that all of the other entities that are involved, whether it’s your tax planning, whether it’s your future, business planning, whether it’s the money that you have leftover, whether it’s you paying your employees, all of those things are looked after as one because they all matter in one slip up in any of those areas could could break your business down.

Without further ado, here’s Pat Darby. And, Pat, thank you so much for joining me truly fit podcast, I don’t even know how many times this is either three or four or five that you’ve been on maybe our most returning guests, but remind everybody your background and what you do day to day and your credentials.

Pat Darby:  Sure, so I’m a certified financial planner, as well as an enrolled agent. So basically what that boils down to is I do financial planning and tax advisory work, which is turning really into certified or not certified virtual CFO services, worked with a lot of online, people in the coaching space a lot of times in the fitness area. But yeah, so morphed it from just doing financial planning for business owners to getting all my tax credentials over the last few years and doing a lot of virtual CFO work for their business.

Steve Washuta: Now, we’ve had a lot of conversations concerning that helping personal trainers out with their financials, we’ve had tax conversations, we’ve run the whole gamut of finance and tax conversations. And I’m sure we’re going to get into some of that today, either during or after, what is going to be the lion’s share of our conversation.

And that is a conference that you had went to you’d reach out to me and see if I was going I had something else to do that weekend. And in general conferences have been such a big part of my life. The last few weeks, my sister visited town because she was in a conference, my wife left to Phoenix for a conference. We’re having a conversation about a conference, I was just invited to speak at a conference for my first time.

So like, there’s been a lot of conference stuff going on. And you know, so I want to also talk about the macro thoughts behind conferences, are they worth it? You know, especially after COVID People want to see more people in that and that stuff and we’ll get into that but first tell us about the conference you went to and why you decided to go to it.

Pat Darby:  Sure. So I went to NCI which is international coaching institutes coaching con down in Phoenix I’m in Vegas so like for me it was kind of a no brainer hop in a car for about four hours or so. And head down there it’s It’s funny though, because that’s one of us that reached out to you i Oh my I go to I love industry conferences.

Pat Darby:  So if I’m going to go somewhere and learn all about it. This is one of the few times I went to like essentially just a networking conference because like I am not actually a fitness coach. I love fitness personally. So it was like going to be networking and I had a few people like no it’s it’s a really good event. So obviously I ended up going and it was pretty cool because as soon as I got there one of the guys that I don’t know his exact title but he’s a saint So one of the finance guys for MCI and ran into him.

Pat Darby:  He was on my podcast, I forget which episode I should have listened. But luckily enough, I ran into him right away. And he’s like, no, it’s actually the topics that we’re going to cover our business in general, like there’s some things specific for the fitness coaching industry. But a lot of it was like broad spectrum entrepreneurial tidbits, like a lot of the guests. So we’re driving it no matter what industry your listeners are.

Pat Darby:  And if they’re not all fitness coaches, if some of their just fitness enthusiast and have a business, I highly recommend this conference coaching con, because I would say half the lectures were like sales and marketing, and not to that specific industry. Granted, a lot of people like would, when they were doing a presentation, they would use hypothetical scenarios that applied to the fitness industry, just because that was the majority of the room. But it was like Alex or Mozi spoke, his wife, Leila spoke.

Pat Darby:  And their, their lectures like Alex was on sales. Leila was on I believe, like essentially management of your team. But that’s applicable to any business. So highly recommend it, the room was, and the room was filled with a lot of like, successful people, which was pretty cool. Because like one of the, when I was asking people who was going and who wasn’t sometimes like, oh, I don’t like to go to events where they perceive it to be all people just brand new into business.

Pat Darby:  Because depending on what their type of businesses are, like, I’m not going to be able to network with people that are brand new. But I found it was like the full gamut of like, success in the room. So it was cool.

Steve Washuta: It does make sense like for days, on the nutritional end, you know, people are very pigeon holed and specific on how they teach nutrition. So you might have keto coaches, which are much different than Yeah, carnivore coaches, which are much different than someone who’s just teaching you how to, you know, maintain a low calorie diet, which is different than someone teaching you how to put on 10 pounds of muscle, right.

So for, for, for the business aspect, it isn’t different, right? Getting clients is all really the same techniques, you know, building your individual business, hiring people underneath you how you spend the money back into advertising, those are all the same.

So it does make sense from the, from the, from their perspective, if you want to get more people in, you have to hit those generalities and really the pain points because that’s really the pain point. It’s not as if people don’t know, or what they believe in their ideology is behind the nutrition science. They just don’t know how to make money.

Pat Darby:  And because of the power of the speakers, there were people from all sorts of industries like when I first got there, the first like four or so people I met none of them were fitness coaches, there was one who was about to go to medical school. He’s currently a Greenbrae. He’s about to go to medical school from there.

Pat Darby:  And other was a realtor bash most people were there because they want to listen to Alex from Ozy speak, but, and like the event coordinators kind of joked around like, they know that was a lot of people in the room wanted to hear him give his advice and his lecture, but it was it was people that needed the sales and marketing advice and all sorts of industry. So it was it was cool. But yeah, so I recommend it. I’ll definitely be at the coaching on 2024.

Pat Darby:  And when I talked to some of the the team about like, hey, like, this is a great event, like should I go to some of the others? And they were like, This is the only one that’s kind of general like if like I think they have another one coming up in a few months like but this one that one is pretty heavy on like nutritional plans and like specific industry knowledge. So I was like, that’s, that’s cool to give me a heads up on that.

Steve Washuta: But I think yeah, I know you were doing you recommend to everyone for a combination of leisure because whatever it’s only it’s in Phoenix is not that far away. And it’s fun. And obviously networking. I think that’s a really good idea for everybody like all like people in my industry to fitness professionals to think a little bit outside the box about conferences that could help your business not always just specifically help your your knowledge growth, right,

Because what we do is we go to these conferences, that we can obtain CPUs, continuing education units, or continuing education credits, and they’re all very like, Okay, I’m gonna go into a spin class, and I’m gonna learn how a proper you know, to teach and cue a proper spin class and then I’m gonna go learn how these new these maybe there’s a new roller, a new myofascial roller that came out and I want to show you how exactly it’s used and why it’s beneficial for your clients.

But it’s not exactly really great for networking in your business, because you’re just networking with other personal trainers, you’re not networking with potential clients. So for me, in my in this business and my podcast business, what I do is I go to my wife’s conference, she’s a pediatric sports medicine doctor and I meet a bunch of ortho and sports medicine doctors that I can talk to and then get them on the podcast so it is good to start thinking outside the box like you were and and I would I would call them like cousin or sister conferences. They’re not directly in your industry but they’re interconnected.

Pat Darby:  Yeah, and honestly, like I’m I am not the one to ask because I tend to do that like I end up like nerding out on the stuff I can learn more knowledge. And I don’t often go to the like the networking only type of events I should more often, but that’s why I almost didn’t go to this one. That’s why I’m glad a few people like talked me into it.

Pat Darby:  So but yeah, like because like I two weeks I’ll be down in Dallas for a CFO only event. So it’s all going to be virtual CFOs in the room learning better techniques on being virtual CFO. And so those are the ones I go to all the time. So this one was really good time. And I obviously need to go to Marvel, but highly recommend coaching con for anyone, especially the coaches.

Steve Washuta: Interesting. So verso, go back, go back to what you just talked about the virtual CFO, what do you think they’re going to be teaching you you think this is going to be like specifics on like programs and software to use, as opposed to like, how to communicate with potential clients.

Pat Darby:  A little bit of both. He’s essentially a mentor for virtual CFOs. So if you’re in any sort of like financial planning, tax advisory work, whatever it is, helping you do a better job of marketing, your sales or your services, especially because virtual CFO, most people probably don’t know what that means.

Pat Darby:  And so, and even depending on the age group, this is something I ran into that I didn’t think about, like, with your background, and my background, I always knew like in an organization, what a CEO does, what the CFO does, like it didn’t, I feel like that was more marketed over the TV era ways. Like versus it’s not in social media, the same challenges I ran into, and I started to work with online fitness coaches, like, depending on your age, you didn’t even know what a financial advisor was, because it wasn’t it’s not really talked about.

Pat Darby:  Whereas when I was a kid, it was, you know, like, the big firms were always advertising. So you knew what a financial adviser did whether or not you wanted one or not, it’s different, but you knew what they did for a living. So a virtual CFO, and how that’s applicable is, is kind of be its own challenge of like explaining, like the value there. So the group will do that. But they’ll also I think they’re going to go into different ways.

Pat Darby:  That’s what I’m excited, like, how to how they run their meetings, and how other people could run their meetings, like, just techniques on people that are delivering it virtually like what they’re doing. And the guy who runs the organizations got a really successful firm. So CFO is all over the country are flying in.

Steve Washuta: That sounds really cool. Yeah. And I love that you talked about how you like using the Portland CFO and CEO and all these things, and remembering that the general public doesn’t know what you know, like, we’re so stuck in our little groups, right? Like, like you’re talking and reading about finance all of the time, right.

And I’m, I’m talking the lingo of fitness all the time that I forget that the people I should be talking to, you know, I have to remind myself in this in sort of a marketing perspective, sometimes is the people who don’t know anything. So it’s okay to talk really high level and just make it easy and say, Hey, this is this is the proper way to do a lunge.

Every fitness professional knows that. But I’m not talking to fitness professionals. So it doesn’t matter if I’m, if I’m using sort of the low hanging fruit or the easy stuff. It’s important to connect with your audience and, and let them know what you do. And sometimes in order to do that, you have to dumb it down as much as possible.

Pat Darby:  Yeah, when I, when I first launched my financial planning firm, in 2019, the an organization I went had, like a mentor, and all of my colleagues that were in that mentorship program, their objective was essentially going up to someone and saying, why you should hire me like why you should like so.

Pat Darby:  Their mantra was like, someone has to get fired for me to get hired because they were going after like the typical like retirees, doctors, lawyers, executives, so people that were like on the hunt for a financial advisor. And so I was like, cool, like, I took the advice or doing that. Then I realized, wait a minute, when I talk to someone who’s 2425 making really good money out of their business. It’s not someone has to get fired for me to get hired. It’s what the hell do I need a financial advisor for?

Pat Darby:  And then once you explain that, and it’s like, and now why you so it’s, it was an extra layer that I didn’t really anticipate compared to my colleagues that were going after people much older that had a very different marketing exposure just because again, like those were all the commercials when we were growing up like we all knew like I think we’re similar age. But the younger generation Alec social media doesn’t like the big guys don’t necessarily see them. So it’s different from a marketing perspective for sure.

Steve Washuta: Yeah, I think that’s smart on your on to I still see sort of financial advisors and people in your space. They seem to try to get people by maybe offering something that other companies don’t or maybe but they’re still going through the same demographic, right. Like you said, they’re not they’re not sure Changing their demographic.

Or maybe they’re saying like, Oh, hey, we don’t make any money off of like a percentage or anything like, we’re like, we only make money when you make money, right? They have these pitches to try to make themselves differentiated from the other companies, but they’re not necessarily going after a different demographic, they’re all still chasing down to steal other people’s clients.

And I think like you said, that’s a, that’s a, that’s a difficult way to go about the business, because someone else is going to keep coming out with a better way to steal those people back, you want to tell people how you can help them and go after the demographic that’s currently not using you.

Pat Darby:  I think even worse than that scenario, where you’re just always competing with each other for the wealth in the country that, you know, obviously, you’re competing also against like the DIY, who, but I think the bigger challenge is something that like the fitness world truly understands is the big financial firms, essentially walk around telling people,

Pat Darby:  Hey, if you almost have a six pack, or you do have a six pack, we’re going to help you get in shape. Versus like, that’s because that’s their messaging is like, once you have half a million dollars, or a million dollars, or more like we can help you, it’s like well do now many people would really love help figuring out how to get to 500,000, or get to a million, versus like, the fitness industry is very, like welcoming to people who are completely out of shape. And like,

Pat Darby:  Hey, we’re going to help you like you can get there a lot faster. If we help you avoid mistakes, or you know, whatever the case may be that all the coaches know how to do versus finance doesn’t do that they’re like, Get A Six Pack then call us. And it’s like, well, that’s kind of backwards in all the all the other industries, that’s totally backwards. But that’s the kind of thing that finance does, like the big companies, yeah, that’s

Steve Washuta: a great way to put it, I wouldn’t, I would give another analogy and call them specialists like, you know, when you’re when you’re already really, really good at what you do, maybe you’re a major league baseball pitcher, and you’re the pitching coach, you’re already 99% of what you’re going to be there just tweaking that 1% to make sure that your curveball is better, right. But really, you did all the work to get there.

You’re the one who accumulated the, you know, the wealth, and they’re just tweaking how you use it, as opposed to, you know, somebody saying, Oh, hey, I’m going to, I’m going to work with you to get to the major leagues. And that’s what Pat saying, right? So like, I’m going to make sure that you’re doing the right things that you’re that you’re lifting the right way.

And this analogy that you’re you know, you’re throwing on the right days, that you’re taking the right rest days, you’re doing all the proper things to get to where you need to be as an athlete, and when Pat would be doing all of those analogous things in the business and the fitness, excuse me, in the business in the finance world to make sure you’re not making the mistakes that set you back 10 years. And instead you’re you’re advancing quicker.

Pat Darby:  Yeah, and also in finance, it’s those sorts of companies are trying to make their quote unquote, their niche or their specialty, how much money you have.

Pat Darby:  Whereas like one person that has a million dollars, and another person that’s like a business owner, versus someone who maybe is an executive or company that has all the stock options, like there’s completely separate things that you’re looking to help them with, or maybe a more extreme example, be like, maybe a business owner versus a new widow who’s never dealt with their finances in their life, like the skill sets of that financial advisor, the fact that each have a million dollars in a bank account, means nothing in terms of what they’re trying to do, like in the fitness world,

Pat Darby:  I guess would be, you know, working with a transformation person versus trying to get your client on the Olympia stage, like totally different skill sets, and you can’t just be like, Well, they’re both trying to lose 10 pounds. Yeah, you know, it’s like, that’s not, that’s not what we’re talking about here. So I don’t know if that’s useful to people. But that’s one things I hate about the industry is as a whole, they’re like, got a million bucks, we can help you. It’s like, that’s not a specialty.

Steve Washuta: So let’s talk a little bit about your, like, micro day to day, we’re gonna talk about financials here. You and I have talked about how you call it getting financially naked, and clients in the fitness world have to get, quote, unquote, you know, fitness naked, telling us all the things they’re eating and the fact that they haven’t worked out in three months and whatnot.

But do you give really specific suggestions? For example, you know, if somebody says, hey, Pat, I really just need, you know, another 20 grand in my bank account, I want to make sure that I have a good backup for whether it’s a business or whether it’s personal.

And you notice that they have like two cars they never use, and they’re just sitting in their garage and their fancy cars, and they could easily sell those cars and cars obviously depreciating it’s not an asset. Will you guide people as to what they should do? Or do you feel like that’s a little bit too personalized and you just try to give general advice?

Pat Darby:  No, we get very specific. That challenge is the how they hear it. But that’s why like, when someone sits down with me for the first time, like we outline like what their big goals are. And so that could be like I’ll use like two different examples like one could be a really high financial dollar figure. And like, let’s say it’s $10 million is their goal net worth. And another person is to structure their business, so that they can work 20 hours a week, and like spend time with their little kids.

Pat Darby:  So like, those are pretty different goals. But that’s really going to be the driving force between between everything, like, obviously, I don’t have checkbook control over anybody, so they can do whatever they want at the end of the day. But if we’re having a conversation at the end of the year like this, how much profit was left in my business? Like, what should I do with it? Like, I don’t put my views on their plan.

Pat Darby:  So like, if they’re, if they told me their goal was to have $10 million in net worth, then we would, in that scenario, hypothetically, like allocate that extra profit, if let’s say it was, like 50 grand towards an asset, whether and like, we would evaluate like, is the business need it does real estate need it does your stock account need whatever it is, we would put it towards something that will grow in value.

Pat Darby:  But if they said something different, like they’ll wanna spend time with kids like, then maybe that 50,000 is going towards hiring somebody, so they can actually free up more of their time. Or maybe they take half of that, and they go on a vacation with their family, like completely, quote, unquote, blow that money, because that was actually their goal, like the time. So I’ll remind people what their plan is, because it’s very common, we run into like a fork in a road where there’s like, this dollar can’t be divided anymore.

Pat Darby:  So it’s like, are you going to put it here, or here? And I’ll be like, Look, this is what you told me when we first started working together. Like this was your biggest goal, like, everything we’re doing on the tax side, on the finance side, inside the business, is to culminate for these one or two things. So that is always going to be like the deciding factor, because it doesn’t have to meet the knee being the bad guy.

Pat Darby:  It’s like their own words, like, this is what you told me, like, two years ago. So is it still true? Are we changing this, and then you tell me what we’re going to do with the money. So So I do try to keep their goals like, front and center. And in my, like, CFO reports, the goals that they tell me get sent in every single monthly report, because I’m like,

Pat Darby:  I need you to remember like, what the big picture is here that you told me and a lot of times that big picture is emotional. Like I said, like it might be like, time with kids, you know, like, that’s, that’s a window of time that you don’t get back. I’m not a parent, but I just know biology.

Steve Washuta: Yeah, that’s that’s a really great way to put it. I think, also reinstating their goals to themselves, because people do forget from time to time, what their goals are. And they might revert back to something else. And you said, no, no, listen, like you got to look, we had a long term plan. This is why we made move x, y and z.

Yeah, it’s not meeting this goal. But that’s not that doesn’t tie into your long term goal, right? That’s a, that’s just a short term goal. So we have to sometimes shift our game plan around making sure we meet the the long term goal.

And I like how you just say, basically, we just use the Socratic method, I’m just gonna ask them questions to so that they answer and they’re just, they’re just answering themselves and telling themselves Oh, yeah, I do.

Remember, this is why this is my goal. This is why we have to do it this way. I think, again, the relay and finance and fitness, it’s the same way, you know, we have to do the same things. And it’s not always about getting specific. It’s about reminding them what their goals are giving them a few options and feeling like they’re the ones who ultimately chose the option.

Pat Darby:  Well, that’s, that’s also why that just made me think of like a good correlation. That’s it. That’s exactly why I transformed my business from just being in the financial advisory financial planning world, to the virtual CFO world, because if you’re just a financial advisor, and that’s exactly the situation where like, alright, you have $50,000 for the profit at the end of the year, like, you can either invested in a piece of real estate, or you can go on a vacation with your family, it’s very binary, or whatever the case may be, but like, you’re you’re stuck with that amount of money.

Pat Darby:  But when you transfer into like the virtual CFO world, you can give them homework where it’s like, alright, it sounds like if you had $100,000, instead of 50, we could do both and solve this problem indefinitely.

Pat Darby:  So now we can actually put a plan together, it’s like this revenue stream, how can we make this revenue stream making $50,000 of the profit next year, or these two combined or whatever so actually gives us like, action steps, like kinda like what we talked about over the last, like 20 or 30 minutes, like, so much of the economic factors are completely out of our control.

Pat Darby:  So like, we can’t control what the stock market does because of what happens in Russia and stuff like that. But we can control like what we do in our business to either increase rev renewed or increased profit, add team members that can increase profit.

Pat Darby:   So like, that’s one of things I really like. It’s like we can actually go from saying, well pick one, because you only can do one versus Well, this year pick one. But let’s build a strategic plan for next year. So you can do both.

Steve Washuta: Yeah, and I, I know that this next question is going to be a little bit of a caveat, because you don’t like to give specific information. But just from a general perspective, I know I’ve told you multiple times a lot of fitness professionals, when they’re first starting out, it is the best way to be good.

The best way to be good is to work in multiple locations, because you get to see a lot of other professionals and what they do, you get to see different clientele type, you get to see different fitness equipment.

And it’s the fastest way to learn and become well not only well rounded, but then you can, how do you pick a niche unless you know what is even available? If that makes sense? Right? So it allows you to specialize your reps.

And so with that being said, if I’m a fitness professional, and I’m training in the park on my own, and I’m doing some virtual training one on one, but I might have to 1090 nines working at some smaller local places.

What do you think is my best bet as a as a fitness business owner? Do I have some sort of LLC where I can write off my travel to these 1010 99 locations and write off equipment? And is it should I just keep everything separate? What is the what is the general plan that you would put in place.

Pat Darby:  So in that scenario, it would actually be pretty simple. Like you could have an depending on it would be driven not by the number of 1099 Do you have or the number of side jobs like you could work at 10 gyms, and they’re all 1090 90. It’s not driven by the the quantity of gyms, it’s by the revenue and the profit.

Pat Darby:  So if those 10 gyms, all like if you’re just starting out, like you said, and you’re getting your reps and seeing who you want to work with, let’s say you’re at four or five different gyms, and that’s only adding up to 40,000 or $50,000 worth of revenue, then you have your expenses of let’s say 20, or 25,000. So you’re only netting your first year maybe like 15,000, or 20,000 of profit.

Pat Darby:  In that scenario, you would stay that it wouldn’t matter whether you’re an LLC or the when you’re not an LLC, and you haven’t done anything yet, you’re called a sole proprietor, so you’re just operating out of your social security number. So from a tax perspective, those two whether you’re a one member LLC, or using your social, the taxes are identical, even when you are an LLC, like you fill out the exact same tax paperwork as your friend who never formed an LLC.

Pat Darby:  So like I’m here in Nevada, in Vegas, and it’s expensive to form an LLC here, the state filing fees alone, I believe are like 495, or something like that, basically 500 bucks, st and California, it’s like 800. So in some of those states where you’re like, oh, geez, I better figure out if I’m going to really do this all the time before I spend all this money. And that’s not including like a lawyer to actually do it for you.

Pat Darby:  So it’s not necessarily in that scenario, like driven by the fact that you need to do it for any tax purposes. But going into the following year, let’s say you’ve tripled all of it. So now instead of your profit being the 20,000. In the first scenario, it’s 60,000.

Pat Darby:  Now you do need an LLC, because you’re going to, you need an LLC to convert to an S corp. And once you’re an S corp, then you actually start saving a bunch of tax dollars, that you have access to a strategy that your friend who’s using their social doesn’t have access to.

Pat Darby:  And what you would do, then other than just forming that LLC and having it converted into an S corp, what you would do is make sure every single one of those gyms in that scenario is now using the tax ID number of the LLC. It’s actually very important because you will mess up the filing when you sit down with your accountant.

Pat Darby:  And again, my team can do all this for you if you guys are curious, but this is what we do all the time for business owners. But that’s the one thing you need to do like go to your business Venmo. Go to a business, Pay Pal, all of them switch it over. Like if you getting YouTube revenue, whatever it needs to be in the name of the EIN number of that LLC. Otherwise, it doesn’t complete the loop. So maybe this is too detailed of an answer. But when you get a 1099 it gets the person who sends it to you.

Pat Darby:  Let’s say it’s ABC gym sends you a 1099 for $10,000 they’re legally required to send it to you and another copy goes to the IRS. So if you don’t claim it. They know so all these people who are like getting 1099 and don’t claim it to the IRS. The IRS knows they have it like because they’ve received the copy too.

Pat Darby:  So you’re not you’re just haven’t been audited but they know so if you have already you will not win but inside of what throws people Law is that same scenario where ABC, Jim sends you a $10,000 1099 to your personal social, you claim it inside of your S Corp. So in your opinion, like, oh, there’s no tax evasion here, I claimed it.

Pat Darby:  But on the IRS systems like, Hey, where’s that 1099 That you said you, we know you made it, but you didn’t claim it. So even though it sounds technical. It is increasing your audit risk. Because you’re not completing the loop and the IRS is eyes. That’s why you have to make sure you take the extra step and say, Hey, ABC, Jim, here’s my tax ID number. You would fill out a W nine for them.

Pat Darby:  So they might only have one for you on file, ask for a new one. And you would fill out all over again, with the information of the the, the business entity, that’s great

Steve Washuta: information. And just to sum that up, tell me tell me where I’m wrong. If and when you start making money as a small first time. Let’s say two or three year personal trainer, and you went from 15,000. And you believe now you’re maybe going to be making 50 or 60,000. You want to grow from maybe you were a sole proprietor in the first place.

You are using your own tax ID number on the W nine. To get your 1099 from your from your gyms. Your local gyms that you worked at. But now it is time maybe in your second or third year. As you’re turning a profit to now. Connect that with the LLC you made that you’re eventually going to turn into an S corp. You are gonna go back to all those original gyms. Ask them to change that EIN number from your initial social to your business number.

And that will start the process. To make sure that you are not audited and that you are not in trouble and that the IRS has all of your proper information. And additionally, that down the road as you continue to start making more money. You can then circumvent other tax related laws and start to build wealth because of the fact that you are now turned into an S corp.

Pat Darby:  Yeah, essentially an S corp. The reason I used a number above like 40, or 50,000. Is because when you switch over to an S corp, what you’re essentially doing is it. It can sound confusing the first time you hear it, but when you’re an S corp, you are an employee of your own company. And that sounds confusing, but it’s a technical difference that is critical.

Pat Darby:  So if you were making $100,000 a year in the first scenario of your sole proprietorship, or you’re an LLC, that just a regular LLC, and you make $100,000 100% of that 100,000 gets hit with self employment taxes. And in the United States right now, that first 100,000, you’re getting hit with an extra 15% self employment taxes. So that’s what always hurts people when they’re brand new to business.

Pat Darby:  Because everyone knows, like the federal tax brackets, those get talked about a lot, they’re like, Oh, I’m not making that much money, I’m in a 24% bracket, no big deal. They estimate, you know, on a grant 24 done. Then their accountant gives them a bill for you know, hypothetically, an extra 15,000. On top of that, and the like holy crap, I thought it was gonna pay like 24.

Pat Darby:  And it’s almost 40. Like what happened, what happened was you got hit with self employment taxes. Like what, like when you work for someone, you get a regular paycheck, they’re withholding and paying half of it.

Pat Darby:  So it’s a double win for for you there from withholding perspective. So when you’re an S corp, you’re paying yourself a wage. So you start to like, cut down on that. So instead of $100,000 worth of self employment taxes, maybe you pay yourself a salary of like 40,000 or 45,000. So you’ve just cut your self employment taxes in half.

Pat Darby:  Now, hopefully, I’m not getting too long winded here. But you don’t want to do that too soon. Because for someone to create an escort for you. There’s this whole the reason that there’s all that technicality of like. Hey, the 1099 is have to be in the business.

Pat Darby:  It’s because now that business that S corp files its own tax return. And most accountants for that one business tax turns two years to now you go from filing your normal tax return as an individual to filing two tax returns one the business. which is due in March instead of April, and then your personal and April. And that tax return alone on the business side has more complexity to it.

Pat Darby:  So most accounts are gonna charge you one to $2,000 for it. And then on top of that you’re your own employee. So you need to have a payroll service, that’s going to run you four to $600 a year.

Pat Darby:  So depending on how, who you’re working with, that S corp just increased your expenses inside of the business 2000 to $2,500, give or take. So you need the tax savings to be at least that much and the tax savings start to be like four or 5000 $6,000. As you cross that 40 $50,000 threshold.

Pat Darby:  That’s why people don’t say do it at like 20,000 Because like oh, you might save 1000 and taxes but incurred $2,500 of the cost. So what’s not worth it? So I don’t know if that’s too much information. But that’s the reason there’s like that threshold of like. You don’t do it right away you do and your profit hits a certain level.

Steve Washuta: I think that’s great. And I love that you actually gave a number I know that number is not specific. But you did give a general number. So people do have some sort of an idea. When they should at least be looking at it instead of just. You know, because now it’s like in your head. Okay, I started out as a sole proprietor. if I’m, if we’re going through the same, you know. A potential day to day as the personal trainer. as I talked about.

And then the first two years, I’m not making enough. And then I’m anticipating by the third year. Looking at my hours and everything else going on the percentage. I am making from the gym. That I’m going to be over the $45,000. Mark, that’s when you, you know, that’s when you make that change. But also, if you had a financial advisor in advance. You would you wouldn’t have to handle that they would have they would have already saw that coming. Right? When you have when you sit down you have this?

Pat Darby:  Not necessarily not not in the financial advisory world, maybe if you have a good accountant. But even then, accountants and tax advisers are different. Sure. Like I have a brand new client and that was him and I were having this conversation. Because he was like, I have an accountant. I was expecting them like, what do I owe for this quarters? Tax Payment? What do I owe this like a lot of future facing questions.

Pat Darby:  And I’m like, most accountants don’t do that. They like they’re just in hindsight, like you sit down, you give them all your tax information. And then they’re done. Or they say, they might say to you, like, oh, you should do an S corp.

Pat Darby:  But doing an S corp and setting up an S corp are two very different things. Like it’s easy enough to if you’re a CPA to sit down be like. Hey, Steve, you should be like. I saw how much money you’re making is vilified out. Filed your tax return. You should be an S corp. But then you go and do it on your own.

Pat Darby:  And it’s, it feels very complicated. It’s very easy once you get past that initial, but like setting up payroll, setting up the bank accounts. Like doing all the little things, picking a salary, a lot of times CPAs don’t help with that part. So I’ll see people come to me, they’re an S corp. But they didn’t pay themselves a salary. All year huge audit flag to the IRS. Because S corp should be paying themselves a salary.

Pat Darby:  So. So unfortunately, there’s a lot of people running around thinking that their financial advisor, most financial advisors have no clue. And if they work for the big companies, they’re actually legally not allowed to give tax advice. Just because it’s a liability issue for the big companies, because they have 1000s think

Steve Washuta: it’s better to have someone who is a tax specialist. Who also then has the ability to give financial advice. Because that’s really the higher end of the spectrum of knowledge in so far. As all the moves you’re making in your business. And then underneath that. They also have the Certified Financial Planner tag as opposed to like having just being the certified financial planner.

Pat Darby:  I would say this, the the mistake that I made when I was right out of college, because I think we talked about this last time we were together like in college, my degrees in biochemistry, like I switched into, like after failing on my own first business and learning all this stuff. That’s when I went into finance.

Pat Darby:  And I learned all these things over the last 13 years. But I had, excuse me, I had a CPA, and I had a financial advisor. Neither of them specialized in business owners. So that was, so it’s not the person. It’s their specialty, the kind of like we talked about in the beginning here.

Pat Darby:  Like, there’s, I wouldn’t want to hire me. If I was an executive at Google. And I have all these complex stock options. Like I have a colleague that he only works with Google executives. That’s all he does, because he understands their stock options better than anybody.

Pat Darby:  So for. So for them, he’s the best person on the planet to help them whereas I wouldn’t be very helpful. Because I don’t know their plan structure. So regardless of who you work with. I would make sure even if they’re either even if they’re at a big company. I would make sure their specialty is business.

Steve Washuta: Yeah, do you? Because you and I are talking that’s a question that is should be fine to ask, right? It’s not rude saying, Hey, do you work with business owners? Right, just like someone would ask me. Hey, Steve, do you work with 63 year old’s who have COPD, you know. So yeah. I have no issue working with someone to use COPD. someone says, Hey, Steve, can you help me get up on stage? I want to gain 30 pounds of muscle via bodybuilder. It’s like, well, that’s not really what I do right now. So I’m not I’m not your guy. I’ll send you to somebody else.

Pat Darby:  I don’t think it’s a rude question. And I think the people that you want to work with. They will probably make it abundantly clear because you don’t want to sit down and say to someone. Can you work with business owners? Because they’re like, oh, yeah, I’ve got some business owner clients.

Pat Darby:  But that doesn’t necessarily mean anything because they might just be like, Yeah, I have their 401 K and so yes, there business owner, I helped them with a 401 K, but they are not doing tax strategy and they’re not proactively and say that same thing like with accountants, you might work with business owners. But if they’re not helping you implement the S cor. Then you’re potentially doing something wrong. Or it’s putting a lot of complexity back on you as a business owner.

Pat Darby:  So I would I would ask that question, because, for me work of business owners, the one of the biggest expenses that we all run into as business owners is taxes. So if that’s not like a driving force. If that’s not like their pure expertise, then like, I got the best investment strategy in the world. But if you’re getting clobbered on taxes. Then I don’t know if if I would want to work with someone like me as a business owner. Because that is by far when your biggest expense, if not the biggest,

Steve Washuta: I don’t want to have to hire all these different people, because then there’s a communication problem, right? So it’s like, oh, I have someone who just specializes in my taxes. And then someone who specializes in making sure you know, my business is running properly.

And I’m, you know, forecasting the proper things on the roads. Like, Okay, well. Then these people have to collaborate on top of you. And that just causes like, that game of telephone sometimes.

So it seems to be easier, like you said, to just do your due diligence, right? Whether it’s someone like Pat or someone else. And like this isn’t your This isn’t you go going to get Thai food, this is a big deal. Like, you can’t just order from the first place. Like you have to sit down. And make sure that they meet all of your all of your criteria and requirements.

And essentially, like interview, your certified financial planner, tax specialist to make sure that they’re perfectly fitted for you. Because ultimately, the goal is to work with them for life. You’re gonna be working with someone for life. You want to make sure that relationship is is appropriate.

Pat Darby:  But they also they don’t have to do, I don’t want to give people the wrong impression. They don’t have to be, quote, unquote, a jack of all trades, you don’t have to do everything. But you want someone like that, at least in my opinion. You want someone like that to quarterback it. One of the things that actually sent me down the tax road. It was because I was studying it on my own. Just because I wanted to better understand it.

Pat Darby:  And this was, this was pretty early on in my career. I was reviewing a client’s S corp, and something didn’t look right to me. But I didn’t have the courage to step up to their CPA. Because I was like they definitely know like, this couldn’t be this. I’m wrong. Like, you know, like I didn’t have I was so insecure about it. I was like, You know what, I’m gonna get all my IRS tax designations.

Pat Darby:  So that basically I was just so I wouldn’t be insecure about going up to a CPA and like, not speaking their language or asking a stupid question. And then I’ve been doing tax so long. I’m like, Oh, my God. CPAs don’t really know. Like, there’s so I shouldn’t say it that way. But they’re so focused on what they’re doing. Which could be like, all I do is file your taxes, which is totally fine.

Pat Darby:  But they’re not necessarily like picking their head up and being like, what’s actually going on in the business? Like, because and people might be shocked to hear that. But a lot of times, accountants are buried with paperwork. So they’re like, they grab your balance sheet, they grab your profit and loss statement. They grab your 1090 nines. And whatever other expenses. They fill out the paperwork there. They don’t necessarily have that time or that interest in helping you architect things.

Pat Darby:  But I am not, I don’t do everything. Like I said, if if a client comes to me, and they’re like. I’m teaching them how to put money into a 401 K. So that they can buy real estate with it, I have nothing to do with the acquisition. It’s just helping them from a tax perspective. Get the money into the tip of the spear. Then they go hire their their specialists, like one of the people I work with. They’re an expert in covered call strategies. Like that is not my specialty. But I have clients that go over there when they need that specialty, but I’m quarterbacking it.

Steve Washuta: Yeah, that makes a lot of sense. And again, to another crossover in the industry. That’s why we network in our industry. That’s why we learn a little bit about everything. But we have our specialty and we network so that we can send people to the appropriate place.

And ultimately, that comes back in our favor, right? I’m sure your client that you send over to them. The guy who does the calls. is really not only impressed that you know all of these people. Because it is impressive when people have like this Rolodex of connections in the industry.

But it’s also if they know that, ultimately, you care more about them than your ego. It’s like could Pat try to solve the problem. Sure, but he knows that someone knows it better. So why am I gonna waste my time? If I know someone who already knows it better.

And I think that’s a bigger problem in the fitness industry because there’s a lower barrier to entry. So people don’t have the education that necessarily you do all the time. They think they can handle everything. It’s always the least educated people think they can handle the most.

So there’s there’s just complicated problems that they can handle. Their client has type two diabetes, and they’re like, Oh, I think I can handle this. It’s like why? Because you got a 12 hour personal trainer certification degree.

Now you’re going to handle your clients like diet and they have type two diabetes. Like now, you have to send them up the ladder. And network in order to really care about their long term health. And for Pat, he cares about this clients long term wealth, and that’s why He networks.

Pat Darby:  Yeah. And in that scenario, that particular trainer, it could be. If he is comprehensive, he could easily be like. Well, I’m still going to do your fitness and this and your sleep and all the other things. But like we’re going to outsource the nutrition because this guy or girl is the expert.

Pat Darby:  Like, that’s the way I see myself like, I’ll quarterback, the whole thing, like you get back to being a CEO and growing your business, I’ll keep the professionals that we bring on or that you already have, like, we talked about 20 minutes ago, like, focus on that one big goal, like we all have to be rowing in the same direction.

Pat Darby:  And most business owners either don’t have the time, or, like, fast or Rewinding back to me, like, in the beginning of my career, I didn’t have the courage to step up to some people cuz I’m like, Oh, my God, you’ve been doing taxes forever, like, what do I know? But now you get to a point where like. You know what you’re doing you like if a CPA pushes back and like, this is the goal.

Pat Darby:  And this is why what you think you are missing things because you don’t know the big picture. But I can have that conversation because I’m quarterbacking the whole thing. Whereas a client might just be like, I’m here in my financial advisor, say this thing. I’m here my CPA, say this thing.

Pat Darby:  And now you’re stuck. Because you don’t know how to decipher that information, per se. Same thing a client would do in fitness. Like my trainer says this, my nutrition says that now what do I do? So it’s not happened at all? It’s confusing.

Steve Washuta: You need someone that happens all the time. Unfortunately, like we talked about. You know, to sort of wrap this up. It’s the things they’re getting in the news, right? There might be like. Oh, your client said the same thing that my clients say. Like, why aren’t we doing this move? I heard this in the news.

And then they have some other potential professional, that’s a cousin of your industry. You know, for me, it could be a physician. It could be somebody else along those lines who tells them to do something, right.

You have all of these people. But if you don’t have one person sort of quarterbacking that you trust. You are always going to be asking those questions. And you’re never really going to have that that plan where everyone’s working towards one goal.

And I think it’s it’s important to have that one goal in mind to find that quarterback. Someone like a pat, in the in the in the health industry, excuse me in the wealth industry.

And for me, it would be in the health industry. And to make sure that you’re not the one because it’s a waste of time, business owners. Like you talked about want to work, you know, on the business, not in the business. And if you have to keep calling everyone and doing this, it’s you’re essentially losing money. Time is money.

Pat Darby:  Especially if you get conflicting advice, because then you’re just paralyzed.

Steve Washuta: Yeah, I’ve certainly been there. Pat, this has been fantastic information. As usual. Thank you again, so much for differentiating all the different financial jargon and terms that were always confused. With the difference between a tax advisor and a certified financial planner. And then also talking about some really sort of honed in strategies that we can use.

Why don’t you let my listeners know where they can find you specifically. Let’s say if they want to work with you or if they have individual questions for you.

Pat Darby:  Sure, I’m most active on Instagram at the pet Darby. I also have a podcast. Where I give a lot of like pretty detailed information on tax stuff for business owners. Build your wealth muscle on all the podcast platforms.

Pat Darby:  That’s probably the tip of the I guess you could email me my website for my new company which is I originally had all this out of my one company Darby business visors. I’ve separated them for simplicity for clients. It’s Darby wealth planning which does all that. And then since city CFO here in Vegas that we take on the virtual CFO. So I don’t have a website yet for that just because in this day and age. I don’t know if I even need it.

Pat Darby:  I’ve had people like just use the link tree don’t need a full website these days. But anyway, so at the pet Darby or you can email me at Darby or pat at Darby va.com.

Steve Washuta: I will list all that in the description below. My guest today has been Pat Darby Pat, thanks for joining the Trulyfit podcast.

Pat Darby:  Thank you for having me.

Steve Washuta: Thanks for joining us on the Trulyfit podcast. Please subscribe, rate, and review on your listening platform. Feel free to email us as we’d love to hear from you.

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Thanks again!

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