[00:03:35] Mitchell Baldridge: That helps you build wealth, and then you use depreciation too. Compound quicker and hopefully defer taxes for a long time. So, yeah, there are three main examples I’d think of. There is just your kind of core real estate indicators like Nick Hubbert talks about this all the time. He has successful businesses on the side, and then he has this core business of real estate investment that allows him to defer taxes like crazy.

[00:04:06] Mitchell Baldridge: A closer-to-home example would be, I’m a dentist and I own a dental practice, and we buy a building that we operate out of. We have this expense in our life; it comes every month, called rent. Well, we can pay rent to ourselves, get a chunk of land, and grow our wealth. One more example I think of is a client I have, where the husband works for one of the big Fang companies out there, makes a million dollars a year, and the wife runs kind of small real estate syndications and manages their real estate as a real estate pro.

[00:04:48] Patrick Donley: So I kinda want to pause there. Can you explain a little bit about what a real estate professional is? There’s a lot of, we’ve got kinda like beginning intermediate listeners and so like what’s the definition of a real estate professional? 

[00:04:59] Mitchell Baldridge: So yeah, real estate’s awesome because you create all this kind of phantom expense right up front called depreciation in the year you buy this property.

[00:05:10] Mitchell Baldridge: But the problem offhand is that real estate income is deemed passive by the IRS and the tax code. So there are different types of income: active income, which is like, “Hey, I go to work and earn a paycheck, or I own a business”; there’s passive income, which is like, “I don’t work in this business”; and then there’s portfolio income, like interest you make off of stocks and stuff like that, and capital gains. Passive losses cannot normally offset active income unless you are a real estate pro.

[00:05:47] Mitchell Baldridge: To be a real estate pro, you have to spend 750 hours or more than half your time each year working on or in real estate, in the business of real estate.

[00:05:59] Mitchell Baldridge: So that’s the bar you need to clear to be able to employ these strategies in your life. Therefore, you have to find ways to get there.

[00:06:10] Patrick Donley: So it’s seven 50 hours, half your working time. It could be anything real estate related. It could be managing real estate, or renovating real estate. 

[00:06:19] Mitchell Baldridge: Acquires, constructs, reconstructs, manages.

[00:06:21] Mitchell Baldridge: Yeah. I mean, so for example, being a general contractor would be a great example. You wouldn’t necessarily think you’re in real estate, but you are a real estate pro. There’s this IRS publication 925 that breaks this down in detail about passive activity losses. 

[00:06:39] Patrick Donley: I wanted to get into your thoughts on just owning a small business and just like the available tax deals, the tax strategies that are available to preserve some of your income.

[00:06:50] Patrick Donley: Do you think owning a small business, whether it’s the side hustle or even something larger is something that most people should do if, are they missing out? Like by not taking advantage of the kind of IRS tax codes that are the benefits that are in place there? 

[00:07:03] Mitchell Baldridge: Yeah, I mean the Retwit thesis of kind of starting a business, buying real estate all cash, no tax, is one of my core theses in life. But even probably ahead of that would be owning a business as the path to lower taxes and wealth.

[00:07:22] Mitchell Baldridge: And it’s just true. It’s not for everyone in the sense that there are just people who can’t do it for one reason or another because of some instance in their life. I wrote a thread a while back about a client of mine who’s a W-2 employee, making $6 million a year working in high finance, and that guy’s not a W-2 loser, right?

[00:07:48] Mitchell Baldridge: So all this on Twitter, there’s no place for nuance. All this stuff gets convoluted, but I think owning a business is this path to lower taxes and a path to wealth. And there are a bunch of reasons why. The main reason, that I used to have a job, was I was an accountant. I showed up at an office downtown, drove my car to work, sat in my cubicle, and hammered away at taxes.

[00:08:18] Mitchell Baldridge: So I would go earn money, pay tax, and then go home and start paying my cell phone bill and personal development expenses that my company wouldn’t reimburse. And I would have these kinds of fringe expenses that were really for me and my business, the business of me, that I couldn’t deduct.

[00:08:39] Mitchell Baldridge: Well, when you go into business for yourself, all those go above the line. You earn money, you pay for everything, and then you pay taxes. So that’s the other thing, along with benefits plans, and the idea that you can then run these asset strategies. If you’re just a guy who makes $6 million at your job, that’s awesome, but you can’t go buy a building and work out of it and say that it’s a business asset.

[00:09:11] Mitchell Baldridge: It just doesn’t work that way. And then the last one would be succession planning. You can’t sell your job. I mean, you probably have some deferred comp or you have some kinda ways to get out of this partnership that you’re in, or you have some kind of golden parachute at the end. But regular folks, you can’t just say, Hey, I want to do something else here.

[00:09:32] Mitchell Baldridge: Hand me $2 million and I’m going to take a little time off and go work on the next thing. You 

[00:09:38] Patrick Donley: can’t sell the job. Right. So yeah, I’ve got a buddy that was a hired nurse, CFO, at a large insurance company in Columbus, and it’s like once he stopped there, like it was over. So there’s no more income coming in.

[00:09:50] Patrick Donley: So what about retirement plans, like for small business owners, what are some of those that you would recommend for a small business owner to explore and utilize? 

[00:10:00] Mitchell Baldridge: Yeah, I mean the big difference is if you have employees versus if you don’t have employees. Because once you start bringing on other employees, you can’t run these crazy retirement plans that really serve you as the owner and then have them. In my experience, employees don’t value these huge matches and contributions the way owners do.

[00:10:23] Mitchell Baldridge: Because employees are just like, “Give me my money, man. I showed up to work. I want you to pay me.” 

[00:10:31] Patrick Donley: Let’s talk about, can I ask you about, like, I was listening to the Smart Friends episode, and you were talking about a breakout with, I think David Perel, the writing passages guy, and you’re talking about the power of writing, and I think the thing that you were most interested in was like the creator economy.

[00:10:49] Patrick Donley: It seems like that’s like an interest of yours, like the creator economy and solopreneurs for a solopreneur. What are some things I think of a guy like Justin Welsh, right? He’s kinda like the solopreneur kind of guy, right? Who’s killing it? And what are some things that somebody that is cloning him or modeling him, what are some like retirement things, or tax strategies that solopreneur should be looking at?

[00:11:11] Mitchell Baldridge: Yeah. I mean, those are folks who, yeah, do not have this principal-agent issue of them. They’re their employee. They have no other kind of mouths to feed in that sense. So they can go set up this Cadillac retirement plan and Cadillac Health benefits and Cadillac, everything that completely serves them.

[00:11:32] Mitchell Baldridge: So, There are different models to do it. People do set plans and self-employed pensions. People do solo 401Ks. People do mega backdoor. Roth 401Ks. There’s a lot of information on the internet and a lot of it, and go do your research and work with a planner. A lot of these plans will allow you to either get.

[00:11:55] Mitchell Baldridge: $65,000 of deferred money into a qualified plan or you can pay tax and get a big chunk of money into a Roth plan that can just go compound tax-free forever, theoretically. And then I mean, you even get into like defined benefit pension plans that big companies would have that can allow.

[00:12:17] Mitchell Baldridge: Certain people to get a couple hundred, 2, 3, 4, 5, $600,000 deferred every year, and then you can go start investing out of that. Yeah, 

[00:12:29] Patrick Donley: it’s huge. I know that you did a small business tax workshop with Nick Huber, a sweaty startup recently, but I wanted to hear for the, like our listeners that didn’t get a chance to listen to it, weren’t maybe aware of it.

[00:12:40] Patrick Donley: What were some of the top two or three takeaways from that event that stand out to you that somebody as a small business person or as a real estate investor should know or should like to learn about? 

[00:12:51] Mitchell Baldridge: Yeah, no, a lot of the things we just discussed taxes and benefits and assets and succession and all that.

[00:12:59] Mitchell Baldridge: One other thing, as we talked about salt cap workarounds. You know that like in 2017, the Tax Cuts Jobs Act hit. You used to be able to deduct all your state and local taxes. Now you can only deduct $10,000. Business owners now have this kinda little backdoor that a lot of states give you where you get to deduct your state.

[00:13:19] Mitchell Baldridge: Income taxes, like the qualified business income deduction. I post about that, I have this kind of annual post. 

[00:13:27] Patrick Donley: Explain that in more detail if you would. The qualified business income, 

[00:13:31] Mitchell Baldridge: there’s this same thing, the 2017 Tax Cuts Jobs Act. They do this major tax reform like they hadn’t done since the 1980s.

[00:13:42] Mitchell Baldridge: One thing they did was lower the corporate tax rate from 35% to 21%. And so they threw this bone to small business owners saying, Hey, we’re going to give you this 20% deduction out there on Q B I qualified business income, which Fiona Partnership or an SS Corp. A lot of the income that spits out that would qualify.

[00:14:04] Mitchell Baldridge: And so there’s a couple issues and there’s a couple of qualifications and workarounds that. I see people come in, prospect clients who are consistently underoptimized, where I just say, Hey, we could have gotten you a $400,000 deduction. We could have gotten you a 20% deduction on your $2 million of EBITDA, but for, you didn’t pay yourself a bonus or you didn’t aggregate this stuff.

[00:14:31] Mitchell Baldridge: Right? And so there’s just little hidden landmines and little levers you can pull different places that. You might not even know about it, but structuring the right way or kind of moving things in the right order can make a meaningful impact. I mean, that’s 8% of your effective tax rate out there. That’s just laying on the table.

[00:14:54] Mitchell Baldridge: I. Well, I think 

[00:14:55] Patrick Donley: it’s really hard as an investor, real estate investor, or a small business owner to stay on top of what is available and if your accountant isn’t, and it’s even hard for an accountant to stay on top of it, I think you would probably agree. Like there’s just so much out there. I think Chris Powers made the point that as an investor, he’s focused on real estate and you’ve going to find somebody to, know the tax codes to take maximum advantage of what’s out there.

[00:15:21] Patrick Donley: I wanted to hear a little bit about like just common, I guess, the biggest mistakes that you see real estate investors make on just missing out when they’re doing their taxes and potential savings that are out there that they just, I mean, you mentioned the one here, but like, are there others that like people aren’t taking advantage of?

[00:15:36] Patrick Donley: I know in my case, and we’re going to get into this, cost segregation stuff is something I’ve never done and it, I feel like I’ve been missing the boat a little bit, honestly. I brought it up to my accountant and he kind of explained it, but it wasn’t, certainly wasn’t something that he urged me to pursue.

[00:15:52] Patrick Donley: Yeah, 

[00:15:53] Mitchell Baldridge: and I think here’s the setup, like accountants over the last three years have been, this thing happened in March of 2020, at least in America, Congress passed all of this kind of like emergency stimulus legislation. And made accountants and the I r s the like vector for stimulation distribution to small businesses in America.

[00:16:16] Mitchell Baldridge: And so it, it screwed everybody up ’cause everybody had to go learn a lot of new rules and figure out the best way to get these kinds of benefits, whether it be. P loans or e r c credits or all of that. They made the accountant, the kind of chief officer of stimulus to small business in America.

[00:16:38] Mitchell Baldridge: But I mean, this has happened. Accountants have always had the wrap of, hey they’re not proactive and they’re. Too conservative and they don’t understand my business and it’s a hard job, man. So with that being the setup business owners, yeah, I want to focus on my business, I want to focus on my investments.

[00:16:57] Mitchell Baldridge: I don’t want to focus on my tax strategy. You have to either find a partner in your business who can help you operate and optimize all of that, which is. Hopefully your accountant and you also frankly just have to buck up and figure it out yourself. ’cause you raise the money, you either raise the money from yourself or other people and you have to care.

[00:17:18] Mitchell Baldridge: So yeah, like when I started tweeting in October 2020, and I’ve gotten a lot of this from a lot of people, I started breaking down these strategies. My first tweet was all cash, no tax or run bonus depreciation, run cost se as a real estate pro. And people started of the woodwork going, what is this?

[00:17:38] Mitchell Baldridge: And had been operating in real estate for 15 years, having never run cost segments, never run bonus. It got really sweet in 2017. If you’re not taking it, you said you feel like you’re missing the boat. It’s kind of true. So, The biggest mistake people make is they don’t have the right partner, or they’re not focusing enough on tax.

[00:17:59] Mitchell Baldridge: Like in some ways you go, well, the tax is the tax and it is what it is, and I’m just going to pay it. But you know that joke, don’t leave a tip. I mean, 40 to 50% of your bottom line business income is going to be paid to the government in the form of taxes like it’s worth getting, right? It’s the biggest line item expense you’ll have.

[00:18:22] Patrick Donley: One thing I appreciate about you just, and I think Chris made this point, is you’ve made tax and tax planning, financial planning, interesting. And it’s been super useful to me. As I think probably I heard, I found out about cost segregation. I think I started learning about it maybe last summer.

[00:18:38] Patrick Donley: I want to say between you and Nick, like just hearing about it. And I kind of wanted to jump in a little bit more to cost segregation. For our beginning listeners who don’t know what that is, just at a high level, explain what a cost segregation study is and then the benefits of it, like why somebody should be doing it.

[00:18:58] Patrick Donley: Yeah, so 

[00:18:59] Mitchell Baldridge: a cost segregation study is an engineering study like you would get a survey or an appraisal, or a building inspection. It’s a report. In the end, that takes the building that you just purchased and blows it into its component pieces, and tags a tax life onto every component of the building. So yeah, look, think about one of those blueprint diagrams with the entire thing exploded, and in its kind of separate parts.

[00:19:28] Mitchell Baldridge: And the reason we do that is that five-year, seven-year, and 15-year property, which for example, would be. Parking lots and refrigerators and certain accessory equipment and accessory plugs and outlets. And there’s this whole litany of the type of qualifying property that is not part of the building but is a separate type of property called 1245 property.

[00:19:55] Mitchell Baldridge: And so this 1240 property, remember 20 tax cuts jobs Act. They renewed 100% bonus depreciation for all 1245 properties and looped in the idea that, yeah, there’s one more point of clarification they opened up bonus depreciation to used property. It used to only be that you would build a new building and it would be qualified for a bonus.

[00:20:22] Mitchell Baldridge: Well, now you can go buy a 30-year-old storage facility in a cornfield and bonus depreciate. 40% of it. So what that means is that as you isolate these components of your building that are five, seven, and 15-year property, you can add those up and bonus depreciate them in year one. So you can get a hundred, or in 2023, 80% of that expense accelerated to year one and create.

[00:20:49] Mitchell Baldridge: Like I mentioned earlier, this huge phantom expense. So if I were to just walk through a case study, let’s say you bought a million-dollar office building some portion of that for easy math. Let’s just say 200,000 was land. So 200,000 is land and 800,000 is building improvement. Well, for an office building, it would normally be depreciated straight line over 39 years.

[00:21:15] Mitchell Baldridge: So you know, 2% a year. Or two and a half percent a year, let’s just say. And in that easy math, that’s $20,000 a year on this $800,000 building. So you bought a million-dollar building, you put $400,000 down, and you took a debt of $600,000. So 400 K went outta your pocket and you’re going to get $20,000 a year of depreciation for the next 40 years when you employ the strategy of cost, segregation, and bonus.

[00:21:48] Mitchell Baldridge: We’re going to take that $800,000 of building improvement and we’re going to go find 30% of it. Yeah. Easy math, 30% of it is five, seven, and 15-year property, so you’re going to get a $240,000 deduction in year one instead of a $20,000 deduction. So it just so happens that the year $400,000 leaves your bank account, you’re greeted with a $240,000 deduction.

[00:22:14] Mitchell Baldridge: And so the levers are, How much land is in the property? How much of the building is deductible? Is it 25% or 35%? And then how much debt did you use to buy the property? Because if you bought it with 90% debt, then you just put a hundred grand down and you’re still getting two 40 back as a deduction.

[00:22:34] Patrick Donley: Year one. You’re bringing up a lot of questions here for me. One of them is, that I had Jonah Weiss on the show, and he mentioned that when he brings up cost segregation to investors in real estate investors, accountants, and things like that in general, people may have heard of it, but in general, they don’t know that much about it and don’t utilize it.

[00:22:54] Patrick Donley: So, I mean you just ran the numbers here on this. It seems like an absolute no-brainer, easy sell. I don’t understand why it’s not more commonly done. I’ve got a father who’s been in real estate his entire career. He is 80 years old, and I asked him about cost segregation. Hey, he didn’t know about it and it seems like this is often the case.

[00:23:13] Patrick Donley: So I wanted to get your thoughts on that. Like, why 

[00:23:15] Mitchell Baldridge: is this, yeah. I read a trade piece that said three to 5% of people who could qualify and benefit from cost segregation use the strategy. So that seems to line up with what you’re saying. So, yeah, I mean we’ve had the benefit of having a Twitter platform through Nick and through me and through the at re seg account, which all we do is educate the public in this interesting way of when you tell a real estate investor, Hey, you can pay less tax and defer tax and compound quicker.

[00:23:51] Mitchell Baldridge: People are excited about that. And then people start to look into it and then people start to understand it. And I mean, it’s not for everybody. And there are downsides. The downsides are, depreciation is real. So you’re taking all this depreciation upfront as a phantom expense. Meanwhile, over the next 40 years, your building’s going to turn to rubble if you don’t fix it.

[00:24:11] Mitchell Baldridge: So you, you’re going to need a new roof, you’re going to need to repay the parking lot. Recapture is real. So if you sell the thing in three or four years, 

[00:24:19] Patrick Donley: so in that case, if you’re going to sell it in three to four years, you would not recommend doing a study, correct? 

[00:24:26] Mitchell Baldridge: Yeah, you have outs, you have, well, you may want to do it just because again, the year all the cash leaves your bank account, you get the deduction.

[00:24:35] Mitchell Baldridge: Then the year the cash comes back, you pay the tax. So like I would rather pay tax. I’d rather get a deduction as cash leaves my account, and then pay tax when cash comes back into my account. It becomes kind of like a retirement account, but it’s just non-qualified. You’re, it’s just your money.

[00:24:54] Mitchell Baldridge: But it’s that same idea of like, I put 20 grand into a 401k. It grows and grows, and then the day I pull it out, I pay the tax on it. You’re just deferring tax. But deferring tax is powerful. Yeah, 

[00:25:08] Patrick Donley: Absolutely. So you and Nick have started this company re Coste. I wanted to hear a little bit about that, like how you guys ended up partnering.

[00:25:16] Patrick Donley: I wanted to get into, I heard Nick actually on our interview, he talks about the three different ways that companies can compete. One was on price, one on quality, and one on speed. And I wanted to hear what you guys think about that. Like how are you competing in this space? What’s your competitive advantage?

[00:25:30] Patrick Donley: Just kind of go into a little bit about how you guys teamed up in that partnership. And then just your competitive advantage in doing the studies. 

[00:25:39] Mitchell Baldridge: Yeah, so I’ve known Nick for several years and Nick was the guy who dragged me on Twitter and has dragged me along to have the following I have today and helped me out a lot.

[00:25:50] Mitchell Baldridge: And Nick’s a good friend and a client of Nick and Dan at Bolt Storage. And so we had talked about. I’ve always liked this business of EG because it’s when I take on an accounting client, I’ve taken on their business and their personal and their state and their grandma and their grandson, and just their whole world.

[00:26:11] Mitchell Baldridge: Whereas EG is just like, yeah, you have to be an expert. You have to know what you’re doing. But it’s one line item on one tax return. You know what you’re ultimately boiling down this whole. Business comes in to be a very close-ended project for better or worse. So I’ve always liked the business and Nick has been a power user of the product.

[00:26:33] Mitchell Baldridge: He’s liked the product and then he’s seen me espouse the benefits he has as well. And then he’s started referring a lot of people to a cost-set company. Well, one day we woke up and said, Hey, let’s start our own. And so we immediately started, we hired an engineer and a salesperson, and we developed a process.

[00:26:54] Mitchell Baldridge: My wife, Melanie, is the c e o of the business and she runs the day-to-day and she takes care of all the big stuff. But I think, it’s somewhat of a commoditized product, but our kind of key advantages are, one, we have a platform to educate the end user of which 95% are either uneducated or have.

[00:27:15] Mitchell Baldridge: Become educated and decided not to do it. And then two, we have this access to kind of talent and labor and systems that build off of Nick’s business and off of my business. And we’ve come together to build this awesome flywheel of how to get these things done well. And you 

[00:27:35] Patrick Donley: guys have grown quickly, right?

[00:27:37] Patrick Donley: You’ve got 26 employees, something like that, maybe more by now. And revenue’s kind of gone off the chart. 

[00:27:44] Mitchell Baldridge: Yeah, I mean we got yesterday the notification of like, Hey, it’s your first Twitter anniversary, and I sent it to our group chat and was just like, holy smokes. We’ve done a lot in a year, and so have I.

[00:27:56] Mitchell Baldridge: Yeah, it’s been an up into the right curve and we’ve hired and yeah, we’ve built a whole team and we’ve built a whole system. We’ve iterated probably four times in the last year of just kind of V one, V two, V three, V four, so it, it’s been wild. 

[00:28:15] Patrick Donley: So I wanted to hear about that, just some of the challenges of, ’cause I’ve heard Nick talk about like, starting the company and at one point it was like mostly virtual.

[00:28:23] Patrick Donley: I don’t think he is, I’ve met you, but I think in general, like hadn’t met a lot of the guys that are working, people that are working for you. Talk about some of the challenges of running a company like that, whether you want to call it virtually or from afar. Like what’s that been like? I’m 

[00:28:37] Mitchell Baldridge: curious to hear.

[00:28:38] Mitchell Baldridge: Yeah, so it’s been entirely kind of distributed, and man, the challenges are you have to have leaders in the right seats who have the genuine interest of the company. So we’ve been lucky to have kind of our lead engineer who’s just the first guy we hired. We got really lucky, and he stepped up and we had the lead sales guy, and he.

[00:29:02] Mitchell Baldridge: Stepped up. The real challenge in building that quickly is like, I don’t know if you’ve ever read that book, the Goal that talks kind of about businesses. It’s that it’s just like you’re chasing bottlenecks everywhere. Like sales immediately started coming in, and then we had a production bottleneck, and then we’ve finally built production into this perpetual.

[00:29:24] Mitchell Baldridge: System where like, I feel like we could scale up to anything at this point in that we have great people, we have great systems, we have great processes, and so then now sales become the bottleneck of like, oh, well we now have this huge team. We now have this huge machine that just turns out to work. We going to sell into it.

[00:29:42] Mitchell Baldridge: So I feel like you’re always chasing something of either more sales or more systems and labor to get the thing going. And it’s just happened so quickly. It’s this ping pong ball, yeah, that’s 

[00:29:55] Patrick Donley: interesting. ’cause I would’ve thought the opposite. I would’ve thought the sales would’ve been like, you have more sales than clients, that you know what to do with.

[00:30:02] Patrick Donley: And the hard part is like producing the actual study itself. That’s initially how it was. 

[00:30:08] Mitchell Baldridge: It was until it wasn’t until we were like, oh, now we have this method of how we do this, and we have this system of how we get on the calls and the system of quality control. And now, yeah, I mean we have this.

[00:30:23] Mitchell Baldridge: Kind of amazing ec vending machine where you input your information and you get on this virtual site visit, or we fly out to your building and walk around and like we get it done and we get it done on time and we get it done well, which is awesome. But yeah, so now our ambition just never seems to end.

[00:30:42] Mitchell Baldridge: So you know, now we go, well, we need to grow, we need to go more. I heard Nick’s 

[00:30:47] Patrick Donley: an interview with Pomp, Anthony Pump, I forget his, how you pronounce his last name, but you know, he threw out some numbers that were like, wow, pretty sizable what the company his long-range view. Probably yours as well of what the company could do.

[00:30:58] Patrick Donley: So it’s pretty cool, like pretty exciting. 

[00:31:01] Mitchell Baldridge: It’s just been a blessing for a, I mean, it’s just like I’ve never started something that just worked immediately. Just like that. Yeah. I think my first business, like when I became an accountant I sent an email to 200 friends and family, and I got to work and kind of never turned back.

[00:31:19] Mitchell Baldridge: And this is the same way. It just was like, there was no fighting it, it just worked. I mean, 

[00:31:25] Patrick Donley: like I said, it seems to me like an easy sale. Once you explain it and educate people and people realize the numbers, like what? It doesn’t seem like, it seems like a no-brainer to me. Yeah. The 

[00:31:38] Mitchell Baldridge: a proposal is literally like, Hey, pay us $5,000 and we’re going to save you $500,000, a hundred to one.

[00:31:45] Mitchell Baldridge: Do you want that or not? 

[00:31:48] Patrick Donley: And it goes back to like what we started the episode off with starting a business, buying real estate, employing tax strategies, enjoying the cash flow, and then paying a little to no tax. It seems like that’s how you’re doing it in your own life. You’ve got the cost said company, you’ve got tax credit Hunter, I believe it’s called, and then you’ve also got better bookkeeping.

[00:32:06] Patrick Donley: So let’s, I wanted to hear a little bit about those other businesses too. Maybe better bookkeeping, if you want to talk about that or I’ll leave it up to you. 

[00:32:14] Mitchell Baldridge: Yeah, so Better Bookkeeping is something that I’ve been working on for about two years, which is a, we rebuilt a tax software from nothing. So here’s the principal story.

[00:32:26] Mitchell Baldridge: A client came to me, he was a real estate private equity guy. He kept all of his books on a spreadsheet and it was well done. It just was laborious. He didn’t like to do it, and it was a pain in the butt. He’s typing in receipts every day. And I just say, okay, listen, we’re going to take this off your hands.

[00:32:43] Mitchell Baldridge: We’re going to get you into the big Intuit QuickBooks product out there that everyone uses. And we got ’em into the product and was trying to show ’em how to use it and all that. And it was like, I. Legitimately a worse product than the system he had already built, but it was because it just was oversized for his needs.

[00:33:03] Mitchell Baldridge: And so I started to think, well, how do I get bank feed at the front end and effectively a spreadsheet at the back end? And how do I offer my tax insights? ’cause I get everyone on this uniform system. And so that’s how Better Bookkeeping was born, and it’s turned into this productized service.

[00:33:20] Mitchell Baldridge: It’s done for your bookkeeping, tax preparation and tax kind of consulting for the Justin Welch solopreneur type people or the small business owner or venture-backed kind of early-stage founders. And we’ve scaled that kind of in a whole separate venue, but using a lot of the same tactics that we use to scale.

[00:33:40] Mitchell Baldridge: Ari Sig. 

[00:33:42] Patrick Donley: So you’ve got a ton going on. You’ve got, I mean, a ton. I, so I kind of wanted to just hear about like an average day, like how you’re spending your time, like what are you focusing on. I also wanted to hear what you are most excited about, in terms of the different projects you’ve got going.

[00:33:57] Patrick Donley: Which one do you feel has the most 

[00:33:59] Mitchell Baldridge: potential? I think ultimately this distribution engine at the front is the biggest thing that I like. The most valuable thing I can spend my time on is writing threads that clearly explain tax ideas to people, or writing a newsletter that clearly explains tax ideas to people.

[00:34:18] Mitchell Baldridge: That seems to be what people connect with or financial ideas as they were. So, I mean, I’ve seen people who I admire a lot ahead of me. Like Peter Malu can create a plan or Andrew Wilkinson with Tiny, and you ask What I’m most excited about, I’m going to just give you this cop-out answer of I’m excited about everything.

[00:34:38] Mitchell Baldridge: ’cause I believe all these are puzzle pieces that fit together. Distribution at the front to when all of these pieces come together and they’re all doing $75 million a year in revenue, they all become big enough together they all become big enough to be merged into some huge vehicle to come together to, to be this awesome thing.

[00:35:03] Mitchell Baldridge: So that’s how I’ve looked at it and. People say to focus on one thing, and it seems like I’m focused on a lot of things, but actually, I feel like I’m focused on one thing if that makes sense. Which is building the best kind of accounting firm that has ever existed for business owners and entrepreneurs. I.

[00:35:23] Mitchell Baldridge: That makes sense. I forget 

[00:35:24] Patrick Donley: how David Center phrased it, but 

[00:35:26] Mitchell Baldridge: like a maniac on a mission, maniac 

[00:35:28] Patrick Donley: on a mission, which I liked, but then I started thinking about, same with myself. I’ve got a lot of different things going on and I thought like, well, maybe I should just be a maniac, a mission on just one thing.

[00:35:37] Patrick Donley: So 

[00:35:39] Mitchell Baldridge: yeah it is hard to say like, what is focus you read a book like The Power Broker with Robert Moses. I talked about this in the last pod, maybe with David and Eric, but like, That guy cornered New York. Like you, you don’t do that by working on one thing. You have to work on a lot of things all at once.

[00:35:56] Mitchell Baldridge: So, but you also have to be tremendously focused, so it’s hard to say. 

[00:36:02] Patrick Donley: I wanted to talk, you mentioned like the most important thing you can spend your time on is distribution and creating content. So I wanted to get into a little bit about Twitter. You did a great episode with Chris Powers. You and Nick did three or four months back, I would say, but you had said that Twitter has accelerated your careers like 20 or 30 years, something like that.

[00:36:21] Patrick Donley: And Nick, I heard him say something about how without Twitter, he’d still own a moving company and a handful of self-storage facilities. I just wanted you to talk a little bit about your experience with Twitter, just how it’s benefited you, how you think about it, and then a little bit about how you like other people, like who you know, who don’t have 60,000 followers or whatever your number is at this point, how they can create useful content, but that you have done.

[00:36:48] Patrick Donley: Like that’s, I mean, that’s been the key I would say to like you and Nick’s success is you’re putting out content that people want and are learning from. 

[00:36:57] Mitchell Baldridge: Yeah. So I. I was lucky to start in a time that I started this three years ago, and the space might be more crowded today, but a lot of the reasons why you couldn’t do this are just stories because we also just see quickly, like there’s a new guy, who just comes in and immediately starts hammering.

[00:37:19] Mitchell Baldridge: Tons of value and then builds a following, and you don’t have to have 65,000 followers or 300,000 followers or even 25,000 followers to gain tremendous value from Twitter. As soon as I started writing my ideas, just this inflow of people immediately started coming in. Kevin Kelly wrote about this a thousand years ago with a thousand true fans.

[00:37:43] Mitchell Baldridge: It’s like, yeah you just need your people. You don’t need all the people, and frankly, all the people, I think Nick Cuba would tell you Twitter was more fun at 30,000 followers than it is at 300,000 followers. But 300,000 followers gets you something that 30 doesn’t. So if you have no ideas, I.

[00:38:04] Mitchell Baldridge: Then it’s a problem. And, but I don’t think, and maybe I think a little bit differently than other CPAs, but also I just came in with every idea I ever had and just gave it away for free. And we did that the same way with seg. We go, here’s exactly how SEG works. Take it and try to do it yourself.

[00:38:24] Mitchell Baldridge: But we have 25 people working pretty hard at it, so you may want to use us. So I wanted to hear 

[00:38:31] Patrick Donley: about your, like the creative process writing in general. You went to this, went to Capital Camp recently. We’re going to get into capital camp a bit, but talk about like, was writing something that came naturally to you?

[00:38:43] Patrick Donley: It seems like for Nick it’s really like a strength. I wanted to hear about like how it’s been for you. Just like writing is a real skill. It’s a, it’s almost like a superpower. If you’re great at it. I would say it’s a superpower if you’re great at it. I wanted to hear how it’s been for you, just crafting a thread is an art form I think.

[00:39:00] Mitchell Baldridge: Yeah, and I mean, I wouldn’t say I’m a 10 out of 10 thread writer or a hook writer, and I’ve gotten help sometimes if I’m, About to write something that I want to go bananas, I will send it to other people and say, Hey, help me clarify this. So yeah, I mean, writing takes practice. I don’t love writing.

[00:39:19] Mitchell Baldridge: I wrote out a lot of my ideas and then canonized them in this big thread of threads and then just kind of left it there. And lately, I’ve been working on rewriting a lot of my ideas. Relaunching a newsletter, a big sequence that’s the 40-week sequence of kind of a lot of my threads and a lot of other ideas.

[00:39:39] Mitchell Baldridge: ’cause I think that’s a powerful kind of new frontier. What’s 

[00:39:43] Patrick Donley: the name of the newsletter? I’ll put a link in the show notes. What’s 

[00:39:45] Mitchell Baldridge: The newsletter? It’s called General Ledger. So you know, and yeah, I think it’s just that idea of that evergreen. Drip, it’s going to kind of replace a blog in some sense of just now I can send new people who enter my orbit, all of my best ideas, and I can front load my best ideas to these people.

[00:40:08] Mitchell Baldridge: So yeah, I think that’s pretty powerful. But yeah, I’ve never just loved writing. Writing is kind of a means to an end to get my ideas out there. Nick becomes possessed. He has this idea and he drops everything and just hammers out a 300 thread 300 tweet thread, I’m just curious ’cause we’ve got a newsletter also called We Study Markets.

[00:40:33] Patrick Donley: The Investors podcast puts out, and one of the things I’ve been in charge of is like doing the threads on Twitter to get subscribers and get people to sign up. So, and Nick talks about like, the top of the funnel, like kind of casting a wide net and like it narrows down and narrows down to the point where you’ve got your clients that, like, that’s ultimately like, where things are headed towards.

[00:40:54] Patrick Donley: I don’t know, it’s just interesting like the whole strategy is interesting for me to think about. 

[00:40:59] Mitchell Baldridge: Yeah, that’s a big way I thought about it. ’cause I got 65,000 people up here and I ultimately have 150 clients at the bottom. Like I run a small accounting firm with 15 people in it. So that’s why I even started to build EG in the middle of a newsletter in the middle of this better bookkeeping product.

[00:41:19] Mitchell Baldridge: I, I think I can have a lot more clients who fit a very narrow, specific subset of the type of customer. 

[00:41:27] Patrick Donley: I wanted to jump into a new topic here. We had mentioned the Smart Friends podcast, which I really, just found out about it. Love it. It’s David Sra, who’s the founder’s podcast guy, and Eric Jorgensen, who wrote The Almanac of Naval Ravikant, which is a great book.

[00:41:42] Patrick Donley: The three of you kind of just wrap and talk, and it’s great stuff. I think you’ve done three or four episodes, but one that you just recently did was Lessons from Sam Zell. I wanted to hear you guys talk through that some of the biggest lessons that you learned from the life of Sam Zell, who unfortunately just passed away a month or so ago.

[00:42:01] Mitchell Baldridge: So yeah, smart Friends is Eric’s podcast and he’s doing a ton of interviews with a bunch of great people. And yeah, we’ve created this recurring segment. He has another one with his like he has a rolling fund called a Rolling Fund. With Aldon and Bo Fishback, like he, he has these kinds of like groups of people who jam out and, yeah, me, David and Eric have run a few of them and it’s a lot of fun and so, yeah, David had gone to lunch with Sam Zell and was planning to go to dinner with Sam Zell in the weeks before he passed and Sam got sick.

[00:42:33] Mitchell Baldridge: And so David, a lot of what I know has kind of come through David, but I think what struck me. The most is like the guy was in his eighties. He was living life to the fullest. David said he had talked to Sam, and Sam was most excited that he had just bought 70% of a family business, like a legacy business that I think was making I’ll just make up a bunch of numbers, but it was making $30 million a year of EBITDA and.

[00:43:02] Mitchell Baldridge: Sam was in his eighties and out there just like playing the game and he didn’t have to. And he also, I’d never met the guy. He seemed to be doing what he wanted to do. He seemed to be allocated. He had optimized for freedom. He was flying anywhere in the country he wanted to go. He was working on deals he wanted to work on.

[00:43:21] Mitchell Baldridge: He was working with people he wanted to work on. So this unfortunate passing, I think just shows you that like life can go any minute and you better be doing what you want to do and not optimizing for something way down the road. ’cause we’re all getting old. Yeah, I saw you 

[00:43:39] Patrick Donley: tweet about that a day or two ago.

[00:43:41] Patrick Donley: Something about like a question that you’ve been asking yourself lately is like, do I want to be doing this in 10 years? Yeah, I posted 

[00:43:49] Mitchell Baldridge: that, I sort of reposted that even like an hour ago before I walked up to interview with you, like two questions I asked myself before pursuing a big opportunity, could this have a meaningful, positive impact on my net worth or my happiness or my relationships?

[00:44:04] Mitchell Baldridge: And yeah, in 10 years will I be happy that I chose to do this? So, Going to capital camp, going to Berkshire conference, talking with people, talking with maniacs on a mission like David Sra or one person who we always talk about on that podcast is Sam Hinkey, who we all three know. And talking with people who have long-term thinking helps me.

[00:44:26] Mitchell Baldridge: ’cause sometimes I can get a little impulsive and it’s just like, I’ve found that as I optimize for, as I kind of let go and understand that we have a long road ahead of us. Hopefully, the world’s not going to end in two years. And like I’m playing a long-term game with long-term people and I should be optimizing for long-term decisions.

[00:44:48] Mitchell Baldridge: And the more I do that just, it’s better, it’s objectively better. ’cause all the compounding happens at the Third Sigma. So like I was listening to another podcast and they were talking about that, like why are we talking about arbitrage when we could just be talking about playing long-term games? So you mentioned 

[00:45:06] Patrick Donley: going to Omaha for Berkshire Hathaway.

[00:45:09] Patrick Donley: Is that an event that you’ve gone to previously or was this a new experience for you and just kinda wanted to hear your take on the whole event? I mean, it’s like a, it’s what they call it, the Woodstock for capitalists or something like 

[00:45:20] Mitchell Baldridge: that. Yeah. Have you ever been, 

[00:45:23] Patrick Donley: never been. No. I had the opportunity to go this year and I just had too much family stuff going on.

[00:45:27] Mitchell Baldridge: Yeah, no, I hear you. Yeah. I mean, Charlie’s 99, and Warren is in his nineties too, and it seemed like if I ever wanted to go, now’s the time to go. I. I’m not the biggest Munger or Buffet aficionado or nerd, but I got to go with a few major Munger nerds and I got to go with Eric and a couple of other friends and it was a good time and it was a good weekend.

[00:45:52] Mitchell Baldridge: And Omaha’s a good place. Again, it just stretches out my timeline of thinking to fill my thoughts, to go enter a world that a couple of billionaires in their nineties are the center of, and to see all the people that surround that is interesting. So I enjoyed it. I would go back, for sure.

[00:46:13] Mitchell Baldridge: I’ll probably go next year. I think I read 

[00:46:16] Patrick Donley: the first event that Buffet had, I think there were like 13 people there. Like the very first one was 13 people and now it’s like, I don’t know how many. 50,000 or maybe more, it seems like a football field of pe football stadium of people. So pretty cool stuff.

[00:46:30] Patrick Donley: I wanted to see if you had a little time for a fire round. You get five or so minutes for a quick-fire round. 

[00:46:36] Mitchell Baldridge: Yeah. I’m good. All right. 

[00:46:39] Patrick Donley: You seem like a big reader. I wanted to hear about a book that you think I should be reading. This is a question that Chris Power’s mentor, John Marsh, asks people, what’s one book that you think I should be reading, 

[00:46:51] Mitchell Baldridge: Man, so hard to like put that into, I never directly answered questions.

[00:46:55] Mitchell Baldridge: Sorry. Did you, 

[00:46:57] Patrick Donley: I, I want to, real quick, did you read unreasonable Hospitality? I think 

[00:47:01] Mitchell Baldridge: it’s called. I think I know what you’re talking about, but No, I didn’t read that. Just going back to books, so like Davidon runs this podcast called Founders, where he’s read hundreds of biographies of founders like books are going to show you like mindset and strategy, or they’re going to show you tactics, right?

[00:47:19] Mitchell Baldridge: And like all of these biographies tend to show you both. They show you a little bit of a glimpse of the background and the rise and the tactic like. Lately, I’ve been rereading Shoe Dog by Phil Knight. That’s an amazing book. Did you see Air? Yeah. Yeah, that was good. Kind of a good little deal. But yeah, I mean I, so I read books all the time for all different reasons and I have a thousand books.

[00:47:44] Mitchell Baldridge: Like one book I just was recommended to me is Scaling Up Compensation, which is just literally a manual for how to build incentives and compensate people. ’cause this is the year of incentives for me. The year of kind of trying to, I have these three companies and I have these people in my world, and how do I build incentive structures to grow the whole thing forward, minimize conflict.

[00:48:07] Patrick Donley: Well, how do you, I’m, I was curious too, I wanted to ask that, like the top couple people that you hired for, like the companies, do you, how do you incentivize them? Is it you give them equity? Do you give them, what’s the book 

[00:48:18] Mitchell Baldridge: recommend? It’s kind of always different. Yeah. I mean, the book recommends a thousand different ways depending on the structure.

[00:48:27] Mitchell Baldridge: And so like we have kind of different incentive structures in all three businesses, but that’s one big thing I’m working on is how do I build this in the long term for all these businesses to converge into one plan, into one massive idea. So I try to build the systems to, connect and the structures to connect.

[00:48:47] Mitchell Baldridge: The people to hopefully connect one day. So that’s a 10-year idea. But, it’s something I don’t have figured out at all, but something that I was working on. Well, I would think 

[00:49:00] Patrick Donley: also, like part of it would have to do with like you figuring out the motivation of the individual too. Like to figure out what incentive is going to motivate them.

[00:49:06] Patrick Donley: You gotta figure out like what is it that drives them and, ’cause it’s not the same for everyone. 

[00:49:11] Mitchell Baldridge: Entrepreneurs are, I’m coin operated, you give me money and I’m happy. But yeah. Some people you give them money and they’re offended or they’re like I didn’t want money. Or they’re 

[00:49:22] Patrick Donley: looking for recognition or appreciation or something more intangible.

[00:49:26] Patrick Donley: Yeah. 

[00:49:27] Mitchell Baldridge: Where yeah, I would just go, here’s money. And they go, thank you for the money. Money, but money. Yeah. I want you to just not be a jerk. Yeah. I 

[00:49:34] Patrick Donley: wanted to hear about who’s the smartest guy that’s made the biggest impact on your life, your career. I’m sure 

[00:49:40] Mitchell Baldridge: there’s a lot. Oh, man. Going back to books, two books that I’ve read probably three times is Who is Michael Ovitz in Powerhouse?

[00:49:49] Mitchell Baldridge: The book about, a creative artist agency, and how they built that and how it worked and how it ultimately didn’t work. Although the principles of that turned out to be fine, you know, Michael Ovitz, it became this self-anointing kind of center of the world. Used relationships and used big ideas to ultimately like tip an industry from Hollywood, which favored the production studios to taking the talent and packaging the talent and auctioning the talent and making the production studios, which used to run the world now have to bid on these talent packages and drove up prices and just changed the market.

[00:50:28] Mitchell Baldridge: So, David Ogilvy would be another example of just the best writer. I mean, you want to talk about writing and you can read the confessions of an ad admin and Ogilvy on advertising. And just like I own an accounting firm, which is ultimately a service firm, an agency, c as a service firm, Ogilvy’s Firm is a service firm.

[00:50:50] Mitchell Baldridge: I just get to learn so much from these like masters of their craft who are fantastic writers and geniuses who teach me something, and then they teach you also what not to do. 

[00:51:01] Patrick Donley: Last one real quick here. You’ve got a thousand, a couple thousand bucks to your name. You’re just getting started. You’re listening to this episode.

[00:51:08] Patrick Donley: You want to start a business. What 

[00:51:10] Mitchell Baldridge: business do you start? Man, I did this, I mean, I created an agency. I created  A firm for Cost seg., I think we put $40,000 in to start it, and it just grew and we returned the money. Within five or six months. But like the best thing you can do is take something valuable and go trade on that.

[00:51:31] Mitchell Baldridge: And if you don’t know anything valuable, you can spend time trying to learn something valuable or you can. Trade organized labor. I mean, you can go start knocking on people’s doors and power washing their driveways. But yeah, I would start an agency, and the whole thousand dollars would be spent on learning something and packaging something together, and trying to acquire my first few customers.

[00:51:57] Mitchell Baldridge: And easier said than done, but I’ve just seen thousands of people do it right in front of my eyes. Nick has a hundred businesses. He loves the sweaty startups, and he’s moved a lot more into agencies. So I’ll look at something like that. Yeah, 

[00:52:14] Patrick Donley: I’ve got a nephew who’s like 17 right now and he just, he’s got a power washing, that’s all he’s doing this summer and killing it.

[00:52:21] Patrick Donley: He’s got a truck and a power wash and hired a couple of his buddies to help him out and like he’s doing great. So there’s just so many opportunities and that, and Nick’s, to your point, Nick’s PDF, that you can get off like, Top a hundred business ideas. None of them are sexy, but like all of them are going to cash flow or a great resource.

[00:52:37] Patrick Donley: Again, I’ll put links in the show notes for that. So this has been a lot of fun, Mitchell, I appreciate it. Love talking with you here today. For our listeners that want to learn more about your cost segregation, and the different business’s better bookkeeping, what’s the best way for them to find out about you and learn more?

[00:52:53] Mitchell Baldridge: Yeah, to find out more about me, you can follow me on Twitter at Baldrige CPA. You can check out better bookkeeping.com. You can subscribe to my newsletter. You can check out the Twitter account at re seg. There are a lot of ways to find me. Thanks so much, Patrick, for having me. This was awesome. Yeah, I really 

[00:53:11] Patrick Donley: appreciate.

[00:53:12] Patrick Donley: Thanks so much. Okay, folks, that’s all I had for today’s episode. I hope you enjoyed the show, and I’ll see you back here real soon. Thank 

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