On this episode, we decode the previously impenetrable ancient language known as “business jargon.” Like your own personal Rosetta Stone, we plunge headfirst into the deliberately confusing language of business and break it down for you piece by piece.

This episode is a goldmine of key definitions, financial information, and easy-to-remember interpretations that will make money and business much easier to wrap your head around. (Plus, even if you can’t remember all of it, that’s okay! It’s a podcast, so it’ll always be here for you to come back and listen for a refresher.)

How you can Steal the Show

  • Know that business jargon is designed to be confusing…but it doesn’t have to be.
  • Recognize that you DO have what it takes to understand business jargon.
  • Learn the five most common and essential types of business entities.
  • Understand key tax terms and what they mean for your business.
  • Make sense of investing accounting and terminology to get a clearer picture of your own finances.

Listen to more episodes of Steal the Show from this season and previous ones at https://stealtheshow.com/podcast/

Learn more about Michael’s public speaking training company, Heroic Public Speaking, at https://heroicpublicspeaking.com/.

Learn more about Matt’s specialized financial services firm, Valley Oak, at https://www.valleyoakcpa.com/.


Michael Port (00:05):

Hello, and welcome to Steal the Show. I’m your host, Michael Port. This season’s theme is Speakers with Money. I’m joined by my very good friend, Matt Rzepka, the owner and chief wealth strategist at Valley Oak, a specialized financial services firm. Together we’re exploring some of the most common and daunting challenges facing speakers, entrepreneurs, and small business owners When it comes to finance. Now to be crystal clear, I have no conflicts of interest here. I don’t stand to make any money at all from you following any of the advice you hear on this podcast. My company is Heroic Public Speaking, which I co-founded with my wife, Amy Port. We’re a public speaking institution based in Lambertville, New Jersey and we provide world class training to aspiring and working professional speakers around the world. I don’t sell anything related to financial services. Matt, however, does, and you are welcome to hire him. I will not be compensated in any way if you do. I’m doing this purely because I love this topic and I think everyone in our industry can benefit from learning more about business and personal finance. That’s it.

Michael Port (01:14):

Today we’re covering one topic that will help you unlock all the others, How to Speak the Secret Language of Business Jargon. Let’s get right to it. So, Matt, what is business jargon?

Matt Rzepka (01:31):

Business jargon is the language that’s intended to confuse you and make you think you don’t know what you’re doing, especially if you don’t have an accounting or finance degree. You know, business owners and entrepreneurs all are really great at what they do. And then they get into finance or money or tax, and they just get deer in the headlights very, very quickly. So the jargon is meant to confuse you. And we’re gonna unpack that here today.

Michael Port (01:53):

Right on. You know, for years I found business jargon to be totally impenetrable. Now I may be an entrepreneur, but I’m a creative artist first and foremost. Aa performer and author. And these things just don’t come naturally to me. And I’m sure that’s the case for many of our listeners. But one day I was talking with a supposed wealth manager and I realized I was nodding my head in agreement as if I understood what he was talking about. And as a result, I was about to give ’em a big chunk of money to manage. And fortunately in that moment I excused myself and I didn’t return. And I think that happens to a lot of people. Do you hear that, Matt?

Matt Rzepka (02:36):

I hear it all the time. Everybody wants to get a plan. Everybody wants to take action and they can get frozen in confusion. So you sit there and you don’t don’t want to say, “Hey, you just said something and I have no idea what you’re talking about. So break it down differently or give me some new language, but I’ve got money here. I want to do something with it and I want understand what’s next for me and how we can take that next step,” instead of just walking out the door and never returning.

Michael Port (03:01):

Yeah. Right on. So what do you wanna start with Matt?

Michael Port (03:04):

Let’s start with an important business fundamental: the different types of business entities when you first decide to go into business. There are five common types of entities you’ll most likely choose from. And today we’re gonna see if Michael can guess all of them. Michael, are you ready?

Michael Port (03:19):

Yeah. Okay. I’m ready.

Matt Rzepka (03:20):

Go for it.

Michael Port (03:21):

Okay. How about mom and pop shop? [BUZZER SOUND]
Sidewalk lemonade stands? [BUZZER SOUND]
Instagram fitness model? [BUZZER SOUND]
Guy who sends random messages on LinkedIn? [BUZZER SOUND]
Multi-level marketing, pyramid scheme, Ponzi scheme? [BUZZER SOUND] No. So no, those are not what you’re looking for, Matt.?

Matt Rzepka (03:37):

Um, where are you going with this, Michael?

Michael Port (03:40):

Okay. But I actually do know this and I’m gonna give you the correct answers now, I promise. Here you go. Number one, schedule C, which is a sole proprietor. [DING] Number two, LLCs. [DING] Number three, S corporations. [DING] Number four, C corporations. [DING] And number five, partnerships. [DING]

Matt Rzepka (03:59):

Well done there, Michael, I was really getting kind of nervous as to where we were going.

Michael Port (04:04):

You can see I’ve been listening to you all these years, but let’s provide some context on the five types of business entities, why we have to have so many and they have to have sort of similar names, but very different names. I’m not sure we should even get into it because that’s just the way it is. So let’s start with the schedule C ,also known as a sole proprietorship. So what are its characteristics?

Matt Rzepka (04:27):

Schedule C is the simplest way to file your business because it’s just a one to two page form that a accompanies your personal tax return. It can be intermingled with all of your other finances. It’s basically the wild, wild west. You can do whatever, but you have to pick and choose your income and expenses to then report and pay taxes on.

Michael Port (04:46):

So what are its advantages and what are its disadvantages?

Matt Rzepka (04:50):

The advantages of a schedule C are really its simplicity. You really don’t have any rules. Your only rules are to make sure you pick out your income that you’re supposed to report and pay taxes on. And then you pick out your expenses. But again, any checkbook doesn’t matter, you can mix and mingle with your personal finances. It’s basically a free for all. The disadvantages are really how it’s taxed. And then, because it’s a free for all, it’s also one of the most highly audited types of tax forms because they have the ability to come in and open up the whole book. And it gives you a little bit of a disadvantage there.

Michael Port (05:24):

So what about an LLC? What are its characteristics?

Matt Rzepka (05:30):

An LLC is the most interesting of the five because it’s actually a legal structure only. The LLC can take any of the other four forms, so you can be a sole proprietor, you can be a partnership, you can be a corporation and you can be an S corporation all as an LLC. One of those things that a lot of people don’t realize unless somebody breaks it down and explains it for ’em. I always tell a not so funny joke. If you’re walking into a bar and you want to talk about an LLC, you can get people real confused real quick. But an LLC is a legal structure only. And then you, as the taxpayer have to choose, which of those other four structures you want to be.

Michael Port (06:08):

I remember when I learned that I found that so strange and so confusing. You know, when you have an LLC, but it can be taxed as a C Corp, an S Corp, a sole proprietorship. I mean, come on. Like, did they have to make it so confusing?

Matt Rzepka (06:25):

Yeah. I often wonder where and what room did they come up with these names and how they come together and why the legislators even come up with some of this stuff. But the LLC is a great legal vehicle, and then tax wise, you just have to be confused. You have to remember I’m an LLC taxed as, and then know what the answer to that question is.

Michael Port (06:45):

Yeah. So an LLC stands for limited liability corporation. So what are its advantages and what are its disadvantages?

Matt Rzepka (06:54):

The advantages of the LLC we’ve talked about a little bit can take any of the four tax forms that you want with some simple paperwork and filing with the IRS. Additionally, the legal structure of an LLC is designed to be easier to manage. So what do I mean by that? A corporation has to go through and do annual meetings and keep documentation to keep the corporate structure in place where we with an LLC, you don’t have to do that. You are only, it’s an option to do that. So it makes it easier to manage. And then again, the LLC can have all kinds of different structures and rules and setups in what’s called an operating agreement. The operating agreement is just simply the rule book for the company. So you sit down with your attorney and you write the rule book the way that you want, and then you’re off and running once you make your tax structure election.

Michael Port (07:42):

So let’s do the S corporation now.

Matt Rzepka (07:45):

The S corporation, another great vehicle. Again, we can be an LLC tax as an S corporation, or we can be a corporation in the state that you live. So all of this stuff happens by registering with the state in you live. Or if you’re registering outside of your state, there’s some other requirements that come with that. But I would first become a C corporation and then file an S corporation election. Now, if we want to get fancy and talk about internal revenue code, there’s a form number, and we can go down that path, but we’re gonna skip that for now. But the characteristics are, it’s a separate and distinct entity from you as a person or your personal household. You want it to be personal, separate from business because you get some liability protection. And then there’s some tax benefits that come with that as well.

Michael Port (08:33):

And then what about a C corporation? What are its characteristics,

Matt Rzepka (08:36):

Characteristics of a C versus an S are very similar. It’s only that S election that didn’t happen. And also a C corporation pays its own tax. So you don’t have to pay personal income taxes on what happens inside of a C corporation. The corporation itself pays taxes. So that is again, very distinctly different from an S Corp where an S Corp, it files its own return. But the income from that S corporation all flows through to your personal taxes and you have to pay personal income tax on the business income.

Michael Port (09:08):

Mm. People probably have heard the term pass through entity.

Matt Rzepka (09:12):


Michael Port (09:13):

An S Corp is a pass through entity. So what are the advantages of a C Corp? And what are the disadvantages? I mean, it seems like you mentioned, well, you gotta pay taxes on the C Corp as well as then of course, taxes on any profit that you make in that corporation. So that seems like it could be a disadvantage. You might be taxed twice, you know, the double taxation issue, but what are the advantages of C Corp

Matt Rzepka (09:35):

As with anything in world of tax, you have to look at the date of these episodes and you have to look at the laws that are applicable at that time. One of the distinct advantages right now with how C corporations can come into play, is it now currently has a flat income tax rate of 21% on all income. It has not always been that way. So prior to that, there was different rules and you don’t have to worry about that, cuz we’re not going back in history, but if you’re ever looking at a C Corp, you wanna make sure you understand what the current rules are and whether or not the government has changed those rules. So that flat 21% is one of the big advantages because it’s lower than the top rate for personal income tax. Personal income is currently at 37%. So there’s some strategy that can come into play from how you have your businesses structured and what taxes you do and don’t have to pay at those different rates.

Michael Port (10:26):

For example, prior to 2017, we filed as an S corporation, but then when the tax code changed, I think it was 2017. We, uh, changed our elective and filed as a C Corp. And, uh, we may change it again in the future if the tax code changes again.

Matt Rzepka (10:43):

Correct. Yes. So the tax laws that changed between 2017 and 2018 is when that rate changed. And we were able to take advantage of how you’re structured to look at that personal to you. You know, that’s the other thing to always remember everything we talk about out here today and on the whole season, you want to get personalized advice. You want to get your goals and your intentions clear, and then you can look at all right, what structure, what entity, how does some of this work for me? Because unfortunately, every situation is a little bit different and you can learn how to take the best of both worlds and make it the best it can be for you.

Michael Port (11:18):

Yeah. There’s a lot that I do myself when it comes to investing. But when it comes to the legal entities and tax filing elective, that’s not something I choose myself. That’s something that I do with you because you do need to rely on somebody who really is an expert and understands all of the implications of the choices you make. I think that’s important. I just generally don’t recommend somebody just hops onto Legal Zoom and sets up their company there, following the prompts. I really do think it’s important to get really substantial advice from somebody who does actually know what they’re doing in this particular area.

Michael Port (11:57):

So let’s look at partnerships, that’s our fifth type of entity. So what are its characteristics?

Matt Rzepka (12:02):

Partnerships, similar to S corps, are what they call pass through entities. So there’s no corporate level federal income tax, typically. And again, in the world of tax code, there’s always exceptions to rules. So you have to be careful on definites to say, well, this is never going to happen. There’s always a certain situation that might be unique to 1% of the population where they might have to file and pay tax at the business level. But generally all partnerships file their own tax return, the income or loss from that tax return passes through to your personal return. And you have to do the calculations at your 1040 level at the personal return.

Michael Port (12:38):

Okay. So what do you think the advantages are and what do you think the disadvantages are?

Matt Rzepka (12:42):

Partnerships depend on the venture in terms of advantages versus disadvantages. What I see a lot is you have an LLC taxed as a partnership that is a real estate venture. That’s the most common use of partnerships that I see. There are certainly other ways to use partnerships. Another common way would be if you have multiple partners or owners outside of your family, in a business, you can use some unique structure there and get some great tax benefits by how you structure it. So it’s really a great way to grow a company and have some unique agreements in place to protect you and what you want to accomplish.

Michael Port (13:19):

Now, if I’m a speaker and like most speakers, I employ only myself, which type of entity and tax filing status is probably right for me?

Matt Rzepka (13:31):

In the professional speaking field, you can start one way and transition to another entity. So if you’re just starting out, you may wanna start as an LLC sole proprietor, because if you think about it, it’s easy. It’s just a schedule on your existing income tax. And there’s not a lot of administrative costs to be an LLC taxed as a sole proprietor. Once you become more profitable, you likely to transition to an S corporation, an LLC taxed, an S corporation or an S corporation directly. And there’s a breakeven point on some of the administrative costs that come into play with a decision like that. So you wanna make sure you understand that because it’s never business smart to spend money on something that isn’t saving you more than it costs.

Michael Port (14:14):

So what circumstances would I need to experience in order to consider a different type of entity? To move from, say that sole proprietorship into another one of the entities, what would have to happen?

Matt Rzepka (14:26):

Income growth is the main thing that’s gonna drive that equation. So if you are doing better in your business, growing your business, having more income, being more profitable, you’re gonna want to run the numbers to say, okay, what happens if I stay sole proprietor, versus if I make a switch to another entity. And again, most of what happens in the tax world is just a simple math problem: comparing one, answer to another. And if somebody’s not willing to run those numbers for you, I would encourage you to talk to someone who would

Michael Port (14:55):

So let’s get deeper into tax terminology. Okay?

Matt Rzepka (14:59):

Sounds great. Let’s flip the script a little bit. I want to quiz you on tax terminology. I’m looking forward to hitting the buzzer if you get it wrong.

Michael Port (15:08):

Okay. I thought you were my friend, Matt, and advisor by the way, but whatever, I’m up for a challenge.

Matt Rzepka (15:15):

I appreciate it. You know, it’s interesting. I always wanna make sure you’re listening to what I’m saying over the years. So this is my chance to quiz the student so to speak.

Michael Port (15:22):

Okay, here we go. Let’s see.

Matt Rzepka (15:24):

Are you ready?

Michael Port (15:26):

Yes. Well, we’ll see.

Matt Rzepka (15:28):

How about effective tax rate?

Michael Port (15:31):

The effective tax rate for a corporation is the, I think average rate at which its pre-tax profits are taxed. [DING]

Matt Rzepka (15:43):


Michael Port (15:44):


Matt Rzepka (15:46):

I like it. And that’s true for corporations and individuals.

Michael Port (15:50):

Give me another one.

Matt Rzepka (15:51):

How about, to follow up with, that marginal tax rate.

Michael Port (15:55):

This is an easy one. The marginal tax rate is the tax rate that you pay on an additional dollar of income. So in the US, the federal marginal tax rate for individuals increases as income rises. I learned sometime ago that this is known as a progressive taxation policy and it aims to tax people based on their earnings, you know, with low income earners being taxed at a lower rate and high income earners, taxed at a higher rate. [DING] Yes!

Matt Rzepka (16:25):

Two for two. I like it.

Michael Port (16:27):

Okay. Maybe I should quit my day job. Go into this. All right, what else you got? Bring it on.

Matt Rzepka (16:34):

All right, onto the next one. Tax deduction.

Michael Port (16:37):

Oh, this is easy, cuz I love a tax deduction. Although I always find it funny people who don’t have businesses often will say, well, yeah, so what’s the big deal you spent money on that. You can just get a tax deduction. It’s not that when you get a tax deduction means you don’t have to pay for the thing that it’s free. It’s a reduction in the gross amount on which a tax is calculated. So it reduces taxes by the marginal tax rate for the taxpayers income bracket. Yes? [DING]

Matt Rzepka (17:03):


Michael Port (17:03):


Matt Rzepka (17:04):

Well done.

Michael Port (17:05):

Alright, come on. Let’s go, bring it on. Keep going.

Matt Rzepka (17:07):

All right, here we go. Itemized deduction.

Michael Port (17:11):

An itemized deduction, I believe, is an expense that can be subtracted from adjusted gross income to reduce your tax bill. And I think that itemized deductions are listed on a Schedule A, is that correct? [DING]

Matt Rzepka (17:27):

That is correct.

Michael Port (17:29):

Is it obvious that I have a need for approval? Okay. What’s next? Bring it on. Let’s go.

Matt Rzepka (17:34):

Capital gains.

Michael Port (17:36):

Easy, easy, easy. Taxes that you pay when you live at the nation’s capital. [BUZZER SOUND]

Matt Rzepka (17:41):


Michael Port (17:42):

Wait, wait, wait, let me try again. Let me try again. Capital gains tax is a levy on the profit from an investment that is incurred when the investment is sold. [DING]

Matt Rzepka (17:53):

Now we’re talking.

Michael Port (17:53):

Boom. Okay. What else you got?

Matt Rzepka (17:56):

Ordinary income tax.

Michael Port (17:58):

Oh, that’s easy. That’s a tax that is applied to speakers who are just ordinary. [BUZZER SOUND]

Matt Rzepka (18:03):

Michael. You were doing well for a bit there, but I have to disagree.

Michael Port (18:07):

No, No, no. Hold on. I can get this. Ordinary income is any type of income that is earned by an organization or an individual that is taxable at ordinary rates. It includes, but I don’t think it’s limited to wages, salaries, tips, bonuses, royalties, and interest, income and commissions, I think.

Matt Rzepka (18:27):

Correct. You’ve recovered well.

Michael Port (18:30):

Thank you. Okay. What else you got?

Matt Rzepka (18:33):

Earned income.

Michael Port (18:35):

Okay. See, this is why this stuff can be so frustrating to learn because isn’t earned income pretty much the same thing as ordinary income? I understand earned income to include money made from employment. Like I said, wages, salaries, bonuses, commissions, whatever. And so wouldn’t that make earned income and ordinary income the same?

Matt Rzepka (18:56):

You are correct.

New Speaker (18:57):


Matt Rzepka (18:58):

And of course like everything in the tax code, there’s exceptions and quirks and new things. So earned income and ordinary income are the same with one exception.

Michael Port (19:09):

I knew there was a, but coming. I knew it. I heard it.

Matt Rzepka (19:11):

Of course.

Michael Port (19:12):


Matt Rzepka (19:12):

Earned income is then the income that you also pay either payroll taxes or what they call self-employment income tax on that income as well because you’re putting your time, effort and energy directly into the activity that is making you money. So you have to pay social security and Medicare taxes in addition to ordinary federal taxes as well. And depending on the state you live in, depends on whether you pay state taxes. So earned income is one of the highest taxed incomes that you can have.

Michael Port (19:42):

Anybody ever tell you that you’re kind of like a tax geek?

Matt Rzepka (19:46):

All the time. And I take pride in that and I also take pride in it’s IRC 7296. I don’t do that kind of stuff. I definitely love this. My brain has always just consumed the data and then I process it and I’m able to talk back in a way that hopefully people can follow. But yeah, I love it. I eat it up. Breakfast, lunch and dinner. That’s my life.

Michael Port (20:09):

Well, you know, I think that’s probably why you have such a big head. You obviously are only hearing Matt right now. If you’ve ever seen him, Matt’s a big guy. Matt was actually a college football player and uh, he’s got a large head and I just think his brain must be humongous in there. And that’s what you need to understand all this tax code, I think.

Michael Port (20:28):

All right. So what’s next? What do you got?

Matt Rzepka (20:30):

Passive income.

Michael Port (20:32):

Oh, that’s my favorite type of income because it’s earnings that are derived from any enterprise in which a person is not actively involved like rental properties or licensing. Absolutely. My favorite type of income. [DING]

Matt Rzepka (20:47):

Correct. You’re doing good.

Michael Port (20:49):

That’s an easy one though.

Matt Rzepka (20:51):

You ready for a tough one?

Michael Port (20:52):

Oh, I don’t know..

Matt Rzepka (20:54):

How about depreciation?

Michael Port (20:57):

Well, I do know this because it always confused me and you taught it to me. So it’s just an accounting method of allocating cost of an asset over its useful life. So it’s used to account for declines and value over time. [DING]

Matt Rzepka (21:13):

Very well done. It is a concept that you hear a lot about, especially in the last 10 years, because the rules for depreciation, you actually have one set of rules for your books, and one set of rules for your tax returns. So they’re different. You know, you hear jokes over the years, about two sets of books. You actually have two sets of depreciation records. One for your books that keep your financial statements and one for your tax returns. So it’s very important to understand the differences between those two. And it’s not something where you’re cooking the books, it’s part of the system and how it works. And then your income tax that you pay is determined by some of the choices you make in that depreciation world. So if you’re not aware of this, make sure you’re asking good questions. So you can be fully informed about how it’s affecting you.

Michael Port (21:58):

Got it.

Matt Rzepka (21:59):

You ready for the next one?

Michael Port (22:01):

Okay. Let’s go.

Matt Rzepka (22:02):

Depreciation recapture.

Michael Port (22:03):

Oy vey. Okay. This, I think I know because we just did a depreciation recapture when our headquarters flooded it’s something to do with having to pay taxes on assets that had been depreciated to offset taxes, right? [DING]

Matt Rzepka (22:19):

Yes. That is correct. You have a new, what they call tax basis, when you depreciate an asset. So your purchase price is one thing. If you’re taking depreciation, it reduces your purchase price over time so that when you either sell or dispose of that asset, the IRS says, Hey, we gave you this great depreciation deduction. Well, we’re gonna grab some of that back in depreciation recapture and tax you a little bit differently. So you have to be prepared for that, or it can be a really big surprise.

Michael Port (22:47):

Okay. What’s next?

Matt Rzepka (22:48):

Tax deferral,

Michael Port (22:50):

Super easy. Income and investment earnings like interest dividends or capital gains that accumulate tax free until the investor takes the profits. So tax deferred investments include things like retirement accounts. [DING]

Matt Rzepka (23:05):

Yes, sir. All right, Michael. Now I’ve got a challenge for you. What is the difference between income tax brackets and corporate tax?

Michael Port (23:14):

Oh, come on. This is way too easy. Well, let’s see. As I mentioned earlier, tax rates rise as income increases. And in fact, I think there are seven federal income tax brackets. Whereas the federal corporate income tax system is flat at 21%, as you mentioned earlier, but companies like Amazon pay no tax due to how our tax system is designed, but feel free to use the highways and bridges and tunnels to deliver our packages. And yes, I still buy most of my things from Amazon. So I guess I’m a total hypocrite, but more importantly, did I get it right?

Matt Rzepka (23:50):

You certainly did. [DING]

Michael Port (23:51):

Thank you very much. Okay. So if listeners can’t remember all this tax info, what’s the most important thing for them to remember from it?

Matt Rzepka (24:00):

You don’t have to worry about knowing everything. I’m the expert. You just wanna walk away from any interaction or any delivery of your tax return, making sure you understand what’s on your form and what tax you paid. One of the favorite questions I ask is, well, why did you do that? And if you don’t know how to answer that question, then you’re not asking enough questions. So you don’t have to remember the terminology, or if somebody gives you terminology, ask for a definition, Hey, I don’t really remember what this is about. You need to give me a little bit more. So I make sure we’re both on the same page, cuz you want to be on the same page with whomever you’re working with.

Michael Port (24:34):

Yeah, absolutely. It’s important to recognize that you may be an expert in your particular area of focus, but it doesn’t mean you have to be an expert in every area of focus. But I do think it’s important to understand what somebody is actually saying so that you can provide context that will help them make better decisions for you. And so you can tell if somebody actually knows what they’re doing or leading you astray. And one of the reasons I wanted to do this podcast is to demystify all of that all in one place. So don’t feel like you have to remember it all right now, just, you know, download the episode, star it, save it, do whatever you need to do so that you’ll always be able to come back and consult it when you need to.

Michael Port (25:16):

So let’s brush up on our accounting terminology. Why does this matter? Can’t I just give all my stuff to an accountant and say, have at it.

Matt Rzepka (25:24):

You certainly can, but you might not get a result that you like. If you’re sweating bullets, after you hand in all your stuff to your account or CPA, that’s usually not gonna deliver results that are gonna be beneficial to you. It just is what it is.

Michael Port (25:39):

Okay. So my brain needs a little bit of a break. So how about I quiz you on accounting terminology? You are after all an accountant.

Matt Rzepka (25:47):

You’re not getting off the hook that easy. How about this? If you get it wrong, I’ll come in and rescue you quickly. Alright Michael, accounting terminology. Are you ready for this one? Cash flow.

Michael Port (25:59):

Oh, that’s easy. When buckets full of money flow right outta my business when our headquarters is totally destroyed by a hurricane and insurance doesn’t cover any of the losses. [BUZZER SOUND]

Matt Rzepka (26:09):

Well sort of, but not exactly. Cash flow is the net flowing of funds in your business that you have available to spend. So you were kind of on the right track, but your situation steered your opinion just a little.

Michael Port (26:25):

Okay. All right. What’s next?

Matt Rzepka (26:27):


Michael Port (26:29):

Earnings before I tricked the dumb auditor.

Matt Rzepka (26:33):

Close but no cigar. [BUZZER SOUND] Earnings before interest, taxes, depreciation and amortization.

Michael Port (26:41):

That’s Annoying.

Matt Rzepka (26:42):

It is annoying.

Michael Port (26:43):

That’s just an annoying acronym, but okay. What’s next?

Matt Rzepka (26:46):

More annoyance. Adjusted EBITDA.

Michael Port (26:48):

Oh, come on. That’s just an adjusted attempt to trick the dumb auditor. [BUZZER SOUND]

Matt Rzepka (26:53):

Adjusted EBITDA is EB with no ITDA. It’s earnings before the interest, depreciation, taxes and amortization.

Michael Port (27:02):

Alright. That’s fair. I got it.

Matt Rzepka (27:04):

And you wonder why things get confusing in the accounting terminology?

Michael Port (27:08):


Matt Rzepka (27:09):

Gross profit.

Michael Port (27:10):

Oh, that’s when you make so much money that it’s just gross. [BUZZER SOUND]

Matt Rzepka (27:14):

That would be a fun way to define that word. I like that. Gross profit is your revenue minus your direct costs.

Michael Port (27:23):

Okay, no problem. What’s next?

Matt Rzepka (27:25):

Net profit.

Michael Port (27:26):

Oh, that’s easy. A successful tennis player has a lot of net profit.

Matt Rzepka (27:30):

Oh my God. No. Net profit is after you deduct all of your operating expenses from your gross profit.

Michael Port (27:39):

Alright, fine. I’ll try again. What’s next?

Matt Rzepka (27:42):


Michael Port (27:43):

Oh, come on. That’s another easy one. Really? Matt. These are, I think frankly beneath me, but I’ll humor you nonetheless. Let me put it this way. Most Americans live within their income, even if they have to borrow to do so. [BUZZER SOUND]

Matt Rzepka (27:57):

Michael, this is getting a little embarrassing. Income is the revenue or services or charges from your company that you report at the top of your P & L.

Michael Port (28:08):

Are you sure? I’m not sure about that? But okay, I’ll go with you. What’s next?

Matt Rzepka (28:13):

Gross receipts.

Michael Port (28:14):

Alright, I’ll answer this seriously. I know this one. Gross receipts include amounts received from both operating and non-operating business activities. [DING]

Matt Rzepka (28:24):

Wow. Good job, Michael.

Michael Port (28:26):


Matt Rzepka (28:26):

I like it.

Michael Port (28:27):

Good, good, good. I think I’m starting to get the hang of this. Let’s just keep it going cuz I don’t wanna lose this winning streak I think I’m on.

Matt Rzepka (28:32):

Now let’s not get cocky here. I’ve got a tough one for you now. How about the difference between cash basis and accrual basis accounting?

Michael Port (28:41):

Oh, see this I can do, cuz we actually do this. Cash basis accounting recognizes revenues and expenses at the time the cash is received or paid out. And this contrasts with accrual accounting, which recognizes income at the time the revenue is earned and records expenses when liabilities are incurred, regardless of when the cash is received or paid. And at HPS, we do both at the end of each month. Our Director of Finance produces a profit and loss statement for both cash basis and accrual accounting. [DING]

Matt Rzepka (29:16):

Well done. It’s a proud moment for me. We’ve done a lot of time and effort on that. So that was a great answer. Here. You pay taxes on the cash basis typically, but you might report your, your financial statements on the accrual. So you wanna understand those components cuz they impact you immensely. You got another one for you.

Michael Port (29:32):


Matt Rzepka (29:33):

Profit margin.

Michael Port (29:35):

Oh well, I can tell you that many of the speeches I’ve seen will only be marginally profitable. [BUZZER SOUND]

Matt Rzepka (29:43):

That was terrible.

Michael Port (29:46):

I agree. It was terrible.

Matt Rzepka (29:48):

Profit margin, similar to gross profit, profit margin can be on an individual product or it can be again your total sales minus your direct cost of producing a product. Not something that speakers are gonna see a lot unless they’re selling goods. In addition to their services. How about accounts receivable?

Michael Port (30:07):

Well, accounts receivable is the amount recorded as being owed by a customer for sales on say credit or on an account. Better? [DING]

Matt Rzepka (30:20):


Michael Port (30:22):

Excellent. For extra credit, Can I even do accounts payable?

Matt Rzepka (30:25):

Let’s go for it.

Michael Port (30:27):

It’s the opposite of accounts receivable.

Matt Rzepka (30:29):

Oh man, come on. You can do better than that.

Michael Port (30:33):

Okay. Fine. For real this time. It’s money that is owed by a party, you know, a customer or a partner of some kind and is counted by that party as debt, even though it has not yet been paid. [DING]

Matt Rzepka (30:48):


Michael Port (30:49):


Matt Rzepka (30:50):

I love throwing all this stuff at you, so much fun.

Michael Port (30:52):

Well, we’ll see how they feel about it. I’m not so sure.

Matt Rzepka (30:56):

Chart of accounts. Can you tell me what the chart of accounts is or does?

Michael Port (31:00):

Yeah, I think so. A chart of accounts is a financial organizational tool that provides a complete listing of every account in the general ledger of a company. And it’s usually broken down into subcategories. [DING]

Matt Rzepka (31:13):

Good job. Well that wraps up this section.

Michael Port (31:16):

Oh, hold on. Not so fast. I’d like to ask you one last question before we move on to investment terminology.

Matt Rzepka (31:23):

Alright. Shoot.

Michael Port (31:24):

What do the IRS, a mugger, and your kids have in common?

Matt Rzepka (31:29):

They all take your money.

Michael Port (31:33):

Yes! Well done.

Matt Rzepka (31:34):


Michael Port (31:35):

So Matt, if audiences can’t remember all this tax info, what’s the most important thing for them to remember from it?

Matt Rzepka (31:41):

Remember that you want to have good interaction and communication with whoever you’re working with and if you’re doing it yourself, then you want to do a lot of research. And if you’re finding research that you’re not understanding, try to find a qualified person who can help you understand what it is you’re reading. I highly recommend hiring out regardless of it’s us or someone else, your tax services. With technology and software today, there’s just so much resource that can benefit you in a good open dialogue. And if you hear something you don’t understand, throw your hands up and say, wait a second. I need more information. I wanna understand. Don’t feel embarrassed. And if they make you feel embarrassed than you might have a problem with that relationship.

Michael Port (32:23):

Yeah. And don’t move on until you do understand it.

Matt Rzepka (32:26):


Michael Port (32:27):

Okay. Thanks Matt.

AD BREAK (32:30):

At this point, I wanna take a short break and talk about sponsorship. Most podcasts have external sponsors, but this season we wanted to do something different rather than suddenly start reading you ad copy about mattresses or headphones, I wanna tell you a little bit about our company, Heroic Public Speaking and what we do. So this season of Steal the Show will be sponsored by HPS and our program, as well as a few other things I’ve worked on over the years. And this episode in particular is brought to you by Heroic Public Speaking. At HPS, we believe that a speech has the power to change the world and the people in it, including the speaker. My wife, Amy Port, and I founded HPS in 2014. Through our signature programs, HPS CORE, HPS GRAD, and HPS PRO, we teach aspiring and professional speakers how to craft and deliver referable speeches that impress, inspire and transform their audiences. Our students include CEOs and founders, admirals, Navy seals and FBI agents, Olympians, bestselling authors, small business owners, and people leading movements and advance important causes. You might recognize some of our Alumni from earlier episodes of this podcast. We’re located in Lambertville, New Jersey, and we’re considered, by most, to be the premier public speaking training institution in the world. But we just like to call it Hogwarts for speakers. Just like the novice wizards in J.K. Rowling’s classic books, our students come to us with some talent and lots of passion, and we hone their craft so they can perform magic on the stage. You can learn all about HPS, our team, and our events and programming at HeroicPublicSpeaking.com.

Michael Port (34:17):

Alright. So Matt, I think it’s time we a little bit about investment jargon. This is our last topic, so let’s make it a good one.

Matt Rzepka (34:26):

Let’s do it.

Michael Port (34:27):

Okay. Who is investment terminology relevant to?

Matt Rzepka (34:30):

Everybody. Let’s see if we can do this rapid fire because we’re running outta time.

Michael Port (34:34):

Well, not really. I could do this all day and it’s my show, so I get to decide how long it is. I mean, Tim Ferris does like eight hour episodes.

Matt Rzepka (34:43):

Have you ever listened all the way through one of his episodes? Because I haven’t.

Michael Port (34:47):

Good point. Okay, let’s do it.

Matt Rzepka (34:50):

Alright. Here we go. Index fund.

Michael Port (34:53):

A passively managed mutual fund whose portfolio is designed to match the performance of an index of stocker bonds. [DING]

Matt Rzepka (35:00):

Yes. Mutual fund.

Michael Port (35:03):

A form of collective investment in which money from many investors is pooled and invested in stocks or bonds or other securities. Now this money is under the direction of a fund manager and it is something that I never buy. And I’ll explain why in a later episode. [DING]

Matt Rzepka (35:21):

Well, we’re rolling. How about ETF?

Michael Port (35:25):

ETF stands for exchange traded fund and it’s a type of security that tracks an index, a sector, a commodity or other asset, but it can be purchased or sold on a stock exchange The same way a regular stock can. [DING]

Matt Rzepka (35:41):


Michael Port (35:42):

I’m feeling pretty good about myself right now.

Matt Rzepka (35:44):

You’re rolling. I love it. I’m keeping you going answer after answer here. Now how about a stock?

Michael Port (35:50):

A stock is a security that represents the ownership of a fraction of a corporation.[DING]

Matt Rzepka (35:56):

Correct. What about a bond?

Michael Port (35:58):

A bond is a fixed income instrument that represents a loan made by an investor to a borrower. It’s typically like a company or a government. [DING]

Matt Rzepka (36:07):

You got it.

Michael Port (36:09):

Oh, I’m good. Okay. What’s next?

Matt Rzepka (36:11):

Asset classes.

Michael Port (36:13):

An asset class is a grouping of investments that exhibit similar characteristics and they are subject to the same laws and regulations. [DING]

Matt Rzepka (36:24):


Michael Port (36:25):

Okay. Bring it on. Keep going.

Matt Rzepka (36:27):

All right. Rebalancing.

Michael Port (36:29):

Rebalancing is the process of realigning the weightings of a portfolio of assets. It involves periodically buying or selling assets in a portfolio to maintain an original or desired level of asset allocation or risk. [DING]

Matt Rzepka (36:46):

Spot on.

Michael Port (36:47):


Matt Rzepka (36:48):

How about the favorite, financial advisor?

Michael Port (36:51):

Well, a financial advisor is an expert. He will know tomorrow why the things he predicted yesterday didn’t happen today. But seriously, it is an unregulated term that doesn’t tell you much about the qualifications of the particular individual. However, registered advisors must pass one or more exams and be properly licensed in order to carry out business with their clients. Now that doesn’t, he or she will have to serve your interests. Generally, a financial advisor is someone who provides advice to clients around money matters, personal finances and investments. And they usually take one to one and a half percent of your assets under management. And financial advisors may work as an independent agent or they may work for a larger financial firm like Fidelity or another big company. [DING]

Matt Rzepka (37:45):

Nicely done. Well put.

Michael Port (37:46):

Thank you.

Matt Rzepka (37:47):

How about the CFP?

Michael Port (37:50):

Okay. CFP stands for certified financial planner. Now this is a person that has received a formal designation from the Certified Financial Planner Board of Standards. I know this because I’ve researched this. CFPs help people in a variety of areas in managing their finances, retirement investing, education, insurance taxes. Now becoming a CFP is one of the most difficult and stringent processes in terms of being a financial advisor. It requires years of experience and successful completion of standardized exams and a demonstration of ethics and a formal education. The most important aspect of a CFP is that they have a fiduciary duty, meaning they must make decisions with their clients’ best interests in mind, Matt, you, my friend are a CFP, correct? [DING, DING]

Matt Rzepka (38:47):

Double ding for that. I certainly am. I’m glad you mentioned fiduciary duty. That was my next question. What is a fiduciary duty?

Michael Port (38:54):

A fiduciary is a person or organization that acts on behalf of another person or persons putting their client’s interests ahead of their own. They have a duty to preserve good faith and trust. Being a fiduciary thus requires being bound both legally and ethically to act in the others best interest. And I think many listeners will be surprised to know, as I mentioned, that most financial advisors are not required to put their client’s interests ahead of their own. Welcome to the upside down world of investment advisors.

Matt Rzepka (39:29):

Well put Michael, well put. [DING] How about brokerage account?

Michael Port (39:34):

Okay. A brokerage account also referred to as a taxable account is simply an account that you set up with a brokerage like Fidelity or Vanguard for investing in index funds, mutual funds, individual stocks, or bonds. And then the gains you earn in this account are taxed at the capital gains rate of either 15 or 20%, depending on your tax bracket at the time of the sale of the assets. [DING]

Matt Rzepka (39:57):

Very nice. I like it.

Michael Port (39:59):

This Is the section that I am most comfortable with. You know, most of the tax planning I leave to you, this is the area that I study the most.

Matt Rzepka (40:06):

It shows you’re doing great.

Michael Port (40:07):

Thank you.

Matt Rzepka (40:07):

Retirement account.

Michael Port (40:08):

Easy. A retirement account is a savings or investment account with tax advantages and you can use it to save and invest long term. [DING]

Matt Rzepka (40:17):

Correct. How about self-directed account?

Michael Port (40:21):

It’s just an investment portfolio in which the account holder has a great deal of control over the investments made in the account. Meaning the account holder has the ability to make investments with the capital in the account because he or she has not delegated the power to an investment advisor. It is my favorite kind of account. And I don’t mean any offense.

Matt Rzepka (40:40):

No, no offense taken, none at all. [DING] Okay. How about IRA?

Michael Port (40:44):

IRA stands for the Irish Republican army, but it also stands for a retirement plan that allows you to contribute a limited yearly sum toward your retirement. Taxes on the interest earned in the account are deferred until you withdraw the money at retirement age. [DING]

Matt Rzepka (41:03):


Michael Port (41:04):


Matt Rzepka (41:05):

We’re rolling. Roth IRA.

Michael Port (41:08):

A Roth IRA is a special retirement account where you pay taxes on the money going into the account. And then all future withdrawals are tax free. [DING]

Matt Rzepka (41:18):


Michael Port (41:19):

I’m on a roll.

Matt Rzepka (41:20):

You are. Now another acronym: SEP. S-E-P.

Michael Port (41:24):

Ah, I used to have a SEP. SEP stands for simplified employee pension. It’s a retirement savings plan established by employers, including self-employed people, for the benefit of their employees and themselves. So employers make tax deductible contributions on behalf of themselves and eligible employees. [DING]

Matt Rzepka (41:45):

Great job. Keep it up. We’re almost through the definitions I want to cover today.

Michael Port (41:50):

Okay. I’ll try. Let’s go.

Matt Rzepka (41:52):

Alright SIMPLE 401K.

Michael Port (41:54):

Simple 401K stands for savings incentive match plan for employees of small employers. So there are individual retirement accounts that can be a boon for small business owners who wanna provide qualified retirement savings benefits to their employees. [DING]

Matt Rzepka (42:12):

That was a mouthful, but you’re killing this round.

Michael Port (42:15):

Well, I might be cheating a little bit.

Matt Rzepka (42:17):

That’s fine. I guess, as long as you never cheat on your taxes. Let’s keep going. How about a defined benefit plan?

Michael Port (42:23):

Ah, yes. A defined benefit plan is an employee sponsored retirement plan where employee benefits are computed using a formula that considers a enough of different factors, length of employment, salary history, age of employee. And we have a defined benefit plan at HPS, and it’s been a game changer for our retirement savings and a huge boon to our employees who stay with the company for a number of years. So I’m a big fan of the defined benefit plan. [DING]

Matt Rzepka (42:53):

Great job. Yes. Great tool. How about in contrary, a defined contribution plan?

Michael Port (42:58):

Yeah. So a defined contribution plan is a retirement plan that’s typically tax deferred, like a 401K or a 403B, in which employees contribute a fixed amount or a percentage of their paychecks to an account that’s intent to fund retirement. Now the sponsor company will at times match a portion of the employee contributions as an added benefit. Now we have a defined contribution plan as part of our defined benefit plan that I just mentioned. So you see sometimes these plans can be combined for maximum benefit. [DING]

Matt Rzepka (43:34):

Awesome. Great job. And a quick point, the 401K had a law changed recently that adds ROTH 401K. So you wanna make sure, you know, as things change that you have different options from inside those plans.

Matt Rzepka (43:47):

So we’ve got two more. Michael, are you ready?

Michael Port (43:49):


Matt Rzepka (43:50):

How about dividends? Both qualified and non-qualified.

Michael Port (43:54):

If you just asked dividends, I would’ve done it easily, but now I gotta think about this. Qualified and non-qualified. So a dividend is the distribution of some company’s earnings to, you know, a class of its shareholders. So that’s easy. But a non-qualified dividend is a dividend that falls under ordinary income tax rates and are taxed anywhere from say 10% to 37%, depending on your tax bracket. But by comparison, qualified dividends, are taxed as capital gains at rates of 20% or 15% or even 0%, depending on your tax bracket. [DING, DING]

Matt Rzepka (44:30):

You get two dings for that one. Well done.

Michael Port (44:32):

Nice. Okay.

Matt Rzepka (44:34):

Now the last term, if you’re ready.

Michael Port (44:35):

Matt, I’m a performer and a performer is always ready.

Matt Rzepka (44:40):

Yes. What are basis points?

Michael Port (44:43):

Yeah. I’m not ready for that one. No, it’s a wonky one. We gotta put your beanie on for this one. So a basis point is a standard measure for interest rates and other percentages in finance. And it represents 1/100 of 1%. So the basis point is commonly used for calculating changes in interest rates or equity indexes, or fixed income security yields. Basis points also used when referring to the cost of mutual funds and exchange traded funds. So you might have an index fund that has five basis points or 10 basis points or 30 basis points. You wanna keep your basis points as low as possible when you’re investing. How’d I do?

Matt Rzepka (45:26):

You did great. That is correct. [DING]

Michael Port (45:29):

Actually. So I knew that one in theory, but I did have to pull it definition from the interweb because I couldn’t really explain it clearly without actually writing it down.

Matt Rzepka (45:38):

Well, I don’t expect anyone to memorize any of these definitions. You can always look them up at any time. The key is to have a contextual understanding of the language used in the different industries so that (A) no one can take advantage of you, and (B) you have a firm grasp on your business books and your investment strategies.

Michael Port (45:57):

Yeah. What I mentioned earlier is one of my personal rules is never invest in something that I don’t understand.

Matt Rzepka (46:02):

That’s right. That’s why a large part of my job is to educate clients on all the areas of accounting and finance that they’re involved in.

Michael Port (46:10):

Just like you’ve done with me.

Matt Rzepka (46:11):

That’s right.

Michael Port (46:13):

Okay. So just remember it is okay if you don’t suddenly feel like you’re totally fluent in business jargon or even a little fluent. We went over a lot today, a lot of jargon. And it’s not the most exciting episode that I’ve ever done on the show, but at least now there’s a single place where all these terms are laid out for you. And you’ll always be able to come back to them as we move forward in this podcast and as you move forward in your life and your business. So Matt, what are we covering next week?