Healthy & Sustainable Business Finances

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Kathy (guest):

You should not, for example, have your bookkeeper go enter the bill, pay the bill, reconcile the bill, because these are three different touchpoints, and someone can just create a fictional bill, pay yet reconcile it, and you will not know about it.

Lucy (host):

Hello and welcome to The Lucy Liu Show, the fueling station for your mind, business, and life. And now, here’s your host, Lucy Liu.

Lucy (host):

Are you a business owner struggling to understand your financials and not knowing how to use that information to plan your business? Hello, hello, beautiful souls. Welcome to today’s episode. I’m here with Kathy Bettina, podcast host of Help, My Business is Growing, and the founder of New Castle Finance, a company offering fractional CFO services to women-owned businesses. For 14 years, Kathy Deb held senior-level financial planning analyses for Fortune 500 companies. She saw firsthand how big companies use financial information to drive those companies forward. But she also didn’t think it’s fair how large companies have huge teams of experts taking care of their finances, while smaller business owners are expected to do it on their own. That’s why she started New Castle Finance because she wanted to offer those same powerful financial insights to small businesses as well. So welcome to my show, Kathy.

Kathy (guest):

I’m so glad to be here. Thanks so much, Lucy, for having me. Love it.

Lucy (host):  

So we’re talking about having a healthy and sustainable business? What exactly does a business need in order to be healthy and sustainable financially?

Kathy (guest):  

Now there’s this is a great question. It’s also very a very loaded question. Because there’s so many things, obviously, what any business needs its customers, because if we don’t have customers, we just don’t have a business. So but in terms of finances, and in terms of the way how the business is structured, is making sure that the business, the way how we running it, it’s actually being supported in the future so that we’re not just thinking about it in the short terms, but also in the long term. And I will give an example what I mean by that, right now, you know, we’re recording this in April 2023. There’s a lot of businesses there are cutting their marketing and marketing costs and advertising costs. And the problem with that is that when you are cutting in right now short term, it might look great on your profit and loss statement. But in a long term, it’s really not sustainable for the business because you’re cutting yourself off from that future generating revenue that might come in the future. So that’s what I mean when I talk about healthy and sustainable businesses is thinking about the decisions that you make in the business. How is that going to affect you in the long term, not just right now because it might look great on paper right now? But later on, it will come in bite you back, unfortunately.

Lucy (host):  

Yes, I absolutely agree. So many business owners identify themselves as number-phobic right? We all say, Oh, I’m not good with numbers. People get stressed out and they get anxiety just looking at numbers. Obviously, my suggestion to my clients is always just to work with an expert. And you speak a lot about fractional CFO. So for those who’s not familiar with what a fractional CFO is, can you tell us more about who that person is and how they’re different from accountants or bookkeepers?

Kathy (guest):

So, fractional CFO might sound like a fancy term, but really it’s not. Essentially, what it means when you think about a fraction, is that it’s a part of something. So, what it means is that you get a CFO that you’re sharing with other businesses as well. You get a fraction of the CFO that’s going to be supporting your business. That’s a good question that you have: What’s the difference between a bookkeeper, an accountant, and a fractional CFO? The best way to describe this is that a bookkeeper is very transactional. In your business, they’ll make sure that your bills are coming in correctly, your invoices are segmented correctly, and they’ll reconcile your bank account. All that stuff needs to happen in the business to get the financial data right. So, they pay the bills, and they make sure you actually get the money. Accountants are mostly focused on taxes, at least in the Small Business Accounting base, and making sure that you’re compliant, that you’re paying sales taxes, your actual federal taxes, and all that good stuff about taxes. But you’ll notice when I’m talking about bookkeepers and accountants, they’re very focused on what happened in the past in your business. So, their main focus is on what has happened in your business in the past and making sure that the numbers are correct. But we all know that just because we have the past done well, that doesn’t mean that the future is going to be done well, right? So, how do you take that information that your bookkeeper or accountant is giving you? And how do you make decisions out of this so that you can hire the right people and have the right business strategy? How is that going to look like? That is something that fractional CFOs do. Bookkeepers and accountants take care of the past, fractional CFOs take care of the future.

Lucy (host):

I love that. So, for you and your clients, do they still work with their accountants and bookkeepers when they work with you?

Kathy (guest):

Yes, for sure. And I will not work with a business owner that does not have a bookkeeper and accountant in place. That will not happen. I will tell them right there that stops because I cannot help them if they don’t have that. For us to be able to do the planning, the analysis, the future vision, and to figure out the decisions that we need to make, we need to rely on the reports and all the data that accountants and bookkeepers are providing. But that is absolutely foundational for any type of strategic financial work that we need to be doing.

Lucy (host):

You mentioned financial planning. Right? So how is financial planning for a company different from financial planning for people?

Kathy (guest):

That’s a great question. When you think about financial planning for people, you think about 401Ks, stocks, investing, and if you have a will or trust fund or any of that stuff. That’s financial planning for individuals. Financial planning for business is very different. Yes, you can have 401Ks that you offer to your employees. However, that is more of an HR benefit side, not something that the fractional CFO gets involved with. When you’re really thinking about it in the business sense, it’s about how do we make financial decisions about the business. Who do we hire? How should we use the resources that we currently have and the employees we have in the business? Do they make sense? Do we need to hire more people? Also, cash flow is a real struggle for small businesses. Just because you’re profitable doesn’t mean that you have cash in the bank as well. So managing that is part of a fractional CFO’s job, making sure that the company they’re taking care of has profit, revenue coming in, the right type of revenue because not every dollar is good money, and that they have cash in the bank. Also, how are they going to grow the business? These are all the types of decisions that happen in the company from the financial perspective that obviously doesn’t happen as an individual, right?

Lucy (host):

Yes, absolutely. And when would you suggest someone hire out the part of the CFO role?

Kathy (guest):

It’s hard to pinpoint precisely. I’ll tell you why, because a company that might be, let’s say, 300,000 to 400,000 in revenue right now, doesn’t really need a fractional CFO. They just need, honestly, a pretty good accountant and a very good bookkeeper. I always say that because I only work with companies that are between one million and up. So when they come to me before reaching four million, I tell them that they just need to get themselves a really good accountant who can explain things to them, and then they can make decisions. On the other hand, if you are getting investors in the business and if you are going to be growing really fast, let’s say you’re currently at 300,000 to 400,000, but in a couple of months, you see yourself reaching one and a half million, and then three million, you want to make sure that the decisions you make right now actually make sense and that you’re not bleeding money. So in terms of revenue, consider how fast you are growing. That’s one thing: look at how fast you are growing in terms of revenue. Also, if you’re under a million and not growing rapidly, and if you can figure things out on your own, then I wouldn’t recommend getting a fractional CFO because it won’t make financial sense. But once you’re at the point of a million or about two million, you’re going to start feeling the pain of needing someone to help you with this. You can’t just rely on the people you have right now. They’re doing a great job, but you need to be more strategic, and that is not my expertise. You’ll feel that pinpoint where you definitely need it.

Lucy (host):

Absolutely. And I think a lot of growing entrepreneurs are always focusing on their sales, their numbers, trying to increase their sales. But I know you’ve talked about how that might actually make them less successful. Tell me more.

Kathy (guest):

So I always say that not all money is good money. It isn’t. It depends on what type of customers you are serving. And an example could be, if you, let’s say that you’re an agency and you have a lot of customers taking a lot of your time, they’re difficult. Yes, you do get the money and they pay well, but the problem is that from an efficiency standpoint, you might have to hire more people just to serve those customers. So that’s not optimal. So yes, you can grow sales, but it’s also what type of sales are you growing and what type of margins are you growing and as well, making sure that your gross margins are where they need to be. So essentially, gross margins, as people are not familiar with that, it’s sales minus your cost of goods sold, or gross margin, what you essentially have available for everything else that happens in your business, like, you know, rent, people, and everything else to get to the net profit. But making sure that the type of business that comes in is good business, it’s profitable business. But it’s also that it’s, especially in the small business world, is that a type of business that you really want to work with, that it’s, you know, and then it has the potential to grow if that’s what you want it.

Lucy (host):  

Beautifully said. And I know you also talk about the risk of fraud for small business finances, even if you have an accountant. So tell us more about what might be business missing, to put them at risk.

Kathy (guest):  

That’s a whole topic that we could talk about for an hour if we wanted to. But I will boil it down to essentially what a lot of small businesses do not implement in their finances. And again, this is a part of a business being healthy and sustainable, is the idea of the internal controls, and internal controls essentially mean you’re safeguarding the assets that you have, not just the money in the cash, but also if you’re dealing with inventory. So, for example, that not just in terms of that the people might be stealing, but also that you’re not ordering stuff that, like doing extra ordering, because you know, something’s laying on the shelves, and no one remembers it, right? So having the country’s checks and balances, but in terms of the financial aspect of it, is making sure that not just one person. No, no one person should have the keys to the kingdom when it comes to finances. So you should not, for example, have your bookkeeper go and enter the bill, pay the bill, or reconcile the bill. Because these are three different touch points. And someone can, you know, if fortunately, that happens, they can just create a fictional bill, pay it, reconcile it, and you will not know about it. So there’s certain steps that you can do to make sure that not just one person doing everything. So that’s number one. The other thing is to you can create certain workflow. So, for example, you can give people access to that if a bill is over a certain threshold, let’s say $10,000, or $20,000, you know, whatever that number means for you that it goes through different workflow so that there’s two people looking at it and approving it, for example. I mean, there’s definitely ways to do this. But what I’ve noticed with the small businesses that I’ve worked with is that usually they don’t have any of that in place at all, and that’s putting yourself in risk. And that’s not a good situation.

Lucy (host):  

Absolutely. And I know you actually have a framework for companies to be healthy and sustainable.

Kathy (guest):  

Yeah, so the framework that I have, I’m really looking at the business holistically. And as we started the conversation, it all starts with that foundational bookkeeping and accounting. So that’s, if you look at it as a part of the house, that is really your first foundation of the house, if that’s not done right, then nothing else is going to end. You know, it’s, it’s what in it, they used to call it garbage in garbage out. So you don’t want to be in a situation where your financial data is just not making sense. And it’s not correct. And you know, it takes three months to update it. Because it’s people who just don’t know what they’re doing. So foundationally bookkeeping and accounting need to be done. And then once we have that done, then we can build the walls, right? So that’s the financial analysis. So now that you have all of this, what are you going to be doing with it? You’re going to be looking at the trends that you have in the business. What are some of the patterns that you’re seeing? Are there certain vendors that are just not as optimal as they should be? Are there any expenses that are going up or down? I mean, there’s so many ways to slice and dice this, but looking at it from a financial perspective and being curious, what are the numbers telling you? People like to say numbers tell a story. That’s basically what it is: financial analysis equals numbers telling stories. Well, once we have that done too, it’s making sure that the systems and the processes that you’re using to do all of this make sense for your business. So I like to call this as interior design because just like you would not put bats up in the middle of the kitchen, right? Because there’s just this big mess, you want to use the type of tools that make sense for your business. So if you’re, let’s say, specifically a contractor business and construction, using regular software that a marketing agency will use, it’s going to create a problem for you, because these are two different businesses. So you want to have a tool that you’re using that is specific for your business, so that you have the information that you can analyze later on. So that’s important, making sure that the systems that you’re using match your business well, that you can get the information easily, and it’s easily accessible, and it’s up to date. And then once you have all of that foundation, the analysis, the right systems, then we can talk about really planning for the business. So that is the house, the house protects the business, and the roof protects the house, I apologize. So once you have that, then we can figure out, you know, how are we going to grow, if we’re going to grow? What are some of the changes that we can make in the business that are going to make it healthier and more sustainable because now we know that we have good data that we can rely on? And then also if you are going to exit from the business, I know a lot of business owners don’t even think about this. But you know, we don’t live forever. So you probably want to retire at some point. Or maybe you want to pass it down to your kids. Or maybe you want to, you know, sell it off or whatever you want to do with it, there will come a time when you just don’t want to be in the business. So yes, it might be 20 years from now, but let’s figure out what we can do right now. So that if you do sell it, you can get the most for the business. And then the fifth piece that we talked about that protects all of this house is those internal controls, making sure that people don’t do weird stuff, and that you’re not being wasteful.

Lucy (host):  

I love everything you talked about. And it’s so true. When you start a business, you can totally already think about the exit, right? Just like how the younger you think about retirement, the better it is for you for planning.

Kathy (guest):  

And it might also be that you know, you choose not to do it, and you just choose to sunset the business, that’s fine too. But you still want to have an option. It’s good to have options.

Lucy (host):  

Love that. So in and out of running your own and other women’s million-dollar businesses, what is a favorite quote that you go by?

Kathy (guest):  

So I like to say this, that, you know, it’s really not about the numbers, but it’s about how those numbers can help you to achieve your vision and goals.

Lucy (host):  

Beautifully said. So where can we find you?

Kathy (guest):  

So you can find me on LinkedIn, Kathy Svetina, I’m the only one there, or you can also go to my website, newcastlefinance.us. 

Lucy (host):  

Thank you. 

Kathy (guest): 

Thanks so much, Lucy. I really appreciate it.

Lucy (host):  

To all the beautiful souls listening, thank you for joining me on this episode of The Lucy Liu Show. When I’m not podcasting, I am coaching high-achieving women in life transitions, getting unstuck, kissing overwhelmed goodbye, and living a more joyful and fulfilled life through strategic goal-setting and mindset transformation. It would mean the world to me if you subscribe, rate, or share this with a friend, and don’t forget to join me for the next episode. Remember, there is always a way, more blessings are coming your way. For free resources and show notes, head over to see https://www.lucyliucoaching.com/.

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