Everyone has a story about a rebellion. It might be a small risk that ended up shaping the way you do business, or it might be the day you rage quit your job and started an empire.
Join Dawn Sizer, an MSP owner and her guests as they tell their story of rebellion, challenges they face in their business and life, and how to overcome them.
Each episode is packed with powerful information to help you grow your business, avoid costly mistakes, and learn from other revolutionaries in their fields.
This is because they provide vital financial insights and advice that can help you make informed decisions so your business stays successful in the long run.
“But what if my business isn’t yet at the scale to hire another C-suite member?” The good thing is, even smaller businesses can now benefit from the financial expertise of CFOs by engaging a Fractional CFO. They provide the same specialized financial planning and analysis expertise as full-time CFOs but at a fraction of the cost and time, making it a smart investment for any growing business.
They ask hard questions about the company’s position, its goals, and its future trajectory so that they can make sure that the company’s financial health supports your growth ambitions. And because they have this comprehensive understanding of your business and what is happening all around it, they can give you the right advice to make effective long-term business decisions.
Kathy emphasized the importance of incorporating strategic planning into the company’s annual calendar, proposing two distinct planning phases: spring planning and fall planning.
Spring planning, which can take place from March to June, focuses on long-term strategic goals and vision. During this period, you can assess the position of your business in the market and identify growth opportunities so you can develop strategic initiatives for the coming years.
Fall planning, on the other hand, can take place in the latter part of the year, and it involves short-term budgeting and operational planning for the upcoming fiscal year. This approach allows your business to balance long-term vision with its immediate priorities, while still maintaining sustained growth and adaptability.
Internal risk management is when you implement controls within your business to prevent financial fraud, such as unauthorized payments or misuse of funds.
For example, it’s extremely risky to have only one person handling all the financial transactions in your business without anyone else checking their work. But by placing internal controls, such as segregating duties and establishing checks and balances, you can go a long way in preventing financial losses.
Inventory management is another critical aspect of your business fraught with risks. Since your inventory represents a major cost, having the proper controls in place, like tools or systems to accurately monitor inventory levels will protect you from theft or waste.
Cautionary tale? There are a lot of KPIs measuring a large number of success factors. This is why deciding on which KPIs to focus on can be challenging, especially for small business owners. Kathy suggests starting with a manageable number, typically 3 to 5, that are directly aligned with your current business priorities. For instance, if your primary goal is to increase revenue, you might track metrics such as sales growth, conversion rates, or customer acquisition costs.
Every business is unique, and so are its key performance indicators. Even within your business for example, you may have different KPIs per person based on their role, department and responsibilities.
This customization then guarantees that the metrics you’re tracking will really reflect on what matters most to your business. So beyond hitting sales targets or conversion rates, the KPIs of your customer service department for example may be high customer satisfaction rates while that of your HR department would be having a lower percentage of employee turnovers and so on.
A simple way to identify your KPIs is to think about what questions you would ask if you were away from the business and needed a quick update. Those questions and metrics are likely your best key performance indicators at this point.
So through the expertise of a Fractional CFO, your business can effectively identify, track, and interpret KPIs, which will then allow you to make data-driven decisions and drive sustainable growth.
Fractional CFOs are adept at evaluating and enhancing these systems to meet the changing needs of the business. They focus on several key aspects, including making sure that it matches with your business objectives, scalability, automation and efficiency, reporting and analysis, compliance and risk management, and continuous evaluation and improvement.
With their expertise, you can face your financial challenges confidently, knowing that your systems are strong and aligned with your goals.
Announcer:
Welcome to Rebel Executives, The Podcast where everyone has a story about a rebellion, it might be a small risk that ended up shaping the way you do business or maybe it’s the day you rage quit your job and started an empire. Together with other revolutionaries, we’ll learn how to grow your business and avoid costly mistakes because let’s face it, none of us got it right the first time. Now let’s join the Rebellion with our host Dawn Sizer.
Dawn (host):
My guest on this episode founded a company to offer fractional CFO services to women-owned small businesses. For nearly 14 years she did senior level financial planning and analysis for Fortune 500 companies. She got to see firsthand how big companies use financial information to drive their companies forward. She then started her own company, NewCastle Finance, because she wanted to offer that same powerful financial insight to women owned businesses. Now she helps business owners get clear on their numbers and their financial strategy. They can feel confident in making the decisions that result in a thriving business. Please welcome financial puzzle solver, Kathy Svetina.
Kathy (guest):
Thanks so much, Dawn. I’m really happy to be here.
Dawn (host):
Well, thanks so much for coming. I was so excited when I found out that you dealt almost, is it completely exclusively with women-owned business?
Kathy (guest):
Yes.
Dawn (host):
All right.
Kathy (guest):
Women only.
Dawn (host):
That is awesome. That’s so exciting to hear, one, because I own a women owned business, but it’s not usual to find that woman to woman business going on out there and even asking for it is actually pretty difficult. How did you decide that, “Well, you know what? I’m just going to service women instead of any business that’s out there,” because that really kind of niches you down hardcore.
Kathy (guest):
Yeah, it really does. But, well, there’s two reasons. First of all is, I was in the Fortune 500 companies for so many years and what really bothered me that all these companies have all these resources available to them to actually take care of their finances. I mean, you have the apartments upon the apartments. You’ve tax strategy people, the financial planning and analysis people, the treasury departments and small businesses are really left to their own. In what I’ve also saw that when the finance departments there’s not a lot of women there. I would be in a table and sitting at a table, it’d be mostly men. Then when you go and you translate that into the world for the small businesses, it’s like no one’s really doing that high level strategy work that there’s a lot of women doing that type of stuff.
Kathy (guest):
What I really wanted to offer women to have someone that’s been in those positions before, has all that experience, had all that strategy and it’s able to relate to them in a way that it’s on a personal level as well. I really wanted to do that for them. The second thing, what I also wanted to do was, and it really bothered me too, is that it’s really hard for women to raise up in the corporate ladder. What I said, “You know what? Forget the corporate ladder, where you going to make their own ladder.” The way to do that is to build your own company. To do that, you have to understand the numbers, you have to use them wisely so that you can go from a business owner to a CEO of your own company.
Dawn (host):
Which is a really difficult process. I mean, extremely difficult process because being a worker is one thing and that’s great, and understanding of business is good too, as a manager. Then understanding it has that sea level is completely different, and then stepping into an owner shoes is something completely outside of all of that as well. I mean, if you’ve never done it before, you kind of go from zero to a hundred literally overnight, and it is a scary world and it is a lonely world.
Kathy (guest):
Yeah. I always say it’s a completely different animal to go from a nine to five, where you working for someone else, to an entrepreneurial shift space, when you have to wear so many hats, you’re responsible for so many things. You’re not just doing the work that you’re doing for your clients or for your customers, you’re wearing the hat of sale. You’re wearing the head of marketing. You’re wearing the hat of finance and no one’s good at everything. No one is. Having and relying just for yourself to go and do all of those different areas, it’s really not only exhausting, but it’s also, you don’t know what you don’t know, and you can fall into some really deep holes that you could avoid it if you had someone helping you with it.
Dawn (host):
Exactly. There’s no reason to make things detrimental for yourself if you don’t have to. Every time I think of, “What is the CFO?” I mean, big companies have CFOs. They do cool stuff with finances. That’s what we know from the outside world. Give me a real quick breakdown on what a CFO does.
Kathy (guest):
I love how you put it, “They do cool stuff.”
Dawn (host):
They do cool stuff.
Kathy (guest):
They do cool stuff with numbers.
Dawn (host):
Exactly.
Kathy (guest):
So people know what accountants and bookkeepers do. They do transactional type of work and they do taxes. That is the main expertise. Majority of them do that type of work. It’s very transactional, but there’s other things when you about your finances that you should be thinking about versus just a pure transactional level. In a quick nutshell, there’s a lot of strategic work and a lot of planning that goes into running a business and finances are the front of that. For example, a CFO looks at a business holistically. For example, do you have the right contracts in place when you’re dealing with your customers and with your clients, how risky are your current financial strategies? Do you have enough cash in your account?
Kathy (guest):
Also, on the other hand is too, do you might have too much cash in your account? I call that type of stuff, lazy money, because you could have cash in there that are sitting there and looks good, but it’s not really doing anything for you and for your business. You could be actually getting a return on that investment by maybe investing in another business, you could be acquiring another business. You could be putting it into let’s say treasury bonds or whatever it is that actually is not sitting there and just looking pretty, but it’s actually working for you. That your money is really working hard for you in a business. So those are the types of things that a CFO would actually take a look at and see what are some of the opportunities in your business that you are not seeing them, but you should be.
Dawn (host):
A lot of us would be thinking, “But I have an accountant, right? Isn’t that enough?”
Kathy (guest):
Unfortunately, no.
Dawn (host):
Because I sat there and thought about that the other night I was like, “Wow, well, we have an accountant. Isn’t that enough?” I knew the answer, but it was just more, a matter of, a lot of people would be sitting there going, “But I have this accountant, I don’t have a tremendous amount of cash. I’m not a multi-million dollar business.” Right. There’s gotta be tipping points, when you want to look at a CFO, what are the tipping points that would spur that small business? Is it money? Is it situation? Where would be the point where you say, you know what, this is where I should engage the CFO to look at this, or I should engage a CFO to be one of my partners along the way.
Kathy (guest):
Yeah. That’s a great question. The answer is it depends on the complexity of your business. If you can be a $500,000 business, but you might be expanding and doing a lot of business overseas or doing a lot of business with Canada and you have a foreign transactions involved and you need someone to take a closer look at that, that might be a CFO that might help you with. There’s also two other reasons that you might be looking at a CFO. Once you start really growing your business, and that’s usually a tipping point at about a million dollar sales, give or take. When you’re going to start looking at it and you’re going to have all these questions. They’re mostly management related questions that you will go to your accountant or your bookkeeper with that, and they will say, “I don’t know, or I just don’t have the answers for,” that’s the time when you would go and find the CFO.
Kathy (guest):
Then the third time when you would want to go and find it, if you’re looking to either acquire another company or if you are starting to involve outside investors in your company. If you’re looking for funding, that’s time to really talk to CFO to help you go through that process and another benefit is also because if you have a CFO on your company, it also gives the investors a lot more comfort that someone who’s doing well with finances and understands them is actually helping you guide through that process as well.
Dawn (host):
Exactly. If you’re getting to the point where you’re looking either at an angel investor or somebody like that, they could start an R&D project with you, or that would definitely be the time to engage that CFO.
Kathy (guest):
Exactly.
Dawn (host):
I love the fact that you talked about lazy money. We’ve had lazy money for awhile in our business, which is kind of funny. We’ve been looking to acquire a company or do something with it, and we just haven’t found the right situation yet. But those retained earnings that lazy money that you talked about, I mean, you talked a little bit about the things that you can do with it, what would you consider? I mean, there’s a tipping point there too. What would you consider the tipping point for lazy money or retained earnings that shouldn’t just be sitting there, but it should be being done something with, to start making money with the money.
Kathy (guest):
Yeah. That’s a hard question because there is no one specific answer for that. It really depends on a lot of things. It depends on your business model, it depends on what your goals are. It’s hard to say what exactly specifically needs to happen. But if I were to just say one thing, when would be a good time to actually start looking at it, if you might have lazy money is if you see your balance is just constantly growing, growing, growing which is great. Absolutely great, and you all of a sudden see that you might’ve doubled in the five years. It’s a time to start looking at it and say, “Is there anything that I could actually be doing with this and looking at this, that’s giving me a better return that I’m having right now?” Because if you’re just letting it sit there, inflation’s going to go and start eating it away. Essentially just leaving it there, you’re going to have less of it because like I said, inflation.
Dawn (host):
Exactly. Usually my tipping point is when my accountant starts telling me, “So what are we buying this year to get ready for the next?” Right. That’s usually my point of, “I hear you, Dave. We need to start looking at doing something with the money that’s sitting there because there shouldn’t be that much money sitting there,” because it’s just creating a tax liability at that point. Those are key words to listen for from your accounting staff.
Kathy (guest):
Sure.
Dawn (host):
Like, “What are we buying? We need to get rid of some money.” That kind of thing. That’s when you start looking at what can you do with those retained earnings? What are the other big things that I came across? And this wasn’t something that we had chatted about earlier, and I apologize for kind of springing this on you, but compensation plan development is a really good one to take a look at with a CFO as well. I hadn’t thought about that, but I did a little bit of reading, a little bit of stalking online, that kind of thing. I apologize. I don’t mean to make it weird but-
Kathy (guest):
That’s okay.
Dawn (host):
Compensation plan development is a big thing, especially as you’re growing a company, figuring out what to pay people, what you can afford to pay people, when you should bring staff on? That sort of thing. Let’s talk about that a little bit. Because I think everybody’s been in that boat and you’re like, “Well, how much do I pay that next person?”
Kathy (guest):
Yeah. Well, it depends where you are in your company, right? It could be that you’ve give the compensation to the people, but you haven’t given them bonuses for example, or you haven’t had a health insurance for them and this is something that you really thinking about right now. Those are all the things that you can talk to the CFO. Another, just besides the financial point and figuring out, what are the best routes to take, it’s also, CFO is a good relationship manager for you too, because they have a wide network of people that can actually help you with that. Because if you’re going down that route and you’re really growing and you’re starting to hire more people, you also want to take a look at your team from the HR perspective as well. So is there a point that you should be involving a fractional HR person to help you with all the hiring and managing and putting all the compensation together? Fractional CFO would be a good starting point to connect you to those people and to connect you to the services and network providers that will be able to help you with that and figure out what is the best route for you to take.
Dawn (host):
Right. Because it comes back to that. You wear so many hats anyway. There’s no reason for you to wear them all. Especially if you don’t know a lot of the legalities that surround some of the HR issues that you’re going to run into and making sure that you have your benefits packaged on the right way and just making sure that everything has its eye dotted and it’s T crossed at the end of the day. Because the last thing you want to get into is some type of dispute with an employee potential or terminated one that would even be worse, and then you’re kind of stuck with something that you did because you didn’t what you didn’t know.
Kathy (guest):
Yeah, exactly. It also depends on what state you are in. I mean, we’re in the US but if you’re in California, that’s a completely different set of rules and regulations that you have to follow versus in Illinois or in Wyoming or whatever you are.
Dawn (host):
Exactly. Let’s talk about the process that you go through helping somebody else. You come in, let’s say that we’re working together and what would be the first thing that we’d want to take a look at as my brand new CFO, that’s coming in to look at my business.
Kathy (guest):
Yeah. The first thing that I go through with every potential client and client down the road is we go through the financial health check. So that is an extensive assessment of your business, we’re looking at your business through different lenses. There’ll be things that we would look at. For example, how are your current accounting system working for you? Do you have an account and do you have a bookkeeper? Those are a must for businesses that I work with. What type of accounting system are you using? Are you on a cash basis or on you on an accrual basis. These are the way how you do the financial strategy and the way how you do the planning down the road. Those are the things they’re really going to impact how we’re looking at your financials.
Kathy (guest):
Not going too down deep into this rabbit hole, but with a cash system based accounting, you’re basically just looking at how much cash is coming in and out of your business. For example, if someone is paying you three months down the road, you are not going to be seeing that in your financials, under the cash accounting system. But when we go into the cruel, you’re actually going to be able to see all of the financials transactions that are happening regardless of when you’re actually going to get paid. That a big thing when we actually looking at your financial model. Then there are also other things that I look at, I look at, who are your customers? How are you actually acquiring? Do you have contracts in place?
Kathy (guest):
You would be surprised. I see a lot of businesses that are actually working without the contracts in place. They just send the proposal and then are working. So that is giving you liability in terms of what if someone doesn’t pay and what are some of the requirements for the workaround that you are actually being protective when you’re putting the contracts together. Some people forget about that part. You also think, “When are you actually going to get paid?” Right? Are you going to get paid on net 30 or net 10 or net 15. Those are all the things that really impact your financial health as an entire company as a whole.
Kathy (guest):
So when I’m looking at someone’s business I look at it in a very wholistic type of view and a 10,000 foot view, and then we would go into the recommendations, what needs to happen and what should we change so that you have that healthy business that it’s sustainable and you have a good foundation if you want to grow your business later on.
Dawn (host):
I think I actually had a mini heart attack when you said people, they just weren’t working with contracts. How do they function without a contract? Wow. That’s amazing. I literally can’t even on that one, the MSP World doesn’t function without a contract in place just from liability standpoint, from a lot of different reasons. I mean, I get the whole retail business. Somebody comes in, they purchase something you don’t necessarily need a contract for that, but business to business, folks you need a contract. You need a contract that lays out exactly what type of work that you’re going to do, how it’s going to be performed, who’s going to perform it? What dates is going to be performed through? There’s all kinds of things that you need to do to make sure that you’re protecting your business as well as limiting your liability from other people and other things. That needs to be. So if you don’t have contracts in place right now, stop what you’re doing. Find a lawyer, get those crafted, get that done. If you were putting it off for a rainy day, it’s raining, go do that.
Kathy (guest):
Yes, it’s pouring, do it.
Dawn (host):
It’s pouring. Wow. Yeah. I mean, to be fair, when you started business, you’re literally running by the seat of your pants for quite a while. It’s not like I have taken all this time and I’ve gotten all of my ducks in a row before I even opened my doors. That never happened. We all mean for that to happen that way, but it never does. I can understand, and I can see how that would be a thing, but just make sure that you’re, you’re working the way that you should be.
Kathy (guest):
At times it’s too, you just don’t know what you don’t know, or you’re operating from a trust factor, which is what sometimes a lot of people are. But you do have to realize that as you grow your company, and that’s what I said, that tipping point for me, what I usually step in is a million dollars in sales is because your business becomes a lot more complexity changes, and you need a lot more structure and processes to support it and to grow it, if that’s where you want to go.
Dawn (host):
That’s very true. I think the other thing, and I’ve mentioned this before, for those of you that listened fairly frequently, is it growing a business and scaling a business are two completely separate things. Growing that’s nice, healthy growth scaling goes a lot faster. Once you get into that scale factor, having a CFO, having a lawyer, having all of these people that can help you out and you can lean on them. Because you literally, once your company starts to scale, you’re only going to wear one hat and it’s the CFO and the CEO one, that’s it. You’re not going to have time for the rest.
Kathy (guest):
Exactly. Yeah.
Dawn (host):
I know we had talked previously and had a fantastic conversation a couple of weeks ago about all of this. You have laid out all of the different things that CFOs can do. We talked about financial analysis, we talked about budgeting and forecasting. We talked about cashflow management, which is huge. We talk about strategic planning and risk management and KPI development and all of those things. I sometimes think, I didn’t realize that a CFO would do like financial analysis, totally understand budgeting and forecasting, sure. Cashflow management, absolutely. But when you start into the strategic planning and the risk management and KPI development, I had no idea that was something that a CFO did.
Kathy (guest):
Yeah. That is something that the CFOs excel at, it’s the strategic planning and management versus when you have the financial planning and analysis, that is one piece of it. But a lot of it is why are we doing this? Why are we where we are right now? Where do we want to go? To get to where you want to go, you have to be really strategic and think about it. Not only what is your company doing, but what is the entire ecosystem outside of your company doing? How is the economy doing? How is your industry doing, what are some of the trends that we’re seeing and how can we translate that into your business? What do we need to do from a financial perspective so that we are ready and that we can anticipate certain things they’re happening down the road.
Kathy (guest):
For example, let’s say there’s a huge competitor that’s coming on the horizon. How are you going to protect yourself from that? Do you need to pivot? There’s been a lot of pivoting going on these days. But it’s true. It’s like, “How do you take that into account to what you’re doing? Because we are a part of this ecosystem and you do not have a company by itself. You’re not sitting on a lone Island. You are connected to all these companies in the economies, even around the world. So how do you reflect that in your financial planning? That is where the strategy comes in.
Dawn (host):
If you didn’t pause this and write all of that stuff down, do that now go back replay exactly what she just said. Write those down. Because building that strategic plan will help you grow. I guarantee it. My husband and I, we own our business together. We spent about, I don’t know, six months to a year, a year and a half ago, sitting down and answering a lot of those questions. That was in 2019 before the pandemic hit. We got ourselves ready to grow. When it hit, we grew by 200% in one year, it can happen. When you sit down and really think through all of that strategic planning where you need to be, what things can happen, how are they going to affect you? It will allow you to put the time in to build the parts of your business out that you didn’t have previously to be ready to grow and hit that scale factor to be able to do that. That’s a big one.
Kathy (guest):
Yeah. What I also advise people is, I have two parts of planning that I have my clients go through. One is what I like to call the spring planning and the other one is called the fall planning. When you think about spring, spring is for growth. What you want to do in a spring, that’s where you want to do the strategic plans, put it on your calendar every March through June. That’s when you actually looking at your company, you’re looking on a bigger scale. What are some of the things that you want to do in the next three, five years down the road? Where do you want to be? You look at it from a 10,000 foot view. That is what you should be doing in the spring time.
Kathy (guest):
In the fall is when you prepare. That’s when you put the budgets together for the next year. That it’s more of a short-term planning. If all you do for planning for your company are those two, the short-term and the long-term and the spring and fall, you’re going to be way ahead of any other business that’s out there.
Dawn (host):
Yeah. You absolutely will be. If you keep breaking it down further, like when we did ours, we did the one-year, the three-year the five-year kind of thing to figure out where we wanted to go, what we wanted to do, what we wanted the company to look like. Next year, three years, five years, that kind of thing. You get these grandiose plans and that kind of thing, and you dream big. Then you start putting in the pieces that allow that dream to come to fruition. As long as you start with that 10,000 foot overview, like you said, you can get yourself there. It’s just a matter of, this is the hard part, figuring out how to actually get there. But when you break it down into little tiny steps, it doesn’t seem nearly as bad.
Kathy (guest):
Yeah, exactly.
Dawn (host):
Risk management was the other big one, because when I think about risk management, risk management is something that we take on in IT all the time. I don’t think about that from the CFO standpoint, I think about it from the IT standpoint of, “If we do this, it limits the liability. If we do that, it increases the liabilities. We want to make sure that we don’t see that.” How does that work for the CFO planning?
Kathy (guest):
If we put risk management into the external and internal. The internal risk management is what we call the internal controls, which is what small companies really lack. The internal controls are a safe guard against fraud in your business. For example, you do not ever want to have someone, just one person doing your books, because they can create a vendor in your accounting system in QuickBooks or whatever you use. They can pay them, they can reconcile their bank accounts. If you do not have that oversight, they can steal money from you. It’s uncomfortable to think about it, but it is true that unfortunately a lot of businesses get stolen from because they do not have those controls in place. That is a part of the risk manager for the CFO, making sure that those controls are in place for the business so that you don’t get taken advantage of, from someone who was unsafe during accounting or bookkeeping space.
Dawn (host):
That is uncomfortable to think about.
Kathy (guest):
Yes.
Dawn (host):
I mean, the husband and I do the books. It’s not something that if he’s stealing from me, I’m like almost okay with that because I know where he sleeps. But from the other standpoint of it, from the way that we would look at it, we would look at it from time padding, that’s a form of stealing or we’re missing inventory or something like that. Those are the things that I would look at from the risk management standpoint in my business. For those of you who are in the same boat that I’m in, you’re doing your own books, or you have somebody that just double checks them or whatever the case is. You’d want to look at, look at your time entries from your folks that you employ, look at your inventory, look at anything that could get up and walk away. You know, that sort of thing. That’s the stuff that you want to take a look at too.
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Kathy (guest):
Yeah. That’s a good point. Especially if you have inventory, you have to have those inventory controls in place. Inventory management is a big thing because if you’re not doing those, inventory, you either forget it, or someone does something. If it’s really important to have those controls in place so that you know exactly how much you have your hands.
Dawn (host):
Exactly. Even when you have people that you trust absolutely in your business, inventory still goes missing. I say missing in that it’s unaccounted for, it was probably sold to a client exactly the way it should have been, but when it leaves the office, it doesn’t always get marked out of inventory properly or whatever the case is and then it doesn’t get filled. So then you are missing inventory that you may not even known about whatever the case is. So definitely get those controls in place. If you don’t have an inventory control system or some line of business application that actually tracks your inventory, be sure that you get one. Yes, I know it’s a cost, but trust me, it will save you way more money than you have paid for it in the cost of just doing business, honestly.
Kathy (guest):
Not only that, it also prevents waste too. If you keep forgetting that you have something in place in some closet hidden somewhere that you saw three months down the road and you completely forgot about it and you don’t account for that, you might be buying the same set of tools or whatever you using computers or hardware without even knowing that you already have that in your inventory. You’re essentially wasting money. You replacing something that doesn’t need to be replaced.
Dawn (host):
Exactly. I can tell you that we actually own way more. Number two, Phillips Head Screwdrivers than any.
Kathy (guest):
That’s a good example, too. Yes.
Dawn (host):
It is. It’s crazy because what happens is they go into a vehicle or they go into a bag and then we can’t find them. Inevitably my husband has six of them. We know where they are. It’s just a matter of going to him and saying, “Dave, we need the screwdrivers back.” He’s like, “No, I don’t have any.” Literally they’re falling out of his pockets kind of thing. It’s hilarious. It’s been that way for you. All right. The other big one for me was KPI development because this is actually a really difficult one to do for a lot of business owners, not knowing what their KPIs actually are, or even what a KPI is.
Kathy (guest):
A KPI is a Key Performance Indicator. To put it in a very simple term, it’s a number that you want to track that means something to you that is very important in your business. You do not want to track 20 KPIs because that is just going to be completely overwhelming. Ideally, what I tell people, focus on the three to five to start, things that it’s the most important to you right now that you want to go and change in some way or impact in some ways so that you have a clear focus on what you should be looking at. For example, if you are trying to grow revenue right now, because that is your focus, you would want to take a look at your revenue. You want to take a look at your sales, your sales pipeline, how are you doing? How many leads you have in the pipeline or something like that. Your closing rate. If that’s what’s important to you, and those are the three things that you’re looking at for the current theme.
Kathy (guest):
Again, KPIs are not Seven Stone. A lot of people think they are, they should develop as your business develops, as your business grows, as what you’re trying to achieve with your business grows. For example, we talked about the strategic planning. If you take that into account that will drive your KPIs for however many months you want to track them.
Dawn (host):
Yeah, it does. What I found out too, is that every person in the company may have different KPIs because there are different things that are going to be important to different people, and that’s completely fine too. The way that we figured out which ones were most important for us is the old adage of, if you’re sitting on a beach somewhere and you had to make one phone call to the office, what couple of questions could you ask to get particular information, numbers, whatever it is for you. Those are your KPIs. That’s the easiest way to figure out which ones they are. It might be sales. For me, it’s actually one of our survey results. I want to know what our numbers are for that. How are we working out? What are our CSAT scores? I want to know what our customers think of us. That’s a KPI for me.
Kathy (guest):
Yeah. That’s a good point that KPIs are not only financial. They can be quality KPIs, they can be related to a headcount, they can be related to a lot of different things. It doesn’t have to just have a number associated with it.
Dawn (host):
Exactly. Like I said, just it’s what’s important to you at any given time. Those numbers will probably change. Again, the numbers for the CEO and our COO, two completely different sets of KPIs, some of them overlap, but they are different for us because it’s just, what’s important to us. All right. Couple other questions that I have for you that I thought were pretty cool. We talk about planning a lot, whether it’s business planning, strategic planning, whatever, but we know that a lack of planning can ruin a business in all kinds of different ways. If we look at it from the CFO’s standpoint, what is one of the biggest lack of planning things that you see that does the most damage?
Kathy (guest):
It’s not knowing what’s ahead. We kind of touched on that before is, if you think about, let’s say that you’re driving on a road, right? You have a goal in mind and that’s where you want to go. But all of a sudden you start driving and you fall into a ditch because there’s a construction there and you had no idea that, that’s what’s going to happen. But if you plan, and if you take a look at it and plan ahead and you put it in ways, the ways will tell you, or whatever Google Maps or what you using will tell you, “Oh, there’s a construction right there. You might fall into a ditch, you better avoid and take this other route down there to get to your destination.”
Kathy (guest):
That is essentially what planning does. It helps you avoid and see things that you might not be able to see until you actually get there. It might be that three months, six months or 12 months down the road, if you’re going on the same path that you are right now, you might realize that, “Oh, I don’t have enough money in my account.” Or, “Oh, this cost is really taking a lot out of businesses available resources. I better be doing something about it now, so that I don’t get to this painful point in the future when it’s really red lights, screaming at you, ‘Your business is in real trouble.”
Dawn (host):
What we saw going into the pandemic, I think a lot of people had that fear of, the world’s practically ending because everything’s kind of screeching to a halt. I know we personally were in the boat of had that fear of what happens when people are slow to pay or can’t pay or don’t pay. Everybody goes through that at one point or another in their business. I think that’s one of those things to start planning for, well, ahead of time when you have slow payments or no payments for a period of time, just because there’s something going on in the world or in your area. By all means, take a look at something like that, and that’s one of those, “Yes, we have some lazy money sitting around, but that lazy money saved us in this case when we had slow payments.”
Kathy (guest):
Yeah, exactly. In those type of situations, having a line of credit that you can actually pull from is a strategic resource for you. I always say, “That is a useful strategic tool. You have to be using it very wisely. You have to know your terms. You have to be really careful with what type of credit you actually use so that it’s appropriate for what you’re trying to achieve with it and you have to plan for it properly.” But in that situation for example, if you’re a seasonal business that you’re seeing some spikes and valleys in your revenue, having a lot of credit line of credit to even that out is actually a good and useful tool to use if you use it wisely and you have the right terms in place.
Dawn (host):
Exactly. I mean, securing financing is huge and especially, I mean, you might even be in the same boat. We’re in, occasionally, where we have half a million dollars all of a sudden that has to be purchased in equipment. That’s not the usual amount that we would buy. We’re usually in the 50 to $75,000 at a pop. When we’re looking at half a million dollars, we’re kind of like, “Ooh, where are we going to get that from?” That’s not something that we have in that line of credit, is where that comes into play.
Kathy (guest):
Yeah. Having a good relationship with your bank and your banker that’s when it comes to play too, because if you don’t have a fractional CFO to help you with that, they’ll be able to advise you what you can do and what are some of the tools that you could be using. Having that really good relationship with your banker is where it really pays off too.
Dawn (host):
Exactly. We’ve had a really good relationship with credit unions for a very long time, but when you start into larger amounts in lines of credit and things like that, sometimes you just have to use different banks.
Kathy (guest):
Yeah. You do.
Dawn (host):
Unfortunately. We like our hometown stuff, but occasionally it just doesn’t work out all that well. Other things that we want to take a look at and I think this is something that needs to be said too, is that you don’t always have to grow your business in order to be successful. I think that’s something too that your CFO can kind of reinforce as well.
Kathy (guest):
Yeah. That’s true. The first question to ask yourself when you’re growing is like, “Why are you actually growing?” Is it because you have this pressure from the outside that you just want to grow your business and everyone else is doing it. You have to really stand still and say, “Why am I really doing this? Do I really to have a 10, 20, 30, 40, 50 million business?” Because chances are, you can definitely get there, but is it really going to have you be fulfilled and gave you that happiness that you do really what you want in life. Especially when you’re a small business, your business and your personal life usually kind of go hand in hand too. It’s like, “What do you really want to do? What is your goal in life?” Right. That’s one thing.
Kathy (guest):
The other thing is what is your exit strategy too? Do you want to grow it so that you can sell it down the line? That’s a great strategy to have? Maybe that’s what you want to grow it, or you’re just growing it because your business is this money eating machine that you just have to feed it, feed it to keep it afloat. That’s where it gets really hard because just growing it for the sake of growing it, it’s actually going to take a lot more resources and you’re never going to get out of that pilot until you actually look at it from an outside perspective of what is it really, that it’s taking so many resources and it can actually using them more wisely so that you don’t have to constantly feed the bees and you have a healthy and sustainable business in the end.
Dawn (host):
Exactly. I had that conversation with somebody, not all that long ago. This whole thing always feels a House of Cards. You’re setting it up, hoping that nothing falls apart or the wind doesn’t blow all that much. The gentleman that I was talking to has built and sold a number of businesses, very successful, and he’s like, “It doesn’t really get better. They’re just the House of Cards gets bigger,” and I’m like, “Come on, man, give me something, that is not making me feel better.”
Kathy (guest):
Yeah, it is usually you have more money, you have more problems to deal with.
Dawn (host):
That’s exactly right. I think that’s something that people think that if they just grow their business, the problems will diminish and that’s not necessarily true. So don’t think that you have to continually grow your business to grow out of the issues that you’re dealing with as a small business, you don’t get to grow out of those problems. They just become bigger problems, different problems. How’s that?
Kathy (guest):
Yeah. That’s true.
Dawn (host):
If you could give us one thing that you think most people miss in their financial checklist, what do you think it is?
Kathy (guest):
Just one thing.
Dawn (host):
Well, I mean, there’s probably plenty of things.
Kathy (guest):
That is hard to say just one thing. I would say proper planning. That is one thing that gets really missed. Planning from a strategic point of view and not looking at it just on an everyday basis, but really looking at it like we said a 10 view and taking the time and stepping back and saying, “What am I really doing with my business and where am I taking it?” If you do that, you’ll be really ahead of a lot of other businesses.
Dawn (host):
Be objective about it. As an owner-
Kathy (guest):
Yes.
Dawn (host):
… it’s really difficult to be objective about this little baby that you have created and nurtured and loved. It’s beautiful in your eyes because it’s yours much like your children. Objective about your business is so difficult and it’s everything about your business. Whether it’s even I saw it today, it was kind of funny. We were going over some legal documents on a contract and we’ve been using the same contracts forever. We just hired a law firm to redo all of them. My husband was actually a little annoyed that somebody else didn’t like his ten-year old contracts and I’m thinking to myself, maybe we should be a little objective about this they’re old. They need redone. We’ve hired someone to fix these because we know they’re not fantastic. It’s just one of those like you have to be objective about your business in order to plan properly.
Kathy (guest):
That’s what it’s good to actually hire someone from the outside to give you those views that you might not be seeing because you’re so close to it. You said it is your baby. It’s really hard to see things when you’re so emotionally attached to it and you’re so up close to it to see that object, that picture of your business. So having someone that’s an outsider to help you with that, whether it’s a lawyer, a fractional CFO, fractional HR person, or whoever you hiring to look at that specific view of your business, that’s, that’s a huge advantage that you have to use someone on something like that.
Dawn (host):
Yeah. It absolutely is. They’re going to see things that you don’t, which is fantastic because you don’t know how easy it is to miss things when you’re not being objective.
Kathy (guest):
Yeah. For sure.
Dawn (host):
What have we missed? Have we missed anything Kathy?
Kathy (guest):
One thing that I would add to it that we haven’t touched upon was the financial system and processes that you have in place. As you grow your business, keep in mind that what worked for you in the past for the software that you were using, the type of processes that you had in place, you might overgrow them. For example, and I always to give this example for people who have different streams of revenue coming in. For example you, you might be doing consulting business, you might be selling hardware, you might be selling software, right? If you’re just putting that into one big lump sum, it’s really hard for you to take a look at it from a perspective of what’s really working and where really isn’t working in the business, or what are some of the holes might be if you’re just looking at in a lump sum of revenue.
Kathy (guest):
But once you start separating those streams of income and the costs that you have associated with that, then you might not have the need for two years earlier when you started the business, you’re going to get a lot more financial insight and a lot better decision making down the road because the systems that you currently have in place are going to be able to support that much higher decision-making than before. So don’t be afraid to look at your business and asking, “The decisions that I’m making right now, am I able to support that with the data that I truly have or should I be looking and tracking it something that it’s able to support me better into the decision-making that I’m currently putting together?”
Dawn (host):
Exactly. I think that is a phenomenal point is knowing exactly where your profitability lies on any line of business that you have. Like you said, whether it’s consulting, hardware, software or whatever the case is, I know we reevaluate different parts of our business multiple times a year to take a look at profit margins and what’s going well? What’s not going well? What new things are available out there? The stuff that we resell software-wise, in our business we call it our stack. So whether we’re selling Microsoft, whether we’re selling a specific type of security operation center, whether we’re selling Endpoint security, that kind of thing, that’s all part of our stack of things. We look at what’s profitable, what’s not profitable?
Dawn (host):
How much time do we have to spend supporting it? All of those things go into our planning on which pieces of that stack probably need to get replaced because they’re not as profitable as they should be, or it’s causing an issue with something else or this particular thing doesn’t work with another particular thing for a subset of clients over here. Or we found something in this subset of clients that works really well, and we want to deploy it out across all of them. You do need to be looking at that and not only every now and then, you need to be looking at it quite often.
Kathy (guest):
Yes. That’s awesome that you’re doing that because when you have that detailed level into your revenue and into your business, that’s when you can really make those strategic decisions, because you’re able to see that, for example, this Microsoft product is not really doing that well. So you might say, “We’re not going to be offering that anymore.” If you don’t have that data to support you, you’re not able to make those decisions. You might be just going down the path that’s not really leading you anywhere good or you might be actually losing money and you wouldn’t even know that.
Dawn (host):
Exactly. I mean, you can apply that to a lawn care business. If your one lawn mower is going through way more gas than it should be that kind of thing. And you’d still want to look at it from the same detail level or Bob, your landscaper seems to take three times as long as Joe does, same type of thing. You want to have that visibility into your business to see where your profitability is, where you’re losing money, where you’re making money and maybe you found something that all of a sudden makes you a lot of money, but it wasn’t something that you were doing per se, as a service previously. Now you have a whole other division to just support that particular thing because it’s extremely profitable.
Kathy (guest):
Yeah. Data is power.
Dawn (host):
It is. It’s absolutely power. I think that’s probably where we should end this on, is data is absolute power. Make sure that you take a look really deeply into the data of your business.
Kathy (guest):
Yes.
Dawn (host):
Thank you very much for being here, Kathy. I really appreciate it.
Kathy (guest):
Thanks so much, Dawn. It was such a pleasure to talk to you.
Dawn (host):
That is it for this episode. We will see you next time.
Announcer:
Thanks for listening to Rebel Executives with Dawn Sizer, the podcast that gives you an edge over traditional business thinking and helps grow your business without making costly mistakes. You can join the other Rebels, taking the steps to become more effective leaders @rebelexecutives.com. Don’t forget to rate, review and subscribe so you never miss an episode. Until next time, long live the Revolution.
