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How to Use Financial Data to Grow Your Business

Transcript 

Kathy (host):  

Hey there, and welcome back to another episode of Help! My Business is Growing, a podcast where we explore how to grow and build a business that is healthy, and sustainable. I'm your host, Kathy Svetina. I'm super excited about this episode because we're going to be talking about the importance of data as it comes to your finances. And I always like to say that data is the foundation of your financial health. You cannot make good decisions based on bad data. It does not happen. Don't get caught in a situation of "garbage in, garbage out". We're going to be looking in the topics such as what's the difference between accounting and finance and how to use them in a way that helps you grow because they are both important, but they look at different things in your business. If you want to know how to use them to your advantage, this is a really good show to listen to. Also, we're gonna look at your financial statements, what are the numbers in there and what do they mean? And how will they help you make those decisions, which is the most important piece? We're also going to be looking at the difference between revenue, profit, and cash, because it's crucial, that you know these differences, and that you understand how to look at them, and why are there differences in the first place? 

 

Kathy (host):

My guest on this episode is Lynn Corazzi. He's the owner of Data2Profit Consulting, and he helps small and medium-sized businesses make more money with their data. He does this by sharing financial ideas and tools that are typically fine only in larger companies, and he also goes beyond the numbers provided by the bookkeepers and accountants. Lynn's experience includes 14 years with Procter and Gamble finance and 10+ years focused on growing sales for a large cheese manufacturer. He also has a unique ability to help clients think big picture, while at the same time digging into the details of their results. This is going to be a great episode. So please join me!

 

Kathy (host):  

Welcome to the show, Lynn.

 

Lynn (guest):  

Hey, good afternoon. How are you today? Kathy?

 

Kathy (host):  

Good, good. I'm so excited to talk to you about one of my favorite topics, and that is how to use financial data to grow a business. And you like to say that there's no accounting system that really shows you how to grow, and I love that, because it summarizes so well, what's the differences between accounting and finance. When I talk with business owners, there's a lot of confusion about what accountants do and what we finance people do. And to me, accounting is all about recording the past, and finance is all about the future. I'm curious, how do you explain the difference? 

 

Lynn (guest):  

It is just that. If you want to keep score, yeah, you can say that your favorite team won by four runs. But the really analysis is, what did they do? What adjustments did they make? And how did they get back when they were in a situation behind. That's really, it's the accounting as the actuals, A for actuals, that F is the finance, and the finance is more that future-focused.  Because accountants telling you this is what happened. A good finance person is gonna say, "Yeah, and this is why and oh, by the way, this is how you can look forward and do something different to influence that result, either keep it growing, or turn it around whichever the case may be."

 

Kathy (host):  

Yeah. It's also using the numbers that you have, that accountants give you and figuring out what do you want to do in the future? And how you can use that data to make better decisions in the future? You're very much data-driven. I'm interested, what are some of the misconceptions that business owners have when it comes to data and the decisions making? What do you see when you work with them?

 

Lynn (guest):  

First of all, a lot of them don't even have conceptions about what their data is. They get their results, and it's all at a very high summary. They think that they're looking at their P&L, they're looking at the whole story. Actually, what they ought to be doing is ripping the P&L apart, particularly when it comes to their sales. Sale is a function of every decision that your customer makes, or that perhaps your sales reps are suggesting to your customers. Wouldn't it be kind of cool if you could take that sales number? Yes, we're up 5% and say, "Well, yeah, two and a half percent, and I came because we actually have more customers, and a lot of our customers, now, they're growing and the products that they've always sold. But that effort that we're making to get a greater variety of products into those customers is really paying off. Gosh, darn it, and our sales would have been 2% higher, have we not lost there's 30 customers that bought last year or last quarter that for some reason, just stopped buying from us?" Those are all the kinds of questions that you get to get into just by looking at your sales. And a lot had that means getting down to the invoice level, by a customer, by product, how many items are on his invoices? Those are all key things that could tell you how successful are you at driving more business from the same customers or growing your customer base?

 

Kathy (host):  

Yeah, that's a good point. I'm curious, when you're doing a sales analysis like this, I would really like to see what is your thought process? When you look at the P&L, the profit and loss statement, the income statement, and you're trying to do the sales analysis and margin analysis? What are the steps that you go through mentally, when you're looking at the numbers, the trending? What are some of the things that you're looking for, and how you're thinking about that?

 

Lynn (guest):  

It really comes down to a couple of other sub-metrics, but equally on sales. As I mentioned, how many customers do you have? And which soon as you say, how many customers you have, then you really have to ask, what is a customer? If you normally sell $1,000 to somebody, and that's a good, solid customer for you. But then you had a whole bunch of people buy in $20? Are they really customers? Or are they just casual sales? So really, then you know who was really driving your business? And then looking at out of those customers, what's their average sale? Restaurants talk about this all the time - average check, average eater check. What is what's going on with your average sales? Would you rather grow your business by selling more to the same number of customers, or sell the same amount to a much larger number of customers? Because when you start getting into those types of questions, it really thinks about what are your strategies? How am I trying to grow? 

 

Lynn (guest):

I worked with a business, it took me three years to convince them that they had a retention problem. And they would say, "Well, how can you say that people buy our product all the time? And look, how many sales? How many customers we reward our sales team for bringing in last year?" Yeah, but how can we pay the salespeople for bringing in all these new customers, but our net growth was 0.3%? Whatever we were dumping into the top of the bucket, it was just leaking out, and a lot of times people have their leaky buckets, that they don't seem to notice too much, because they're always worried about getting the new customers. Because that's what salespeople like to do, go get the new customers. Well, what are we doing to highlight when somebody else's volume is going down and getting in there proactively. Those are some of the questions that a sales analysis is going to come at. 

 

Lynn (guest): 

And so there's a number of ways that I look for things like that number of customers, average sales per customer, and then if you have a variety of products, how many of those customers are buying 1,2,3, or all 10 products that you offer? Because again, there's some huge insights there about what's really happening. And trying to put things into the context of, we've always referred to it as RAPs - Retention of customers, Acquisition of customers, Product penetration, like getting more a variety of products in there, and same-store sales, like are they buying more of the same products? When you wrap your head around RAPs, that's really what's happening out in the market. And there's not an accounting system in the world that I know of, that tells you that.

 

Kathy (host):  

Yeah, to recap, were the RAPs stands for Retention, Acquisition, and what is the P for?

 

Lynn (guest):  

P for Product penetration. If you got, if you sell big bikes, little bikes, and pool floaties, you want people in the course of their summertime to buy all three of those things. It's getting more products, it's the idea of like when you up at the checking out the grocery store, all that candy up there? 

 

Kathy (host):

Yeah.

 

Lynn (guest):

It's just that impulse purchase to add something or create a variety of products that you didn't even know you need until you saw it right there. It's that product penetration. And then man, if you come in there and buying loaves of bread, okay, why not? What can we do to get you to buy three instead of just two? If you're selling, if it's hot dog season, put the ketchup bottle by the mustard, so you're getting more products in that same trip, maybe that people didn't even need.

 

Kathy (host):  

You have these complementary services and complementary products, and this is where a lot of people also get stuck on because they think that every single product or service that they're selling, needs to come in at a profit. However, there are certain products or services that actually might make sense for you as a business to sell as a loss because it's going to be an entryway to a bigger product or a bigger service. So think of it more as a business as a whole was or an entire production or entire service, not just one piece of each of them. Would you agree with that?

 

Lynn (guest):  

Oh, Absolutely! Because if you have a staple of products that people are coming to you all the time with, you can get them in there and while they're shopping around, either walking into the backend of the store, or you gives you an opportunity for a customer service rep to talk to them and say, "Oh, by the way, while we're talking about this, let me also tell you about this other thing that we got going on." And then that way they can get them to try another product with you or another service with you. It's a way of upping the check a little bit, if you will, again, going back to my restaurant example, I love it because I used to do tables, right? And what happens when your waitperson comes back after your big meal and said, "Did you save any room for dessert?" "Oh my God, no, cuz I had my nachos." To start with, I had this huge entree and I'm stuffed, versus you go in there and say, "Hey, your dinners gonna be out here in a few minutes, let me tell you about this chocolate torte that we have. I guarantee it is to die for. If you're too full to eat it, I will put it in a box and you can join later at home." When I'd waited tables, and I did that, 30% of the people or so would buy that dessert upfront. And of course, they're going to eat it. And if they're going to eat it, they need another drink, they need a cup of coffee. You had $7 for the dessert, $2 for a cup of coffee, you've got $9. They're gonna throw in an extra tip, you got $12 out of them that they weren't planning on spending. Because you asked at the right time you offered something unique to the dining experience, and they stick around there. And when they walk out of there, they're gonna tell you about that chocolate torte was so amazing.

 

Kathy (host):  

That is such a great example. Because when you go to the restaurant, you're hungry for a main meal. But there are all these different products, different foods that they're serving you. You can have an appetizer, you can have a glass of wine, you can have dessert and everything comes up, and it comes as an experience when you're in the restaurant as well.

 

Lynn (guest):  

And this is sales. Okay? The waitstaff is your sales rep. And they are trying to create this customer experience for you. But it also depends a lot on your behavior. When you walked into that restaurant, what were you thinking, I want something in and out quick, or I'm celebrating something with a special person in my life, and you expect something else. If your waitstaff or your sales rep is paying attention to that really listening to what you're trying to get, you are going to be in a more receptive mood to buy things that you may not necessarily have wanted. And that's really what every store tries to get you to do. Right? As you're walking through, they got things out there to entice you, every good sale call, with, if you're doing industrial sales, or you're selling cleaning supplies through as a distributor, you've got something that people need, what else do they need that they can probably get from somebody else, why not get it from you? And it's understanding those behaviors of your customer, the behaviors of your sales rep. You really want to understand what's driving your sales, those two things account for everything.

 

Kathy (host):  

Yeah, listening is such an important part of the business. Listening to the market, seeing what they need, what they're asking for so that you can offer those types of services and products, even if you don't have them right now you can go ahead and develop them.

 

Lynn (guest):  

Yeah, and the idea of a loss leader, what you don't want is a losing customer. And we all have customers that we know that they are the effect. I was in a restaurant whenever this guy told me on his POS system, here's my PIA a button, and his PIA button - it's a pain in you know what I'm talking about. This woman would call up and order a pizza every Friday night. And two hours later, she would call and say there was something wrong with it. And he said one day, I just told her, "Please, I think you should take your business somewhere else." Why? And he said, "Well, our history with you is that you always order the food, you seem to like it. But we aren't we can ever make you happy. And we have we're happy to return your money. But just be happier with somebody else." He said she never called back again to complain after that, because he called her out, right? 

 

Lynn (guest):

But we all have customers we'd rather not deal with. Those customers take more time always want to return something, those people actually costing you money. And if you can look at their behavior, maybe it is better to have your sales take a slight dip while you focus on better customers- customers that you really do want to keep, and you want to have a better relationship with. Particularly small business owners, they think a sale is a sale and every sale is a good sale. Not necessarily. And sometimes it takes a lot to admit that. 

 

Lynn (guest):

But I was working with somebody once they were you know, they kept saying all the right things. But there was always a but and finally, I said, "Look, you know, I would love to work with you, but you're not ready." "What do you mean are not ready?" "Well. You've told me that you could do this except for this. And you gave me another reason why we couldn't go down this path. And great, this is something I want to make sure that if I'm going to help you get more out of your data out of more, they'll give improve your financial results. I don't want to just do the work and realize that it's not going to be put to use. You have to be ready to make a change. You can be proactive about it or something awful can happen to your business and your results really go down. And then you're gonna call somebody like me for help. I'd rather help you do it proactively, and work with you in a very positive collaborative way, as opposed to saying, "Hey, I'm from the bank, or the bank sent me here, let's take a look." That's not really where I want to be.

 

Kathy (host):  

And you touched on such a great topic there being proactive versus reactive, especially when it comes to business. This is really, really important right now, at this point where we are, we're still the pandemic going on, and how would you go about if someone's going down this, they see the value of being proactive, but they're not sure exactly how to get there? What would the steps be? What would your advice be to someone like that?

 

Lynn (guest):  

I got 10 questions that I can ask you about what's going on with your business? What are you looking at? What types of questions you're getting into? Who actually uses and accesses the data just beyond the accounting staff? And so we'd really want to understand that and do an assessment of what are you doing with your information available to you today? Because there's a lot of easy wins that one could get, but you have to kind of have the skill set to want to get in there. And unfortunately, sometimes you can have a great IT person, but they're not really attached to the business as much. Do they really work with the sales team? Can they talk to the business team leaders, and that's some of what they try to assess with them. 

 

Lynn (guest):

And then I actually had a client who had been working with their part-time CFO, they spent a lot of time developing this new system to track all their quotes and the jobs that resulted out of them. And he finally told him, "Look, you need somebody to come in and help you figure out what you can do with this." I had three sessions with them, to try to get them to put the question out that they wanted answered. We got close enough. I can say to them, "Okay, here's what I think your main need is? Yep. Okay, there, they agree, we want to do a wind road analysis, we need to take a look at that by customer to understand because they were doing hundreds of quotes. And they had a pretty good overall success rate. But who was winning it? So we need to understand who we are winning with, and who we're putting a lot of effort into and not winning with. And then finally, we need to look at profitability." They said, "Okay, they would have never gotten there without a guided conversation, somebody to listen, and actually come to them and say, "This is what I think I heard you say, even though you didn't really say it." 

 

Lynn (guest):

I don't know if that answers your question. But it really is, it's a conversation about what's possible, what are you really trying to think? What do you think your pain points are? And then do you have the information that we need to be able to dig into it? Because a lot of times, you have all that stuff. I don't know of a CFO that I've ever worked with, that didn't have a stack of questions that they wanted to ask or a bunch of projects. They don't have the people, they don't have the capacity. And if you don't have a finance person, which is really the one who typically does all that and you're relying strictly on your accountants. Your accountants are doing the daily work, they're closing the books, and then they may have a week in between all that activity where the whole cycle just starts again. 

 

Lynn (guest):

So that's, that's really, where a good finance or resource or part-time resource would work with. If you are the part-time CFO, think of me as a level below that. I'm the part-time director of finance. Whether it's comes from the CFO or the owner of the company, here's the question. "Okay, let's understand what question we're trying to ask and why go off and find the answers." And now, if necessary, it can be a one-time thing. Or if it's probably going to be something if you had that question answered, it's going to cause you to ask for more. But we can begin developing the capability to make some of this stuff repeatable and efficient. Because the first time you're going to do it, it's going to be, it's gonna be a challenge, getting all the data formatted correctly, where's it gonna come from? How do you manipulate it? And all these other questions that data people deal with? Once you get through that thing is, "Okay, this is how we're going to do it." Things like that can happen over and over and over again, much more efficiently and effectively.

 

Kathy (host):  

Yeah, and the foundation for that is having the data and having the data that is correct, that you can rely on that it's updated on a regular basis on a monthly basis, on a weekly basis, whatever that cadence is, so that people can actually take that whether you have a finance person, a fractional CFO or someone like that in the business, they're able to untangle this data and make sense of it. I always said that with the businesses that I work with, it has to start with the data that is accurate because you cannot make good decisions on bad data. It just does not happen.

 

Lynn (guest):  

No. And you know, when you think about how many different ways things can be abbreviated. You go to Port Washington, okay. How many customers do you have in Port Washington? Well, should be easy enough to pull, right? Somebody put him in as P.Washington. You can Wash., Port Wshing. All these different ways of putting something into the system. One of the best LinkedIn post I ever saw was from an exact senior executive of Google. She asked for a report and you know, just a raw data poll. She found 57 different ways that they spell Philadelphia. 

 

Lynn (guest):

Where do you know your customers are? Or do you want to send your salesperson down to Cincinnati? What can they do around Cincinnati? Well, you take the first three digits of the zip code, and you can say, "Okay, all these other customers we have there, you're going to go down and see customer, your biggest best customer, but they're going to be down there for two days, what else can they do?" You could pull a list of customers by zip code, except, you're finding out that a lot of the customers in your system don't have the correct zip code or the complete zip code. Again, you're sending somebody down to a street that may or may not exist in that part of town.

 

Kathy (host):  

Yeah, exactly. Data scrubbing is a big part of it. And you can avoid a lot of it if you really think about how you inputting data into the systems, to begin with, that your salespeople are using, the same abbreviations they're using, the same type of terminology, whatever they're putting into the system, that you don't have to do all this much scrubbing later on. Because the more scrubbing you have to do, it's very prone to error. And the other side is it takes time, you can do a lot of it automation, but you still need a human eye to take a look at it, and at it adds to your cost, it adds to your time, you're not going to have good data to rely on. Think about it in advance, how are you putting that data in the system that it's clean as possible on the other side when someone's using it.

 

Lynn (guest):  

Absolutely. It really started my career, I worked for an internal audit for Procter and Gamble. And one of the controllers at the time talked about the house of finance and accounting. And at the very bottom of that solid foundation was accurately recorded financial transactions. Then it all just went up from there. With your transactions are accurate, your statements are accurate, and then your forecasting can be accurate, and as you keep building on this business knowledge and all the investment activities. Whether it be in a new product or whatever, now you can pull the information you can count on to be accurate, and so you can make a better decision. That decision based on bad data is worse than the bad decision itself. If that makes sense. 

 

Kathy (host):

Yeah. 

 

Lynn (guest):

Because it's an unfortunate thing that doesn't have to happen. But I, also tell people, I would never tell a business leader not to trust your gut. Because you have an intuitive sense of what's really driving your business, but occasionally tested, validated. Particularly we've gone through this huge period of change, you have to wonder, are all the internal rules that you know about your company are they all still valid? One of the biggest rules was, "Hey, our people will not be as productive unless they are in the office." Now, there may be no you can bait all day long are people more productive working from home, but at least now we've gotten more information about that. And when we go back to the same old way we were doing things. No, a different set of data, a different experience, may open us up to different possibilities.

 

Kathy (host):  

Yeah. And you know, when you do have this data, and you're so right, it gives you more confidence in your decisions, it gives you better financial confidence. And we talk a lot about financial confidence. But I do want to take a second to unpack this. How do business owners and founders how do they go about developing this financial confidence? Have you seen anything that's worked well with your clients?

 

Lynn (guest):  

Working with somebody who's actually kind of like thinking more strategically about their finances. Eventually, think about the almost natural evolution of a business. I get into it, because I want to make cupcakes. And I'm really good at making cupcakes. That's makes me happy. I love counting cupcakes. I love people watching eat my cupcakes. I don't know anything about my accounting, because I don't that's not what I do. It's the first thing I do. I give it to somebody else. And once a month, I get a report and I get something else some statements after I get those for a couple of days week, a couple of periods. Am I ever going to admit to that accountant that I really have no clue what they're giving me? 

 

Kathy (host):

Yeah. 

 

Lynn (guest):

So yes, I develop a basic understanding over time through conversation. And then eventually my business gets big enough, I bring it back in-house, and I hire an accountant. And that person's doing anything good, I can go down and talk to them. I get me to spend more time with him than I did otherwise. Eventually, I'm going to hire an accounting manager and a controller. Then I'm going to engage with somebody like you as a part-time CFO or fractional CFO. You're the expert in what you do. You're thinking more strategically. And then it's usually only at that point to start bringing in a finance person. And that's why so many small to medium-sized businesses, when you say I do finance, I say, "Wait, no, no, I have nothing to do with banks or debt. Or I don't want to, I don't want to buy your accounts receivable or even manager accounts receivable." That's not the finance I'm talking about is the business analysis, performance analysis, your business partner who's creating new information, so you can make better decisions. Better decisions, hopefully, lead to more profits. That's really what it's all about.

 

Kathy (host):  

Yeah, and business planning for companies is a lot different than business planning for individuals. What I've seen with conversations that I have a lot of people think that finance in businesses, we're gonna talk about retirement, we talk about investment, but that's not what we do. Right? 

 

Lynn (guest):

Right. 

 

Kathy (host):

We do talk about investing in a way but investing for the company, not for the individual in terms of the 401Ks. And when business owners look at the numbers, in the end, they have all sorts of questions. And what I've seen a lot is, there's this misconception that profit is the same as revenue, as the same as cash. I mean, a lot of them have a really hard understanding, wrapping their head around how profit is different from cash. I do not want to go into the technical account at all. But I really like to get your input on it. How do you explain the difference between revenue, profit, and cash, because it's such an important topic, especially as the business is growing because you might have revenue going up, you might have more sales coming in, you can go from $2 million business to $10 million, but eventually, your profit can actually be a lot less than what you had when you were a $2 million business. Because you have all these extra expenses. I would really like us to talk about the difference between revenue, profit, and cash.

 

Lynn (guest):  

You can take anything on your desk, this mouse, I'm going to sell it to you, and I'm going to sell to you this mouse for $1,000. I spent $500 buying it. You buy it, and so like I've already spent $500, so I'm in the hole $500, right? I have no cash, like I owe somebody, I have nothing left. When we agree that you're gonna sell, you're gonna buy that mouse for me, we're gonna record a financial transaction that says, "You promised to give me $1,000. And therefore I spent my $500, I have made $500." I sell it to you for 1000, I spent 500, I get to keep $500, I am $500 better off. So that was great revenue, I made a great profit. 

 

Lynn (guest):

But now you decided that you're not going to pay me or you decide that you're going to breach our contract because it's not as good as a mouse as you thought it was gonna be. All of a sudden, you're only giving me half of what I get. My cash situation is completely different. So and ultimately, cash really reflects the physicality of what is going on in your business. You're taking money in, you're paying money out, that is your cash. And let's face it, I think most people have heard this statistic before, and 80% of new businesses go out of business, not because they're not making a profit, they just run out of cash. It's managing that cash receipts and cash payments. So they get broken. And if you're not forecasting your cash or understanding and forecasting your cash usage, you can look ahead and say, "Oh my god, I've got this credit card bill that is going to be due at the end of the month, I owe somebody $10,000." Now I at least get myself a couple of weeks to come up with the money before I have to write that check that I know is going to completely wipe out everything that I've saved and more. 

 

Lynn (guest):

And so that forecasting really helps you understand what's going to happen. You can forecast your sales. You can forecast all your expenses, you can forecast your cash. And people say, "Well, then you know, your forecast is never going to be right." Of course, yeah. The only thing I know about my forecast is it will be wrong. You're not going to hit every single assumption perfectly every single month. But the idea is you're thinking about what can happen and a good forecast also has some ways of looking at okay, the what-ifs? What if sales are 10% higher? What if they dip 30%? How long could I be able to last? That's what a good financial forecast is going to do. Hopefully, that gives us a little bit into sales, profits, and cash because they are three entirely separate things. They always represent different views of your business.

 

Kathy (host):  

Yeah. And that's forecasting them in three different stages, think of it is, how much money are you bringing in? How much expenses are you going to have to take out of the business to support that particular sale that you're forecasting? And then how much is that going to bring you in cash. When you're forecasting all of these, that's going to give you a good indication of whether the path that you're on right now, if there's a hole down the road, because you might actually have to go and hire more people to support that extra sales activity that's happening. That's really important when the business is growing. Because when the business is growing, you're gonna have more expenses. And if you're not careful, if you're not looking at those numbers, if you're not forecasting, you can find yourself in a loss, and if you are giving credit to the customers, if you're working on accounts receivable, the way how the contracts are set up, you will have the expenses come out of the business, but the cash is going to come on later. There's going to you're giving them that float, and that can really get airy really fast.

 

Lynn (guest):  

Yeah, yeah. Another thing is, understanding what you're getting into and let like layout the calendar, when can all this stuff happen? I worked with a woman, she owns an advertising company. She did a lot of websites. She knew that it would take a website about three months to get done. She had the customers pay up half upfront. On day one, she gets half of her revenue, it's going to take three months, and she's going to be paying her contractors out over those three months. And then she knows then she's gonna invoice the person when it's due. And then she's gonna get that in that money, the second half of the revenue, a month after the website launches. Her forecast was pretty tricky. But once you establish what is the timeline that all these things are happening, she can now work from her quotes. "Okay, on this one, I'm going to, I'm going to build it for $3,000, I'm going to get 1,500 upfront, and I'm going to pay my contractors during the course of it, I'm going to get the last bit of money." Her net profit in terms of cash actually in the bank is going to be literally four months from the day she signs the contract. And there were all these different moving pieces. Then we started to say, "Okay, well, how can we how can we impact your cash flow?" 

 

Lynn (guest):

I worked with another guy with a potential client. And he was telling me he wanted to grow 6%. "Okay, how?" "What do you mean how? How long gonna sell more?" "Well, of course, you're gonna sell more, you just said that's what you're forecasting to do. But how are you going to do it?" And again, to the question of okay, do you need a salesperson who's going to go out and really get you, new clients? Or do you have the guy who could go out get new business, you need to hire a salesperson to take care of the business that you have? Or do you really want to inside salespeople to work with the customers, and you avoid all that on the road expenses. You have more frequent contact with the customer that you have, which is going to help you better? I never thought about that before it because all those things have a different cost associated with them, particularly offering benefits a company car, you know, all these different things. How you're planning on forecasting the assumptions also should cause you to think a little bit differently. Where else are you impacting your business by doing that?

 

Kathy (host):  

Yeah, and the sales commissions are a big piece of this, too. How are you compensating your salespeople? And I just had an episode that I did with Chris Michel, it's episode two, if you're listening to it, go take a look at it. Because we had a discussion of how do you compensate salespeople so that it's fair to them and that it makes sense for you as a business. Because if you're not doing the analysis, if you're not looking at the sales compensation, you can get into another situation where you're just not making enough money, the majority of it is taken by these expenses. Even though you're selling more, you're not keeping enough money in the business. So really be careful about when you're growing, when you're adding headcount, especially when you're adding salespeople that you're putting on a compensation plan that makes sense for you.

 

Lynn (guest):  

I need to get that link for me because I'm currently working with a client right now. And we're looking at how to not only restructure their sales commission because now we're trying to figure out how do they want to grow? Are they rewarding the stuff that they say? If we're gonna grow by selling this new product, but you don't give it a sales rep, new incentive to learn that new product, took a greater risk of getting that product into a customer versus selling the same old stuff that I've always used to selling? You're gonna have your expectations and rewards doing different things. We're working with this plus they're thinking about a component to have a company-wide profit-sharing plan. And so I need your thoughts out of that with that webinar of yours. Send me that link, please.

 

Kathy (host):  

Will do! Lynn, when you get a new customer, when you get a new client in, is there anything in particular that you focus on at the beginning when you start working with a business? I know we both listen to the potential clients where their pain problems are. But we both have our processes, the things that we look for when we look at their financials, what is it that you look for? What are some of the pieces that you go through?

 

Lynn (guest):  

The first thing I'd like to do is, let's walk through your plan, and let's walk through your monthly financial package because that will give me a sense of what they're actually looking at. I suspect that I will ask different questions about the results than perhaps they've, perhaps they've been asked before. And then that'll tell you okay, do they generally know the answer to that? Or is this an area that is completely brand new to them? 

 

Lynn (guest):

For example, gross margins? If you think about a decent-sized company, there are seven different organizations within the company that it can impact your margins. Is it your sales reps, giving you more giving away margin, or the marketing people pricing? Is your customer service extending credits to keep customers happy? Is it your manufacturing, your distribution people? Is it your purchasing people? Yes, your margins are going up and I once worked with the CFO is that like, "I'm tired of telling people I am right." "What do you mean by that, Joe?" "I asked these people what's going on? And they give me an answer. And they say, "Well, I think it's this, I don't think so. Go figure it out." They always come back and say, "Joe, you are right." 

 

Lynn (guest):

If you have lots of moments like that, where you realize during your financial reviews, what does it take to actually get an answer for you? What types of questions are being asked? And how many people are leaving that room saying, "Okay, I've heard that anecdote over and over and over again, to explain sales." You know, who's bringing the data? Who's bringing the actual insights, that we can put it on? We can debate about what it means. But if you have the right information in front of people, it's there. And now what do you do with it? An easier place to start than when you have no information or people's best guests, their judgments or hope wishes, prayers, and dreams about what the answers might be? Let's bring in some facts. 

 

Lynn (guest):

It's really stepping in and seeing what are they doing today? What questions or their business are they really trying to get to, and then assessing not only, the answers that they're looking for, but then we'll take a deeper dive and I'll ask for a snapshot of their data just to kind of see how dirty, nasty is it. If it's clean, it's going to be a heck of a lot easier to do, it's going to be more efficient for me to do and that's going to be reflected on a quote. But if I look at this and say, "You know, let me show you what we're dealing with here, this is going to take me 20 hours to clean up and just to get ready to stage and do the work, there's going to be a couple $1,000 there that is just because of you're starting with really bad stuff that needs to be clean." But even that is going to be an investment, that's going to help you in the long term get more positive returns out of your data.

 

Kathy (host):  

And we kind of brought this full circle, we were talking about clean data before and had, again, it comes down all back into having that clean data so you can make the decision that is such a foundational piece, and I'm glad we were able to dive deeper into this. So Lynn, if someone is trying to implement this in their business, trying to be more proactive and having that clean data in their business, what is the next tangible step that they can take in the next week or so to get them to that point?

 

Lynn (guest):  

Once you have an idea, because sometimes you, I have the best intentions I want to do this. And the sometimes the natural ability to just look at this and say, "Oh my god, we have data everywhere. You can't do everywhere, everything." So really trying to identify what can you do to get a small win. Because that small win will give you the confidence to take another step. 

 

Lynn (guest):

The other thing to do is make sure you tell people what you're doing and why and what it's going to mean to them. Because now all of a sudden you're telling me that you're going to watch where I'm going, you're gonna start tracking how many customers I go see. "Well, I'm doing my job. I'm out there selling." Well. Yes, you are. This isn't about you. This is about us collectively getting smarter. And that's really so making people- data can be scary because there's all these images that people have about big brother watching me and that can happen, but if you really go out with the intention of I want to get better, I want my organization to be better, I want my people to have better information so when they go sell, they don't have to spend hours and hours prepping for their customer meeting, because we can now design a simple report for them, that they can run, has all the key information, their trends, the volumes, a picture of how their sales have changed over time. Give them that right information as like, "Okay, now I'm ready to go. I don't have to go find all this stuff." 

 

Lynn (guest):

My intention will never need to make a salesperson, a business analyst, any more than I would probably want my accounting team to go off and start selling, they just have different skill sets. Let's get people the right information when they need it, in the format that they need it, that's going to be the most useful to them. And that that's ultimately how you get buy-in. Because at the end of the day, if you don't create that with them, that what's in it for me, people will resist change, and making sure that you're accurately putting stuff into a system. Salespeople hate that. I don't even like it. I run my own business. I told people for years and years, this is what you should do that I refuse to do myself. But it's a discipline. But you realize that, if you don't do that, you're not going to remember everything that happens. That's why those notes right then and there are good, and you can demonstrate it over time. I don't know that if I rambled on there for a little bit. I don't know if I got to the heart of your question. But that's some things to think about.

 

Kathy (host):  

Yeah. And I think it all starts with a step. And you tell me if you agree with it as identifying it where you are right now, how good is your data so that you can figure out where you want to be in? Whether the bridge that you need to cross to get there? Whether you start doing it on your own? Whether you hire someone like yourself so that you know exactly where you are? And how do you get to the point where you want to be when you have clean data, reports that you need, your salespeople get all the information, the sales is easier, but figuring out where you are right now that that's something that's really helpful. Would you agree?

 

Lynn (guest):  

If the leader really wanted to take a very easy first step? Just every time they hear an explanation. Why? Why go figure out why? Good dig why? Because that's it, that's a quality control method. I think the Japanese- 

 

Kathy (host):

The five whys.

 

Lynn (guest):

The five whys. You ask why five times you will get to the answer. But if you ask me, "Well, okay, why did margin change?" Well, because revenue wasn't as high as it was. "Why wasn't revenue high?" Well, because we took a price decrease, or we gave this big chunk of money back to the customer or maybe it was simply a mix. Okay, well, that leaves "Okay, well, cost also changed." Well, why did they change? Now, you're going to really challenge your accounting team and your production team to really talk about costs in a different way, understand it a different way. Just asking why making people do the work is a way to get the thinking process started. 

 

Lynn (guest):

But eventually, you are going to have to have somebody to help you tap into your systems if you don't have that person to begin structuring it and answering those questions efficiently. Because like, just like I mentioned before, it's gonna take them a little while to start digging through and figure out what they need, how they need it, asking somebody to stage a bullet, but then it becomes repeatable, and it becomes part of your culture. Now you can talk about your strategy, the capability you're building in your systems and your people, and then how it affects your culture. Now, we get all the way back to rewards again. All this stuff and the numbers really can provide the language that ties that strategy, capability, and culture altogether. And that's a whole separate business philosophy that we could do a completely different podcast on that. 

 

Kathy (host):  

Yeah, and we might actually do it

 

Lynn (guest):  

But all these things they tie together. And a lot of people don't like the numbers. ... Once my daughter I was working at home one time and she said, "I have two screens up I had the Excel spreadsheet shrunk down spread over two screens that I have no idea what that is, but it looks awful and I never ever want to do it." She never asks.

 

Kathy (host):  

Alright, Lynn. So where can listeners get in touch with you?

 

Lynn (guest):  

Again, my name is Lynn Corazzi and you can find me on LinkedIn Lynn Corazzi, C-O-R-A-Z-Z-I. My phone number is and I am the Owner and Data Magician at Data2Profit Consulting. My email address is L-C-O-R-A-Z-Z-I lcorazzi@data2profit.net And last but not least, my phone number is 920-948-3355.

 

Kathy (host):  

Thank you so much for being on the show, Lynn. It was such a pleasure having you. 

Lynn (guest):  

It's been fun and I really enjoyed it. Thank you for the opportunity, and for your insights as well!

 

Kathy (host):  

I hope this episode helps you understand your financial data and finances a little bit better. And as a reminder, this episode also comes with a blog post and resources that you can find in the show notes as well. And if you have any questions on how to implement anything that we talked about, feel free to reach out to either Lynn or myself. You can find our contact information in the show notes as well. Before I go, I do have a favor to ask. If you're listening to this on Apple Podcasts. If you could please go to the show and tap the number of stars that you think the show deserves. This helps other people find it and benefit from it as well. Thanks so much. Until next time!