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Financial Planning and Strategy

Transcript 

Melinda (host):

Hi, this is Melinda Emerson, the SmallBizLady, host of ‎The Small BizChat Podcast. I want to serve you. This pandemic has been so hard on America's small businesses and on just America in general. If you're ready to start your dream business, boy, do I have a great offer for you. I am giving away 1,000 copies of my bestselling book, Become Your Own Boss in 12 Months. Over 100,000 people have this book. It's been printed in multiple languages around the world, and I wanted to find a way to serve America's small businesses in this pandemic.

 

Melinda (host):

And so I'm giving away a thousand copies of my book. All you have to do to get your copy is head over to beginmybiz.com/freeoffer to sign up for your copy. All you have to do is pay shipping and we will mail one out to you. I am so excited about this. I want to serve you. Grab your copy today.

 

Audio:

Ending small business failure. Welcome to ‎The Small BizChat Podcast with a number one small business expert Melinda Emerson. Melinda's goal is to end small business failure, and she'll give you the information you need to succeed and live the life you dream of. Now, here's the SmallBizLady herself, Melinda Emerson.

 

Melinda (host):

Hi, everybody. I'm Melinda Emerson, the SmallBizLady, America's number one small business expert. I want to welcome you to Small BizChat. Now, ‎The Small BizChat Podcast is a peer-to-peer interview show that gives small business owners a way to get invaluable business insights. Now, the goal of Small BizChat is to end small business failure, and we want to give our small business audience an opportunity to hear sage advice from multiple angles. With that, let me introduce my guest, the founder of NewCastle Finance.

 

Melinda (host):

Her name is Kathy Svetina, and she is going to talk to us about how she became a part-time CFO for women business owners. For nearly 14 years, she did senior level financial planning and analysis for Fortune 500 companies, and she saw firsthand how financial information was used to drive companies forward. She wanted to offer those same kinds of services to small businesses so they could be healthy as sustainable. For more information about her company, it's newcastlefinance.us. Kathy, welcome to Small BizChat live.

 

Kathy (guest):

Thank you so much, Melinda. I'm really happy to be here.

 

Melinda (host):

All right. Tell me how you became a part-time CFO. How did you say, "You know what, Corporate America? I'm done with you guys. I'm going to go help the little guys." How did you make that decision and how has that been working for you?

 

Kathy (guest):

That's exactly kind of like what actually happened. I was in the Corporate America for almost a decade and a half and what always really bothered me about that was that these large corporations have huge departments to take care of their finances. I mean, they have tax department. They have the accountants, the financial analyst, the strategy people. But when you go into the small business space, no one's really doing that for them.

 

Kathy (guest):

I mean, they have the accountants and they have the bookkeepers, but they're really concerned more about the current pieces and what happened in the business and what happened in the past. But when it comes to the future and the mapping of the strategy of the business, no one's really doing that for them. And they are not financial wizards, the business owner. They're there because they really love the product and they enjoyed the service that they're giving.

 

Kathy (guest):

So they're really missing that crucial piece of the finances is, how do you actually take that data that your accountants and bookkeepers are giving you and how do you actually plan for the business? So that's when I said, "You know what? I'm going to leave the Corporate America, and I'm going to try to help them."

 

Melinda (host):

All right. I know one of the things that a lot of business owners say, "I want to be a million dollar business," right? That's just like magical goal. But we heard earlier that only 4% of small business owners ever get there. But I think that it's a little bit of a misnomer to run a million dollar business, and I wanted you to break down for us the secrets to running a million dollar business, because I think people really... I don't think people really understand what it means.

 

Kathy (guest):

Yeah. There's a good point. When it comes to a million dollar business, what does that really mean? Does that mean a million dollars in sales? Does that mean a million dollars in profit? Does that mean a million dollars in cash? Those are kind of different. Those are different forms of how you want to go and classify a million dollar business. For the purposes that I want to talk about, the million dollar business is a business that's actually making a million dollars in sales annually.

 

Kathy (guest):

When you're getting to that point of the business ownership, that's usually when the business becomes a little bit more complex and there's a lot more processes. There's a lot more financial planning that needs to happen than just what happened before. Usually business owners are very comfortable with looking at their checking account and actually seeing the money, the cash that they have in the bank account. I have the money in a bank account. I'm good.

 

Kathy (guest):

But the problem with that is when you come to those levels, that's when you really start to think about the future of your business and how you're actually planning for it. And if you are not having the right processes and the right planning, financial planning in place, the business can actually start to unravel. There's a lot more complexity and there's a lot more planning that you have to be doing at those levels.

 

Melinda (host):

There's an old rap song where he says Mo money, mo problems. Is that what you're trying to tell me? This is what happens. A million dollar business, you think you want that, you might not, right? Because it's kind of complicated. Yes?

 

Kathy (guest):

Yeah. It is more money, more problems, but it's actually different types of problems. You can actually get to a point, believe it or not, when you have too much cash in your bank account. I actually call that lazy money, because you have a bank account, it looks good, it looks great. But the problem is, it's not really doing anything for you. What's worse is because of the inflation, the inflation is actually chipping away all that money.

 

Kathy (guest):

So instead of having that in your bank account, it's looking at it and saying, "What could I actually be doing with the money that I'm getting a good return on it? Do I want to invest it in my own business? Do I want to invest in more people so that I can grow," if that's what your goal is. Do you want to, for example, invest... Do you have to invest in an equipment, or even you can actually go and start buying other businesses and that's going to give you a good return.

 

Kathy (guest):

So looking at it from a perspective of what do I have right now and how can I better use these resources so that they're going to give me a good return.

 

Melinda (host):

That's really interesting because is it typically when someone gets to about a million in revenue is when they really need to be thinking about bringing a CFO in house versus just kind of using an accountant or whatever? Tell me about when does someone need to be thinking about a CFO in their business.

 

Kathy (guest):

There's a difference. When you're bringing someone in house, that means they're actually going to be on your payroll, the problem with that with the CFOs is they're really expensive. And when you're in the million dollar sales, you don't really need someone full-time in your business at that point, but you do need that expertise. You need that strategic financial expertise that your accountants and bookkeepers are just not able to provide, but that's where the fractional CFO step in.

 

Kathy (guest):

What a fractional CFO does, and that's actually in the name piece too, they are offering the same type of CFO level service, but they're doing at a fraction of a cost, and they're doing at a fraction of a time. So instead of paying someone for 40 hours a week, you're only paying them for five, 10 hours or however long you need them for and whatever support that makes sense for your particular business.

 

Melinda (host):

Without the CFO, you can tend to miss some of the things that are going on with your finances, right? I've read before, you talk a lot about financial planning and you feel like that's almost more of a need than a priority, as you will, over the monthly analysis reconciliation, or, as you would say, sort of like the look backward stuff versus the look forward stuff. I wanted you to really explain that, because when I think financial planner, I think the person's handle all my stocks and my Bitcoin or whatever. You know what I mean?

 

Melinda (host):

So help me understand when you talk about financial planning in a small business, how often does that need to be done and what are you looking at with that?

 

Kathy (guest):

Yeah. First of all, before you do any of the financial planning, you have to have that foundation in place, which is where your data comes in, all the stuff that your bookkeeper and accountant are putting in. If you don't have that done well, as the saying goes, you have garbage in, garbage out, unfortunately. So that is the piece of the foundation. And once you have that in your accounting system and you know that it's accurate, then you can put on top of the financial planning. How often you should be doing it?

 

Kathy (guest):

It really depends on the type of business you have and how complex it is and how established you are. I also work a lot with businesses... They're just starting up with the startups. Startup has a complete different planning cycle than an already established business, right? That's already making $6 million figure in sales. But the way how I like to explain to my clients that there are essentially two seasons that you should be looking at. I like to think of the fall planning and the spring planning.

 

Kathy (guest):

So since we're in a spring already, that is where you actually do the strategic planning of the business. You're looking at it from a three to five year plan. Where do you want to be three to five years from now? What are your goals? And the most important is how are you going to get there? How are you going to achieve them? That's when you put in your projections, your budgets together for the next three to five years. You're putting a plan, right? And in the fall is where you're actually preparing.

 

Kathy (guest):

You're preparing for the next year, and that is where you put the budgets together. And the budgets are how much do you think you're going to be selling your products and your services for, all of your expenses that you're going to be putting in, the cash that's going to come into your business. These are all the pieces that you should be looking at. And when you're doing that, you have to keep in mind that the environment is going to change. The business is going to change. You're probably going to have to take a look at the budget later on and do another forecast.

 

Kathy (guest):

The forecast is basically what it means is that you're using the budget for the three months and then things happen. You're going to have new contracts, new clients come in, new expenses. You want to be updating it. So it's a living document. It's not like you put a budget together and you put it in a desk and that's done, right? It's a plan. You want to look at it through the monthly planning, through the monthly cycle, and also when you're doing your forecasting. That's when I say when I mean you have to do the financial planning.

 

Melinda (host):

So then in the fall, is that when you're doing your tax planning?

 

Kathy (guest):

That's a part of it too, because you do want to make sure that you're planning for taxes as well and want to sit down with the accountant to make sure that how are the purchases that you're planning for, how is that going to affect your taxes? So that's a piece of it. Yes.

Melinda (host):

From a CFO perspective, what do you think people need to do better as they're inching up to a million dollar business? There's some stuff they need to kind of be paying attention to in order to get to a million and then beyond. What are some of the key things that they should be looking at when they see themselves having major growth?

 

Kathy (guest):

I think the main thing that people don't do is they don't take a step away from the business and look at it from a 10,000 foot view, right? They're very embedded in the business. They're very embedded in the details. But when you're starting to grow your business, when you're really seeing them momentum, where it really pays off, when you take a step back and say, "Where am I really going? What is my goal?"

 

Kathy (guest):

And especially if you want to sell your business three, five years down the road, the way how you operate right now is going to be a lot different if you just want to run it. For example, you have to do succession planning, putting all the processes together. Are you going to be selling it, or are you going to be giving it off to an employee, to your partner? These are all type of questions that you should be asking yourself when you're looking at your business strategically.

 

Melinda (host):

Now, one of the other things I wanted to ask you about was when is it time to go to a bank for financing, whether it's line of credit or an actual loan for the bank, if you're in sort of like growth mode?

 

Kathy (guest):

The best time to go for a line of credit is when you don't need it. Because at that point, you are not going to be desperate. You're actually going to talk to a couple of bankers. You're going to get better terms. You're going to be able to have this kind of sober mind and compare different... Because essentially what it is is comparison shopping. You want to get the best term that you can so that when you do actually need the line of credit or any other loans that you need, that it's going to be able to support you in a better way and then you get the term.

 

Kathy (guest):

So that you're not getting 20% interest because that's just terrible, but you're getting something that really works for you. The best time to do it is when you actually don't need it.

 

Melinda (host):

All right. Last question, what is the biggest, best business advice you could give to someone that's inching close to a million dollars in revenue?

 

Kathy (guest):

The best thing that I can give would be plan, really, plan, plan, plan. You have to be proactive about your business, not reactive. And to get there, there's actually tools out there that you can be using, especially if you're going to do them in a DIY style versus using someone like a fractional CFO. This is not sponsored in any way, but I really love these two tools. They're called the Spotlight Reporting and Fathom and they both integrate with whatever accounting software you have, whether you have QuickBooks, whether you have Xero.

 

Kathy (guest):

They both integrate, and there'll be able to guide you through the planning process and to actually putting your KPIs in place so that you can see your financials and you can actually get the insights from it where you need to support in your business.

 

Melinda (host):

I love it. I love it. Thank you so much, Kathy. You have provided some great insight. Actually, I'd never heard of those two tools, so you're actually educating me tonight. All right, Kathy. What's your favorite podcast?

 

Kathy (guest):

I am a huge NPR nerd, and I love How I Built This by Guy Raz.

 

Melinda (host):

I listen to that podcast too. I really like that podcast as well. I'm a big NPR nerd too. Kathy, what's your favorite business app?

 

Kathy (guest):

Given that I did not grow up in US and English is not my first language, Grammarly.

 

Melinda (host):

Oh, okay. Well, you speak English pretty good. I wouldn't have guessed you didn't grow up here.

 

Kathy (guest):

Thank you.

 

Melinda (host):

I like Grammarly too. Okay, next question, what is your favorite old school marketing tip?

 

Kathy (guest):

Simple, talk to people. Talk to as many people as you can.

 

Melinda (host):

Pick up the phone, right? It's like, come on, old school as you can get. Kathy, what is your favorite business book?

 

Kathy (guest):

I thought that Billy is going to take this one, because he did I will, Building a StoryBrand by Donald Miller. Hands down my favorite.

 

Melinda (host):

That's a great book. That's a great book. My favorite business book is Disrupt You! by Jay Samit. I think if you want to disrupt the world, start by disrupting yourself. Listen, you guys are awesome. Thank you so much for being here. If you want more information about how to start and grow a successful small business, head on over to my blog, succeedasyourownboss.com to get more information.

 

Melinda (host):

We always say here at Small BizChat, our mission is to end small business failure, but I leave you with this, you never lose in business, either you win or you learn. God bless everybody. Good night.

 

Audio:

Thank you for listening to The Small BizChat Podcast with Melinda Emerson. For more resources and small business success strategies, visit succeedasyourownboss.com. Subscribe to this podcast wherever you listen to podcasts and join us next Wednesday.