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[Music]
welcome to scaling up h2o the podcast
where we’re scaling up on knowledge so
we don’t scale up our systems
hello scaling up nation my name is tres
Blackmore and I have the privilege of
hosting this awesome podcast called
scaling up h2o
what an incredible month that we have
all been having things are changing
we’re having to deal with all the stuff
and who can believe we are well within
the second quarter so much stuff is
going on so it is my hope that everybody
out there is taking a moment and making
sure they’re doing things as efficient
as they can because trying to keep up
with everything it is just impossible if
we are not learning as we go along so
maybe you were thinking you missed your
opportunity to join the rising tide
mastermind and be part of the first ever
live event for the group well the great
news is you have not we are rescheduling
the live event so after the corona thing
has passed us all by and nation I know
we’re all going to get through this
together we are going to reschedule the
event and you can be part of that live
event now you might be asking yourself
what exactly is the rising tide
mastermind I know I talked about it
quite a bit on this show but I have to
tell you if it had not been for the
members in that group we all get
together on a weekly basis we are
sharing so much about what is going on
especially now with business changing
around Cove in 19 I don’t know where I
would have gotten some of the great
information we have all been helping
each other and that’s really what that
mastermind group is we get together once
a week we try to solve each other’s
issues we hold each other accountable
for doing the things that we say we’re
going to do to solve those issues
but now more than ever it just shows
that we all need a group of trusted
advisors that we can ask questions to
and get advice from what others are
doing so here is my ask for everybody
who is listening
if the rising tide mastermind does not
sound like a group for you please go out
there and find a group that is right for
you especially right now with everything
going on you need somebody you can talk
to and you can get great advice from now
one of the things we talked about in the
mastermind our goals of course we talked
about goals here on the podcast and I
know you talked about goals just like I
talked about goals in the company well
back on episode 132 I told you about one
of the books that the mastermind group
was reading called 12 week year by Brian
Moran it was also one of the books that
I had mentioned in one of the earlier
episodes this year and it does a great
job of letting you know how to properly
plan and execute your goals most items
that we read do a good job talking about
planning but very few get in to
execution now one of the things that the
12-week year really does a good job is
explaining the smart tool and I want to
say it’s just about every single end of
year our beginning of the year podcast
that I’ve been on we have talked about
goals and I have shared with you the
smart tool of course smart when you’re
looking at goals it stands for specific
measurable attainable relevant and
time-bound
now the 12-week year does a great job of
explaining how to use those tools and if
you want to know more about the 12-week
year you can go to scaling-up h2o comm
forward slash 12-week year that’s the
number 12 and then we hear all one word
it’ll take you right to an affiliate
link where you can get the book or you
can download it on audible well today’s
episode is all about the M of course the
M and smart stands for measurable and
specifically we’re talking about metrics
and aligning ourselves with a person
that can truly understand the metrics of
your company metrics can be defined as a
method of measuring something or the
results obtained from measuring that
something simply put I think Peter
Drucker said it best what gets measured
gets improved yet most of us fail to
measure our regular activities and were
then surprised that we didn’t hit a
particular goal well businesses are no
different we have all of this data in
our systems financial data information
about how we service what we order how
long it takes before a customer pays us
but not everybody uses that information
to actually do something with it
today’s guest is Adam Lean founder of
the CEO project Adam helps business
owners find out what metrics they should
be looking at and then he also guides
them through that information making it
so they can make better decisions based
on their own data and no matter if you
own your own company or work for a
company we all know that without profit
there is no company to own or work for
and that’s really the bottom line
metrics lead to us getting better profit
through efficiency through all of the
things that we can measure we can make
them better and that’s what we’re going
to talk about today so folks please help
me welcome Adam lean
well nation my lab partner today is Adam
lien of the CFO project Adam how are you
doing today
oh not too bad I’m glad to be here we
are glad to have you here and I
understand you are a fellow Atlantean or
at least you used to be yeah I loved I
love living in Atlanta and maybe not the
traffic so much but I loved Atlanta
nobody likes the traffic here but as a
result of the traffic everything you
could ever want is in this city that’s
true well Adam we’re gonna talk about a
lot of things today that I’m sure some
of our listeners are going to think well
I don’t own a company why do I need to
know about this but I want the entire
scaling-up nation to stay tuned because
I promise you will learn something
probably multiple things from this
episode we’re going to be talking about
why businesses fail and some things that
we can all do to make sure that doesn’t
happen but before we get started with
that do you mind telling the scaling-up
nation a little bit about yourself yeah
sure so I you know after college
actually you know like you mention I
moved to Atlanta I was an accounting
major so I thought well don’t get a job
as an accountant and so that’s what I
did in Atlanta and I hated it I hated
being an accountant I loved where I
worked I just didn’t like being an
accountant just because you’re you’re
you’re recording what happened I wanted
to get in in in the business and get my
hands dirty so to speak so at nights and
on the weekends I started my own
business an ecommerce store because it
was easy to do with my day job and this
was back in 2006 and the the business
grew and grew and sales wise it was
going great profit wise not so much
after you know after about three to four
years of running this business I was
able to leave my day job but then it
seemed like all of a sudden my profit
and cash flow was causing me problems
and it was frustrating because I didn’t
know why I mean I was in accounting I
was an accounting degree I wasn’t
accounted I should know these things but
I felt completely over
in my business and I really didn’t have
anybody to turn to you know my
accountant I tried to turn into them but
they’re they’re really you know
accountants are really great at
recording what happened not really
helping from a strategy standpoint and
there was really nowhere else to turn to
so I just dug in and completely started
documenting everything about my business
and it I sort of realized that that if I
measure certain things and treat my
business is sort of a set of systems and
measure each part of the system then
then I can really find out what’s going
wrong with my business and know which
parts are going wrong and which parts
are going right and know what to work on
and so I started helping other business
owners do the same thing and that
morphed into what I do now is that CFO
project so the you know a chief
financial officer does exactly what I
just described for big businesses they
just they analyzed the financials they
sort of break the business down into
census systems and figure out using data
using numbers which part of the business
is not working so right you know so good
and that’s what they start focusing on
and improving and and so we provide that
same type of thing for small businesses
well I love how you put that a lot of
people have a question about well I’ve
got a CPA why do I need a chief
financial officer or what does a chief
financial officer even do and you said
that more often than not accounting is
just looking at what happened not how do
we be proactive to make something happen
I love how you put that yeah I mean most
people sort of think that the CFO and
accounting and controlling and
bookkeeper there are sort of synonymous
but they’re not the accountant or your
bookkeeper their job is to record what
happened in the past correctly and you
need that I mean you have to have
accurate sets of books but you you also
have to have somebody if you’re not
doing it this yourself you have to have
somebody that can help you look at the
data that was given to you by your
accountant or your bookkeeper and and
get insights from it and use that data
to
able to know what to fix in your
business that’s the key I mean that’s
the the real benefit of having this data
is that you can look at it and make
managerial decisions so that so a CFO is
it does a totally different job than an
accountant you know you made you
probably have an account you probably
have a bookkeeper but you still need
somebody that can help you think
strategically and know exactly what to
focus on to have a more profitable
business now out there in the scaling-up
nation we have companies that are
listening to us that make tens of
thousand dollars a year all the way up
to millions of dollars a year at what
point does a company need a CFO big
businesses have CFO’s because they’re
big businesses everybody every business
needs somebody like a CFO but not
everybody needs a full-fledged CFO
because it’s just not financially proven
if you’re a hundred thousand dollar
company you don’t need to hire a
full-time CFO so that’s actually one of
the reasons why we created this business
the way we did is is we give this small
business owners usually $100,000 to
about 2.5 million in sales that range of
small business we give them a CFO on a
part-time basis that leads them through
our system our four-step system for
improving profitability that way the
business owner can afford this but also
get value if you’re you know if you’re
doing anywhere from you know two and a
half million to ten million in sales
then it’s start you know you need to
start looking at maybe getting a more
dedicated CFO type person or you get a
full-time CFO you know it’s interesting
people that listen to this show and I
just about probably every business owner
I would imagine they’re really good at
what they do a chef is a really good
chef and then he decides I’m tired of
working for somebody I’m gonna go out
there and I’m gonna open my own
restaurant
and normally restaurants fail within the
first year
what are some of the reasons that so
many businesses fail within the first
year if not five years so that’s a great
question it’s almost like you’re reading
my notes because you’re absolutely right
most businesses get into their business
because they are there they’re an expert
at the craft of their business and most
businesses fail because the owner spends
all of their time focused on the craft
and almost no time focused on the actual
business and and so you know according
to the Small Business Administration 50%
of all small businesses will fail within
the first five years house I mean that’s
a crazy number if you think about it and
they fail really because they ran out of
cash but why do they run out of cash and
it’s because they did not focus on the
things that matter to have a profitable
business just like you said a cook
starts a restaurant because they know
you know they know food a dentist buys a
dental practice because they are trained
in dentistry and so because of that
because the dentist of the world like or
a trained in what they do that’s where
they spend their time that’s what they
think about but you’ve got to focus on
the the most important things the things
that matter to have a growing and more
profitable business which of course that
ultimately leads to you’ve got them you
got to focus on making more profit which
turns into cash flow which helps you pay
your bills and stay in business and grow
the business and save for retirement and
give away you know if you want but
you’ve got to focus on the things that
matter and most business owners are not
great at that I have the honor of
working with a lot of other water
treatment companies and helping them
understand why it’s so important for
them to understand their financials and
Adam you probably run into this as well
but when I ask people you know to show
me their financials a lot of times
they’ll show me the balance in their
check register and they think that’s
what they’re doing to keep their company
financially sound so I was hoping you
might explain to the scaling-up nation
what are some things that we should be
looking at other than our bank balance
and then how does that help us
proactively steer the business in the
right direction
yes oh that’s a good question I think
that most business owners who just show
you their bank balance and that’s what
they look at on a daily basis they do
that because that’s an
easy-to-understand number everything
look at their bank balance they have X
amount that makes sense to them and what
that’s really saying is that they think
that the financial reports that most
accountants and bookkeepers provide to
the these business owners they think
they’re more complicated than they
actually are
I mean it sounds it does sound
complicated the statement of cash flows
the balance sheet profit and loss
statement but once you really just
understand sort of how they’re they’re
set up and structured these reports
become very easy to understand and and
once you start looking at these reports
on a regular basis they’ll start to make
sense and they’ll start to get insights
into your business you could use to to
grow your business and so I think the
the best thing that a business owner can
do is is just start if you haven’t
already just start looking at your
profit and loss or you know you course
called an income statement on a monthly
basis and then you know compare the past
12 months and see any trends see what’s
going on
don’t let the financial reports seem too
complicated because once you understand
them and they’ll they’ll be very easy to
understand so let’s say we have a
listener out there we’ll call him Bob
and Bob’s never done this before so he
goes into QuickBooks or whatever
financial software he’s using and he
says I want to do that profit and loss
statement he looks at it he figures out
what his revenue is he figures out what
his expenses are figures out what his
net income is what does he do with that
if he’s never looked at that before what
are some of the trends he should be
looking at yeah so the first thing what
I would tell Bob is to go to his
QuickBooks and then pull up a profit and
loss statement for the past 12 months
and then there’s a there’s a feature I
really like QuickBooks
online so if anybody listening if you
using something else then possibly ask
your bookkeeper accountant to look at
QuickBooks Online because it’s super
friendly user-friendly but pull up a
pick up statement report and then get it
for the past 12 months by month which
means you’ll have 12 columns one for
each month and then export that into it
Excel spreadsheet and then dollar-wise
you can start seeing trends for sales
for gross profit and for expenses and
for net profit those four things and
then once you start looking at the
trends for each month dollar wise then
you could take all your expenses and
your cost of sales and turn them into a
percentage of sales so you can see you
can compare apples to apples each month
so here’s an example let’s say that your
payroll I’m a sales you know $100,000
one month and then your payroll was
$40,000 let’s say this was January so
$40,000 is how much you spent in payroll
well if you divide that as a percentage
of sales then you get 40% so 40,000
divided by 100,000 40% so let’s say in
February you made sales of 200,000 but
you spent $60,000 roll well if you’re
looking at January you spent 40,000 and
baby where you spent 60,000 looks like
you spent more more of April but if you
take that 60,000 as a percentage of
sales then it’s 30% which is less than
what you spent in January of 40% you’re
able to compare apples to apples so
that’s that’s a super easy example but
if you do that for many of your cost so
whatever direct cost that you have and
that you incur on a daily basis if you
take the percentage of sales you could
truly compare apples to apples to see
you know what your profit margin is on
each job or what you’re spending in
every single month them on certain items
well absolutely more data allows us to
make better decisions but in that case
we’re looking at
courts that have already happened so how
do we turn the information that we gain
from that report into helping us make
better decisions so let’s look at that
example then of the payroll so if one
month you’re spending forty percent of
your sales on payroll in the next month
let’s say you’re spending fifty percent
of your sales on payroll then that is a
red flag
why did your payroll go up 10% because
if you think about it your sales what
regardless if you make a thousand
dollars in sales or a million dollars in
sales if you think of it as a percentage
a hundred percent you want to keep as as
much that hundred percent as possible
and you want to deposit as much of that
hundred percent of the bank account as
possible so any of those percentages
that you spend like in payroll is
costing you money and so that is
something actionable that you can look
at if you’re if you’re paying attention
to your trends you can say you can you
can visually see that last month you
spent 10 percent more on the sales wise
on payroll than the previous month
so what happened why did he go up and
once you start asking those questions
then you can really uncover a lot of
helpful information when I work with
other companies something that I
personally share with them is their
sustainable growth rate a lot of
business owners don’t understand that
they can actually grow themselves out of
business what information can you share
with the scaling-up nation to help frame
that picture in what are some of the
things that they need to be looking at
to make sure they don’t grow themselves
out of business yeah so that’s a great
question it it it really depends on the
business themselves but you’re
absolutely right businesses that that
grow too quickly end up running into
cash issues so I’d say the number one
tip is to is to monitor your cash flow
so to divine like define what cash flow
is is the amount of money coming in last
the amount of money going out of your
bank account so if you have a hundred
thousand dollars going in you have 80
thousand dollars going out then you
flowdde $20,000 in the bank account
that’s how much you kept so when
businesses scale too quickly they end up
spending a lot more money going out than
money coming in because you’re having to
buy equipment and inventory and ramp up
employees and you’re spending all this
on the front end but you may not have
the money coming in and so therefore you
have a cash flow crunch and a lot of
businesses unfortunately fail because
they grew too quickly which baffles many
business owners they’re like why I’m
growing I have more sales than I did
last year was my cash flow poor why I
don’t not have money in the bank account
so yeah you’re absolutely right it’s a
it’s a real struggle for businesses and
you’ve got to maintain the best way to
maintain that struggle is to monitor
your cash flow to make sure that you’re
growing at a very sustainable rate your
cash flow is growing in a sustainable
rate well let’s use Bob as the example
again and now Bob he’s not only looked
at his PL and all the other statements
that you mentioned he’s now working with
you and you’re coaching him to make his
company better
he’s now growing at a very successful
rate although you notice he does not
have enough cash in his company to bring
in all the things that he needs to
continue to grow his business what are
some of the things that you would do
with him so he could take cash out of
the business and what options does he
have yes so that’s a great question so
is we sort of created this four part
system to help people just like Bob get
a handle on their financials and know
what they need to be working on every
single month so that they can maintain a
solid growth in in their profit and a
sustainable cash flow the very first
thing so the first step is we’ll do an
audit on their financials for the past
12 to 24 months and just like I
explained earlier a few minutes ago
we’ll take the the financials for the
past at least the
twelve months and we’ll dump them into a
spreadsheet we’ll do some in-depth
assessment and analyze these to see the
trends and to spot any red flags and to
see any opportunities for growth because
there’s a lot of hidden gems in your
financial data and and you know just
like we were talking about earlier you
know the more you learn about your
financials the numbers if you will the
the more you can uncover these gems but
that’s the very first thing we’ll do
we’ll we’ll see what’s holding you back
from making more profit the second thing
that we’ll do is and I’ve have whether
you work with us or another CFO or just
do this yourself you’ve got to set
financial goals for the future so what
we do is we we call it the target or the
profit target so for the next 12 months
we’ll set specific goals financial goals
for sales gross profit profit and cash
flow and we’ll treat the numbers and
we’ll go through them and met to make
sure that that you’re ok with the
numbers because we want you to be happy
with the target that you’re shooting for
are you happy with this profit number
and if you are great if not then we’ll
tweak numbers what needs to change for
this to happen but we’re essentially
it’s almost like creating a blueprint
before you build a house you got to know
what you’re building first before you
know where to start or you know you want
to know what it looks it’s gonna look
like before you even start building and
so we’ll set these goals the third step
is you need to assess your performance
on a monthly basis to see if you’re on
track to hit your goals and if you’re
traveling across country obviously your
target is your destination that’s where
you want to go you want to make sure
that you’re constantly assessing to make
sure you’re on the right path on the
right road to get there you know the
fastest so that’s another reason why you
need to understand your financials on a
monthly basis are you on the right track
you know because at the end of the day
the goal is for your business to
generate cash flow and the best way to
do that is to for your business to
create a profit I mean you could get
cash flow in other ways you can get
money from a investor but of course you
have to give away a piece of your biz
you can take out loans you can go to the
bank but of course they want that money
back because it’s debt the best way
obviously is to for your business to
make a profit and so that sort of leads
me into my the fourth step is that we
want to make sure that your business
which is the the machine that will
generate this profit is operating at top
capacity so will so if you think of your
business as a machine the machines made
up of individual parts each part has to
be finely tuned every single month and
so will create what we call KPIs or key
performance indicators so we can measure
each of those parts that make up your
system so we know immediately if
something’s going wrong and then we’ll
meet with the business owner on a
monthly basis and say hey we’ve
monitored your business over the past
month
here’s the three to five most important
things that need to happen this month to
keep your business on track and so
whether you work with us or another CFO
you’ve got to focus only on the most
important things that will keep your
business on track to meet your your
profit target or your profit goal and
the thing is like we talked about
earlier most business owners are are
they’re they’re very busy and they’re
focused usually on the day to day
operations because that’s what they
enjoy doing they focus on the craft of
their business but in order to stay in
business and you’ve got to focus on the
most important things needed to have a
you know have a profitable business
which turns into cash flow yeah as you
say that the e-myth by Michael Gerber
comes to mind and you know there’s so
many things that you have to know to run
a business that are up and above the
crafts so finances is just one of them
but you’ve explained it so well let’s
say you’ve done all of those things with
Bob now what is that relationship
between you and Bob look like does Bob
now create an office within his office
for you or are you meeting remotely how
often are you meeting with that look
like
so we may remotely with clients across
the country and what we do is we you
know we establish a relationship with
bahama and our client and we meet via
video chat at the very beginning we’ll
meet several times over the course of a
couple of weeks because we want to make
sure we hit the ground running but then
once we complete our initial audit of
the business and then we set our target
profit goals then we’ll meet with the
client every month and before this
meeting behind the scenes we will assess
the business will comb through the
financials will comb through those those
key performance indicators that we
talked about and then we’ll get on a
phone car the video call with Bob and
discuss how the business is going and
then you know reveal the three to five
things and it’s never more than five
because if everything’s a priority then
nothing becomes a priority so we we
prioritize for Bob the most important
things so we explain these things and we
discuss it strategize on how to make it
happen and then it’s just an open
dialogue Bob can ask questions on you
know clarification questions or we
strategize on how to get it to happen
and then after the call bob is is very
clear on what his next steps are the
business and then we’ll just check in on
a regular basis and then we’ll do it all
over again the next month which is
exactly what a CFO does for big
businesses they just do it on a daily
basis because they’re their big business
has there ever been a time where you
were working with somebody like Bob you
were looking at their financials and
something just didn’t make sense and you
drilled down further and you found that
there was some sort of mal play going on
that the owner didn’t know about the
quick answer is yes 99% of the time
though it’s because the whoever was
doing the bucks just didn’t know what
they were doing there was really no foul
play there there was there has been one
instance where there was some foul play
and we were able to highlight it to the
owner and they were able to take quick
action but most of the time it’s because
the person doing the
but keeping was just just really didn’t
know what they were doing or probably
shouldn’t be the person doing it because
a lot of business owners they want to
keep tabs of their books and so they’ll
do the business that the books
themselves and I strongly advise against
that because the business owner has more
valuable things to do with their time
and then bookkeeping you know or the
business owner spouse will do it or the
office manager will do it and that sort
of leads me to another point none of
this matters unless you have a cura book
so that you’ve got to make sure your
books are accurate and so that so that
you can make decisions off of them
there’s no point making decisions off of
inaccurate data so let’s explore that a
little bit so now bob was working with
you you go in to explore his financial
data and you find that they are all over
the place what do you tell him to do or
can you even work with them actually
I’ve told a couple of clients that it
would not make sense for us to work
together right now because their books
are an absolute mess and so we would
help them find a bookkeeper or get them
training or whatnot for whoever does the
books and then once they get the books
up to speed then we’ll we’ll start the
engagement but if the books are okay
then we’ll start the engagement but then
we’ll immediately tackle the problem
with getting the the books correct and
that the books are really important to
keep I mean most people think that
keeping their books are really just for
the accountant so they can do taxes
which obviously that’s very important
you’ve got to have you know that the the
right data for taxes but in my opinion
that the business owner needs to think
of their bookkeeping has more for them
to make decisions off of so it’s got to
be accurate it’s like going to a
baseball game and not having a
scoreboard how are the players going to
play the game if they don’t know the
score how does anybody know whether
who’s winning or losing
how do the coaches know what players to
put in the game what plays to make if
nobody knows the score and a lot of
business owners are operating without
knowing the score and of course the
score is that profit and loss report
that’s the score of your
your business and so you’ve got to know
that I love that analogy I’ve used that
so many times because everybody normally
has one favorite sport and if you didn’t
know who lose in in that sport you
wouldn’t watch the game so when you when
you say that people just get it and like
okay well maybe I do need to take a
closer look at my financials or maybe I
need to get some help with my financials
yeah absolutely
and again this is just like I said at
the beginning of this most people don’t
look at their financials because they
think it’s complicated and once you
strip away sort of the accounting lingo
it’s really not that complicated it’s
just you just need to get familiar with
it once you get familiar with it
then it starts to make sense and and
that’s actually one of the things that
separates us from other CFO’s or other
financial type people is that we don’t
use accounting jargon or finance charge
we use real language small business
owner jargon and language and we make
the financial super clear and simple and
easy to understand because our goal is
to make sure that our clients hitting
that profit goal
there’s no point confusing them we want
to we want to make sure that there’s
three to five you know next steps that
happen eat that that we give the the
client each month we want to make sure
those are realistic and actionable and
they’re grounded in reality I mean I you
know a lot of people you read books on
Finance or business and there’s
everybody has their sort of theory on
business systems and a lot of this
grounded in theory and not real-world
and so we want to make it super simple
for business owners to understand their
financials so they can spend more time
doing what they’d rather do which is
focus on their sales and operations when
I work with clients it’s more with their
entire company as a whole but I’ve also
noticed that many owners will get very
upset because they feel like they’ve
either dropped the ball or they get
embarrassed because they didn’t know
something and because of that it takes
longer to build that trust and
over that hurdle what is some advice
that you have for somebody that’s
listening that knows they can use some
help in this area but they’re a little
embarrassed and maybe what their books
look like and they don’t know how to go
further yeah that’s a great question and
I think business owners in particular
see other business owners from the
outside and think they’re wildly
successful and I’ve looked at hundreds
of the financials of businesses and I
can tell you that that’s almost never
true that everybody has skeletons in
their closet every business has problems
and the thing is if you believe in your
business so that much you need to get a
trusted advisor to help you fix your
business and you know it may be the case
where your situation is not as bad as
you think it is but you still need
somebody from the outside who’s not
looking through rose-colored glasses
like the business owner is somebody
could be objective about the business
and sort of point out you know any red
flags and opportunities so that you know
what to fix I mean if you never do this
if you never get somebody to help and by
the way person that you get to help
cannot be somebody that works for you
because they’re not going to be able to
give you you know objective you know
opinions or information because they use
on their paycheck you’ve got to get
somebody from the outside and the
natural fit is a is a CFO type person
somebody that thinks strategically about
the numbers and about the business
because in the end of the day the whole
point of the business is to produce cash
and to get there you got to make a
profit and so that’s that’s really the
name of the game so we look at things
from an objective standpoint and in
reveal a list of things that needs to
happen to get to profitability or to
improve the profit of the business I
will tell you that back in 2007 the
experience that I share not only
happened with other business owners I
worked with it happened to me and I knew
I should have been doing a better job
with not only
my bookkeeping but my forecasting and I
just didn’t do anything with it and I
met with somebody after a seminar
actually I was at the seminar and I
couldn’t do any of the things that they
were saying that she needed to do with
your financials on a regular basis if
you ran a business and I was embarrassed
about that but I swallowed my pride I
met with that individual and he showed
me how one my books were not as bad as I
thought it was just I didn’t understand
the information that was in them so I
can tell you exactly what you said I
lived through and then he showed me some
things that I could do to help make
better decisions I then decided that
there was no reason that other water
treatment company owners needed to be
confused by jargon and then I’ve come up
with some techniques and things that I
use with companies that I work with and
if they need further financial help I
refer them to somebody like yourself but
I got to tell you being able to look at
what my company is doing in a way to
allow me the owner to know that I’m
steering it in the right direction or
even better what Corrections I have to
make I mean I would be out of business
if I did not do that back in 2007 yeah I
mean it’s super important I take my car
to a mechanic because they’re the
experts in cars I’m not like ahead and
if I tried to do this myself I would
have a happy walking everywhere you got
to get the experts to do what you know
well you’re not so great at you know the
business owner has very limited time
throughout the week the business owner
needs to spend that time doing things
that only the business owner can do you
know leading their employees and meeting
with key customers are doing whatever
you know they’re the leader of the
business and so they just need some
somebody to that’s an expert in the
financials to just help the business the
business are yeah the individual that
led the seminar that I was speaking of
he’s our current day CFO and we work
with him on a part-time basis and he’s
created special metrics for us to help
us
run the company the way it needs to be
or special situations that we’ve had
developed we’ve created metrics around
those so we don’t ever have to overcome
those again but I am curious what are
some of the top metrics that you
recommend that every business look at so
it’s a great question and at the very
least the top metrics are total sales
your gross profit percentage this is the
direct cost that you incur to make a
sale so sales minus gross profit equals
your gross profit and then you divide
that into sales that equals a percentage
so gross profit percentage so that’s a
metric and then net profit percentage so
your your net profit margin or nor
percentage so your sales minus your
direct costs equals your gross profit
minus all your overhead or your payroll
insurance rent etc equals your net
profit so if you take that number divide
it by sales that’s your net profit
percentage so the those are the three
main KPIs or main metrics to look at on
a regular basis something we look at is
called trailing twelve swear we’ll take
the last twelve months of data and allow
it to normalize so there’s no
seasonality in it is that something you
use quite a bit yeah and it also depends
on the particular business to and the
industry as well but yeah absolutely
that’s one of the reasons why we do that
at the beginning we do this the profit
audit it’s really the assessment on the
past 12 to 24 months of the business so
that we can see trends taking into
account the full year and so it was
strip away seasonality but yeah and then
the rolling 12 months that you referred
to I mean it’s that’s great because
every single month you can you’re using
the most immediate data to make
decisions
there’s a tool that’s available to the
water treatment community that the
association of water technologies puts
out about every three years they just
did the data collection a couple of
months ago so that should be rolling out
pretty soon it’s called the benchmarking
survey and what they do is they survey
other water treatment companies and they
roll them into various metrics and
that’s a great way for somebody like me
to compare what my company’s doing based
on what another light company is doing
how important is that to keep score
against another light company okay so
that’s a really good question I get that
question a lot because most industries
have the industry association publishes
some sort of benchmarks just like you
referred to and so you sort of have to
take those with a grain of salt the best
the most the most value that you can get
from that is the to know the specific
metric you should be measuring and so
the you know find what everybody else in
your industry is measuring and then
measure that for your own business but
here’s here’s why I say you should take
the data with a grain of salt it’s
because most of that data is and my
experience is skewed because not
everybody’s going to report the data
only the people that are reporting data
have really great businesses and they’re
the only ones reporting the data then
that skews the numbers I mean if
somebody has a horrible business they
may not want to ahead because they’re
embarrassed they don’t want to so it
sort of skews the numbers so you have to
take the the actual numbers that the
surveys you know produce with a grain of
salt but the actual metric that they are
measuring certainly take that and apply
it to your own business and then
benchmark against yourself so if your
net profit margin was 4% last year then
regardless of what anybody else did you
need to just make sure that you do
better than 4% this year and just
benchmark against yourself that’s a
great point keeping score against
yourself make sure you’re moving in the
right direction yeah absolutely so there
are a lot of people listening and they
want to know where to start
so what’s their call-to-action what
should they do so that yeah there’s a
couple of things that you can do if you
like the numbers and you and you’re just
curious about learning more about your
financials there’s so many resources
online there’s a book though that I
recommend called financial intelligence
for entrepreneurs I love that book I
write everybody I work with yes by Karin
Berman and Joe Knight I highly recommend
that book because they they break things
down so you know if you’re that type of
person that just wants to know they’ll
break down the key financial statements
and sort of reveal what everything means
you can also get training online you
know but if you know I would also love
to talk to any business owner that just
wants to pick my brain or or just want
to talk out their business you know I
created a special website for you guys
the CFO project comm slash scaling up
you can literally book a time on my
calendar and I would love to talk about
your business and see was what’s going
on to see if we can just talk things out
even if we never go forward just to talk
it’s very therapeutic to have somebody
to talk to
so I want to make that available I love
talking to business owners anyways as a
business owner myself definitely check
that book out if anybody’s curious yeah
as I mentioned that is one of my
favorite books that was actually the
book that started making me feel better
back in 2007 because they don’t use a
lot of jargon and they have a fictitious
statement in there and they actually
take you through it and that was the
book that allowed me to start
understanding the cash flow statement
the income statement the balance sheet
they really do a great job in there yeah
I you know I went to accounting school
majored in accounting in college and I
wish that this was the textbook because
the accounting text books were very
theory focused and it just was highly
confusing but yeah this book makes it
very actionable and clear well I know
you have helped a lot of people today at
the very least people
know that they should be taking a better
look at their financials and they
haven’t they at least know they’re not
alone and they know how to start doing
that so I really appreciate you sharing
some of that information oh there’s so
much more we could talk about but I do
want to ask you a few lightning round
questions if you don’t mind
sure all right so you now have the
ability to go back in time and talk to
yourself on your first day working with
businesses understanding their
financials what advice would you give
yourself that’s a great question I would
say to to demystify the financials for
the business owners are really anybody
that I’m talking to I used to come in
with you know when I first started I
approached things that I from a CFO or
an accounting standpoint and business
owners don’t care they want to know they
they just want the facts they want to
know what’s going on with their business
and so I stopped talking like an
accountant or a finance person that
started talking like a fellow business
owner what are the last few books that
you’ve read the last couple of books I
read there was a book by the the founder
of Keller willow Williams Gary Keller
correct one thing the one thing yes
that’s a yeah
I really got a lot out of that yeah and
I was impressed I’m curious to how you
feel about it you know I pride myself on
multitasking look I can do ten things at
one time and the whole premise about
that book was don’t do that you can’t do
anything very well if you’re doing
multiple things at the same time so I
was really mad at the first chapters of
that book but then reading through it I
realized that if if I worked on one
thing completely that I was going to get
that completely done what did you think
about that yeah I agree and that sort of
it goes along with the philosophy that I
you know that I have in my business with
the business owners giving them a focus
for the month the most important things
that can happen that you know that month
is what they need to focus on instead of
trying to focus on everything
because just like that book said you
have to focus on you know one main yeah
the most important thing not just any
one thing what else are you reading uh
before that it was a bad blood by John
Kerry you and you order this to be fair
knows no no oh my goodness there’s a
really good book
you know ther knows is the blood testing
company by Elizabeth Holmes oh that’s
right and she’s actually in court right
now isn’t she yeah she’s going through
the process and I think her court date
set for sometime next year anyways he
John as a reporter and he he uncovered
this and wrote a book about it called
bad blood it almost reads like a
thriller but it’s a true story
everything everything’s true and it it’s
fascinating
yes she was like worth several hundred
billion dollars at one point wasn’t she
a based on a product that didn’t work
yes
I mean she was like the highest net
worth of any of any female under thirty
or something like that I mean she was it
was crazy but yet the the product it was
it was a essentially non-existent
product that they lied to and this is
where she got in trouble she lied to
investors so they were investing under
false pretenses and so they may not have
invested it they knew the truth and so
that’s that’s a lot of you know why she
got in trouble yeah I think there were a
lot of blood test results that were
actually wrong that people either
thought they didn’t have a disease or
did have a disease that the test missed
yeah I mean and there’s so much more
in-depth in that book but yeah
essentially she would like for example
she would take an investor potential
investor in the room do the blood test
on them and you know prick their finger
why not and then put it in the Machine
and then they would leave the room to go
show them around the facility somebody
else would come in take that blood
sample and take it to a machine that’s
used by you know just a normal
a commercial grade machine that’s used
in every lab in America and actually
tests the blood and then 45 minutes
later they will bring their investors
back in and say oh the you know our
machine you know completed its its
report and here it is but the report
came from a you know not their machine
somebody else is the investor I was none
the wiser and then they invested money
thinking that their technology was
working and it we’re just lesson amazing
all right so Hollywood’s gonna listen to
this podcast they’re going to hear what
a wonderful life and all the services
that you provide when Hollywood finds
out about your life and they make a
movie about it who plays you oh man
that’s a really good question I would
say Justin Timberlake I think I think I
think he would fit the bill really well
he did a great job in the in the social
network so it’s based on that not your
music abilities oh yeah just definitely
not fair enough all right final question
is you now have the ability to speak
with anybody throughout time who would
it be with and why Warren Buffett I like
the fact that he’s very level-headed
when it comes to business he doesn’t let
emotions sway him it’s you know he’s
very objective and he’s obviously you
know you know wildly successful and so
he has a good a good business sense so
if I could if I could get him to be a
mentor that would be amazing
well Adam I want to thank you for coming
on scaling-up
I know we just scratched the surface on
why financials are so important but I
think you’ve done more than that you’ve
shown people that there is a way and
they don’t have to know it all
themselves so thanks so much for coming
on the show yeah I really enjoy it thank
you so much for having me Adam thanks so
much for coming on scaling up h2o when I
work with water treatment company owners
I normally find that they do not have
anybody outside of the accountant role
that’s looking at
their financials and what that means is
you don’t have somebody who understands
the strategy that you can get from
understanding your numbers most people
don’t have a professional CFO and that
stands for chief financial officer now
back on episode 11 way back on episode
11 you heard from Blackmore enterprises
CFO Mike Iverson now Mike Iverson is
part of my Vistage group and we’ve been
working together for a little better
than 10 years and he was one of the
people that was very influential for me
starting this podcast and when we talked
about it he set all these metrics for me
to measure to see how well this podcast
was doing so I just imagine when you
start tying metrics to the things that
are important to you and now you’re just
not doing them by default you’re doing
them by design and the design is you’re
always getting better because you’re
keeping score my business coach Tim
Fulton always tells people that are not
keeping track of their numbers whatever
they are imagine going to a baseball
game and you don’t know what the score
is can you imagine how frustrating that
would be
well so many people are running their
territories there are finances their
businesses that way and they simply
don’t realize how much that information
can lead to better decisions now as I
mentioned I’ve been working with Mike
for several years and the cool thing
about Mike is all he does is look at
numbers and he can see numbers in a way
that I’m just not gonna see now he’s
taught me some great calculations and
things that I use not only in my
business but when I coached other
businesses how to help them but it’s
just amazing when you have a
professional like Mike or Adam what they
can do
with your numbers to help you go in the
right direction a great example that was
my company didn’t want to pay an
exorbitant amount by borrowing money
from the bank for a specific piece of
equipment well Mike came over we started
looking at all the different financials
that my company had and he essentially
found money that we were not using
properly
he had me look at accounts receivable
now counts receivable is how long it
takes for a customer to pay you after
you send them an invoice and ours wasn’t
horrible but it was about twenty days
longer than what our terms are now we
give customers terms and our terms are
net 30 they were actually paying in 40
to 45 days he then did a calculation to
show us how much cash we had out there
and not only did we have enough to buy
the piece of equipment if we were to get
our money paid sooner we could afford a
person to actually run that equipment so
folks our goal was to go out and get
more revenue and of course any business
owner it’s always going to be that but
my eyes were not on what was staring me
right in the face that we weren’t being
diligent enough with our accounts
receivable and because he showed me that
information
we started making some phone calls and
making sure people had all the
information that they needed and we got
that really close to 30 days not only
paying for that equipment not only
paying for the individual that now runs
that equipment but it also allows us one
to have better relations with our
customers so we’re making sure if there
was anything missing that we can now get
that to them and I want to say that we
have a better relationship because we
now have that expectation and now it’s
another number that somebody is in
charge of and they feel so proud when
they hit that metric again Peter Drucker
said at best what we measure
gets better and that by measuring it
absolutely got better you know another
thing he had us look at was our accounts
payable and for the longest time we
would pay invoices to vendors when it
was convenient for us to pay and we were
well within the terms that those vendors
gave us well we set up a procedure that
allowed us to pay at the exact same time
each and every month according to what
those terms were so essentially we got
to hold on to our cash just a little bit
longer and I tell you when you are
forecasting cash flow having money come
in faster and money go out on a set time
it really allows you to figure out where
your business is going and then when you
look at things like sustainable growth
rate did you know there was a
calculation for that
how much can your company or even your
territory effectively grow without
putting too much strain on it well these
are all the numbers that you’re going to
put into that and now using your own
data you can make better decisions
simply put the bottom line is with the
data you make better decisions and you
have more options to make decisions on
now I know most of you are thinking you
cannot afford to hire a full-time CFO
well here’s the good news you don’t have
to professionals like Mike and Adam are
available on a part-time basis to help
you navigate through your financial data
if you’re interested in a relationship
like this I know it can be difficult to
start that conversation how do I find
these people what questions do I ask how
do I know I can trust them
so I have tried to put together some
tools to help the scaling-up nation out
I’ve started a network of individuals
that I trust that you can start a
relationship with you can go to
scaling-up
h2o dot-com /t
ta as entrusted advisors to find a
professional to help you with some of
your business needs now we’re currently
interviewing people and working with
people that we’re already working with
that we trust to see who would be good
on this trusted adviser Network so check
back regularly because we’re continually
adding people on but I am here to tell
you you don’t need to hire a
professional full time to get the
benefit if you just work with some of
these individuals on a part-time basis
and they help you start looking at the
right numbers and numbers you might not
even have thought of before studying
metrics with that and then making
decisions based on how those metrics
start trending folks you would be amazed
at the direction your territory or your
company goes in nation at the top of the
show I mentioned the rising tide
mastermind and how incredible it has
been to have a group of fellow members
that we could bounce ideas off of
especially in this Cove in nineteen
crisis well what I have done for the
last few weeks is I have had specialists
come on in particular areas to help
answer some questions about how we get
through certain things what we need to
watch what we need to do and one of
those speakers actually was Adam lean
and Adam came on he did a webinar and
the fact of the matter is we need to be
looking at these numbers coded 19 or not
but with koban 19 going on having this
data has allowed me to make so many
decisions because I now can test the
numbers based on the data that I’m
collecting so if you want to see that
webinar in fact if you want to see all
the webinars that we have been doing for
the mastermind group you can go on
scaling-up h2o comm
Ford / coded 19 we all know how to spell
that and there’s no – in between so
scaling up h2o comm /co bid 19 it will
take you straight to the webpage where
we have all of our videoed webinars and
you can learn right along with me as our
expert speakers are giving us advice on
what to do and Adam is one of those
speakers I hope today’s episode gets you
thinking about all of the things that
you can measure and folks you can
measure anything and kind of go crazy
with that but what are the top things
that you do that make the most income
producing items so sales is always an
easy one to talk about if I need to
increase my sales by $40,000 how much is
an average account worth and then how
many people do I need to call based on
my closing ratio to get up to that
$40,000 well folks you can do that with
anything I just told you how we did it
with accounts receivable and accounts
payable when you start looking at your
data you can make better decisions if
you’re not measuring how do you know and
more importantly how do you know when
it’s too late to fix an issue you might
not even have known has been happening
well folks I hope you’ve learned
something from this episode and I sure
hope that you join me next time on
scaling up h2o
you