The COO Show
The COO Show

Episode 9 · 8 months ago

5 Must-Ask Financial Questions for Every Business w/ Kyle Beltle

ABOUT THIS EPISODE

Financials…

Can you hear it? That’s the collective groan of almost every business owner at the mere mention of the word.

But all you business owners out there, you can save the exasperated sighs.

Because financials don’t have to be hard — you just have to learn to ask the right questions.

In fact, today’s guest, Kyle Beltle, Fractional CFO at Sweet Fish Media, says you can stop worrying about endless KPIs and just ask five simple questions.

In this episode, we discuss:

-The 5 questions every business owner needs to answer to understand their financials

-Why simplicity is your friend when it comes to financials

-The value a fractional CFO brings to an organization (and why COOs should consider ceding some financial responsibilities to one)

The the time to get your house in order. The time to get your business in order is not the week before you're going to sell it. You want to start today to be building a business that is sellable, regardless of what you want to do with it, because a sellable business is a healthy business. Welcome to the COEO show, a podcast brought to you by sweet fish media that features conversations with leaders like you and shares the real life stories of the operations professionals laying the groundwork for the success of their teams. Let's get into the show. Welcome back to the CEO show. I'm bill read, your host, and today we have a special treat I have with me Kyle Beltley, kind of happens to be our fractional CFO, so we're going to talk a little bit about that today. But we have had such a great experience with with Kyle and with conflent CPA, I just wanted to sit down and share some of his wisdom with all of you the way he shares it with me, and I thought what better person to sit down with then someone I trust like I do kyle. So, Kyle, welcome to the show. Thanks so much, Bill. It's an honor to be invited here. You bet well, we have a lot to talk about and we're going to actually jump right in, but one little preamble. Tell me a little bit about why you became an accountant, why you got your CPA, why you're where you are today. Kind of. Well, that is a good question. Their bill. Well so, interestingly enough, when I was in college I was on the rock star track and in fact one of the clauses in my contract with with coffin CPA's that when the record company calls, I can take an extended leave. But yeah, still still waiting for the call from the record company. Yeah, I almost I believe that. And Way to prove me wrong and start out with a lie. But yeah, yeah, so, when I was in college studied music. Still Love Music very much today, but after school was a struggling musician and started taking a look at my options and saying, you know what, you know what would be a better path for me? And that was a begin a really intense time in my life of reading, talking with people, just trying to understand my makeup and kind of why I think. And one of the things that kind of kept coming up a recurring friend, surprisingly, was accounting and I thought to myself, my dad's an accountant, but I don't want to do that. That's boring. Yeah, but what I have come to appreciate about accounting them in my role here at Kuffman CPA, as you mentioned, I'm a fractional CFO, so you know, I working day and day out with business owners to help that them get a greater sense of financial clarity so that they can make better decisions about their business. And the thing that I love about small businesses is it it's not just working with a nameless, spaceless organization. You're working with real people and their lives and their families and being able to walk alongside them, encourage them help them out. I found that incredibly rewarding. Yeah, that's great. I find it interesting, kindle, that you're a musician. You know, I'm a I'm a musician, although I'm a drummer, so I'm, you know, definitely below what's your instrument? ZAMBA BASS layers. So one of these days, though, we're Gona to get together in jail. You know, a good bass player and a good drummer and makes them sweet music. So happolt, we'll have to do that. Sometime when you get down to Orlando. But it's interesting. Kyle. I've talked to a lot of people. In fact, one of the guests we had on the show previously was an artist. Another was a musician, and I have discovered over the years that math and music are not world's apart like...

...people think they might be. No, no, definitely not. I think there's each of us has a little bit of a creative side to us. Yeah, and music in fact, is math. Right, you study the theory of music and you're you're studying a form of math. It's funny. You mentioned that I like to volunteer at my church and one of the things that I do, in addition to who playing the base, is I serve as the band leader, counting us into songs, reminding us of where we're going with songs, and I've been told that I really excel at that because I approach things with such a structure and with systematic approach. So even within an art form right, there's elements of structure that help make that that art. Well, thanks for sharing a little bit about yourself. I always find the journey interesting. Today we're going to talk about financial clarity and this is something that you've helped me with to you know, there are a lot of things that are important in running a business and because I'm responsible for ultimately for the financial performance, you know there are probably what twenty or thirty relevant key indicators in the business financial that's too low, Bill. Fifty, sixty seventy, come on, we higher than that. I'm sure, Kyle, that you could come up with fifty plus key indicators, but what you've helped me do is really boil that down to five questions or five key indicators, live questions you might want to ask yourself about the business before we dig into the first one. Will you just run through the five of those for me? Absolutely, and and just real quick, Bill, when I was saying sixty seventy, that was hyperbolely because why I hope can find when I start working with a brand new business owner is that they think that hey, if I can have more information, if I just had more KPI's, that's going to help me make better decision. And I completely disagree with that. Bill. What I have found simplicity is your friend when it comes to the finance finances, and what I found is for most business owners, if they can simply answer five questions, they're going to be well on their way to achieving financial clarity. And so those five electionwous what they are. So those questions would be, one, how much money did we make to how much cash will we have in twelve weeks? Three, what are the trends that we're seeing? or who are my most or least profitable clients? Or, depending on your business, what are my most least profitable products? And finally, what is my business works today? Awesome, those are five great questions. I'm really intrigued by this first one. Isn't this an obvious one to every business owner? How much money did my business make? Don't? Don't they know what's in the checking a kind of you, you would think so. But Bill, I'm sure, I'm sure you could probably share from your personal experience meetings around financial decisions where we never even started with that baseline or started with the obvious. And so, right off the bat in any meeting that I'm with with a client, always like to just establish what was our revenue, what was our gross profit and what was our nit income? And, by the way, I slipped an eastern again there. I guess you'LD call it. I I recognized early in my career that how much money the business made and what and the balance in the checking account are not the same thing. I am shocked at the number of folks who, for all practical purposes it is that's a problem. You're absolutely right, Bill. So many business is are used to doing things on a cash basis versus of a cruel basis.

And, as most people know, cash basis says when did we get paid by our client? Okay, we got paid in September. We're going to recognize that revenue in September, versus a cruel which says, well, now, we did the work in the month of August, so, regardless of when the customer comes through with payment, we're going to recognize that in August. And built to your point, you're absolutely right. Every business means to be on a cruel basis accounting so that they can have a true apples to apples picture of what revenue did we earn this month, what expenses did we incur this month to truly understand our profit, and so just kind of going over that. A cruel basis revenue, cruel basis gross profit, cruel basis net income, is really key for understanding our sales and our profitability. And then kind of that leads us into our second thing. Second question for financial clarity. How much cash am I going to have in twelve weeks? Because another thing that I see so frequently is what we like to call bank balance accounting. I'm sure, Bill, you've probably done some owners who did this. Sure, yeah, you open up your browser first thing in the morning and if something, if you got more money than you're expecting, Ha Haha, business is good, but if you find out, Oh man, I forgot wrote that check, snap, nothing that might bounce, is lower than I thought, oh chicken, little skys falling time, sell off all the acids right that. You know, bank balance accounting is knee jerk reaction accounting and that's no way to run a business and certainly shortsighted. Yeah, absolutely, and so one of the questions that I encourage all business owners to ask him, that I love to help people with, is how much cash are we going to have in twelve weeks? And you know, if someone is just starting off, Bill, I would encourage them get out of simple spreadsheet and each column represents a week, each row represents either up at the top, we would have cash inflows. Towards the bottom we would have cash outflows and just go out over the next twelve weeks. All right, I'm expecting a payment from my biggest client on the ten. Kind of pencil that in. I know I got pay roll on the fifteen and the thirty. And by forecasting out your cash like that you're going to have a much greater sense of where cash is going to be and it's going to give you more peace of mind and financial clarity. And you know, I have a simple spreadsheet that I like to use as a starting point. If your listeners like the email, me more than happy to share that with them. But so start with something simple like a spreadsheet. As you get more comfortable you can start using things like there's a tool called cash flow frog tool called cash flow tool, which are both web based products which can kind of help you with this. But just start simple with a spreadsheet and figure out how much cash you're going to happen twelve weeks. So, Kyle, this is interesting to me because back in my college days I was a musician. I was making all my money either teaching or playing, and I remember my method of accounting was based on overdrafts. Now they weren't fifty bucks like they are to day. It was like five dollars. When I got an overdraft, I put more money in the bank. Seriously, that was my approach and I'm shocked at the number of business owners, my peers, who sometimes take that same approach. Right they don't know what's out twelve weeks and they don't really want to know. It's a scary question to ask. So I love your suggestion the spreadsheet. We're going to give kyles contact in formation here at the end of the show, so stay tuned for that. But how much did the business make? How much to ask yourself, who your most and least profitable?...

That's sure. Were so so. Now another tension. That's for those numbers that he's identified between revenue and net income cash. Now we need to give them some contexts, Bill. So what are the trends? So let's take those numbers. Let's take a look at where. Where were we last month? Where were we three months ago? Where were we during this month last year? Do we have a budget that we can use to kind of compare our performance to are we? Are we part of a peer group, or do we have that may perhaps an industry survey where we've got some data from our peers that again, we can benchmark ourselves against and just see how are we trending with those numbers, because if I say, Hey, Bill, you made a hundred thousand dollars last month, that really doesn't mean anything without without context. And so by looking at those trend lines, a IT gives us context, but be it helps us to identify if there's anything that we need to address. Because if we take a look at, say, are twelve week cash little forecast and we see that kind of the trend of our ending balance has been sloping downwards, right, that's it. That's something that we need to pay attention to. If we see that our net margin has been slipping over the last three months, that is something we need to pay attention to and we can then go from there and dive deeper. Hey, is that our people costs? Is it our cost of good sould? We can die, we can dive into it, but it starts with just giving those numbers contexts and identifying the trends. Yeah, that's perfect. In fact, every month, as our CFO, you go through those trends and and sometimes, like there is kind of an all huh, sometimes there's a that's interesting and sometimes there's an Oh boy, right, yeah, and so it's very important to look at that and not take your eye off the ball, the trends, the ratios. The next one you've got here is to ask yourself who your most and least profitable customers are. Another question that's hard to ask. So absolutely, Bill, but it's so crucial. Bill. I mean in your experience, I'm sure you've been in situations where twenty percent of your customers are making up eighty percent of your profits. Right, sure, yeah, yeah, and that, conversely, that means that eighty percent of your customers, and probably eighty percent of the work that the staff is doing is only accounting for twenty percent of your profit. And so it's not enough to look at how profitable the business was. You need to start zeroing in on who your star customers are, because what of the we need to understand what are the characteristics of those customers, because then we can share that with our sales team and they can begin to focus more on that type of a customer. And conversely, if we have a customer who is not profitable, is there anything we can do to help them? Do we perhaps need to say goodbye to them, stop doing business with them? If it's a product based business, again, what are the characteristics of the products that are most profitable? Can we find more products like that? Can we focus entirely on those products? Those are the type of questions that you're able to start asking as you zero in on most least profitable clients and products. You know, you talk about the twenty rule. That certainly applies to profitability, but the other thing I find is that twenty percent eats an incredible amount of resources. Yeah, it seems to me that the bigger and more mature the client is absolute. Absolutely, Bill, but it's so crucial, Bill. I mean in your experience, that what you see. I'm sure I'm soluted jellings where it's interesting because when I do these very unscientific polls of asking people questions kind of anecdotally, it often seems like there's a very high correlation between the clients...

...that employees dislike the most and dread working with the most and their profitability being being very low. So do you like us, Kyle? Oh, absolutely, bail. We're having a good years. Absolutely, that's like to look forward to our we meet twice a month and man, that's that is so helpful to me in the role of CEO. I know a lot of folks on our audience who have the role of CEO, have primary responsibility internally for finance, and I would say that I was really hesitant to let this piece of the business go. I thought of all the things I can outsource and of all the things I want to fold onto and the absolutely on top of its finance. So it was a little terrifying to take my hands off of that at a time, Kyle, when we were struggling. M Yeah, absolutely, absolutely, Bill. It can be very scary to trust someone else with that. What I have found, though, is that the thing that so many clients say is beneficial is the accountability that bringing in a fractional CFO, even if they want to continue to be involved with the finances to a lesser a greater extent, the fact that they have two meetings a month, one meeting a month, they know we're going to be looking at that, the numbers and no matter how busy things get with the other operational things, I'm going to be meeting with my CFO. We're going to hold my feet fire. Entrepreneur and you know, I recently was talking with someone who been working with for about six months and I said to them what has been the greatest benefits to you hiring effrectional CFL and they said it's that accountability. They said this is the first year and ten years that we're going to hit our financial goals. Now that you know there really smart guys and a lot of it has to do with them, but goes back to just having that account of putting that accountability into your life to help you reach those goals. The same way someone who you know perhaps that they're struggling to lose weight, they hire that physical trainer to you know, they still have to do all the exercise, they still have to limit their calories, but that accountability is powerful. It reminds me of the days when we had three kids at home and and someone came once a week to clean the house and we would spend the night before getting ready for them to clean them straightening up the house so it wasn't as embarrassing. That's right, and it's that way when I meet with you. I'm thinking, okay, what's Kyle? What kind of trouble am I going to be in this time and I really do think and do honor the accountability that you provide. That is definitely one of the benefits of having an outside resource. Yeah, absolutely like that. So, Kyle, profitability clearly is important. I asked the question all the time. Somebody's got a great new idea and I listened patiently and then I say absolutely, what's the return on that investment? Well, build there really, I mean that's hard to measure. Okay, what's the return on the Roi? Well, you can't really draw a straight line. Okay, I understand marketing and branding and that kind of thing, but you got to be able to tie it out to absolutely to something that looks and feels like profit, and profitability so often gets lost in the excitement. And so we talked about profit. Now we're down to another question that I don't think enough business owners, especially in early stages, they don't ask themself this question when they're making critical decisions about the...

...business. Because how much money did we make? Is Critical. What about profitability? Profitability is key. But the third thing is what is my business worth? What is the enterprise value that I'm building here? The same way I would build equity in my home over time, or let's take a rental property, the same way that I build equity in a rental property over time. That gives me cash flow and profit, hopefully, and then, of course the house is worth more than it was when I bought it. The appreciation would be representative of this this residual value or what we call enterprise value. And once the AUTOGL question I'll talk to us a little bit about enterprise value. You're absolutely right, Bill. I'll be so many owners, so many cos they spend, you know, all their days deep in the weeds of the day to day problems, the week to week problems of the business. You need to zoom out to that five thousand foot view from time to time and just say, all right, what is the value of the business, and has that grown over and over the last six months, over the last year, over the last five years? Because, you know, it's important to just take a moment from time to time and just take a look at what the value of the businesses and there's a lot of different ways you can do this. You know, on the one end of the spectrum you can have a professional valuation done periodically. Typically those costs between seven and Tenzero so oftentimes I only see that when someone is truly serious about selling their business and looking for what that market values going to be. But for most business owners bill using a simple rule of thumb. It is a great way to just get a sense of where your business is at. Depending on what industry you're in, I'm sure you can find valuation metrics. Personally, I do a lot of work with creative agencies, and so a rule of thumb that I often suggest is take a look at your last five years of financial identify what your gross profit was and drop the high, drop the low and average out those three, the three middle years there, and then using a multiple somewhere between one and two X. depending on if you're a generalist agencies, probably be closer to one x. If you're very specialized, very niche probably be closer to two x. But just taking that multiple of the average of three years gives you a rule of thumb and just measuring that internally. He's a great way, as once you love, I suspective company, get a sense of what matters still jobs and if it's great and we want to be left accomplishing goals and want to see these. A lot of times young entrepreneurs will say to me, and James sweetfish feels this way, I love what I'm doing, I'm not selling this thing. So so enterprise value isn't quite as interesting for him as profitability or that totally makes sense to me. But as I always said back in in my day, I didn't plan with some of my business either until somebody came by with a check, yeah, so to speak, and and it changed my perspective real quick. You're absolutely right, Bill. I mean you're never many people don't think about selling the business until they're starting to think about selling the business. And you know, as you know, the the time to get your house in order, the time to get your business in order, is not the week before you're going to sell it. You want to start today to be building a business that is sellable, regardless of what you want to do with it, because a sellable business is a healthy business and whatever you're going, whatever your goals are are, you need a healthy business to accomplish those. So true and a perfect place to wrap up, Kyle. This has been great. Yeah, summer...

...fun. Five questions. It has been. Thank you. Five questions. How much did the business make? What? What will our cash look like in twelve weeks? What data trends do we need to be following? Who are our most and least profitable customers, and were many of us to bottom line, how much is my business worth? So, Kyle, if somebody wants to to know more about one of those items, I know a question I get a lot as a former business owner is how do you know? So? You gave a couple multiples there. That makes sense, but that is a very common question and they don't know who to ask right. So, if you're interested in reaching it out to Kyle, I would definitely recommend it. And, Kyle, if someone did want to contact you, how would they do that? Sure best way to get ahold of me is via email, kyle at Kaufman cpacom, Kauf Man cpacom. Well, Kyle, thanks so much. This has been great and you know, as as we've been working together, what to too. Yeah, solitude gets years. I can say none of those questions were surprised to me. So that's good news right. Not here in them for the first time. And those, in fact, are the very things that we're talking about week after week after week. It it plays a major role in our annual planning which were which is underway now, for two thousand and twenty two. So just knowing the basic blocking and tackling the basic questions to ask is super helpful. So thank you for that absolutely bill. If I could end on anything, I would simply say this. When it comes to the financials, simplicity is your friend. Make time to ask yourself those five questions and really big into them. I'll thank you for being on the show today. Thank you for having me, Bill. Take care. You've been listening to the COEO show, the home for operations professionals. Stay connected with the PODCAST and catch every episode by subscribing on your favorite podcast player. If you enjoyed today's episode, please subscribe, rate and review the show. Thank you for listening. Until next time,.

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