Aug. 20, 2024

5 Areas Where Cash Flow Problems Occur and How to Solve Them

We identify 5 critical areas where cash flow problems occur in a business and how to address every one of those problems. We plan on providing some additional bonus content as well regarding cash flow.

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We identify 5 critical areas where cash flow problems occur in a business and how to address every one of those problems. We plan on providing some additional bonus content as well regarding cash flow.

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WEBVTT

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The topics and opinions expressed in the following show are

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solely those of the hosts and their guests and not

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those of W FOURCY Radio. It's employees are affiliates. We

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make no recommendations or endorsements for radio show programs, services,

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or products mentioned on air or on our web. No

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liability explicit or implies shall be extended to W FOURCY

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Radio or its employees are affiliates. Any questions or comments

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should be directed to those show hosts. Thank you for

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choosing W FOURCY Radio.

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Welcome to Powerful Business Strategies, where you will find out

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that everything you have ever learned about growing your business

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is wrong. Finally, a show where you'll learn the right

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way to grow your business by learning business and financial

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strategies that your competition isn't doing. And now here is

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your host Resident of NeXTSTEP CFO Michael Barbarita and joining

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Michael for today's show as an executive moderator is Chooky Obio.

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Yes, Michael, this is chookey.

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How are you fantastic? Choky? How you doing I'm doing well.

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Look, Michael, I believe that gratitude is undefeated and growth

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is about the next step. So it is an honor

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for me to moderate today's show.

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So look, let's jump right into it.

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Michael, let's reflect any high level takeaways from our last episode.

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No, I think, I think. I think it was a

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great show, and I think people should go back and

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listen to the replay because it was really terrific. So absolutely,

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but I want to thank you. I want to thank you, Chucky.

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My name is Michael bob Arita, President of Next Step CFO,

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and Next Step CFO is a fractional CFO and strategic

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implementation firm, and our vision is to ensure that overwhelmed

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business owners achieve the time, freedom, and consistent profits to

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build a legacy and live the life they desire. Our mission,

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our mission is simple. It's dedicated to guiding small business

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owners to leveraging their time, exploding their profits, and build

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a mainingful legacy. And this show, Powerful Business Strategies and

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our book of the same name, is a step toward

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accomplishing that vision and mission. So with that, I'd like

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to hand it back to my co author and moderator

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for the show, Cheocky Obio.

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Michael, it's interesting each time I hear you sort of

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outline that mission and vision for NeXTSTEP ciofo again a

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business that you've built through the years. I'm just additionally inspired, right,

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So look before we jump in, folks, a quick disclaimer,

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Michael and I are both affiliated with a number of

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different organizations and I currently serve as the managing director

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of Business Developments for Vetter Price, Global business focused law firm.

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In addition to that, I collaborate strategically with Michael really

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Coasts to Coast on a business round table where we

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moderate these roundtables, we learn best practices from business owners

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and leaders. In addition to that, we document these business

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best practices in our book, as Michael reference powerful business strategies.

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Now, the views that we'll.

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Express today these are our personal views, but they are

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views based on the success of our experiences and my

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mission today just as a fearless moderator michaelis to ask

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the right questions and to help all of us candidly

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learn the best business strategies that the competition isn't doing.

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So, Michael, I'll hand it back over to you.

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Yeah, thank you, jokey. So today our show is about

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five areas that need to be looked at when you

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have a cash flow problem and how to solve them.

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You know, a couple of months ago, I did a

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survey of two hundred and eighty business owners, and that

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survey said that and seventy percent of them said their

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number one challenge was cash flow. So today I'd like

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to discuss these areas that need to be looked at,

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these five areas that need to be looked at when

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you have a cash flow problem. And so let me

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review those five areas. It's too much inventory, working with

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slow paying clients or customers, selling prices are too low,

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gross profit margins are too low, and paying bills too early.

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And if we have some time at the end of

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the show, we'll have some bonus content where we look

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at some additional areas that can be looked at if

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you have a cash flow problem. Now, I had a

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client who called me a couple of years ago because

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he had a cash flow problem. When you have a

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cash flow problem, the first thing you have to do

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is identify where that cash flow problem is coming from.

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And so when I looked at his financial statements and

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then I prepared a business and cash flow forecast for him,

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it was evident that they were over buying inventory. And

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in my what is this in cash flow forecast, I

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have this little tool called an inventory receipts and accounts

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payable schedule by month, and with that schedule, he knew

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exactly how much inventory he would bring in without overbuying,

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while knowing when he has to pay his inventory bills.

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That's remarkable.

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Yeah, And by following that forecast, he was able to

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increase his cash flow by one hundred thousand dollars on

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the same level of sales. So he didn't increase sales,

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but still increase cash flow one hundred thousand dollars because

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he was able to manage his inventory more efficiently and

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more effectively. And so inventory can kill you. And let

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me talk about that first area that needs to be

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looked at when you have a cash flow problem, and

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that is too much inventory.

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Great, So Michael, on that too much inventory point, let's

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absolutely double click and contextualize that. Now we do have

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just a couple of really quick questions books. As all

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of you know, there are a number of business owners

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that union really coast to coast. So Michael, first, on

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your survey you mentioned two hundred and eighty business owners.

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Was that cross industry, Yes, it was.

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It was industries from trades to the medical business, the

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medical business, medical industry. It was retail, it was manufacturing,

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it was service companies. So it was definitely a cross

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section of industries.

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That is very helpful.

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So the insights that you'll present are cross industry, not

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just based on one specific industry, correct, right, right, all right,

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thank you for that clarification.

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No problem. So in the case of too much inventory,

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it really covers the industries of retail, manufacturing, and distributors.

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Correct.

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But even you know, even electricians or you know, trades people,

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they carry inventory and they're gonna watch it and they're

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gonna watch it. So uh but so too much inventory

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is definitely definitely something that has to be looked at.

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First thing. And a great ski retailer in Massachusetts, his

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name was Roger Butcheker, once said that the less inventory

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you buy, the more money you make. And what Roger

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meant was is that too much inventory can put you

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out of business really quick. And as a matter of fact,

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the biggest mistake retailers make is overbuying, and over buying

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can surely cause cash flow problems, and too much inventory

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poses a significant risk of the business owner in poor

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cash flow and lower grows profit margins. Now, too much

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inventory results in lower gross profit margins because when you

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don't have the money to pay the inventory bill, you

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stop discounting to generate cash, and that really squeezes the margins.

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So too much inventory, by the way, as I said

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a little earlier, not only kills retailers, but it kills

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distributors who over buy and manufacturers who overproduced. And there

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are plenty of tools available that one can use to

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forecast the inventory requirements more efficiently. One I already mentioned

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was my business and cash Flow forecast that includes an

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inventory and accounts payable plan by month. Just by utilizing

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that tool, you're able to manage cash flow better like

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the client I talked about earlier, but also today's operating

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systems have inventory forecasting tools that allow you the opportunity

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to see where those overages are and every area that

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you have an inventory overage poses a risk, and I'm

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of the opinion that the best solution to an inventory

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overage problem is to price to move that inventory as

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soon as possible. It just makes no sense to sit

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on it when you could turn it into cash, no

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matter how small the amount of money you get for

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it and reinvest in fresher start moving inventory with the

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money that you collect from it, And I gotta tell you, chokey,

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this flies in the face of what business owners think.

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And I'm gonna give you an example. So I had

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a client in the hairbrush distribution business, okay, and because

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of a promotion that didn't meet sales expectations by a lot,

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the company ended up sitting on a seven year supply

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of this special hairbrush inventory. So you know, he had

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like sixty grand worth of inventory at cost and he

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was only selling about seven grand of it a year

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something to that nature. So he had a set he

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was sitting on seven years of inventory. Now, first of all,

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let me say that promotions that don't meet sales expectations

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that comment, and no one should be kicking themselves for

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taking a shot on a promotion even though it didn't work. However,

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but when a promotion doesn't work and it results in

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an inventory overage, one should work to address it immediately. Now,

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this particular client got an offer of fifteen thousand dollars

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for the special hairbrush inventory that had a cost to

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him that cost him sixty thousand dollars. Now, at regular prices,

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he could sell that inventory for one hundred hundred thousand, okay,

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but no one was buying it. And quite frankly, it

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was a dog. It was a dog. And so my

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suggestion was to take the fifteen thousand dollars reinvest it

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in fresh, fast moving inventory. And to give you an example,

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the fast moving inventory was turning eight times a year

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at a forty percent margin. Now, my client thought that

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if he could sell just fifteen percent of that hairbrush inventory,

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that special hairbrush inventory, at regular prices, he could make

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fifteen thousand in cash flow that he was being offered

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today and still have the rest of the inventory to sell.

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And this was true, but it would take them over

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a year to do it to get that fifteen grand

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where I was suggesting because it was just so slow

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moving and I called it a dog, it's actually a

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dog with fleas. There you go, right, So by taking

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the fifteen thousand dollars today and reinvesting it into that fresh,

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fast moving hairbrush inventory that he would go out and

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purchase with that fifteen thousand, that would turn eight times

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a year, and he would generate an additional two hundred

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thousand in cash flow that year instead of sitting on

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this inventory and waiting for fifteen thousand.

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Wow, Michael, Look you've struck a nerve with the audience here.

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So the questions are streaming in.

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One thing, just quick question, how would a business owner

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differentiate a slow moving inventory line from a faster movie

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an inventory line?

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Well, one way isn't called an inventory turns calculation. But

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there's several business owners that understand when something isn't selling.

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They just they just they just know it's still sitting

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there now if they're not paying attention. And sometimes they don't,

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you know, and all of a sudden they look at

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their inventory and this product that they thought was gonna

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fly out the door didn't. And and so that's when

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they it has to trigger a reaction. And so as

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as you can see from the example that I gave,

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because of the inventory turnover of the more productive inventory,

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it pays to cut your losses and get rid of

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the slower moving inventory at virtually any cost. And and chooky,

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this is very contrary to what most business owners think.

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And I understand why. Yeah, but I've seen it work

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time and time again. It's hard to admit when you

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have a dog, no matter how many fleas the dog has,

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we business owners still think we can sell it, and

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that is dangerous thinking. So the critical component here is

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to is to sell that inventory, that dog inventory, at

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all costs and just move it, price it to sell

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whatever it is, and then reinvest that that the proceeds

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from from whatever flea market rate that you got, put

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it back into that productive inventory that's going to turn

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for you, that's gonna that's gonna sell for you, and

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that's going to generate more cash for you.

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I love it, Michael.

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You're in the zone here, man, a lot of flea references,

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flea market.

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I love it.

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So there is one question that came in. I think

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it's it's worthy of some consideration, Michael. So I'll kind

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of play this question for you and let us know

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what you think. So can a business owner be justified

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in saying, maybe I don't have the right messaging for

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that slower moving inventory, so before I sort of cut

231
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my losses, should I try different messaging for that?

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And I know that's something we've talked about it.

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Yeah, boy, what a what a terrific that's a that's

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00:14:15.000 --> 00:14:22.039
a genius question. I think that you know, if if

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see business owners usually have with special inventory or inventory

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on promotion. They usually have a target market already set

237
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up for it, Okay, and when that target market isn't buying,

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they can they probably will will, and probably it's a

239
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good idea to try one other methodology to get the

240
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word out. Okay, but after that cut the losses nice. Okay, yeah,

241
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you know, maybe one shot. But but but like I said,

242
00:14:53.679 --> 00:14:56.840
they usually have a target and an understanding of how

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they're going to sell that. When I was in retail

244
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and I made a special buy, I knew exactly how

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I was going to sell it, and if it didn't, well, boom,

246
00:15:06.440 --> 00:15:08.440
I was at it. I was gonna I blew it

247
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right out or you know, sold it to sell all that.

248
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So I think it once again, maybe you give it

249
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one shot if you think you've misjudged the marketplace. But

250
00:15:22.879 --> 00:15:25.759
other than that, if that doesn't work, forget it, forget it.

251
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Move on.

252
00:15:26.919 --> 00:15:27.440
Very helpful.

253
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The faster you move on, the better.

254
00:15:29.919 --> 00:15:32.000
That's very helpful, Michael, Yeah, very helpful.

255
00:15:33.679 --> 00:15:36.440
So the next area that you need to look look

256
00:15:36.480 --> 00:15:41.159
at it slow paying clients or customers. You know, lots

257
00:15:41.159 --> 00:15:45.279
of my clients continue to do business with customers who

258
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are slow paying or who don't pay at all. Sometimes

259
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they do it because they know the customer personally, do

260
00:15:54.559 --> 00:15:56.879
it because the customer's been been with them for a

261
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hundred years, you know, for a time. And sometimes they

262
00:16:01.639 --> 00:16:04.000
do it because business is bad and they just need

263
00:16:04.039 --> 00:16:07.320
to keep people busy and working, and they'll do anything

264
00:16:07.320 --> 00:16:10.200
to get business, so they they'll work with somebody who's

265
00:16:10.759 --> 00:16:14.759
slow they know is slow paying. But whatever the reason,

266
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it's bad practice to do business with customers who are

267
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slow paying or not paying at all. And I got

268
00:16:21.000 --> 00:16:23.600
many examples, but here's one example that I thought was

269
00:16:23.639 --> 00:16:28.840
the most important and more relevant to what I'm talking about.

270
00:16:29.279 --> 00:16:31.960
So I once had a client who did business with

271
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many of his longtime customers who always paid slowly. Now,

272
00:16:39.200 --> 00:16:41.919
when I first went to the client's office, they had

273
00:16:41.960 --> 00:16:46.080
one hundred and fifty thousand dollars in over ninety day

274
00:16:46.159 --> 00:16:50.559
receivables from these slow paying customers. Wow. Yeah, because their

275
00:16:50.600 --> 00:16:54.639
total receivable balance was two fifty so sixty percent of

276
00:16:54.720 --> 00:16:58.399
their accounts receivable was over ninety days to these types

277
00:16:58.440 --> 00:17:01.360
of customers who they had had for a long time,

278
00:17:01.759 --> 00:17:07.119
some were friends. And these customers were even slower to

279
00:17:07.160 --> 00:17:11.200
pay than previous history because the economy was weakening, which

280
00:17:11.279 --> 00:17:14.200
is one of the risks that you run when you

281
00:17:14.319 --> 00:17:19.079
let receivables carry out, all right, you run into a

282
00:17:19.119 --> 00:17:24.079
bad economic downturn and then no one can pay. Yeah,

283
00:17:24.680 --> 00:17:28.559
but since they were longtime customers, this client took no action,

284
00:17:28.799 --> 00:17:32.519
no action at all. So times were tough, you know,

285
00:17:32.680 --> 00:17:36.839
bad economy and all, and these customers knew by blowing

286
00:17:36.880 --> 00:17:39.720
off my client's bill nothing would happen. That's the other

287
00:17:39.799 --> 00:17:45.519
risk because believe me, every business owner knows who they

288
00:17:45.599 --> 00:17:50.720
could push the envelope with. Every business owner knows that

289
00:17:50.920 --> 00:17:55.279
if they don't pay someone, it won't matter because they're

290
00:17:55.319 --> 00:17:59.000
not going to get harassed about it. Everyone knows who

291
00:17:59.079 --> 00:18:04.359
those are as a matter of fact too. Not to

292
00:18:04.440 --> 00:18:07.079
criticize the legal profession, but a lot of people delay

293
00:18:07.119 --> 00:18:14.920
it paying legal bills exactly. I mean, it's one of

294
00:18:14.960 --> 00:18:17.200
the bills they could get away with because they establish

295
00:18:17.279 --> 00:18:21.160
a relationship with the attorney yea, and the attorney doesn't,

296
00:18:21.480 --> 00:18:23.880
you know, want to push the envelope until it gets

297
00:18:23.880 --> 00:18:27.319
real bad, you know. So legal bills is one of

298
00:18:27.359 --> 00:18:30.200
the things that gets delayed. And like I said, business

299
00:18:30.200 --> 00:18:35.400
owners understand who they could push the envelope with. So

300
00:18:35.519 --> 00:18:39.839
what I did is in that situation, okay, is I

301
00:18:39.839 --> 00:18:42.680
immediately put all these customers in collection and refuse to

302
00:18:42.680 --> 00:18:45.200
do business with them in the future. And some of

303
00:18:45.240 --> 00:18:48.079
these customers still came back to us and started paying

304
00:18:48.160 --> 00:18:54.480
cod overall collections dramatically improved with these customers. You know,

305
00:18:54.880 --> 00:18:57.640
there's just there's no rule of thumb to determine when

306
00:18:57.640 --> 00:19:01.319
a customer is slow paying. It's different for every business, correct,

307
00:19:01.440 --> 00:19:03.799
you know, yeah, I mean some people know that you know,

308
00:19:03.880 --> 00:19:06.559
this particular customer pays in forty days, but he pays

309
00:19:06.559 --> 00:19:10.200
in forty like clockwork, even though your terms are thirty's.

310
00:19:10.599 --> 00:19:15.319
That's okay, that's okay, we can you know, we generally

311
00:19:15.519 --> 00:19:18.400
there should be flexibility there. They if they could be

312
00:19:18.440 --> 00:19:21.720
counted on. But once it starts to get a little older,

313
00:19:21.799 --> 00:19:24.960
that's when there has to be some pressure applied. Okay.

314
00:19:25.519 --> 00:19:28.079
And like I said, it's different for every business, and

315
00:19:28.119 --> 00:19:31.519
the business owner needs to determine in a policy how

316
00:19:31.559 --> 00:19:34.759
many days past due is considered to be a slow

317
00:19:34.920 --> 00:19:35.920
paying customer.

318
00:19:36.400 --> 00:19:39.519
Remarkable, Now, Michael, again, you struck another nerve with that.

319
00:19:39.680 --> 00:19:41.839
So a couple of questions. I'll sort of consolidate this

320
00:19:41.960 --> 00:19:46.119
into one overarching question. Do you have any best practice

321
00:19:46.200 --> 00:19:51.279
ideas on the front end of a customer or client relationship,

322
00:19:51.480 --> 00:19:53.799
setting those expectations about payment terms.

323
00:19:53.960 --> 00:19:59.119
Any Yes, absolutely I do. And that's what I was

324
00:19:59.160 --> 00:20:02.319
going to go into, exactly establishing a system of collecting

325
00:20:02.359 --> 00:20:06.559
accounts receivable so that your receivable strategy is consistent, it's

326
00:20:06.599 --> 00:20:13.480
communicated timely to critical successful collections. And I want to

327
00:20:13.480 --> 00:20:16.359
give you an example. I want to propose if you

328
00:20:16.440 --> 00:20:24.079
will accounts receivable collection strategy. So assume an invoice with

329
00:20:24.240 --> 00:20:26.519
terms of thirty days. So let's just assume that the

330
00:20:27.279 --> 00:20:30.480
terms that you have with your customers on your invoice

331
00:20:31.000 --> 00:20:34.359
is thirty days. And by the way, on every invoice

332
00:20:34.599 --> 00:20:38.279
there should be a one and a half percent interest

333
00:20:38.319 --> 00:20:42.519
rate or eighteen percent a year interest when past due.

334
00:20:43.000 --> 00:20:47.359
Always always put that on there. But between the thirty

335
00:20:47.400 --> 00:20:50.480
fifth and fortieth day, depending upon who the customer is,

336
00:20:50.559 --> 00:20:52.880
unless you really know that they pay within that period

337
00:20:52.920 --> 00:20:58.759
of time, you contact the customer for payment. And so

338
00:20:59.240 --> 00:21:02.400
if the customer doesn't return your call or you weren't

339
00:21:02.400 --> 00:21:06.240
satisfied with the customer's answer, I then send them a

340
00:21:06.279 --> 00:21:11.680
ten day demand letter. Now this is a this is

341
00:21:11.720 --> 00:21:15.240
a letter that requires payment within ten days or the

342
00:21:15.279 --> 00:21:18.759
account gets put into collection, and you send that letter

343
00:21:18.880 --> 00:21:23.720
certified mail, so it gets attention. Now, it's certainly better

344
00:21:23.759 --> 00:21:26.519
iFIT the letter comes from an attorney, but I've had

345
00:21:26.559 --> 00:21:29.480
a lot of success in using a form letter that

346
00:21:29.519 --> 00:21:32.880
I put together. Okay, so I didn't have to pay

347
00:21:32.880 --> 00:21:36.480
the legal fees. And if anyone would like to get

348
00:21:36.480 --> 00:21:39.279
a copy of this letter, if you can go to

349
00:21:39.440 --> 00:21:44.880
next STEPCFO dot net. That's www dot next STEPCFO dot net.

350
00:21:45.640 --> 00:21:51.160
Go to our contact page and send me a note

351
00:21:51.400 --> 00:21:55.039
and I'll send it to you. Complimentary, Michael, complimentary.

352
00:21:55.400 --> 00:21:55.920
Nice.

353
00:21:56.480 --> 00:21:59.279
And so if the account doesn't pay within the eleventh

354
00:21:59.279 --> 00:22:02.880
to fifteen of sending that letter, then put the put

355
00:22:02.920 --> 00:22:07.119
the account in collection. Now, if you know the customer,

356
00:22:08.200 --> 00:22:11.079
you might give them a second chance or a third chance,

357
00:22:11.119 --> 00:22:13.880
whatever you want to do in terms of the initial

358
00:22:13.880 --> 00:22:16.759
phone call. But when they don't return your call or

359
00:22:16.880 --> 00:22:20.880
they ignore you, you have to take action. I mean

360
00:22:20.960 --> 00:22:24.240
you just have to. And I always use a collection

361
00:22:24.319 --> 00:22:27.440
agency that has a legal staff. So if the account

362
00:22:27.480 --> 00:22:31.599
is not collected using the traditional collection methods, legal action

363
00:22:31.680 --> 00:22:34.799
could be taken right away with that same staff that

364
00:22:34.799 --> 00:22:37.359
did the original collection and is familiar with the case.

365
00:22:38.599 --> 00:22:42.279
And I only do business with collection agencies, agencies that

366
00:22:42.359 --> 00:22:45.640
take no more than one third fee and have a

367
00:22:45.720 --> 00:22:49.559
legal staff. Once the account goes to collection, then you're

368
00:22:49.640 --> 00:22:52.440
out of it. Let the collection agency do its work.

369
00:22:52.880 --> 00:22:55.680
And once again, the key to the collection process is

370
00:22:55.799 --> 00:23:03.759
consistently and is consistency and timelines. And so let me

371
00:23:03.880 --> 00:23:07.640
just end this one segment with the best collection policy

372
00:23:07.680 --> 00:23:08.559
of all time.

373
00:23:08.880 --> 00:23:10.400
Okay, all right.

374
00:23:10.480 --> 00:23:12.200
Pretty ambitious statement there, Michael.

375
00:23:12.880 --> 00:23:17.160
And here it is in God, we trust everyone else

376
00:23:17.319 --> 00:23:20.240
pays cash up front. There you go, There is the

377
00:23:20.279 --> 00:23:23.279
best one ever right there. That'll work every time.

378
00:23:25.480 --> 00:23:26.839
Well said, so that.

379
00:23:27.039 --> 00:23:29.920
Yeah, So the next, uh, the next component that you

380
00:23:30.000 --> 00:23:34.000
have to look at is your selling prices. Now here's

381
00:23:34.039 --> 00:23:38.240
a rule of thumb that you should live by. You

382
00:23:38.279 --> 00:23:41.759
should get complaints about your selling prices one third of

383
00:23:41.799 --> 00:23:45.799
the time, so thirty three percent of the time your

384
00:23:45.839 --> 00:23:48.839
customers should complain about your prices. Otherwise your prices are

385
00:23:48.839 --> 00:23:53.480
too low. And I asked the client who hired me

386
00:23:53.920 --> 00:24:00.000
one time he was losing money, and I asked him

387
00:24:00.039 --> 00:24:02.799
if he got any customer complaints about his prices being

388
00:24:02.799 --> 00:24:07.400
too high. He was so proud of this, of this

389
00:24:07.559 --> 00:24:12.880
statement that he made, that he proudly said, I never

390
00:24:12.920 --> 00:24:17.200
get complaints about high prices, And I immediately told him

391
00:24:17.200 --> 00:24:18.960
that's one of the reasons why he was losing money,

392
00:24:18.960 --> 00:24:23.279
because prices are too low. You need to get negative

393
00:24:23.319 --> 00:24:26.920
feedback on your prices right around a third of the time,

394
00:24:27.319 --> 00:24:30.160
or you know, maybe say twenty to thirty three percent

395
00:24:30.160 --> 00:24:33.799
of the time. If you're not, your prices are too low.

396
00:24:35.640 --> 00:24:39.279
And so this particular client, you know, took heat of

397
00:24:39.319 --> 00:24:42.640
that advice and increased his prices, and then he started

398
00:24:42.680 --> 00:24:45.359
to get complaints, which you know, obviously bothered him. But

399
00:24:45.400 --> 00:24:48.960
at the same time, he only got about twenty five

400
00:24:49.039 --> 00:24:52.000
or thirty percent complaints, which is right in the wheelhouse

401
00:24:52.720 --> 00:24:57.079
of being priced correctly. So that's just a rule of

402
00:24:57.119 --> 00:25:00.480
thumb that you can use. And when you don't, when

403
00:25:00.519 --> 00:25:03.319
you don't get at least one third of your customers complaining,

404
00:25:03.400 --> 00:25:06.839
then your prices are simply too low. And when assessing

405
00:25:06.880 --> 00:25:10.960
your pricing and competitive pricing, you could always use your

406
00:25:10.960 --> 00:25:15.000
customers as the barometer. That one third rule of thumb

407
00:25:15.400 --> 00:25:20.279
really works. Now, one problem I see with business owners

408
00:25:20.359 --> 00:25:25.039
is when they're doing the selling. When business owners are

409
00:25:25.079 --> 00:25:30.240
actually doing the selling, they have a tendency to discount

410
00:25:30.279 --> 00:25:34.119
prices because why well, the buck stops with them. It's

411
00:25:34.119 --> 00:25:38.039
their business. They could take They could give discounts and credits,

412
00:25:39.599 --> 00:25:41.680
but if you have a tendency to do that, it's

413
00:25:41.720 --> 00:25:45.720
best to let an employee close the sale. Because one

414
00:25:45.720 --> 00:25:50.000
time I had a business owner client of mind where

415
00:25:50.079 --> 00:25:53.559
customers always used to go to that business owner for

416
00:25:53.599 --> 00:25:57.880
the final price and he would discount it and it

417
00:25:57.960 --> 00:26:03.279
was crazy. And any time these customers were working with

418
00:26:03.359 --> 00:26:07.440
somebody else, they got the the the salesperson down to

419
00:26:07.519 --> 00:26:09.599
a certain price and then said I'd like to speak

420
00:26:09.640 --> 00:26:14.640
to the owner and then he reduced it even more. Wow.

421
00:26:15.799 --> 00:26:18.160
And you know, so you know you should be reviewing

422
00:26:18.160 --> 00:26:21.640
your selling prices every six months, and business owners, if

423
00:26:21.680 --> 00:26:23.200
that's what you do, you got to stay out of

424
00:26:23.240 --> 00:26:27.599
the selling process. And what one thing that we do

425
00:26:27.720 --> 00:26:32.680
for business owners to keet who want to increase prices

426
00:26:33.640 --> 00:26:36.839
or don't want to increase prices, is we show them

427
00:26:37.200 --> 00:26:40.640
if they how many customers they could lose and have

428
00:26:40.759 --> 00:26:44.200
the same profit that they were enjoying for the price increase.

429
00:26:44.920 --> 00:26:48.480
So this is really interesting because I had a client

430
00:26:48.839 --> 00:26:53.240
just the other day where he was hesitant to have

431
00:26:53.279 --> 00:26:58.319
a price increase, and I did the analysis for him.

432
00:26:58.599 --> 00:27:02.079
I showed it to him online, and I showed them

433
00:27:02.160 --> 00:27:04.960
that if he lost fifteen percent of his customers, which

434
00:27:05.000 --> 00:27:08.839
in his case was fifty customers, he would have the

435
00:27:08.880 --> 00:27:13.960
same profit that he had before the price increase, So

436
00:27:14.119 --> 00:27:17.519
he could lose fifty customers and make the same amount

437
00:27:17.519 --> 00:27:22.920
of money. When I showed him this, he emphatically said,

438
00:27:23.480 --> 00:27:26.000
there's no way I'm going to lose fifty customers, and

439
00:27:26.039 --> 00:27:30.960
so we implemented the price increase. So it actually gave

440
00:27:31.039 --> 00:27:35.000
him confidence to implement the price increase, because that's one

441
00:27:35.039 --> 00:27:40.240
of the things that business owners just are afraid. They're

442
00:27:40.240 --> 00:27:42.759
afraid to increase prices because they feel they're going to

443
00:27:42.839 --> 00:27:46.359
lose too many customers. Well, we could perform an analysis

444
00:27:46.359 --> 00:27:49.000
for them to show them how many customers they can

445
00:27:49.039 --> 00:27:53.759
safely lose and maintain the same profit before the price increase.

446
00:27:54.000 --> 00:27:56.240
And by the way they lose those customers, they'll pick

447
00:27:56.319 --> 00:27:59.640
up others at the new pricing exactly.

448
00:27:59.720 --> 00:28:03.400
It's remarkable and intriguing, Michael. It's funny.

449
00:28:03.400 --> 00:28:07.920
So in a number of business roundtable discussions like you've

450
00:28:07.960 --> 00:28:11.400
mentioned this, and the light bulbs that go on, I mean,

451
00:28:11.440 --> 00:28:15.920
folks are just completely inspired by this. Give us a sense,

452
00:28:16.000 --> 00:28:19.039
right as part of this analysis. What are some of

453
00:28:19.039 --> 00:28:20.880
the mechanics what I mean, can we say just some

454
00:28:20.920 --> 00:28:22.880
minutes and walk through kind of the steps that you

455
00:28:22.960 --> 00:28:24.599
take to do that analysis.

456
00:28:25.119 --> 00:28:31.079
Yeah, So I have a Excel spreadsheet that will take

457
00:28:31.119 --> 00:28:36.400
your existing profit margins on your on the particular product

458
00:28:36.480 --> 00:28:40.359
that you're going to increase prices on or products or products.

459
00:28:41.599 --> 00:28:45.319
They have your They have the business owners information relative

460
00:28:45.359 --> 00:28:53.960
to sales, relative to gross profit margin, and also it

461
00:28:54.039 --> 00:28:58.240
incorporates a factor for if their cost a good soldier

462
00:28:58.400 --> 00:29:00.599
goes up, if you know, if the cost cause their

463
00:29:00.640 --> 00:29:03.960
suppliers grows up. So we take in all that information

464
00:29:04.759 --> 00:29:07.000
and the output from it, and then of course the

465
00:29:07.039 --> 00:29:10.960
price increase in this particular case with this client was

466
00:29:11.039 --> 00:29:17.079
fifteen percent. Okay, we take the price increase and we

467
00:29:17.119 --> 00:29:22.440
can tell the output from the spreadsheet is that this

468
00:29:22.599 --> 00:29:28.559
client can lose x percent or x customers and still

469
00:29:28.839 --> 00:29:31.920
maintain the same profit they had before the price increase.

470
00:29:32.880 --> 00:29:37.680
You use the word confidence in describing how business owners

471
00:29:37.759 --> 00:29:42.039
really digest this exercise, and I think that's spot on right.

472
00:29:42.079 --> 00:29:43.960
It goes back to a number of episodes, Michael, that

473
00:29:43.960 --> 00:29:47.079
we've talked about where it's about decision making, right, having

474
00:29:47.079 --> 00:29:49.839
the confidence to make the right decisions. But yeah, really

475
00:29:49.920 --> 00:29:53.000
really intriguing, and I imagine business owners could reach out

476
00:29:53.039 --> 00:29:57.359
to you to maybe talk through that kind of a consultation.

477
00:29:58.000 --> 00:30:01.079
Absolutely if they just go to our website, NeXTSTEP CFO

478
00:30:01.160 --> 00:30:04.039
dot net and go to the contact page, be happy

479
00:30:04.039 --> 00:30:07.799
to help them on that. Great. But before I get

480
00:30:07.839 --> 00:30:10.680
off increasing selling prices, I do want to talk about

481
00:30:10.720 --> 00:30:14.759
adding more value to a product or service. So another

482
00:30:14.799 --> 00:30:18.240
way the business owner can get more confident in increasing prices,

483
00:30:18.240 --> 00:30:22.400
because it's about confidence with what I've seen. You know,

484
00:30:23.079 --> 00:30:27.319
if I mentioned just point blank or out of the blue,

485
00:30:27.440 --> 00:30:30.839
I think you should have a price increase, business owners,

486
00:30:31.440 --> 00:30:36.079
you know, really like stepping up and get get real

487
00:30:36.160 --> 00:30:40.000
nervous about it because they're just worried about losing customers.

488
00:30:40.599 --> 00:30:42.960
But another way the business owner could get more confident

489
00:30:43.000 --> 00:30:46.319
in increasing prices is to find low cost ways to

490
00:30:46.400 --> 00:30:50.160
add more value to the product or service. You know,

491
00:30:50.240 --> 00:30:53.960
many times when I suggest that to business owners, have

492
00:30:54.000 --> 00:30:57.319
a price increase and add and by adding more value,

493
00:30:57.759 --> 00:31:00.559
they magically come up with ways to enhance the value

494
00:31:00.599 --> 00:31:04.160
at a low cost. You know, whether it's upgrading the

495
00:31:04.240 --> 00:31:07.960
packaging or adding more units to the to a package,

496
00:31:08.079 --> 00:31:12.960
or adding a free report if it's a service. They

497
00:31:13.039 --> 00:31:16.079
come up with these ideas on how you can add

498
00:31:16.119 --> 00:31:19.200
more value to the existing product. And the more value

499
00:31:19.240 --> 00:31:22.400
you add, the more propensity the customer has to buy.

500
00:31:22.880 --> 00:31:26.759
And it's a great separator where you would be adding

501
00:31:26.799 --> 00:31:29.279
more value and your competition isn't.

502
00:31:30.240 --> 00:31:34.160
Yes, that's a really good nugget of wisdom. So we

503
00:31:34.240 --> 00:31:36.400
got a question in actually a couple of questions, but

504
00:31:36.799 --> 00:31:41.319
i'll consolidate. Do you have an example, Michael, of an

505
00:31:41.359 --> 00:31:42.720
add value strategy?

506
00:31:43.319 --> 00:31:46.359
I do it, and it's a real strange one. Okay,

507
00:31:46.960 --> 00:31:49.920
but I did it. Ok So this is just one example.

508
00:31:50.599 --> 00:31:53.000
I can give another. I'll give another example because this

509
00:31:53.039 --> 00:31:57.200
one's off the wall. Okay. So when I was in

510
00:31:57.240 --> 00:32:01.160
the ski business, I gave away a free scratch lottery

511
00:32:01.200 --> 00:32:04.000
ticket with every purchase of twenty five dollars or more.

512
00:32:04.559 --> 00:32:06.720
Come into the store and spend at least twenty five

513
00:32:06.799 --> 00:32:15.400
dollars and possibly become a Millionaire's look great, it was great.

514
00:32:16.079 --> 00:32:19.559
It was I know it's great. So and by the

515
00:32:19.559 --> 00:32:22.039
way we gave it. We gave it away a scratch

516
00:32:22.039 --> 00:32:24.559
ticket for every twenty five dollars incremental So if they

517
00:32:24.559 --> 00:32:28.799
spend one hundred bucks. They got four scripch tickets. So yeah,

518
00:32:28.920 --> 00:32:31.359
and and you know it was low cost to us,

519
00:32:32.119 --> 00:32:34.319
and it was a way to get people in the door.

520
00:32:35.200 --> 00:32:38.519
But another way to add value is when I was

521
00:32:38.559 --> 00:32:41.759
in the frozen cookie dope business, the problem the customer

522
00:32:41.799 --> 00:32:44.640
had is they didn't want to waste valuable oven space

523
00:32:44.720 --> 00:32:48.839
baking cookies. Now, the key is is to understand the

524
00:32:48.880 --> 00:32:52.839
long term value of your customer. And I did, and

525
00:32:52.920 --> 00:32:54.960
so I was able to make give them a two

526
00:32:55.079 --> 00:32:59.279
hundred dollar convection of them with the with the purchase

527
00:32:59.400 --> 00:33:05.119
of every with with any opening order. And I took

528
00:33:05.160 --> 00:33:07.920
the risk that they were going to stop ordering after

529
00:33:07.960 --> 00:33:10.359
the first order, but I knew the product was good.

530
00:33:10.440 --> 00:33:12.880
I was confident in the product. I understood the long

531
00:33:12.960 --> 00:33:16.480
term value of a customer because the mathematics there, the

532
00:33:16.559 --> 00:33:19.359
economics of the long term value of a customer told

533
00:33:19.359 --> 00:33:22.359
me my average. You know, once I had a customer,

534
00:33:22.440 --> 00:33:25.920
I would generate five thousand in sales over a period

535
00:33:25.920 --> 00:33:29.480
of a year. That was on average. So I knew

536
00:33:29.799 --> 00:33:31.880
that if I gave away a two hundred dollar convection

537
00:33:32.000 --> 00:33:34.319
of it and I got a five thousand, I knew

538
00:33:34.359 --> 00:33:36.440
I was going to make on average a five thousand

539
00:33:36.440 --> 00:33:40.079
dollars sale. And so I did it, and I solved

540
00:33:40.079 --> 00:33:42.799
their problem because a pizza polla doesn't want to put

541
00:33:43.200 --> 00:33:45.160
cookies into the into the main oven. They want to

542
00:33:45.160 --> 00:33:46.359
put pizza in the main oven.

543
00:33:46.599 --> 00:33:47.119
Exactly.

544
00:33:48.599 --> 00:33:51.440
That's just another example. But the but the scratch ticket

545
00:33:51.599 --> 00:33:55.240
was a real well it's interesting one. It was really

546
00:33:55.279 --> 00:34:00.559
it was productive. So the next area you need to

547
00:34:00.599 --> 00:34:06.559
look at for cash flow, it's gross profit margins being

548
00:34:06.599 --> 00:34:09.840
too low. Okay, So well I'm gonna talk about what

549
00:34:10.000 --> 00:34:12.639
is a gross profit margin. So you gotta look at

550
00:34:12.639 --> 00:34:14.920
your gross profit margins to see how they compare to

551
00:34:15.000 --> 00:34:17.440
industry averages and if you need that help, once again

552
00:34:17.840 --> 00:34:22.559
we could provide help with industry averages. You have to

553
00:34:22.599 --> 00:34:27.440
also understand your overhead base. But gross profit margin is sales.

554
00:34:28.639 --> 00:34:33.440
Let's cost of good sold. Now, if you get twenty

555
00:34:33.480 --> 00:34:37.000
accounting types, I don't care if there're CPAs or if

556
00:34:37.039 --> 00:34:41.559
they're CFOs or even bookkeeper, whatever it is, doesn't matter.

557
00:34:41.559 --> 00:34:44.719
If there's just twenty accounting types in a room, they

558
00:34:44.760 --> 00:34:50.960
will fight, scrap, scrape and argue what goes and cost

559
00:34:50.960 --> 00:34:54.400
of good sold. But what I'm gonna do today is

560
00:34:54.519 --> 00:34:57.400
just give you a basic overview of what goes to

561
00:34:57.480 --> 00:35:01.320
cost of good sold. Okay, The cost of good sold

562
00:35:01.400 --> 00:35:04.840
are your direct materials. So if you're producing something, or

563
00:35:04.840 --> 00:35:08.760
if you're if you're in the trades, your material costs

564
00:35:10.280 --> 00:35:13.639
direct labor. This is the labor associated with building the product,

565
00:35:13.639 --> 00:35:17.280
whether it is a manufacturer, or whether it is a

566
00:35:17.360 --> 00:35:23.880
distributor putting product into a packaging, or it was someone

567
00:35:23.880 --> 00:35:26.920
in the trades. Direct labor is in your cost of

568
00:35:27.000 --> 00:35:31.559
good sould any subcontracted costs, So any cost associated with

569
00:35:31.639 --> 00:35:35.880
putting that product together or delivering that product is all

570
00:35:35.880 --> 00:35:40.320
included in cost of good sold. Break costs and other

571
00:35:40.440 --> 00:35:44.719
direct costs specifically associated with the production or delivery of

572
00:35:44.719 --> 00:35:47.760
that product of service that you provide. That's your cost

573
00:35:47.760 --> 00:35:51.079
of goods and the sales. Let's cost a good sold

574
00:35:51.480 --> 00:35:55.079
is called gross profit margin, okay. And you take the

575
00:35:55.119 --> 00:35:57.719
gross profit margin divided by the sales and you have

576
00:35:57.800 --> 00:36:01.400
your gross profit percent. And that is too low, and

577
00:36:01.440 --> 00:36:04.320
it depends upon your industry what is too low. That's

578
00:36:04.320 --> 00:36:09.920
why I can't make a blanket statement here today. Cash

579
00:36:09.920 --> 00:36:15.079
flow problems will ensue. So in addition to increasing your

580
00:36:15.119 --> 00:36:19.880
selling prices, the aforementioned direct costs need to be constantly

581
00:36:19.880 --> 00:36:24.039
reviewed and negotiated with suppliers. This is something business owners

582
00:36:24.119 --> 00:36:29.039
very rarely do they feel beholden to their suppliers to

583
00:36:29.079 --> 00:36:31.360
the point where they don't think there's any negotiation room.

584
00:36:31.360 --> 00:36:36.840
And they're wrong because just like just like the business owners,

585
00:36:36.880 --> 00:36:41.920
customers will come to them for price breaks, the business

586
00:36:41.920 --> 00:36:47.719
owners of these of these various suppliers, they understand that

587
00:36:47.800 --> 00:36:51.199
you're going to come back and look for price. Right.

588
00:36:51.639 --> 00:36:54.679
That's such an astute point, Michael, so insightful. Yes, I mean,

589
00:36:54.960 --> 00:36:58.440
just like you get pressure from clients and customers, you

590
00:36:58.440 --> 00:37:02.559
should also put some of that same pressure suppliers and vendors.

591
00:37:02.880 --> 00:37:06.519
It seems like that's your big takeaway, correct, Yeah, absolutely, Yeah,

592
00:37:06.519 --> 00:37:07.360
that's really interesting.

593
00:37:08.000 --> 00:37:11.239
And so the other critical element to pricing is to

594
00:37:11.320 --> 00:37:14.840
know what your product or service costs. And I had

595
00:37:15.480 --> 00:37:18.519
many clients not understand what their product or service costs.

596
00:37:18.519 --> 00:37:23.400
And it turned out that I had clients when I

597
00:37:23.519 --> 00:37:26.559
started with them, they were selling their product for below

598
00:37:26.639 --> 00:37:30.039
cost and you could just imagine the cash flow problems

599
00:37:30.079 --> 00:37:32.400
that was causing. I mean, you just got to know

600
00:37:32.440 --> 00:37:34.679
what your product or service costs and under the profit

601
00:37:35.000 --> 00:37:38.360
profitably price your product. And if you find that your

602
00:37:38.400 --> 00:37:41.920
product of service costs too much and you can't be

603
00:37:42.000 --> 00:37:44.960
competitive in the market. Then it's time to examine those

604
00:37:44.960 --> 00:37:48.360
components of the product or service costs of your cost

605
00:37:48.360 --> 00:37:49.920
of good soul to see what could be done to

606
00:37:49.960 --> 00:37:53.400
reduce it. And so let me explain this a little

607
00:37:53.440 --> 00:37:58.119
bit more so. We have a profit formula that we

608
00:37:58.239 --> 00:38:02.599
use called the five five to five profit formula, and

609
00:38:02.639 --> 00:38:05.079
let me explain the simplicity of this formula and the

610
00:38:05.280 --> 00:38:10.159
impact it could have on profit and cash flow. The

611
00:38:10.239 --> 00:38:13.519
objective of the five to five to five profit formula

612
00:38:14.559 --> 00:38:19.000
is to increase sales five percent, decrease cost of good

613
00:38:19.079 --> 00:38:23.880
soul five percent, and decrease overhead five percent. That's it.

614
00:38:24.000 --> 00:38:29.719
That's the formula once again, increase sales five percent, decrease

615
00:38:29.800 --> 00:38:33.719
cost of good sole five percent, and decrease overhead five percent.

616
00:38:35.480 --> 00:38:40.719
My clients are shot at how this small incremental change

617
00:38:40.760 --> 00:38:45.960
in just three areas can have a profound and compound

618
00:38:46.199 --> 00:38:49.360
effect on profit and cash flow. And let me give

619
00:38:49.360 --> 00:38:54.159
you an example. So a company that's doing a million

620
00:38:54.239 --> 00:38:57.599
dollars in sales at a forty percent gross profit margin,

621
00:38:58.920 --> 00:39:00.840
that's gross profit to buy it by sales. As I

622
00:39:00.880 --> 00:39:04.519
talked about earlier, and a twenty percent net profit margin

623
00:39:04.559 --> 00:39:08.880
on the very bottom line. By increasing sales five percent,

624
00:39:09.559 --> 00:39:13.119
reducing cost of good soul five percent, and reducing overhead

625
00:39:13.119 --> 00:39:18.239
five percent, they will increase their bottom line forty five percent.

626
00:39:20.239 --> 00:39:23.679
And I have some clients that are bonusing their management

627
00:39:23.719 --> 00:39:25.519
team on that one formula.

628
00:39:26.079 --> 00:39:27.559
Wow.

629
00:39:27.679 --> 00:39:31.599
And we have strategies that next step CFO to impact

630
00:39:31.719 --> 00:39:35.239
all three of those areas, and in a future show

631
00:39:35.280 --> 00:39:38.440
will cover in more detail the five to five to

632
00:39:38.440 --> 00:39:39.760
five profit formula.

633
00:39:40.800 --> 00:39:41.119
Yeah.

634
00:39:41.280 --> 00:39:44.039
I mean, Michael, you're already getting some plaudits on that,

635
00:39:44.760 --> 00:39:48.920
so folks are really anticipating that episode where we break

636
00:39:48.960 --> 00:39:50.239
the five five five down.

637
00:39:50.559 --> 00:39:54.400
Yeah. And it's amazing how small incremental changes in those

638
00:39:54.639 --> 00:40:00.960
three areas can have such a compound effect on profit. Yeah.

639
00:40:01.000 --> 00:40:03.440
By the way, yes, go ahead, Sorry, Michael.

640
00:40:03.199 --> 00:40:05.079
Just you got a quick compliment that I just really

641
00:40:05.119 --> 00:40:07.480
want to make sure we pronounce here on air. So

642
00:40:08.679 --> 00:40:12.920
you connecting that to the management performance system?

643
00:40:13.079 --> 00:40:13.280
Right?

644
00:40:13.320 --> 00:40:15.559
So it seems like what you were saying was there's

645
00:40:15.559 --> 00:40:17.480
a clienters who that you have where they've taken the

646
00:40:17.519 --> 00:40:20.719
five five five framework and they've used that as a

647
00:40:20.719 --> 00:40:23.239
way to measure the performance of managers.

648
00:40:23.079 --> 00:40:27.320
Right, Wow, Because they had such a compound effect. Even

649
00:40:27.320 --> 00:40:30.719
if the managers are unsuccessful. Let's say and do four

650
00:40:30.800 --> 00:40:34.440
four four, it's still a home run or three or

651
00:40:34.559 --> 00:40:37.440
three four three. I mean it's still a home run.

652
00:40:38.719 --> 00:40:41.559
And they're focused on the right things too, Yes, focused

653
00:40:41.639 --> 00:40:42.519
on the right thing.

654
00:40:43.239 --> 00:40:45.320
It's a good point, really really good point.

655
00:40:46.280 --> 00:40:50.800
So the final area is paying bills too quickly. So

656
00:40:52.440 --> 00:40:55.000
business owners have a tendency because they like to get

657
00:40:55.000 --> 00:40:58.679
their bills paid that they they don't have to have

658
00:40:58.719 --> 00:41:01.840
any bills hanging around them, and so they pay. You

659
00:41:01.920 --> 00:41:04.280
got to pay your bills when they're due, not before.

660
00:41:04.400 --> 00:41:08.679
Otherwise you gotta let the cash inflows catch up with

661
00:41:08.719 --> 00:41:13.039
the outflows. By paying bills too quickly, you may be

662
00:41:13.159 --> 00:41:16.360
losing an opportunity to be able to pay an important

663
00:41:16.360 --> 00:41:21.159
bill that comes up unexpectedly. I had a client who

664
00:41:21.199 --> 00:41:25.760
is paying bills so rapidly that one month he couldn't

665
00:41:25.760 --> 00:41:29.280
pay for an unexpected payroll tax that surprised him. Mm

666
00:41:30.079 --> 00:41:33.360
it just it has an impact on cash flow when

667
00:41:33.400 --> 00:41:37.800
you pay bills too quickly. Now, payroll taxes I must pays.

668
00:41:38.119 --> 00:41:39.639
So we had to borrow money from a line of

669
00:41:39.679 --> 00:41:44.920
credit and incur unnecessary interest expense. Uh So no matter

670
00:41:44.960 --> 00:41:49.280
how good your cash position is at any particular point

671
00:41:49.320 --> 00:41:53.920
in time, pay your bills when due in a systematic manner.

672
00:41:54.000 --> 00:41:57.280
And I know that expenses are coming. You know that,

673
00:41:57.760 --> 00:42:00.639
you know there's must pays. I get that, But just

674
00:42:00.719 --> 00:42:05.440
pay them when they're due. And every day your bookkeeper

675
00:42:05.440 --> 00:42:10.119
should give you a reconciled bank balance. You know, with

676
00:42:10.119 --> 00:42:13.000
with online banking today, that could be done very easily.

677
00:42:13.039 --> 00:42:17.119
They can also reconcile the bank account daily, which eliminates surprises.

678
00:42:18.079 --> 00:42:22.159
I have had so many times where taxing authorities have

679
00:42:22.960 --> 00:42:28.159
doubled in tripled payments in error, and the business owner

680
00:42:28.199 --> 00:42:31.880
doesn't know it, and three or four months later they

681
00:42:31.880 --> 00:42:34.559
find out about it. It's just terrible. The bookkeeper should

682
00:42:34.599 --> 00:42:38.760
be on that bank balance daily and you should know

683
00:42:38.800 --> 00:42:42.039
what it is because if your call. This is one

684
00:42:42.079 --> 00:42:44.880
of the vital five numbers that every business owner should know,

685
00:42:45.360 --> 00:42:49.800
along with sales, gross profit, gross profit percent, and net profit.

686
00:42:50.760 --> 00:42:55.360
You have to know your bank balance now. The only

687
00:42:55.400 --> 00:42:57.880
time you should pay bills quickly is when you get

688
00:42:57.880 --> 00:43:02.239
an early pay discount. That is absolutely acceptable. Pay to

689
00:43:02.280 --> 00:43:04.719
pay early. And by the way, that's the reason why

690
00:43:04.719 --> 00:43:07.039
you pay your bills on time. Because some vendors offer

691
00:43:07.039 --> 00:43:09.880
a discount if you pay early. You want to use

692
00:43:09.920 --> 00:43:14.119
that those dollars to pay for that. By the way,

693
00:43:14.159 --> 00:43:18.599
sometimes it's called anticipation. When you have an opportunity, UH

694
00:43:18.760 --> 00:43:22.119
to pay an invoice early or at least get a

695
00:43:22.159 --> 00:43:24.960
one percent discount, you should you should always always take

696
00:43:25.000 --> 00:43:32.800
your discounts. Remarkable, Tooky, I think we have a little time,

697
00:43:33.079 --> 00:43:36.119
just a little time for just some bonus content that

698
00:43:36.199 --> 00:43:39.599
I have. Great, Yeah, let me, let me, let me

699
00:43:39.679 --> 00:43:43.760
just very quickly go through that. I want to talk

700
00:43:43.800 --> 00:43:48.519
about employee theft or embezzlement, because yeah, yeah, most business

701
00:43:48.519 --> 00:43:51.239
owners never think it could happen to them. Oh, absolutely not.

702
00:43:51.440 --> 00:43:55.239
It can't happen to them. Someone they trust needs money,

703
00:43:55.440 --> 00:43:58.840
Because that that's the problem. Someone they trust needs money,

704
00:43:58.840 --> 00:44:01.960
and it's figured out a system for stealing and embezzling,

705
00:44:01.960 --> 00:44:03.880
and it happens a lot more times than you think.

706
00:44:05.039 --> 00:44:08.840
Did you know that eighty percent of all business theft

707
00:44:09.039 --> 00:44:13.599
is employee theft? That is an accurate statistic, And the

708
00:44:13.719 --> 00:44:17.239
key is implementing checks and balances and making sure one

709
00:44:17.320 --> 00:44:21.360
person doesn't have much responsibility. I had a client who

710
00:44:21.400 --> 00:44:24.440
really trusted their bookkeeper. This bookkeeper did everything she did

711
00:44:24.440 --> 00:44:28.920
the entire bookkeeping job, made bank made bank deposits for

712
00:44:29.000 --> 00:44:33.800
parre payroll, recorded sales, transaction into the accounts, payable printed

713
00:44:33.880 --> 00:44:39.079
checks for pared quotes. She had no watchdog, with no

714
00:44:39.239 --> 00:44:42.760
checks and balances. She just bought a new house and

715
00:44:42.880 --> 00:44:46.440
was having problems making payments on her mortgage with personal problem.

716
00:44:46.719 --> 00:44:49.760
And it appears she overpaid for the house beyond her

717
00:44:49.800 --> 00:44:53.559
family's means and didn't want to go into foreclosure. And

718
00:44:53.599 --> 00:44:57.599
she understood that she literally controlled the company's finances, and

719
00:44:57.639 --> 00:45:01.840
the temptation to steal was building m HM. And because

720
00:45:01.920 --> 00:45:05.239
the question in her mind of this basically honest person

721
00:45:05.840 --> 00:45:08.840
was do I jeopardize my house and my kid's livelihood

722
00:45:09.719 --> 00:45:16.440
or do I steal, she chose to steal. The owner

723
00:45:16.480 --> 00:45:19.039
had two dormant bank accounts. I had two companies, of

724
00:45:19.079 --> 00:45:22.320
which one was dormant. She began writing checks payroll checks

725
00:45:22.400 --> 00:45:24.840
right out of the dormant company. No one knew it,

726
00:45:25.880 --> 00:45:28.960
no one had audited it. Then she got lazy and

727
00:45:28.960 --> 00:45:31.440
started writing checks out of the main company bank account

728
00:45:31.519 --> 00:45:34.159
and the theft was discovered, but not after several thousand

729
00:45:34.199 --> 00:45:41.119
dollars were stolen. Really, unfortunately, it's unbelievable honest, people can

730
00:45:41.119 --> 00:45:45.400
get tempted because they may have some weak character or

731
00:45:45.440 --> 00:45:50.320
flaw in their character, and you know they they rationalized

732
00:45:50.360 --> 00:45:55.119
it by saving their kids' lives. Have a professional person

733
00:45:55.199 --> 00:45:57.519
like a CFO review of the books at least quarterly,

734
00:45:57.880 --> 00:46:00.920
and implement and implement internal control roles to prevent that.

735
00:46:01.119 --> 00:46:05.280
In a beztment, Yeah that's yeah, I'm sorry, but I

736
00:46:05.360 --> 00:46:06.280
got to set it back to you.

737
00:46:06.719 --> 00:46:09.719
Oh no, no worries, not no apologies needed, Michael. I

738
00:46:09.719 --> 00:46:13.000
mean you were just you know, in a zone of insight,

739
00:46:13.119 --> 00:46:15.280
to be honest. I took some really good notes here,

740
00:46:15.280 --> 00:46:17.960
and I would imagine a number of the business owners.

741
00:46:18.360 --> 00:46:20.119
Tuned in too, some really good notes.

742
00:46:20.400 --> 00:46:22.400
So there's still some questions that we're getting, some things

743
00:46:22.440 --> 00:46:25.239
that are still streaming. As Michael noted, I mean we

744
00:46:25.239 --> 00:46:29.639
could circle back. If you visit next step CFO dot net,

745
00:46:29.679 --> 00:46:31.719
you could reach out directly to Michael and really get

746
00:46:31.760 --> 00:46:34.880
some of those questions addressed. So, Michael, the next portion

747
00:46:34.960 --> 00:46:39.000
of our show here is our business Compliments segments. Right,

748
00:46:39.119 --> 00:46:42.960
So this is one of the most anticipated segments of

749
00:46:43.000 --> 00:46:45.440
the show. In addition to all the insights that we provide,

750
00:46:45.679 --> 00:46:48.800
there are four business owners that we will spotlight as

751
00:46:48.840 --> 00:46:53.360
part of today's Business Compliments segments. The first is Lawrence

752
00:46:53.480 --> 00:46:56.239
Kelly and by the way, these folks are coast to coast, right,

753
00:46:56.280 --> 00:46:58.360
so Lawrence is out in the East Coast. He's a

754
00:46:58.440 --> 00:47:06.239
CEO and founder of us answer dot Com. This is interesting,

755
00:47:06.320 --> 00:47:11.079
so they empower small business owners by providing a service

756
00:47:11.840 --> 00:47:15.440
that allows you to have almost like an answering machine

757
00:47:15.480 --> 00:47:19.000
on demand. Really interesting, particularly for business owners that are

758
00:47:19.000 --> 00:47:22.320
on the go. The next business owner that we want

759
00:47:22.360 --> 00:47:25.159
to spotlight is Michael Hoy. Michael is actually out in

760
00:47:25.199 --> 00:47:30.280
the Midwest. He helps to run Great Great Day Improvements.

761
00:47:30.559 --> 00:47:34.320
Let me say that again, Great Day Improvements, and his

762
00:47:34.400 --> 00:47:40.800
company was actually just ranked number three on Qualified Remodelers'

763
00:47:41.039 --> 00:47:44.480
Top five hundred Remodelers list for twenty twenty four. This

764
00:47:44.599 --> 00:47:49.239
is a quite prestigious recognition, So hats off to Michael

765
00:47:49.280 --> 00:47:52.840
and team. The third business owner that we want to

766
00:47:52.880 --> 00:48:00.480
spotlight Victoria Murray. She runs Inbox Virtual Associates and Michael,

767
00:48:00.519 --> 00:48:05.480
they did something really interesting, right, So they help speakers,

768
00:48:05.719 --> 00:48:09.719
authors and coaches manage the kind of operational side of

769
00:48:09.760 --> 00:48:12.400
the business. Right, So there's sort of like an online

770
00:48:13.000 --> 00:48:17.679
business manager agency. So really intriguing what a Victorian teamer

771
00:48:17.719 --> 00:48:21.760
are doing and the yeah yeah. The last business owner

772
00:48:21.760 --> 00:48:25.760
that we want to spotlight Michael alex Zenni. Alex is

773
00:48:25.760 --> 00:48:29.840
outa in the Midwest, runs Alpha Key digital to digital

774
00:48:29.880 --> 00:48:34.360
marketing company. What we're particularly inspired by was they actually

775
00:48:34.519 --> 00:48:39.800
help business owners define their target audience and then focus

776
00:48:39.920 --> 00:48:44.559
on that target audience with authentic conversations.

777
00:48:44.599 --> 00:48:46.400
Michael. This is something that you and I talk about

778
00:48:46.599 --> 00:48:47.199
quite often.

779
00:48:47.199 --> 00:48:50.480
How do you sort of build these authentic relationship with

780
00:48:50.719 --> 00:48:55.280
clients and customers. So all these business owners, in particular

781
00:48:55.320 --> 00:48:58.800
to just the point of reference here is they also

782
00:48:59.679 --> 00:49:02.639
provide it's some really good insight on our book interview

783
00:49:02.679 --> 00:49:04.719
again our book Powerful Business Strategies.

784
00:49:04.760 --> 00:49:07.079
So hats off to these business owners, Michael. I'm going

785
00:49:07.119 --> 00:49:08.280
to toss it back over to you.

786
00:49:08.800 --> 00:49:13.800
Thank you for comments. Yeah, if you'd like to participate

787
00:49:13.840 --> 00:49:16.599
in a book interview, you could go to once again,

788
00:49:16.679 --> 00:49:20.320
go to our website www dot next STEPCFO dot net,

789
00:49:20.400 --> 00:49:23.800
go to our contact page and put in book interview

790
00:49:23.840 --> 00:49:26.440
and send me a message. Be happy to interview you.

791
00:49:26.480 --> 00:49:29.280
And I promise you this you will learn business and

792
00:49:29.320 --> 00:49:33.480
financial strategies that your competition isn't doing. Brilliant and to

793
00:49:33.559 --> 00:49:36.320
go to get a copy of the book Powerful Business Strategies,

794
00:49:36.360 --> 00:49:40.519
simply go to our website www dot next STEPCFO dot net.

795
00:49:40.800 --> 00:49:44.840
It is totally complementary and until next Monday at noon

796
00:49:44.880 --> 00:49:50.159
Eastern time for Chucky Obia, I'm Michael Babarta andmember don't

797
00:49:50.239 --> 00:49:53.199
keep doing what your competition is doing.

798
00:49:53.639 --> 00:49:54.000
Thank you.

799
00:49:55.599 --> 00:49:58.679
You have been listening to Powerful Business Strategies finding out

800
00:49:58.719 --> 00:50:02.360
that everything you ever learned about growing your business is wrong.

801
00:50:02.639 --> 00:50:05.840
Tune in next week and every week at noon Eastern

802
00:50:05.920 --> 00:50:09.400
time on W four CY Radio with your host Michael

803
00:50:09.400 --> 00:50:14.000
Barbarita of NeXTSTEP CFO and moderator chugy Obio