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

0:00 The topics and opinions expressed in the following show are solely those of the hosts and their guests and not those of W FOURCY Radio. It's employees are affiliates. We make no recommendations or endorsements for radio show programs, services, or products mentioned on air or on our web. No liability explicit or implies shall be extended to W FOURCY Radio or its employees are affiliates. Any questions or comments should be directed to those show hosts. Thank you for choosing W FOURCY Radio. Welcome to Powerful Business Strategies, where you will find out that everything you have ever learned about growing your business is wrong. Finally, a show where you'll learn the right way to grow your business by learning business and financial strategies that your competition isn't doing. And now here is your host Resident of NeXTSTEP CFO Michael Barbarita and joining Michael for today's show as an executive moderator is Chooky Obio.

1:00 Yes, Michael, this is chookey. How are you fantastic? Choky? How you doing I'm doing well. Look, Michael, I believe that gratitude is undefeated and growth is about the next step. So it is an honor for me to moderate today's show. So look, let's jump right into it. Michael, let's reflect any high level takeaways from our last episode. No, I think, I think. I think it was a great show, and I think people should go back and listen to the replay because it was really terrific. So absolutely, but I want to thank you. I want to thank you, Chucky. My name is Michael bob Arita, President of Next Step CFO, and Next Step CFO is a fractional CFO and strategic implementation firm, and our vision is to ensure that overwhelmed business owners achieve the time, freedom, and consistent profits to build a legacy and live the life they desire. Our mission, our mission is simple. It's dedicated to guiding small business owners to leveraging their time, exploding their profits, and build a mainingful legacy. And this show, Powerful Business Strategies and our book of the same name, is a step toward accomplishing that vision and mission. So with that, I'd like to hand it back to my co author and moderator for the show, Cheocky Obio.

2:16 Michael, it's interesting each time I hear you sort of outline that mission and vision for NeXTSTEP ciofo again a business that you've built through the years. I'm just additionally inspired, right, So look before we jump in, folks, a quick disclaimer, Michael and I are both affiliated with a number of different organizations and I currently serve as the managing director of Business Developments for Vetter Price, Global business focused law firm. In addition to that, I collaborate strategically with Michael really Coasts to Coast on a business round table where we moderate these roundtables, we learn best practices from business owners and leaders. In addition to that, we document these business best practices in our book, as Michael reference powerful business strategies.

3:07 Now, the views that we'll. Express today these are our personal views, but they are views based on the success of our experiences and my mission today just as a fearless moderator michaelis to ask the right questions and to help all of us candidly learn the best business strategies that the competition isn't doing. So, Michael, I'll hand it back over to you. Yeah, thank you, jokey. So today our show is about five areas that need to be looked at when you have a cash flow problem and how to solve them. You know, a couple of months ago, I did a survey of two hundred and eighty business owners, and that survey said that and seventy percent of them said their number one challenge was cash flow. So today I'd like to discuss these areas that need to be looked at, these five areas that need to be looked at when you have a cash flow problem. And so let me review those five areas. It's too much inventory, working with slow paying clients or customers, selling prices are too low, gross profit margins are too low, and paying bills too early.

4:20 And if we have some time at the end of the show, we'll have some bonus content where we look at some additional areas that can be looked at if you have a cash flow problem. Now, I had a client who called me a couple of years ago because he had a cash flow problem. When you have a cash flow problem, the first thing you have to do is identify where that cash flow problem is coming from. And so when I looked at his financial statements and then I prepared a business and cash flow forecast for him, it was evident that they were over buying inventory. And in my what is this in cash flow forecast, I have this little tool called an inventory receipts and accounts payable schedule by month, and with that schedule, he knew exactly how much inventory he would bring in without overbuying, while knowing when he has to pay his inventory bills.

5:20 That's remarkable. Yeah, And by following that forecast, he was able to increase his cash flow by one hundred thousand dollars on the same level of sales. So he didn't increase sales, but still increase cash flow one hundred thousand dollars because he was able to manage his inventory more efficiently and more effectively. And so inventory can kill you. And let me talk about that first area that needs to be looked at when you have a cash flow problem, and that is too much inventory. Great, So Michael, on that too much inventory point, let's absolutely double click and contextualize that. Now we do have just a couple of really quick questions books. As all of you know, there are a number of business owners that union really coast to coast. So Michael, first, on your survey you mentioned two hundred and eighty business owners.

6:11 Was that cross industry, Yes, it was. It was industries from trades to the medical business, the medical business, medical industry. It was retail, it was manufacturing, it was service companies. So it was definitely a cross section of industries. That is very helpful. So the insights that you'll present are cross industry, not just based on one specific industry, correct, right, right, all right, thank you for that clarification. No problem. So in the case of too much inventory, it really covers the industries of retail, manufacturing, and distributors. Correct. But even you know, even electricians or you know, trades people, they carry inventory and they're gonna watch it and they're gonna watch it. So uh but so too much inventory is definitely definitely something that has to be looked at.

6:59 First thing. And a great ski retailer in Massachusetts, his name was Roger Butcheker, once said that the less inventory you buy, the more money you make. And what Roger meant was is that too much inventory can put you out of business really quick. And as a matter of fact, the biggest mistake retailers make is overbuying, and over buying can surely cause cash flow problems, and too much inventory poses a significant risk of the business owner in poor cash flow and lower grows profit margins. Now, too much inventory results in lower gross profit margins because when you don't have the money to pay the inventory bill, you stop discounting to generate cash, and that really squeezes the margins.

7:45 So too much inventory, by the way, as I said a little earlier, not only kills retailers, but it kills distributors who over buy and manufacturers who overproduced. And there are plenty of tools available that one can use to forecast the inventory requirements more efficiently. One I already mentioned was my business and cash Flow forecast that includes an inventory and accounts payable plan by month. Just by utilizing that tool, you're able to manage cash flow better like the client I talked about earlier, but also today's operating systems have inventory forecasting tools that allow you the opportunity to see where those overages are and every area that you have an inventory overage poses a risk, and I'm of the opinion that the best solution to an inventory overage problem is to price to move that inventory as soon as possible. It just makes no sense to sit on it when you could turn it into cash, no matter how small the amount of money you get for it and reinvest in fresher start moving inventory with the money that you collect from it, And I gotta tell you, chokey, this flies in the face of what business owners think.

9:08 And I'm gonna give you an example. So I had a client in the hairbrush distribution business, okay, and because of a promotion that didn't meet sales expectations by a lot, the company ended up sitting on a seven year supply of this special hairbrush inventory. So you know, he had like sixty grand worth of inventory at cost and he was only selling about seven grand of it a year something to that nature. So he had a set he was sitting on seven years of inventory. Now, first of all, let me say that promotions that don't meet sales expectations that comment, and no one should be kicking themselves for taking a shot on a promotion even though it didn't work. However, but when a promotion doesn't work and it results in an inventory overage, one should work to address it immediately. Now, this particular client got an offer of fifteen thousand dollars for the special hairbrush inventory that had a cost to him that cost him sixty thousand dollars. Now, at regular prices, he could sell that inventory for one hundred hundred thousand, okay, but no one was buying it. And quite frankly, it was a dog. It was a dog. And so my suggestion was to take the fifteen thousand dollars reinvest it

10:40 in fresh, fast moving inventory. And to give you an example, the fast moving inventory was turning eight times a year at a forty percent margin. Now, my client thought that if he could sell just fifteen percent of that hairbrush inventory, that special hairbrush inventory, at regular prices, he could make fifteen thousand in cash flow that he was being offered today and still have the rest of the inventory to sell. And this was true, but it would take them over a year to do it to get that fifteen grand where I was suggesting because it was just so slow moving and I called it a dog, it's actually a dog with fleas. There you go, right, So by taking the fifteen thousand dollars today and reinvesting it into that fresh, fast moving hairbrush inventory that he would go out and purchase with that fifteen thousand, that would turn eight times a year, and he would generate an additional two hundred thousand in cash flow that year instead of sitting on this inventory and waiting for fifteen thousand.

11:46 Wow, Michael, Look you've struck a nerve with the audience here. So the questions are streaming in. One thing, just quick question, how would a business owner differentiate a slow moving inventory line from a faster movie an inventory line? Well, one way isn't called an inventory turns calculation. But there's several business owners that understand when something isn't selling. They just they just they just know it's still sitting there now if they're not paying attention. And sometimes they don't, you know, and all of a sudden they look at their inventory and this product that they thought was gonna fly out the door didn't. And and so that's when they it has to trigger a reaction. And so as as you can see from the example that I gave, because of the inventory turnover of the more productive inventory, it pays to cut your losses and get rid of the slower moving inventory at virtually any cost. And and chooky, this is very contrary to what most business owners think.

12:55 And I understand why. Yeah, but I've seen it work time and time again. It's hard to admit when you have a dog, no matter how many fleas the dog has, we business owners still think we can sell it, and that is dangerous thinking. So the critical component here is to is to sell that inventory, that dog inventory, at all costs and just move it, price it to sell whatever it is, and then reinvest that that the proceeds from from whatever flea market rate that you got, put it back into that productive inventory that's going to turn for you, that's gonna that's gonna sell for you, and that's going to generate more cash for you.

13:43 I love it, Michael. You're in the zone here, man, a lot of flea references, flea market. I love it. So there is one question that came in. I think it's it's worthy of some consideration, Michael. So I'll kind of play this question for you and let us know what you think. So can a business owner be justified in saying, maybe I don't have the right messaging for that slower moving inventory, so before I sort of cut my losses, should I try different messaging for that? And I know that's something we've talked about it. Yeah, boy, what a what a terrific that's a that's a genius question. I think that you know, if if see business owners usually have with special inventory or inventory on promotion. They usually have a target market already set up for it, Okay, and when that target market isn't buying, they can they probably will will, and probably it's a good idea to try one other methodology to get the word out. Okay, but after that cut the losses nice. Okay, yeah, you know, maybe one shot. But but but like I said, they usually have a target and an understanding of how they're going to sell that. When I was in retail and I made a special buy, I knew exactly how I was going to sell it, and if it didn't, well, boom, I was at it. I was gonna I blew it right out or you know, sold it to sell all that.

15:14 So I think it once again, maybe you give it one shot if you think you've misjudged the marketplace. But other than that, if that doesn't work, forget it, forget it. Move on. Very helpful. The faster you move on, the better. That's very helpful, Michael, Yeah, very helpful. So the next area that you need to look look at it slow paying clients or customers. You know, lots of my clients continue to do business with customers who are slow paying or who don't pay at all. Sometimes they do it because they know the customer personally, do it because the customer's been been with them for a hundred years, you know, for a time. And sometimes they do it because business is bad and they just need to keep people busy and working, and they'll do anything to get business, so they they'll work with somebody who's slow they know is slow paying. But whatever the reason, it's bad practice to do business with customers who are slow paying or not paying at all. And I got many examples, but here's one example that I thought was the most important and more relevant to what I'm talking about.

16:29 So I once had a client who did business with many of his longtime customers who always paid slowly. Now, when I first went to the client's office, they had one hundred and fifty thousand dollars in over ninety day receivables from these slow paying customers. Wow. Yeah, because their total receivable balance was two fifty so sixty percent of their accounts receivable was over ninety days to these types of customers who they had had for a long time, some were friends. And these customers were even slower to pay than previous history because the economy was weakening, which is one of the risks that you run when you let receivables carry out, all right, you run into a bad economic downturn and then no one can pay. Yeah, but since they were longtime customers, this client took no action, no action at all. So times were tough, you know, bad economy and all, and these customers knew by blowing off my client's bill nothing would happen. That's the other risk because believe me, every business owner knows who they could push the envelope with. Every business owner knows that if they don't pay someone, it won't matter because they're not going to get harassed about it. Everyone knows who those are as a matter of fact too. Not to

18:04 criticize the legal profession, but a lot of people delay it paying legal bills exactly. I mean, it's one of the bills they could get away with because they establish a relationship with the attorney yea, and the attorney doesn't, you know, want to push the envelope until it gets real bad, you know. So legal bills is one of the things that gets delayed. And like I said, business owners understand who they could push the envelope with. So what I did is in that situation, okay, is I immediately put all these customers in collection and refuse to do business with them in the future. And some of these customers still came back to us and started paying cod overall collections dramatically improved with these customers. You know, there's just there's no rule of thumb to determine when a customer is slow paying. It's different for every business, correct, you know, yeah, I mean some people know that you know, this particular customer pays in forty days, but he pays in forty like clockwork, even though your terms are thirty's.

19:10 That's okay, that's okay, we can you know, we generally there should be flexibility there. They if they could be counted on. But once it starts to get a little older, that's when there has to be some pressure applied. Okay. And like I said, it's different for every business, and the business owner needs to determine in a policy how many days past due is considered to be a slow paying customer. Remarkable, Now, Michael, again, you struck another nerve with that. So a couple of questions. I'll sort of consolidate this into one overarching question. Do you have any best practice ideas on the front end of a customer or client relationship, setting those expectations about payment terms.

19:53 Any Yes, absolutely I do. And that's what I was going to go into, exactly establishing a system of collecting accounts receivable so that your receivable strategy is consistent, it's communicated timely to critical successful collections. And I want to give you an example. I want to propose if you will accounts receivable collection strategy. So assume an invoice with terms of thirty days. So let's just assume that the terms that you have with your customers on your invoice is thirty days. And by the way, on every invoice there should be a one and a half percent interest rate or eighteen percent a year interest when past due.

20:43 Always always put that on there. But between the thirty fifth and fortieth day, depending upon who the customer is, unless you really know that they pay within that period of time, you contact the customer for payment. And so if the customer doesn't return your call or you weren't satisfied with the customer's answer, I then send them a ten day demand letter. Now this is a this is a letter that requires payment within ten days or the account gets put into collection, and you send that letter certified mail, so it gets attention. Now, it's certainly better iFIT the letter comes from an attorney, but I've had a lot of success in using a form letter that I put together. Okay, so I didn't have to pay the legal fees. And if anyone would like to get a copy of this letter, if you can go to next STEPCFO dot net. That's www dot next STEPCFO dot net.

21:45 Go to our contact page and send me a note and I'll send it to you. Complimentary, Michael, complimentary. Nice. And so if the account doesn't pay within the eleventh to fifteen of sending that letter, then put the put the account in collection. Now, if you know the customer, you might give them a second chance or a third chance, whatever you want to do in terms of the initial phone call. But when they don't return your call or they ignore you, you have to take action. I mean you just have to. And I always use a collection agency that has a legal staff. So if the account is not collected using the traditional collection methods, legal action could be taken right away with that same staff that did the original collection and is familiar with the case.

22:38 And I only do business with collection agencies, agencies that take no more than one third fee and have a legal staff. Once the account goes to collection, then you're out of it. Let the collection agency do its work. And once again, the key to the collection process is consistently and is consistency and timelines. And so let me just end this one segment with the best collection policy of all time. Okay, all right. Pretty ambitious statement there, Michael. And here it is in God, we trust everyone else pays cash up front. There you go, There is the best one ever right there. That'll work every time.

23:25 Well said, so that. Yeah, So the next, uh, the next component that you have to look at is your selling prices. Now here's a rule of thumb that you should live by. You should get complaints about your selling prices one third of the time, so thirty three percent of the time your customers should complain about your prices. Otherwise your prices are too low. And I asked the client who hired me one time he was losing money, and I asked him if he got any customer complaints about his prices being too high. He was so proud of this, of this statement that he made, that he proudly said, I never get complaints about high prices, And I immediately told him that's one of the reasons why he was losing money, because prices are too low. You need to get negative feedback on your prices right around a third of the time, or you know, maybe say twenty to thirty three percent of the time. If you're not, your prices are too low.

24:35 And so this particular client, you know, took heat of that advice and increased his prices, and then he started to get complaints, which you know, obviously bothered him. But at the same time, he only got about twenty five or thirty percent complaints, which is right in the wheelhouse of being priced correctly. So that's just a rule of thumb that you can use. And when you don't, when you don't get at least one third of your customers complaining, then your prices are simply too low. And when assessing your pricing and competitive pricing, you could always use your customers as the barometer. That one third rule of thumb really works. Now, one problem I see with business owners is when they're doing the selling. When business owners are actually doing the selling, they have a tendency to discount prices because why well, the buck stops with them. It's their business. They could take They could give discounts and credits, but if you have a tendency to do that, it's best to let an employee close the sale. Because one time I had a business owner client of mind where customers always used to go to that business owner for the final price and he would discount it and it was crazy. And any time these customers were working with somebody else, they got the the the salesperson down to

26:07 a certain price and then said I'd like to speak to the owner and then he reduced it even more. Wow. And you know, so you know you should be reviewing your selling prices every six months, and business owners, if that's what you do, you got to stay out of the selling process. And what one thing that we do for business owners to keet who want to increase prices or don't want to increase prices, is we show them if they how many customers they could lose and have the same profit that they were enjoying for the price increase. So this is really interesting because I had a client just the other day where he was hesitant to have a price increase, and I did the analysis for him.

26:58 I showed it to him online, and I showed them that if he lost fifteen percent of his customers, which in his case was fifty customers, he would have the same profit that he had before the price increase, So he could lose fifty customers and make the same amount of money. When I showed him this, he emphatically said, there's no way I'm going to lose fifty customers, and so we implemented the price increase. So it actually gave him confidence to implement the price increase, because that's one of the things that business owners just are afraid. They're afraid to increase prices because they feel they're going to lose too many customers. Well, we could perform an analysis for them to show them how many customers they can safely lose and maintain the same profit before the price increase.

27:54 And by the way they lose those customers, they'll pick up others at the new pricing exactly. It's remarkable and intriguing, Michael. It's funny. So in a number of business roundtable discussions like you've mentioned this, and the light bulbs that go on, I mean, folks are just completely inspired by this. Give us a sense, right as part of this analysis. What are some of the mechanics what I mean, can we say just some minutes and walk through kind of the steps that you take to do that analysis. Yeah, So I have a Excel spreadsheet that will take your existing profit margins on your on the particular product that you're going to increase prices on or products or products.

28:41 They have your They have the business owners information relative to sales, relative to gross profit margin, and also it incorporates a factor for if their cost a good soldier goes up, if you know, if the cost cause their suppliers grows up. So we take in all that information and the output from it, and then of course the price increase in this particular case with this client was fifteen percent. Okay, we take the price increase and we can tell the output from the spreadsheet is that this client can lose x percent or x customers and still maintain the same profit they had before the price increase.

29:32 You use the word confidence in describing how business owners really digest this exercise, and I think that's spot on right. It goes back to a number of episodes, Michael, that we've talked about where it's about decision making, right, having the confidence to make the right decisions. But yeah, really really intriguing, and I imagine business owners could reach out to you to maybe talk through that kind of a consultation. Absolutely if they just go to our website, NeXTSTEP CFO dot net and go to the contact page, be happy to help them on that. Great. But before I get off increasing selling prices, I do want to talk about adding more value to a product or service. So another way the business owner can get more confident in increasing prices, because it's about confidence with what I've seen. You know, if I mentioned just point blank or out of the blue, I think you should have a price increase, business owners, you know, really like stepping up and get get real nervous about it because they're just worried about losing customers.

30:40 But another way the business owner could get more confident in increasing prices is to find low cost ways to add more value to the product or service. You know, many times when I suggest that to business owners, have a price increase and add and by adding more value, they magically come up with ways to enhance the value at a low cost. You know, whether it's upgrading the packaging or adding more units to the to a package, or adding a free report if it's a service. They come up with these ideas on how you can add more value to the existing product. And the more value you add, the more propensity the customer has to buy.

31:22 And it's a great separator where you would be adding more value and your competition isn't. Yes, that's a really good nugget of wisdom. So we got a question in actually a couple of questions, but i'll consolidate. Do you have an example, Michael, of an add value strategy? I do it, and it's a real strange one. Okay, but I did it. Ok So this is just one example. I can give another. I'll give another example because this one's off the wall. Okay. So when I was in the ski business, I gave away a free scratch lottery ticket with every purchase of twenty five dollars or more.

32:04 Come into the store and spend at least twenty five dollars and possibly become a Millionaire's look great, it was great. It was I know it's great. So and by the way we gave it. We gave it away a scratch ticket for every twenty five dollars incremental So if they spend one hundred bucks. They got four scripch tickets. So yeah, and and you know it was low cost to us, and it was a way to get people in the door. But another way to add value is when I was in the frozen cookie dope business, the problem the customer had is they didn't want to waste valuable oven space baking cookies. Now, the key is is to understand the long term value of your customer. And I did, and so I was able to make give them a two hundred dollar convection of them with the with the purchase of every with with any opening order. And I took the risk that they were going to stop ordering after the first order, but I knew the product was good.

33:10 I was confident in the product. I understood the long term value of a customer because the mathematics there, the economics of the long term value of a customer told me my average. You know, once I had a customer, I would generate five thousand in sales over a period of a year. That was on average. So I knew that if I gave away a two hundred dollar convection of it and I got a five thousand, I knew I was going to make on average a five thousand dollars sale. And so I did it, and I solved their problem because a pizza polla doesn't want to put cookies into the into the main oven. They want to put pizza in the main oven. Exactly. That's just another example. But the but the scratch ticket was a real well it's interesting one. It was really it was productive. So the next area you need to look at for cash flow, it's gross profit margins being too low. Okay, So well I'm gonna talk about what is a gross profit margin. So you gotta look at your gross profit margins to see how they compare to industry averages and if you need that help, once again we could provide help with industry averages. You have to also understand your overhead base. But gross profit margin is sales.

34:28 Let's cost of good sold. Now, if you get twenty accounting types, I don't care if there're CPAs or if they're CFOs or even bookkeeper, whatever it is, doesn't matter. If there's just twenty accounting types in a room, they will fight, scrap, scrape and argue what goes and cost of good sold. But what I'm gonna do today is just give you a basic overview of what goes to cost of good sold. Okay, The cost of good sold are your direct materials. So if you're producing something, or if you're if you're in the trades, your material costs direct labor. This is the labor associated with building the product, whether it is a manufacturer, or whether it is a distributor putting product into a packaging, or it was someone in the trades. Direct labor is in your cost of good sould any subcontracted costs, So any cost associated with putting that product together or delivering that product is all included in cost of good sold. Break costs and other direct costs specifically associated with the production or delivery of that product of service that you provide. That's your cost of goods and the sales. Let's cost a good sold is called gross profit margin, okay. And you take the gross profit margin divided by the sales and you have your gross profit percent. And that is too low, and

36:01 it depends upon your industry what is too low. That's why I can't make a blanket statement here today. Cash flow problems will ensue. So in addition to increasing your selling prices, the aforementioned direct costs need to be constantly reviewed and negotiated with suppliers. This is something business owners very rarely do they feel beholden to their suppliers to the point where they don't think there's any negotiation room. And they're wrong because just like just like the business owners, customers will come to them for price breaks, the business owners of these of these various suppliers, they understand that you're going to come back and look for price. Right.

36:51 That's such an astute point, Michael, so insightful. Yes, I mean, just like you get pressure from clients and customers, you should also put some of that same pressure suppliers and vendors. It seems like that's your big takeaway, correct, Yeah, absolutely, Yeah, that's really interesting. And so the other critical element to pricing is to know what your product or service costs. And I had many clients not understand what their product or service costs. And it turned out that I had clients when I started with them, they were selling their product for below cost and you could just imagine the cash flow problems that was causing. I mean, you just got to know what your product or service costs and under the profit profitably price your product. And if you find that your product of service costs too much and you can't be competitive in the market. Then it's time to examine those components of the product or service costs of your cost of good soul to see what could be done to reduce it. And so let me explain this a little bit more so. We have a profit formula that we use called the five five to five profit formula, and let me explain the simplicity of this formula and the impact it could have on profit and cash flow. The objective of the five to five to five profit formula is to increase sales five percent, decrease cost of good soul five percent, and decrease overhead five percent. That's it.

38:24 That's the formula once again, increase sales five percent, decrease cost of good sole five percent, and decrease overhead five percent. My clients are shot at how this small incremental change in just three areas can have a profound and compound effect on profit and cash flow. And let me give you an example. So a company that's doing a million dollars in sales at a forty percent gross profit margin, that's gross profit to buy it by sales. As I talked about earlier, and a twenty percent net profit margin on the very bottom line. By increasing sales five percent, reducing cost of good soul five percent, and reducing overhead five percent, they will increase their bottom line forty five percent.

39:20 And I have some clients that are bonusing their management team on that one formula. Wow. And we have strategies that next step CFO to impact all three of those areas, and in a future show will cover in more detail the five to five to five profit formula. Yeah. I mean, Michael, you're already getting some plaudits on that, so folks are really anticipating that episode where we break the five five five down. Yeah. And it's amazing how small incremental changes in those three areas can have such a compound effect on profit. Yeah.

40:01 By the way, yes, go ahead, Sorry, Michael. Just you got a quick compliment that I just really want to make sure we pronounce here on air. So you connecting that to the management performance system? Right? So it seems like what you were saying was there's a clienters who that you have where they've taken the five five five framework and they've used that as a way to measure the performance of managers. Right, Wow, Because they had such a compound effect. Even if the managers are unsuccessful. Let's say and do four four four, it's still a home run or three or three four three. I mean it's still a home run. And they're focused on the right things too, Yes, focused on the right thing.

40:43 It's a good point, really really good point. So the final area is paying bills too quickly. So business owners have a tendency because they like to get their bills paid that they they don't have to have any bills hanging around them, and so they pay. You got to pay your bills when they're due, not before. Otherwise you gotta let the cash inflows catch up with the outflows. By paying bills too quickly, you may be losing an opportunity to be able to pay an important bill that comes up unexpectedly. I had a client who is paying bills so rapidly that one month he couldn't pay for an unexpected payroll tax that surprised him. Mm it just it has an impact on cash flow when you pay bills too quickly. Now, payroll taxes I must pays.

41:38 So we had to borrow money from a line of credit and incur unnecessary interest expense. Uh So no matter how good your cash position is at any particular point in time, pay your bills when due in a systematic manner. And I know that expenses are coming. You know that, you know there's must pays. I get that, But just pay them when they're due. And every day your bookkeeper should give you a reconciled bank balance. You know, with with online banking today, that could be done very easily. They can also reconcile the bank account daily, which eliminates surprises. I have had so many times where taxing authorities have doubled in tripled payments in error, and the business owner doesn't know it, and three or four months later they find out about it. It's just terrible. The bookkeeper should be on that bank balance daily and you should know what it is because if your call. This is one of the vital five numbers that every business owner should know, along with sales, gross profit, gross profit percent, and net profit.

42:50 You have to know your bank balance now. The only time you should pay bills quickly is when you get an early pay discount. That is absolutely acceptable. Pay to pay early. And by the way, that's the reason why you pay your bills on time. Because some vendors offer a discount if you pay early. You want to use that those dollars to pay for that. By the way, sometimes it's called anticipation. When you have an opportunity, UH to pay an invoice early or at least get a one percent discount, you should you should always always take your discounts. Remarkable, Tooky, I think we have a little time, just a little time for just some bonus content that I have. Great, Yeah, let me, let me, let me just very quickly go through that. I want to talk about employee theft or embezzlement, because yeah, yeah, most business owners never think it could happen to them. Oh, absolutely not.

43:51 It can't happen to them. Someone they trust needs money, Because that that's the problem. Someone they trust needs money, and it's figured out a system for stealing and embezzling, and it happens a lot more times than you think. Did you know that eighty percent of all business theft is employee theft? That is an accurate statistic, And the key is implementing checks and balances and making sure one person doesn't have much responsibility. I had a client who really trusted their bookkeeper. This bookkeeper did everything she did the entire bookkeeping job, made bank made bank deposits for parre payroll, recorded sales, transaction into the accounts, payable printed checks for pared quotes. She had no watchdog, with no checks and balances. She just bought a new house and was having problems making payments on her mortgage with personal problem.

44:46 And it appears she overpaid for the house beyond her family's means and didn't want to go into foreclosure. And she understood that she literally controlled the company's finances, and the temptation to steal was building m HM. And because the question in her mind of this basically honest person was do I jeopardize my house and my kid's livelihood or do I steal, she chose to steal. The owner had two dormant bank accounts. I had two companies, of which one was dormant. She began writing checks payroll checks right out of the dormant company. No one knew it, no one had audited it. Then she got lazy and started writing checks out of the main company bank account and the theft was discovered, but not after several thousand dollars were stolen. Really, unfortunately, it's unbelievable honest, people can get tempted because they may have some weak character or flaw in their character, and you know they they rationalized it by saving their kids' lives. Have a professional person like a CFO review of the books at least quarterly, and implement and implement internal control roles to prevent that.

46:01 In a beztment, Yeah that's yeah, I'm sorry, but I got to set it back to you. Oh no, no worries, not no apologies needed, Michael. I mean you were just you know, in a zone of insight, to be honest. I took some really good notes here, and I would imagine a number of the business owners. Tuned in too, some really good notes. So there's still some questions that we're getting, some things that are still streaming. As Michael noted, I mean we could circle back. If you visit next step CFO dot net, you could reach out directly to Michael and really get some of those questions addressed. So, Michael, the next portion of our show here is our business Compliments segments. Right, So this is one of the most anticipated segments of the show. In addition to all the insights that we provide, there are four business owners that we will spotlight as part of today's Business Compliments segments. The first is Lawrence Kelly and by the way, these folks are coast to coast, right, so Lawrence is out in the East Coast. He's a CEO and founder of us answer dot Com. This is interesting, so they empower small business owners by providing a service that allows you to have almost like an answering machine on demand. Really interesting, particularly for business owners that are on the go. The next business owner that we want to spotlight is Michael Hoy. Michael is actually out in the Midwest. He helps to run Great Great Day Improvements.

47:30 Let me say that again, Great Day Improvements, and his company was actually just ranked number three on Qualified Remodelers' Top five hundred Remodelers list for twenty twenty four. This is a quite prestigious recognition, So hats off to Michael and team. The third business owner that we want to spotlight Victoria Murray. She runs Inbox Virtual Associates and Michael, they did something really interesting, right, So they help speakers, authors and coaches manage the kind of operational side of the business. Right, So there's sort of like an online business manager agency. So really intriguing what a Victorian teamer are doing and the yeah yeah. The last business owner that we want to spotlight Michael alex Zenni. Alex is outa in the Midwest, runs Alpha Key digital to digital marketing company. What we're particularly inspired by was they actually help business owners define their target audience and then focus on that target audience with authentic conversations.

48:44 Michael. This is something that you and I talk about quite often. How do you sort of build these authentic relationship with clients and customers. So all these business owners, in particular to just the point of reference here is they also provide it's some really good insight on our book interview again our book Powerful Business Strategies. So hats off to these business owners, Michael. I'm going to toss it back over to you. Thank you for comments. Yeah, if you'd like to participate in a book interview, you could go to once again, go to our website www dot next STEPCFO dot net, go to our contact page and put in book interview and send me a message. Be happy to interview you.

49:26 And I promise you this you will learn business and financial strategies that your competition isn't doing. Brilliant and to go to get a copy of the book Powerful Business Strategies, simply go to our website www dot next STEPCFO dot net. It is totally complementary and until next Monday at noon Eastern time for Chucky Obia, I'm Michael Babarta andmember don't keep doing what your competition is doing. Thank you. You have been listening to Powerful Business Strategies finding out that everything you ever learned about growing your business is wrong. Tune in next week and every week at noon Eastern time on W four CY Radio with your host Michael Barbarita of NeXTSTEP CFO and moderator chugy Obio