Dashboard: There’s Still Time

[Music] welcome to another 21 hats dashboard brought to you by our sponsor the great game of business I'm Lauren feldin and I'm here with Tracy Beck to talk about the things we think business owners should be following this week Tracy is CEO of starboard collectives which facilitates CEO forums and she co-authored the latest edition of the 60 Minutes CFO with her father welcome back Tracy hi Lauren thanks for having me oh it's a pleasure great to have you here Tracy uh given that you were raised by the original author the 60-minute CFO I'm assuming that you were pretty comfortable with financials when you first started running businesses am I right about that no that that is a false assumption I I wish I was but no not at all how did that happen you know it's funny I I think like a lot of entrepreneurs I just have that mindset of I can figure anything out and in the excitement of starting my businesses I didn't give much thought to what is actually the language of business which is finance I was way more focused on the you know really the product and services that I was selling so Finance always was a back of Mind exercise and was living in the shadows also I think you know as you tend to do as as your first starting out years in in the world is you don't you try not to lean back on or ask a lot of advice of your El your parents you know you you think I could do this myself which was ultimately to my detriment but um you know I I did end up learning it it just learned it the hard way all on my own well that's great I bring it up just to reassure anyone who might be listening to this who is not fully confident in their ability to navigate an income statement or a balance sheet even you know the co-author of the 60-minute CFO was in that place at one point what made you realize that you had to dig in and figure it out you know it was really when I endeavored on my second business which was my first business was a web development agency and it was Services based and we spun off another business that was inventory based an e-commerce website it's one thing to manage services because you don't have a lot of cost of goods or inventory that's sucking up a lot of your money but that you still have to pay tax on it's a whole another thing when you start to trade in products and you hold inventory and now your balance sheet is really a way bigger player in your business and then cash flow becomes something that you can't intuitively manage you have to really understand it from the way the income statement and the balance sheet play together uh so that was when I decided I needed to take the leap into Financial fluency and I was like a cavewoman I didn't realize there was people out there who understood the physics of how fire how you build a fire I was still trat I was like figuring out how to rub two sticks together on my own um but but did finally figure it out um it's just funny that that that's the way I chose to do it we've had some conversations on the with people who weren't sure where their money was going and then realized it was all going into their inventory is that the experience that you had a th% yeah and it just was like when you finally figure out that that's where the money is it's like of course how could I have overlooked that but it's amazing that in in the day-to-day of your business it's something that you do Overlook and what you're thinking is more in terms of those um dollars out dollars in you know products out dollars in sort of a thing and you forget that you have Investments you know in tied up in your inventory so it is such a common common plaintive Cry of the entrepreneurs where I see all my profits but where is my cash the last time you were here Tracy was about a year ago and at the time we were all kind of a wash in predictions of a looming recession uh to which you responded that you actually like recessions can you can you remind us of what you like about recessions and are you disappointed that you didn't actually get one at least not yet well the thing I like about recessions is that you have to it sharpens your saw whether you want to or not so you have to get down and dirty and really understand where your margins are and how you're going to succeed even if the soil isn't super fertile right um you have to you have to find a way to do it and I and I think that going through a recession is just one of the best exercises you can do to make sure that you're you're trained up for when uh it's not a recession right and and then it makes life so much easier um I am not disappointed that being said um although I don't want to overlook some of my clients who are who are who are in certain industries have experienced um a downturn and that's um and that's more based on industry it's industry to Industry so um what I've seen is the more Diversified your business the better you have fared in those situations for sure so here we are in the Dog Days of August uh well into the third quarter is there anything in particular that you think business owners should be thinking about as as the days tick away uh given where we are in the cycle yeah for sure so this is an interesting time of year because we're just over the halfway mark and so we have um about a half a year of History we know what's happened and then we have about a half a year that we don't know and I was recently with a client and was reminding them that every month that we look at financials historically we we still always want to Bounce It Off what we think will happen and they were like well it doesn't really seem like that matters so much I mean what's the point of doing this and the point is that we want to know how we're tracking right and history hasn't been written yet the year is not over yet so whether we're high low or somewhere in between it's a really great time to figure that out right here and now and because we still have time to to change it if we don't like it so that is to say that I'm assuming that you've done any kind of projecting if you haven't you know now it's still not too late because you also have a really great you know a lot of information from what's already happened this year so you can it can further inform you if you haven't already done a projection that's an interesting thought that wouldn't have occurred to me so even if you didn't do projections going into the year you don't think it's a way of time to do them now for the rest of the year no it isn't and you'll never hear from me ever that I don't think you should project something at any time it's not just this time but this is such an interesting time because you you really will have a pretty good guess and I also don't Advocate just doing one projection I like you to do three and I so so those are the your worst case your best case and then something in between which hopefully is you know maybe most likely and um that can really frame up how you're feeling going into the second half of the year and um also each time you review so that if you get to September October November you're going to know which way you're tracking are we tracking towards best worst or most likely and it just takes a lot of that heads scratching out it takes you it takes away a lot of the panic that can also set in if you're not meeting your projections because you've already thought a little bit ahead as to what you might do in that situation so it sort of FASTT tracks you into uh strategy and problem solving versus oh my God we what are we going to do you know we didn't we didn't expect this at all yeah I I talked to a lot of business owners many of whom are very comfortable doing projections have been doing it for a long time don't expect it to be exactly right but are comfortable with the process and I talked to some who are just you know completely flx by it like I have no idea you know when the phone's going to ring or someone's going to walk in the door uh I just don't know where to begin do you have any advice for people who don't know how to get started with projections yeah first of all uh it's it's not projections or planning or strategic planning or forecasting are buzzwords that sound scary it's it's let's just take away all of those words it's guessing right it's making guessing so guess at what might happen and you can be very broad to make your first stab at this uh you know in the book we walk through it step by step but short of you know having the book in front of you or or going through the exercise that you at least want to start to project your Revenue right like how much do you think you're going to bring in do that do a high low and something in between and then once you've kind of started doing that you can ask yourself a few more questions what's the state of my industry what's the state of the economy what's going on with my competitors what's going on with my customers and before you know it you're going to start to guess further down the road and say oh I think we're going to you know sell X am amount of these services or these products I think it's going to either go up or go down based on what we've seen January through July and and you'll be surprised at how quickly you've you've actually mapped out what's going to happen so keep it simple and it doesn't have to be fancy by any means I like using the term guessing I think that takes some of the stigma away from it makes it feel a little more comfortable I'm curious you you mentioned um thinking about the economy I often bring that up in conversations and I often get the reaction look I can't even think about that the the projections for the economy like the like we were just talking about the recession are all over the place I I'm going to focus on the things that I control I'm going to look at uh what I see right in front of me I can't even think about that how do you I'm sure you've heard that how do you respond to it I listen I think that's absolutely fine we I I want to avoid head in the sand thinking but if it's less relative to you relevant to you then it's really not something you have to focus on there are plenty of things to take into account when planning so if the economy isn't going to be a huge player for you that that's fine let's not let's not try to be you know economists about it for some of my for some of my customers though who's whose businesses really do have a lot to do with the rate of you know borrowing like how much you can borrow money for they do care and it's already going to be one of their leading indicators anyway so it's just built in for them but if it's it's not something that you've already had to take a lot of stock in let's not just add it in because I said it right that makes a lot of sense you you mentioned before that while we haven't had a recession you do have some clients who have had tough periods um here we are in August do you have advice for someone who's in that position who's maybe trying to stick to a budget but the revenue is falling short of what they had projected or planned for what can you do yeah so you can still work on protecting your profitability so the the trick is to not create a race to the Bottom by trying to outprice other competitors just to get the work you have to be very um controlled methodical you have to have a lot of cons restraint around just trying to win business for the sake of winning business that would be the first the first um piece of advice we can't go and basically do work for uh Break Even or below break even right just because want to try to increase Revenue uh and the second one is again just really trying to know what are our margins what do they need to be and if we can't we need to understand where we have any kind of give right so if Revenue isn't going to go up and revenue is going to stay the same or lower we have to make sure that we're still going to make money on the services we provide and then there's there's those direct costs of doing our business that just no matter what if you if you send um you know a product at the door it's going to cost you a certain amount of money right or a service you're going to have to perform you're have to pay for a certain amount of expenses on that and then the other category of your expenses are your your fixed expenses which is what we consider our overhead now overhead is something that if we don't uh make an actual change it will continue to kind of just be the same amount every month for example your rent you know or your insurance um these things are fairly fixed and fairly stable whether or not we have a lot of Revenue or not a lot of Revenue and I would urge people to understand that if Revenue drops a certain amount we are likely going to have to take some action on those expenses we have to think about cutting overhead at some point um and it isn't going to do it do it it on its own we have to we have to take action we have to do something and that and that can be hard it might mean letting go of some um administrative employees things like that um but if we don't do it quickly it can it can really hurt in the long run I think the first thing you mentioned was the advice that just because business is slow doesn't mean you should take any work that uh appears uh you need to be thinking about your margins which obviously makes sense but aren't there times where you might take work that doesn't have the margin you're used to just to keep people busy just to have some Revenue coming in even if you might lose money on on it given the situation well I think that would it would depend there are certainly times where if we think this is just one slow month well let's take certain amount certain amounts of certain margin work in order to make sure that these people are busy if this looks like the foreseeable future you know and again this kind of comes back to planning but if this is if this is six months worth of keeping people busy it that's not worth it and the third thing that I would add to that is don't do this it can turn into a race to the bottom right so when you lower your prices your competitors have to lower their prices and it just turns into a downward spiral so really having some restraint there ultimately it's very hard but um it's a smarter wiser longterm business decision there's definitely only so long that you can take work with without a profit margin that's that's clearly the case have you seen among the clients you talked about dealing uh with a tough period have you seen them do anything interesting creative that you would note for us that has helped them get through it oh man it's hard to think of anything in super particular um that also that is maybe fit for uh public consumption understood understood well well let me ask you this then it when you talk about reducing cost one of the first places people turn to is marketing and obviously if you're cut your Market that that can trigger the race to the bottom that I think you're talking about as well how do you address that issue you know I do actually have one um group of of some of the CEOs that I manage that are asking those questions and they haven't cut marketing but what they're doing is they're going super deep on the metrics around their marketing and they're really asking themselves what's working what's not working and what should we do more of and what should we do less of so yes they are showing that restraint in terms of just pulling marketing numbers and instead being analytical and slicing and dicing it a little bit differently where they can so um I think that would be a a really great first line of defense is always always with an an analytical approach it's so hard with marketing because even in Good Times it can be difficult to tell what's working and what's not and even if something is clearly working you don't know how long it's going to last before somebody changes an algorithm or something stops working for whatever reason thank you so um let me ask you this if you were to see a recession looming in the future uh would you have any advice at this point you I know you're not an economist but I imagine you still think that's a possibility what might people think about going forward well since we have some Runway here it's a really great time time to do a full a full Financial look at your company right when we talked about a year ago there were two things that are both on your balance sheet that I recommended and they basically revolve around being liquid and so in other words having cash reserves and lowering any kind of debt that you need that you have in your business right or making sure that they're very manageable payments that you have on debt and um I I think that's if we're being cautious and we're being recession minded those are still two things that I would recommend if I know that we have you know some still some time the next piece of this puzzle is what I was alluding to which is analyze your profitability right the first thing that's going to increase your liquidity or any kind of cash reserves is having higher profit margins so pretend like we you know are in a recession pretend that we are having really hard time creating um l a lot of profitability and go through your in statement line by line you would be amazed at if you have I mean income statements are packed with line items right and if you start to look at each line item as a percentage of your total revenue and give yourself the challenge of taking a tenth of a percent off of every expense that you have on there you start to get one two 3% Savings in expenses that drop immediately to your net profit right so if you're running at a 10 or 20% net profit margin you're going to go to a 13 or 23 or you know imagine if you can if you can do um you know 5% even that's a Hu and then when you translate that back to Dollars that's a lot and those dollars you can keep in your business as retained earnings and those are going to directly correlate to increasing those two ratios that we talked about a year ago and that will that will position you not only really well for a recession but just really well in business and in life so I would recommend that any any old time Tracy Beck is CEO of starboard collectives which facilitates CEO forums and she co-authored the latest edition of the 60-minute CFO with her father this episode was brought to you by the great game of business which helps businesses use an open book management system to help build healthier companies you can learn more at Great game.com thank you Tracy I hope you come back again much less than a year and uh help us continue to explore um the nether worlds of financial statements absolutely Lauren I would love to have a great week everyone [Music]