Dashboard: When Is It Time to Panic?

[Music] welcome to another 21 hats dashboard brought to you by our sponsor the great game of business I'm Lauren Feldman 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-minute CFO with her father welcome back Tracy hi Lauren thanks for having me it's great to have you here uh Tracy remind us what starboard Collective does starboard Collective facilitates groups of CEOs who are either in the same industry or in very closely related Industries and we meet two times a year in person for a couple of days and on the agenda among other things are sharing best practices and then we also do a comparative financial analysis so these groups are pretty close-knit and we sign confidentiality agreements so that we can openly and honestly share our books with one another and the idea is really that if you trace back the reason for most business failures they're either directly or indirectly related to financial reasons and yet no one really starts their business because they love business finance it's a lot more fun to learn in community with each other and come up to speed on it together and then you can also avoid so many other mistakes and um see you know basically how to do or not to do things when you start sharing with people in your industry um I recently heard heard a stat that almost 80% of business issues are shared and Universal so when we start to share you know share with one another what we've done and you know what we've come up with you're almost likely almost certainly going to find someone else who's had the same problem and either already solved it or you can help them solve it so anyway that's the real uh impetus and uh reason for existing behind starboard collectives and H how many Industries are you working in at at the moment well so our main industry right now is the moving and storage industry so the guys that come to your house and pack up your things put them in a truck and move them from point A to point B so you have members I guess who are spread around the country geographically because they're they're not competitors is that right right so we do take care so that you are not in a group with the guy who is running the the same exact operation down the road from you so groups are usually between 8 and 12 companies and they do not geographically overlap got it what are you hearing from your folks uh how how's the year starting for them the year 2023 was not a great year for the moving industry and 2024 is not shaping up to be that great also one of the key leading indicators in the moving industry are interest rates so as we know they are higher than they have been in the past which really de de incentivizes uh the General Public Americans uh from buying a new home getting a new mortgage at that higher rate and instead people are really choosing to stay put now keep in mind that the pandemic was really really good for movers so what's happening is probably just a a return to quote unquote normal but it just feels like a bigger dip or decline because of how good everything was during covid so uh most of the the companies that I've talked to are experiencing some some needs to cut things and run a little more conservatively right now but uh they expect things to pick up towards the end of the year and then um are also just acknowledging that it's it's because of that you know that sharp contrast between times being really really good and maybe just now going back to what they they have always been can you give us an idea what kind of things you're working on at starboard collectives uh are are you looking to expand to other Industries and and how are you uh thinking about building the business so yeah we are thinking about expanding into other industries of course with growth you want to be really um cautious and careful um I think there's still a lot of work for us to do in the moving industry but we've also had requests from outside the moving industry to expand there one of the things as the leader of the company that I really think about though before we do that is what kind of scalability in bottlenecks we currently have one of the things that we are currently experiencing is of course bottlenecks in terms of talent and people who can go on the road and then we also have you know if we're taking uh financial statements two times a year which is how often we meet and we're analyzing those in groups of 8 to 12 you can imagine that the the sheer volume of financial analysis really starts to add up so we have been working on processes and systems that can actually help in terms of scalability there uh one of the things that that's really important to me also is accuracy and the ability to do really robust benchmarking because we have financials that are all in one industry we have the opportunity to anonymize them and then really provide averages and benchmarks across the ratios and um other measures that we track and then we can do it by region of the company we can do it by Revenue size of the company another metric that I'm really interested looking at is not just size of the company but how many physical locations you have so uh in other words these are all factors that are are going to affect how your company looks on paper and how your financials look um so we're working on a system that that does that that is um robust and can be accurate that we can really lean on and then we're also of course uh looking into the buzzword of AI and what we can do there um when I first started looking into AI it struck me that it is really good at analyzing and processing structured data and financial statements are exactly that is structured data so we're looking at how can we put together um a really great AI tool that is of course not going to feed all of this really private and sensitive data out into the general uh AI universe but that is within the starboard walls and then that is accurate and that again can kind of help facilitate a lot of this analysis that um we would do the same way no matter what every single way but yet you know still just requiring a human to do it so we're looking for some some streamlining in that realm as well that sounds really intriguing are you thinking that you would use it kind of the same way you are now that um meeting twice a year you would feed the information the financials uh into your AI tool and just get help with that analysis or are you thinking that you would set it up so that uh your members could access it and check it anytime they felt the need yeah both but definitely in in sort of a crawl walk run phase you know it's so new and I love it I love the idea of anything that can streamline anything um but at first I would be definitely testing it um and it would just be for starboard uh advisers only right we would we would basically always be running it in parallel to our own human analysis so that we're not feeding people in inaccurate or incorrect analyses then as it becomes more vetted um for sure it would start to be something that I would like to open up to clients so that it can be conversational and um you know not taking away the ability to talk to a human for sure but it's something that's so immediate where if you're looking at your income statement in your balance sheet and you have a question about it why can't you just have your own little personal chat GPT there to answer that question that you might have that's specifically related to you and your historical performance and then also your performance within that group so I I see a lot of a lot of potential but by all means I am I'm really happy to crawl for quite some time until I until I feel like we can you know walk and run with it I can't imagine a business owner that wouldn't want to be able to do that do do you know of anybody who's doing this in a way for the kind of the general population of business owners I don't know but I would have to believe that the big guys are out there already getting really excited about something like this right um I would think that you know somebody like QuickBooks would be all over it um but no I don't have any I don't have any inside sources there that would that would tell me you know one way or the other so just just over here uh trying to optimize my own my own world I think got it so Tracy whenever you're here you usually walk us through some interest interesting um tool of analysis that you don't need AI to do some aspect of uh keeping your financials that too many business owners don't realize they should be doing is there anything along those lines that you have to share with us today I do have something that is on my mind lately and that I find is a great topic to excellent talk about yeah um the the thing that it's that's really perent for a lot of the companies that I work with and again you know I'm working with companies right now who are going through hard times is really talking about are we properly managing our our expenses and when people go into a downturn or they start to experience hard times in their business a lot of times the quick the the quick thing that we want to do to reverse that trend is increased revenue and that's fine and I and I don't I'm not saying we shouldn't but also along those lines we need to take a close look at what's happening in the business so short of increasing Revenue have we optimized our expenses and a lot of times if it's a mature company and they've been in business for a while they're probably optimizing the cost of their their cost of doing their work right so if it's like an advertising agency they've probably got a really great margin on all of those billable hours that they charge for uh if it's a retail store they probably have a really great margin on the t-shirts that they sell and those things typically fall in line the more money you make the more money you spend on those things but the less money you make the less money you spend on those things right it kind of manages itself but the next line of expenses that we really have to look at are all of the other expenses and and those are usually referred to as overhead or operating expenses and the problem with operating expenses is that as Revenue goes up or down those just stay the same so if times are good and revenue is high those expenses don't feel like a big drag or drain on the business and we're we're not that upset about paying the rent paying the utilities paying the phone bill you know paying for um our office assistance and and all those things but when times are tight and revenue is lower it becomes a much bigger issue and they they typically don't change unless we as business owners make them change and I will also say that usually it's painful and we don't like doing it it takes a lot of scrutiny and sometimes it means letting people go Human Resources go which nobody really likes to do but the problem is if we don't do it it just gets worse and worse there's a saying that says our first loss is the least loss so we really have to look at this stuff as soon as it starts happening and take action sooner rather than later so um one of the things that I coach companies to do in doing this is to figure out what your break even revenue is so that would be the amount of money that you need to make in revenue on a monthly basis to net to not make a dollar and not lose a dollar but to end at zero and we use that as a number you know like a marker so that we know if that Revenue number isn't going to hit Break Even we probably need to take some sort of action and it's just one of those things that sounds pretty logical but is really worth repeating because it's that thing that we push to the back of our minds when we know when we know we might have to do it we would like to do anything else than this is there any trick to calculating Break Even Revenue there is a trick to calculating Break Even Revenue um this is not a pitch but if you go on 60min cfo.com and you click resources there are some Excel spreadsheets there that will help you calculate Break Even but break even is is actually a function of knowing what your variable costs are and um and what your Revenue might be at any any any given point in time and then calculating your your overhead costs um I won't go through the formula here but it's just that simple so if you can pull an income statement and then if you can ask yourself does this cost go up when I make more money and go down when I make less money then you're well on your way to doing that calculation got it do you have any rules of thumb for deciding when it really is time to take action I mean lots of businesses are seasonal or they you know they EB and flow and uh business owners have learned not to panic uh because of you know one down month how do you think about determining when all right it's time to to do something here oh my gosh I'm so glad you said the word seasonal because there are a lot of companies that are quite seasonal and the moving business is one of them so a lot of companies in the moving and storage industry accept and are are expecting to lose money at the beginning of the year and the end of the year and to make money in the summer essentially which is when most households move if they can choose to because uh kids are out of school it's easier to to um to make a move at that time and I would say to that the problem with that thinking is in a good year you'll probably end up okay but if you're already forecasting a down year that is too much burden to bear for your company and it is a lot of risk that you are putting on your peak season to perform exceptionally well so if you don't want to panic and you don't want to change your overhead expenses and you don't want to do this exercise the next thing that you have to do is figure out new and different ways to use the services and Assets in your business to offset that seasonality so you know otherwise known as diversification and when we do that and when we no longer accept or become complacent to the idea that it's just seasonal and it's all going to work out we're actually doing ourselves and our businesses such a huge service because it's it's a lot to ask your business and it's a lot of faith to place on the industry and the market and the economy to uh have all of that writing on one you know particular season of your year could you give us an example of something a a moving or storage business has done to diversify their uh revenue streams yeah so like I said the um the moving of household goods is usually pretty seasonal because families don't want to upro uproot themselves in the middle of a school year so they typically happen in the summertime so now you're looking for things or people that move all year round that starts to get into corporate relocations so I really like it as a first line of defense or offense however you want to think about it for a moving company that has primarily done household goods to start looking to Branch out and into commercial like office moving and Industrial moving that's a quick and easy one you H you already have movers you already have trucks and you already have warehouse space so you're going to be parlaying a skill set almost directly over the business is a little bit different the business side of it because it's a little bit more relationship based there's a little bit more involved in the bidding structure when you go after corporate work but it's something that there's lots of Education and Training that you can you can get for that so I always like it when um businesses moving businesses start looking at that another one that's a little bit more out there though is for companies that especially have a lot of warehouse space there are all kinds of companies that need final mile services so you might become kind of a uh one of the links in their distribution cycle so they might have either you as the Hub or you as maybe the final mile for let's say situation Hardware you know and they might have a one main Warehouse that dispatches the furniture to you and then you take it to Mrs Jane and Mr Smith and their houses and then you use your movers to bring those couches and chairs up you know the stairs and maybe even assemble them or whatever may be the case um so that's that's another you know more of a commercial element some people work with interior designers who uh need to either stage houses or um store Furniture waiting for REM models to be done which is a really interesting thing because a lot of those folks who don't want to move and get a new mortgage are instead investing in their current homes and making them better and more of their dream home so those interior designers might you know order all the furniture and need to store it somewhere and then when it's time for that remodel um you know to get its furniture installed your movers can bring those items in and and you can add White Glove uh services to that you know you can inspect it you can um help them quality control that whole angle of their business as well so there's there's lots of different things it just takes like I said that willingness to go over that threshold and explore what your assets and your services can do that are related but not exactly uh what you've been doing those are great examples that's really interesting uh there's something that's come up recently a couple of times on our podcast that I've been looking forward to asking you about which is one of the uh owners who's are regular on the podcast uh recently uh hired a fractional CFO and has been really thrilled with the results and uh we kicked that around a little bit I'm curious uh what your thinking is about that do you have any uh thoughts on when it makes sense for a business to hire a fractional CFO I do I want to start by saying I love the fractional CFO model and it has democratized a service and a key element of business for so many companies that wouldn't have normally been able to hire that as a full-time employee within their business so I think it's great I think it's also really great for the fractional CFOs because they get to work with a variety of businesses and I think they ultimately become better at what they do by doing that so I think it's a really really cool model that being said I think it's really important that we don't hire fractional or non-fractional CFOs to avoid becoming financially fluent and I know that's probably not going to surprise you Lauren that I'm saying that uh given what I do it is not a cure all so if you have struggles in your business on the financial side it is not going to solve them to have a fractional CFO so we can't just plug someone in and hope that it all just goes away I think that even though they are more affordable they are still an expense and if you really want to capitalize on having somebody like that on your team you're going to get the most out of that investment if you yourself know what you are looking for out of them so you you want to be able to direct them and tell them the metrics that you look at that are important for you to know uh you're going to want to be able to ask for and then receive uh better financial statements and Reporting and you know in a timely manner and um expect those questions that you ask come back in a way that you understand and you know just just really make sure that you're getting your money's worth and and not passing the buck right no pun intended on that one um so yeah no I think it's it's really really good um the other the other things that are worth noting is you can also get really great fractional bookkeeping and fractional controlling Services controller services so depending on what your needs are you don't have to I know fractional CFO is more of the buzz term but you might also get a lot of value out of some of those other you know accounting professionals and and teams or team members uh in that department that could really help you get to where you're going before you actually bring in the CFO and then did you also ask me when you should bring that in someone like that in uh yeah what's the the right size business or the right need um that justifies uh the expense you're talking about well like I said so if you've already uh gotten yourself to a place that your accounting department is uh you're not throwing a fractional CF CFO at this to make a bunch of problems go away um I think that's the first step I mean you if you at first have not uh produced or you know procured um an accurate and regular Cadence to just the bookkeeping side you really want to start on that level right you're you're kind of looking at it in two two Realms uh the bookkeeping side is is hygiene right it's like making sure that all of your transactions are accurately coded and um input into your accounting software so that you can get accurate reports out of it and that in and of itself can is very very painful if you're dealing with that and it's not accurate so attacking that first um and then bringing on a controller who's helping you manage the day-to-day ins and outs of the money and how you're doing accounts payable and receivable um managing all of that um I think would be the next phase and so then if you have those two bases covered and then you as the as the owner or the leader or the CEO are receiving timely and accurate reports and you've done enough financial fluency work with yourself to understand what metrics are driving your company uh then I think it's a really great time to bring in the CFO because the CFO isn't necessarily going to be a great teacher that's the the first thing it would be lovely if they if they are that would be a huge value ad but we can't necessarily rely on that so we have to know what we're asking for and then they can come in and you can have that really elevated conversation around what you need and they will add all of the insights on top of the hygiene that your bookkeeper and controller have built as far as Revenue size go goes that can really vary based on what your company does if you're a pretty lean service-based company and maybe of all remote workers you might need that level of advisement maybe before you even hit a million dollars but what I usually see it adding the most value for is the companies that are in the $1 to2 million range they're really starting to need that extra layer of outside uh input in the form of a CFO or fractional CFO let me throw the specific example that we discussed at you and see what you think it was brought up by uh an owner who has a uh a a small business under 5 million in in Revenue but you know substantial and and growing fast um and this owner is stretched thin working way too many hours and too many days and wasn't didn't even realize this I think um but wasn't sure which of her many services were profitable uh and which ones weren't and also wasn't sure that her um bidding of jobs was as effective as it should be wasn't keeping track of how many hours these jobs actually required of her employees so she didn't really know for sure which jobs were paying off and which ones weren't and she had a fractional CFO who came in uh who apparently provided tremendous help uh in both those areas figuring F ing out uh which Services were profitable and uh helping her understand better how many hours were required and uh which allowed her to make uh better bids on jobs does that sound like a a good use of a fractional CFO to you that sounds like a slam dunk yeah absolutely and and it sounds like the the company was really ready for that level of analysis and um question asking so um they you know clearly had some processes they were using and what you know was able to happen with the the fractional CFO as they came in and identified and were able to analyze how those jobs were being costed and what those margins were per job and you know probably per you know for the whole business mix and that kind of strategy level I could see how the owner was like really ready you know that's a pretty clear ask of a CFO right so I don't think she asked I don't think she even I'm not sure she even realized how much she needed that help but the CFO came in and was there for a while um and they would just it was just more of a a Q&A a regular Q&A session and eventually the fractional CFO realized that there was this opportunity to provide more value and I think they were both very happy with the way it turned out oh that's even better yeah no and I think that that's a fair thing to note as well that it probably won't happen on day one and that you know you're going to need to let the the fractional CFO come up to speed you know really dig in take some time it might not happen immediately sometimes you know we used the word panic earlier and when you know if you're if what I don't want people to do is to think that this is just something that if you want to push the panic button get the fractional CFO in there and all your financial worries will go away right it's going to take a conversation it's going to take some time it's going to take take them coming up to see understand your company and you you'll need to be involved that you know so it's a give and take it's a two-way street for sure 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 Tracy it's always a pleasure thank you so much for taking the time awesome thanks for having me Lauren have a great week everybody