Financial Health for Your Business: Top Mistakes to Steer Clear Of with Tricia M. Taitt (Ep. 153)

Transcript:

Welcome to the Life Unlimited podcast with Larry Heller. You deserve complete financial advice so you can confidently live your life your way for life. Now, let’s get into this week’s podcast episode. Hello and welcome to another Life Unlimited podcast with your host, Larry Heller. Today, we’re going over the top five financial mistakes that businesses make with Tricia Taitt. 

And if you have not subscribed to our YouTube channel, make sure that you click on that subscribe now button and even turn on notifications so that when we provide new content for you, you are directly notified. All right, a little bit about Tricia. She is the CEO of Fincore, a boutique fractional CFO services company dedicated to empowering small business owners to build financially healthy enterprises and feel confident in their CEO roles while shaping the lives they desire. Now she’s also the author of the Amazon bestselling book, Dancing with Numbers, Grow a Financially Healthy Business and Choreograph Your Life. She’s a passionate advocate for financial education, particularly for women entrepreneurs. She’s delivered keynote speeches, both here in the United States and all over the world. I’m gonna turn it over to you, Larry. Tricia, welcome to the show. Thanks, Matt. Tricia, I’m very excited that you’re here today. Great topic we’re gonna talk about. 

Some of the mistakes that business owners make and maybe some of the things that you could tell them how to avoid some of these mistakes. So Tricia, thank you so much for joining us today. Absolutely. Thanks for having me, Larry. So as Matt mentioned, you’re a fractional CFO. So let’s really kind of set the stage and tell our audience kind of what is a CFO and kind of what is it that you do as a fractional CFO? So what does a CFO actually do? 

Yeah, so I’m going to answer that question and the question and I frequently get asked, which is, what’s the difference between what you do and what my CPA does and what my bookkeeper does? Because I think that will be helpful to the audience. So I think about a business’s growth in about five stages, right? From startup to survival mode, to growth mode, to maturity and expansion, right? So. 

At the different stages, you need different people and your financial focus is different. At the very beginning, it’s you and definitely your CPA because taxes need to be paid. Uncle Sam wants to be paid. And so your CPA helps you with tax strategy planning, depending on your business, your business entity and your personal lifestyle. As your business becomes more complicated and now you have multiple transactions and you’re proud, maybe you have payroll or you’re paying contractors. 

You have invoicing, all these other components in managing the financial aspects of your business. You’ll likely bring on a bookkeeper who is doing all of that categorization of transactions within an accounting system, like a QuickBooks or FreshBooks or, or zero. Sometimes the CPAs also do the bookkeeping, but maybe they don’t do it on a regular, a regular basis, like, you know, monthly. So at a certain stage in a life cycle, now you add a bookkeeper to your team. 

When your business is in the growth stage and you’re asking questions like, how can I leverage these numbers to make decisions for growth? I need to budget or forecast because I want to add another revenue stream or add another location or hire more people. Do I have enough access to cash? Do I have enough cash to do that? And if I don’t have enough cash, how should I fund growth, right? Through equity and debt. And if it’s debt, who are the lenders I should go to and how do I prepare for that conversation? And if it’s with equity, I need to prepare for investors and do projections and the like. When those sort of more complicated situations around growth take place, that’s when you start to look for someone with a financial or more strategic mindset. And that’s where we play. That’s the work that we do. So all of our clients are in the growth stage of their businesses life cycle. 

And they want to figure out one, are they going to be able to fund growth? Do they have enough cash? How can they plan to hire more people in order to support the growth? Sometimes they’re looking for investment funding and growing that way. And then some of our clients are thinking about succession planning and preparing for exit. And they definitely need to shore up their financial operations and the health of their business in order to do so. So that’s a lot of the work that we do. 

There are definitely, we definitely customize and tailor our services around those clients, but we, we definitely work in a symbiotic relationship with their bookkeepers and their CPAs because those two also do different things from us. We, we do, we do provide accounting services if the client doesn’t have a bookkeeper. So, you know, you say growth stage and when you’re talking about payroll and, um, you know, kind of beginning, I’m kind of visualizing more of a solo practice, but why don’t you boil it down? You know, what types of sizes, I know it’s probably, you know, it varies, but give the audience a little bit of understanding of your typical target market or areas that you work in from either industries or sizes. I would say that around, and this is after eight years of being in this business and speaking to business owners of various sizes. 

I think a business’s complexity, once you get to around a million dollars that the business is our revenue, a million, sorry, a million dollars in revenue. Yeah. Not even a profit, but a million dollars in top line revenue around that timing is when a CFO or you need someone with a strategic financial mindset to partner with the business owner in order to help them grow. Right. And you may not need a full time CFO or be ready to pay for a full -time CFO. And that’s why you would hire someone a fractional or we’re called outsource part -time CFO for hire. And that’s when that will come into play. In terms of the industries, we primarily service within FinCore professional services, commercial services, and creative services. We have a couple of retail clients, but usually they have under 100 SKUs, which SKUs are units. 

But of course you can find a CFO that specializes in various sectors and industries. Right, but this is a good, I think it gives us an audience a little bit of a take when you would come into play. It’s not somebody who’s just really starting out. Once they get up to the million dollars in revenue and above that, that’s when I guess you can add a lot of value. So let’s kind of talk about, since the topic is top five financial mistakes you see business owners make. 

Why don’t you eat? Let’s just run down down there. What’s the what’s the first one then that you see business owners making? I would say poor cash flow management, no matter the size of your business, whether you are starting out or you’re at half a million or you’re five million or even five hundred plus million cash is king or queen, however you want to refer to it. And so making sure that you have enough runway to not only operate the business, but also investing growth is super critical. So number one is typically poor cash management. I see a lot of businesses that run, that tend to run out of money or they haven’t been tracking their spending or their uses of cash. So let me make a distinction between expenses and usage of cash. And when you’re not tracking that on a regular basis, you can really miss when you might have a potential shortage so that you could do something today to avoid that. I see that as number one. Right, so when you say cashflow, without obviously naming a client, can you give us an example of a scenario where you see a client where it’s a poor cashflow management? I would more so give you an insight into what we do. So every one of our clients we do cashflow forecasting for, and they may have a sense of… you know, generally how much they spend a month, but if they’re not monitoring it on a regular basis or track it on a regular basis, they have no idea. So in the first six months of our engagement, we start to do that. So we have a sense of how much cash is going out for expenses, for debt reimbursement, for asset purchases, for credit card payments and the like. And we’ve seen some clients that think that, oh, we’re only spending around a hundred K a month. 

And when we actually do the math or look at the accounts, they’re spending like 200, 250. So now if you have really 200K in cash going out a month, you got 600K in the bank, you might think, oh, I’m rich, we’re good. But really you only have three months or maybe less than three months of cash sitting in your bank account. So it’s really important to understand what your cash burn is each month so that when you match it up to what’s in your bank account, you can realistically see how much in cash you have left to play with. Right, because I guess if you don’t do that, you can wake up one day and not be able to run your business. That’s exactly right. So we make sure all of our clients, we do cash for cash flow forecasting. And I like to see a minimum of three months. 

If there’s anything less than three months, usually, you know, for me, it’s like red signs. What do we have to do to figure this out? Yeah, I was just gonna ask you that question, so you answered it right before this. So three months is kind of what you just like to see on a minimum size. So you kind of alluded to mistake number two by not tracking, I guess, performance or so. Yeah. 

Can you expand on that? What mistake that you see and how different, how that’s different than, than cashflow management? Right. So, so number two, the second mistake that I see that typically kind of ruin small businesses is not tracking performance. I think that when a business, especially when a business is starting out, they can still track performance. They might pick five to 10 data points. They don’t have to be finance. They don’t only have to be financial. They can be sales and marketing metrics. They can be. 

If they’re an e -commerce company, they can have to do their website traffic and the effectiveness of their paid advertising. If it is a service -based company or consulting company, it should definitely be tracking hours, right? Employee hours, contractor hours on a project. So I think every business should be tracking about five to 10 data points. That’s one way to track performance. And cash burn is one of those metrics. 

The other way to track performance is looking at your financial statements on a regular basis. The profit and loss statement, the cash flow statement, as well as the balance sheet. All three of those statements together, display or represent the health of a company. You don’t look at one over the other. You have to look at all three collectively. And that’s what we do as CFOs on a monthly basis to make sure that the business is on track. Right. So. 

I know you mentioned like one example, but it’d be great to give us a specific example of kind of a company that’s kind of getting over that million dollar number and the owner’s kind of focusing on sales and new business. But what is some of these performance tracking that the business owner would want to see that could say, hey, things are good, or maybe they think they’re good and it’s not going as well. 

One that all businesses should be looking at is profit margin. There’s two different types of profit margin. Well, the main ones. There’s gross profit margin, which is your revenue minus the direct costs related to bringing in that revenue, right? And the remainder there is gross profit. So if you take that gross profit and you divide it by the top line revenue, you get gross profit margin, right? And depending on your industry, the number could be good or bad, right? It’s not absolute numbers, but it depends on your industry. Your net profit margin is after all expenses, what’s the net profit? And when you take that number and you divide it by the revenue, you get net profit margin. So tracking that over time, month over month, looking at it year over year, and then comparing it to others in your industry will give you a sense on if you’re doing well from a profitability standpoint on the balance sheet, I think about it like banks think about it, right? Cause that’s for banks and investors, the balance sheet is a key document and they want to make sure that you have at least a dollar 25 in cash for every dollar of debt that you owe in order to, you know, sort of measure you as a liquid company that, you know, can pay back, pay down your debts.

So, That’s what people will be looking for in a balance sheet. And if you’re managing or someone is managing your balance sheet, you want to be careful that you don’t have a bunch of short -term loans, credit card debt, long -term loans, and then you don’t have enough cash in a bank or accounts receivable to offset that, to cover that. Right, because I guess a lot of businesses, they’re looking at the sales, whatever business it is, and if sales are up, they think, oh, this is going… 

Great. So they hire another employee or they expand their inventory. But if, if they don’t know what their net profit is, sales alone are not a great way of just determining how well the company is doing. That is absolutely right. I mean, I ha we have had a client that, um, we do take some clients that are under, under a million. We had a client that was at half a million in sales and it was great for them, but they couldn’t figure out for the life of them why they were running out of cash. And we had to do a little more digging and look at the profitability of their different products and realize that half the product suite wasn’t profitable, wasn’t adding to their bottom line. It was just sucking up cash. And so from there, you’re able to make a decision of what you’re gonna cut and how deep to free up some cash. So this is why tracking performance in these various ways is super important. 

Let’s move on to mistake number three, Tricia. What’s the third mistake that you see? So operating without the right systems, policies, and procedures in place. Now, when you’re in startup mode, you’re just really focused on sales, right? And just bringing in revenue and cash flow. You might not really have operations set up, but you might have a couple of systems, like a point of sale system or an invoicing system, right? You might have a… that hopefully you have an accounting system that you’re using. And as your business becomes more complex and you add employees and they’re different people managing different parts of your business, it’s important to have document their procedures and put some policies around it. So I know particularly in the finance department, when we’re working with clients, you might have the tax person, but in house you might have a bookkeeper, an accounts payable person, someone doing invoicing, an HR related person, all of these people are within the financial operations. You might have a financial manager. And so the same person that is bringing in deposits from the bank account should not be the same person that is doing the bookkeeping. And I know sometimes it’s hard to hire multiple people, but you wanna make sure that there is a separation of duties so that somebody is overseeing the other thing. Because I’ve worked with a client before where they had one bookkeeper doing all the things. And then six years later, they found out the bookkeeper was doing fraudulent stuff. Because if they’re receiving the checks, they’re the ones putting it into the accounting system. They don’t have to put the $10 ,000 check, the full amount in the accounting system. If they wanted to put 8 ,000 and take 2 ,000 for themselves, 

There’s nobody to catch that. So no checks and balances, audit 101 for those accounts out there that are listening. That’s exactly right. And so one of the things we do for our clients after we’ve done a lot of the basic, set up the basic stuff like, you know, regular monthly reporting and analysis and cashflow management is we create a financial policies and procedures document. 

It’s also a succession planning tool, right? So if the person or two people that have been managing all your accounting and financial matters go away, resign, all that IP goes along with them. All that history is gone. And when you hire the next person, it’s harder to start from scratch, you know, with the list of tasks and all of the things. So it serves multiple purposes. So one of the other systems that, 

Me running a small business that we can’t live without is a CRM, a client relationship management system to know when was the last time we spoke to somebody, when the last time we had a meeting with them, when their next meeting is due. And I’m still amazed sometimes I talk to business owners and they have no idea about having some type of CRM system. Do you come across that as well? I do come across that. I don’t, we don’t invest a lot of our time and advice there, but I do think it’s important, especially if it’s tied into your invoicing system, right? Sometimes, oh, that’s the other thing. If you’re going to connect systems, just make very sure that they talk to each other before you press go, because I know sometimes people connect things to QuickBooks or QuickBooks is connectable to other systems, and then it doesn’t feed it properly. And then, the numbers in QuickBooks don’t make sense, a garbage in, garbage out. So, you know, just be careful there. And then the last two things I would say is if you are a product -based company, it’s important to have an inventory management system. And if you are a consulting company where it’s like time for hour, you know, you’re charging for your time, have a time tracking time and attendance system. Yeah, absolutely. So, Let’s continue with these all great, great pieces of advice as far as not only just the things that you see that are mistakes, but ways of preventing mistakes from happening in the first place. So what’s kind of mistake number four that you see? Mistake number four is poor future planning. So another thing that we do with our clients is creating a budget or a forecast for the next 12 to 18 months. 

I heard someone say at a conference in the past week that I attended, you know, it’s nice to think five years out, but things are changing so quickly. You definitely want to have like a one to two year plan at the very least of what’s going on financially in your business. And so we do that for our clients and we leverage our knowledge or information about what has gone on in the past in order to set up the plan for the future because that’s a good starting point. But then we do have conversations with their salespeople and whoever’s driving revenue on where they think sales are going to go or if they’re going to bring on a new revenue stream or new clients, what would the pricing be? When do they expect the dollars to come in? So we have all of these conversations so we can make educated assumptions about what the numbers will look like in the future. Of course, 

It is an art as opposed to a science, but it is better to plan for the future than it is to not have any idea. Let me give you an example. Many times when I’m prospecting, I ask CEOs, where do you expect to be in a year? Right? And they give some random numbers. So how do you plan to get there? They’re not really sure. Now they have a bunch of ideas of how they’re going to get there but no one has put numbers around the ideas, right? You wanna make decisions for the future based on numbers and facts or educated assumptions. And so that’s what we do. We help them narrow down their ideas to what makes the most viable sense. And then we put numbers around it to make sure that it’s financially additive to the business. So. Yeah, I think another benefit for that, you know, in myself when I’m planning in the future is that if you have these, numbers and you put some goals down on paper and then do the planning and come up with actual specific ways of getting to the goals, you’re more likely to achieve those goals rather than just having a nebulous idea out there. So not, I think it’s twofold for planning for the future, just to make sure you’re on track, but also being able to be able to a way to reach those goals, whether it’s short term or long term. 

That’s right. And I believe for even for even for smaller businesses, newer businesses or six -figure businesses, I’ve noticed that a lot of business owners, their first goal is to just to pay themselves a decent salary or to pay themselves more than they’re making. Giving themselves a bonus is a goal, right? And so we’ve come up with a pay yourself more calculator. I call it the pay yourself more calculator, but it is a simple calculator to figure out what is the minimum revenue that the business needs to make in order to cover operating expenses plus your ideal, you know, your ideal pay. And it has been very helpful to a lot of people. And so if a business owner says to me, oh, I want to make, I don’t know, 750K or a million dollars, and we do the calculation and it really says that they need to make $1 .5 million, then, 

Now you have a real goal that’s based on numbers and not just sort of intuition. Yeah. Yes. So important. So let’s talk about the last mistake that you used, financial mistake. Do you see business owners make? Yeah. So we addressed it in the very beginning. It’s lack of accounting and financial expertise at the right times. A lot of people come to us when they’re in crisis. They’re like, you know, we’ve run out of  ways to fund our business. We’ve done all the merchant cash advances. You know, we have the EIDL loan and you know, we’re short on cash and we’re not really sure how we’re going to grow. We made this investment in this new space. I’m not really sure how to help them maneuver their monies because they’ve gotten themselves into a tight space. So you need to hire the accounting and financial expertise in advance of all of your plans because we can really help guide you on what decisions to make and when. And I explained earlier, you know, when you’d hire, well, CPAs, everyone has a CPA, because you start out with them doing your tax planning and strategy, but when to have a bookkeeper and make sure, make sure the bookkeeper knows accounting so that they are categorizing things in the accounting system properly, because I’ve gone into a lot of QuickBooks or zero systems and I’m like, this doesn’t make any sense. No wonder you can’t pull financial reports that that makes sense. And so, um, make sure that you’re, when you’re interviewing for bookkeepers, make sure that show you they have accounting experience and not just systems experience, but that is a big one, not hiring people that have the right expertise at the right time. Awesome. So. 

As Matt mentioned up front, you’ve written a book called Dancing with Numbers, where you give a lot of tips to how entrepreneurs can better manage their numbers. So if everyone out there that we’ve talked about some of the mistakes, Tricia is going to share her top tips from the book. So Tricia, go ahead, share a few of these tips. I know you’ve talked about some of them already, but when you share a few of the more of the tips from the book. 

Yeah, so I just want to orient the audience to, you know, some of the purpose of the book and how it’s laid out. It’s a super easy read. I have, yes, I’ve been a finance professional for 24 years and I’ve worked on Wall Street at Merrill Lynch and Citigroup and I’m a math nerd and I’m a spreadsheet nerd. But I also have a passion for dance and I spent a bit of time between my corporate Wall Street life and my life as the owner of a fractional CFO company, pursuing dance and pursuing a Broadway show. So how I present financial information and how I relate to clients is very different from maybe, I guess, a traditional accounting and financial person. I want people to have a fun relationship to their numbers. I want people to understand, I want them to be empowered. I want them to be able to speak confidently around their numbers. 

And I find a lot of CEOs are non -numbers people and they might not feel so comfortable and confident. So I wanted to write an easy to read book for those established business owners who are like, I’m open to learning and understanding what I don’t know. And I need someone to speak to me in easy digestible bits so I understand. And that was how I wanted to create the book. 

Because I have a dance and entertainment background, I also leverage metaphors of dance and music and life in order to make it interesting. And then I interviewed 20 business owners who were self -proclaimed non -numbers people, but grew to be to quote unquote dance with their numbers. So I wanted the motivational aspect of the book in there. And so the book is broken down into three sections. The first section is called stretch and it deals with mindset. 

A lot of business owners have old destructive money scripts and behaviors and beliefs that prevent them from really dealing with their numbers in a healthy way. And so I wanted to address that in the first three chapters so that they’re ready for the middle section, which is called strength and that’s where you get all these tidbits. I would talk about cashflow management, debt management, how to plan for the future and who should be on your money team at the different stages. 

And then the last section is called SOAR. There I shared how business owners grew their businesses in, I would say non -traditional ways. So some leverage community, some leverage reconnection to their why and their brand. There were many different ways. Some leverage the pandemic, honestly, to take advantage of opportunities there in order to grow their businesses. So that’s how it’s laid out. 

I would say the cashflow management tips are in there. I have something called the 10 Cash Flow Commandments that’s within there. I walk people through the planning. I have something called the Path to Financial Freedom. It’s a 12 -week financial accelerator program. It’s a group consulting program. And that’s where I walk people, business owners, through how to grow their profits by 20 % to 30%. And the framework is also within the book. And if… 

If people want more information on that, they can go to fincorestrong.com, which is our website, or, you know, message me, DM me on Instagram at fincorestrong. And then I would say one of the third buckets, you know, third little tips in the book is around how to transform money mindset, old destructive money mindset that is not helping you. So I love the way that you’ve kind of tied in our dance background and the money background to put it in a way that can be at least interesting for somebody to read, read about that. Actually, I knew we were meeting today. I thought about you yesterday. I just saw the musical Tommy. So if you haven’t seen it yet, awesome amount of awesome amount of dancing, but I regress here. So this has been great, Tricia. There’s so much information. Hopefully some of the business owners out there, you’ve gotten some tips and some ideas and like Tricia mentioned, money repeat again, if somebody wants to reach out to you to either get a copy of your book or speak to you about working with them, what’s the best way of doing that, Tricia? So multiple ways.

So I am Tricia M. Taitt on LinkedIn. Our website is fincorestrong .com, same thing fincorestrong is on Instagram. 

Those are the best ways to reach us. If you want to access the book, it is on Amazon, it’s in soft copy, and I narrated it on Audible for those of you who like to sit in your car and listen as opposed to read through the pages. Great. Thank you so much again. This has been great. I think a lot of our audience out there, a lot of the business owners that are kind of in that stage have gotten a lot to a lot out of this. So thanks again for joining us today, Tricia. You’re welcome. Thanks for having me, Larry. Well, I want to thank Trish for being such an absolutely fantastic guest on the show today. As a fellow business owner, there were all sorts of things that I picked up from that. And I also love it when authors take something very, very personal that’s a passion of theirs and apply it to their financial life, which is the book. So listen, we’re going to have links in the show notes for you to go ahead and download the book and the audio book. We’ll also make sure we have all of the connection points so that you can get in touch with Tricia if you need as a small business owner. So here’s the deal. If you have not subscribed to our podcast or us on YouTube, please make sure you take a little bit of time to do that. For Larry and Tricia, this is Matt Halloran, and we’ll see you on the other side of the mic very soon.