Chris Arndt worked closely with Steven as a fractional CFO before Campus Ink grew to a full time CFO. He’s seen the numbers of a rapidly growing shop and has some great key points for you to write down!
Connect with Chris Arndt:
carndt@orba.com
https://www.linkedin.com/in/chrisarndt
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Transcript
00:00:04:07 – 00:00:22:05
All right. Steven, what do you think? That was cool. I’ve known Chris for, I don’t know, 4 or 5 years, and they helped us out in, like, such a pivotal time. I really I know Chris by following him on LinkedIn. So super cool to get. Yeah, fractional CFO insight and how his firm runs and stuff. What about you?
00:00:22:06 – 00:00:46:14
I liked it, I mean, again, so, this episode is really about the financial side of running a business, and it can take it honestly to any business. And I don’t know, I always just felt like we were so behind on the finance side and I didn’t really know. What does a CFO do? Like, what could what could a fractional CFO like someone’s part time or controller?
00:00:46:14 – 00:01:10:04
What the heck even is that? And gosh, I feel like it could have helped so much just unload all of the financial planning and things that we’re thinking about. Time to time and allow me to focus on the products or sales or team stuff or whatever. No, I think this will be a fun episode and super relevant to shops as you’re thinking about, you know, Q4 getting ready for the new year.
00:01:10:04 – 00:01:36:23
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00:01:36:23 – 00:02:00:10
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00:02:00:10 – 00:02:19:20
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00:02:19:22 – 00:02:40:09
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00:02:40:11 – 00:03:03:21
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00:03:03:21 – 00:03:29:13
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00:03:29:18 – 00:03:52:16
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00:03:52:18 – 00:04:11:04
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00:04:11:04 – 00:04:40:22
Use Printavo pad 24 for 50% off your first vector step or embroidery order. Just jump on in. All right, Mr. Chris Arndt is here today. Who is founder president. Also, fractional CEO, but really going to get into this, conversation a little bit more finance. You maybe or maybe not, I don’t know, I, I’d like to get a little bit deeper into the weeds, but I listener wrote in the other day and I was like, can you explain sometimes why you have the guess?
00:04:40:22 – 00:05:02:14
And so you have good context going into it because we, we tend to like just jump in. The background is we don’t know anything about finance. It’s one of those it’s one of those categories of, you know, accounting. Yeah. I mean, it’s just reactively. It’s it’s like, oh, shoot, I have to be able to I think I need to do this.
00:05:02:14 – 00:05:23:03
And, and I think it’s some realms maybe we do do a little bit of project shins in trying to calculate when to hire this person or when to spend on that, but I didn’t know that was finance. You know, where I just found out like three months ago. Accounting is in the past, finances in the future. That’s what I said.
00:05:23:05 – 00:05:47:01
There you go. Right. I think we should go with it. Yeah. Is that real? Is that I have a teacher in the history classes. I, yeah, I think that’s a good way to put it. There’s some gray area there, but generally speaking. Yeah. Finances. Yeah. I mean, in all of our bookkeeping, there’s probably some gray area. Chris, we met three years ago.
00:05:47:01 – 00:06:22:08
Four years ago. So just a little bit of a back story. We were starting to get kind of, not outgrowing our, our solutions, but, like, the company was really starting to grow, and I was looking for, a firm to kind of take our business to the next level and, like, level everything up. And so at the time, Chris led Auba and came on to be our fractional, CFO, our book, the bookkeeping team, accounting team, and got us to the point where now we have a full time CFO.
00:06:22:10 – 00:06:44:10
And so you were your firm was like a critical part during, a very pivotal time at campus Bank and during a pandemic. So that’s kind of why I thought it was exciting to bring you on, because there are a lot of small businesses right now that are struggling, especially in the printing industry, trying to make sure their business lasts.
00:06:44:12 – 00:07:05:22
And I think I just follow you on LinkedIn a bunch, and some of the insight you put out there is magic. So, I don’t know where we go from here, but, Chris, what you know, for you, what are you seeing post-pandemic with small businesses in terms of like their finance and accounting practices? Are you seeing. Yeah. What are you seeing?
00:07:06:00 – 00:07:31:19
Yeah. First of all, thanks for, saying it’s magic. We put out that. I don’t know if anyone’s ever used that that word before, so thanks I appreciate that. And one quick share is our accounting firm I started at 13 years ago. Guess who’s accounting was always done last when I was growing and scaling my business for a number of years, it was it was a campus sink.
00:07:31:19 – 00:07:56:16
But. Now camp is like, hey, you guys, you guys are always on top of things and always asking questions and and scaled so quick, really quickly. It’s it’s pretty cool story. But yeah, it’s a common it’s a common thing that that gets put, you know, last as you’re growing a business. And I don’t think anyone should really apologize for that either.
00:07:56:16 – 00:08:40:10
When you’re, when you’re growing a business, a couple million in revenue. You know, it’s initially you just want to you just want to grow and get target market fit. And, and then you deal with the bookkeeping and then the accounting and the CFO all later on. So, post-pandemic, what are we seeing at your question? I think, we are I mean, I’d say it’s it’s just like mean we work with with businesses in a lot of industries, specifically, you know, in your industry, it’s honestly every business is unique.
00:08:40:14 – 00:09:16:04
And some, some clients are, are, you know, dealing with the the new market dynamics and paying, you know, paying attention to their profitability and, and doing really well. There has been a lot of, there’s not as much funding available now to, to, you know, companies that were before. And so it’s really like those that focus on profitability and the, the unit economics of, of their business, you know, they’re doing well there.
00:09:16:05 – 00:09:32:15
And, and so we’ve seen that. And then we see some that that are just trying to grow at all costs and not maybe paying attention to to those margin economics bottom line. And, and it’s a, it’s a, it’s a tough place to be.
00:09:32:17 – 00:10:01:06
You have a pretty crazy accounting background. I’m seeing you in your LinkedIn since 2006. And by the way, or buys oh, RPA cloud cfo.com, you can go to and and and check that out. We’ll put it into the description so people can go to it. But looks like started or and help businesses and what size does this make sense.
00:10:01:08 – 00:10:27:07
You know, to bring on someone that is a fractional CFO because I think, I mean, gosh, maybe we were around 5 million or so, but I was way behind and should have done it probably closer to 1 to 2 million, I think to have someone part time be able to take this off the plate and create almost a roadmap for us, for the future as far as spend goes and so on, instead of me.
00:10:27:07 – 00:10:53:03
So reactive. I mean, is that where you see clients come on, or is it much later? Yeah. So, one quick thing. I, I actually started the company 13 years ago. We were called Red granite. So that’s the company I founded. I sold to Auba eight years ago. So now we orbit cloud CFO. We’re a subsidiary of Ariba, which is a larger CPA firm, about 200 people.
00:10:53:05 – 00:11:17:00
My team were about 40. And we just handle, the fractional accounting and controller and CFO services for businesses. Yeah. So, you know, I’m an entrepreneur. I’m an accountant, sort of turned entrepreneur, started my own thing. So I know the, you know, the pain of of of growing, growing a business and have been there and, even now still basically run the group.
00:11:17:00 – 00:11:44:18
And we’re, we’re always focused on growing and, we follow, we work on iOS, which I know you guys are familiar with as well. So that’s that’s helped. As far as size and, you know, when does this when does this make sense? I think, you know, once a business gets going, you know, just starting out, prove that you got a business customers, you know, bring money in the door however you can.
00:11:45:00 – 00:12:08:03
I mean, back when I started my business, I was anyone who would throw a little bit of money at us for us to provide services for them. We take. And I wasn’t even, like tracking our time to know which ones were profitable, but we just started getting going. Right. You got to get that get that going. I think when you get in that, maybe half a mil a year stage, you definitely need good bookkeeping.
00:12:08:08 – 00:12:32:10
At that point. Bookkeeping falls in that accounting bucket. We’re talking about backwards looking. Right. But you need to have that so you at least know how you’ve been doing. I’d say when you get and every business is different, we’re generalizing here. Right. But, when you get in that 1 to 2 million range, you need more than just bookkeeping.
00:12:32:12 – 00:13:03:00
That’s when you need like, controller support and and and, a controller you’re still looking back is still accounting. But now it’s like, you know, a accrual basis accounting. So you can look at last month and know that all the revenues expenses are matching up in that period. And you’re not just look at when does cash hit the bank account because the timing of cash, can, can skew really how the business is doing.
00:13:03:02 – 00:13:23:03
So the 1 to 2 million accrual basis have a controller or fractional controller that, that is, you know, each month making sure those books make sense on an accrual basis and can start talking you through how you’re doing, looking at how you, you know, actuals versus a budget. Start comparing having a feedback loop on how you’re doing.
00:13:23:05 – 00:13:52:05
And you know, around that maybe two millions plus layer in some fractional CFO at that point can can help. And and that’s where you can start doing the forward looking that finance piece that, that you mentioned earlier. What does this controller exactly do. It’s controller. It’s a, it’s a mystical, role. Yeah. Outside of the accounting world, everyone’s like, yeah, what the heck is a is a controller?
00:13:52:07 – 00:14:14:18
It’s really someone that’s overseeing the bookkeeping and bigger companies. I mean, as they scale, there’s more and more people on the accounting side doing the processing, it all kind of rolls up into the controller. The controllers job is to make sure that as of the the period you’re closing and looking back, it is it is type, it’s accrual basis.
00:14:14:18 – 00:14:35:04
You have support for everything on your balance sheet. Your PNL makes sense. Things are classified right. The buck stock stops with them on that backward looking accounting piece. And then, you know, for companies that have a separate CFO that need it, the controller kind of says, all right, here you go. Here’s Jeff Silver Platter. Here’s the accounting where you where where the company’s been.
00:14:35:06 – 00:14:58:18
Now take it and figure out what we’re going. Do you get it, Steven? I think I get it. I think I get it. I mean, when we started working with you, you know, like we were just getting Cubans investment, and it was like, okay, we’re going to have all this money. And if I didn’t have someone to talk to, budget plan.
00:14:58:18 – 00:15:24:07
It was like giving a kid a Super Soaker and saying, like, go play. And like, we really need to see, like, okay, if we invest in this, what will come out of it? What are the projections that I’m aggressively making in my head? You know, how do I hire for this ahead of time? And so it kind of put me in like accounting, finance, boot camp more than anything because like, I was trying to level up my game so that I could know what the heck was going on.
00:15:24:09 – 00:15:45:13
But it felt like for once, I wasn’t the expert. And that was just a nice feeling from comfort. Like, these are professional accountants or CPAs. You know, this isn’t a mom and pop kind of shop just doing ledger entries in your QuickBooks, right? Like there was something kind of professional about that, which was which which I thought was kind of cool.
00:15:45:15 – 00:16:01:06
I think, you know, like, what’s really interesting, Chris, is when I talk to a lot of shops, I’ll ask them what they do for bookkeeping. So, oh, like, my wife does it, or we have someone that comes in and does it and it’s kind of loose. And more often than not, most people will say it’s a dumpster fire.
00:16:01:08 – 00:16:19:08
And I’ll ask them, like, what do you pay? And it’s like, three, 400 bucks a month or 500 bucks a month. And people are cheap about accounting practices, like they’re trying to get the best bang for their buck, but hoping they’re going to get world class work. Right. What do you what do you say about, like, the breadth of quality?
00:16:19:10 – 00:16:41:02
Because when you say someone is a bookkeeper, you know, you can get all sorts of people. In your experience, what have you seen? Like what are the big mistakes small business owners make when they’re trying to navigate the waters of finding a bookkeeper and what to pay for them and like all that stuff. Because, like, when I went to you guys, I wasn’t looking for a deal.
00:16:41:02 – 00:17:06:16
I was looking for really? Someone like, super experienced, you know, which might be different for other shops. Yeah, that’s a great question. I mean, there’s there’s a there’s a huge spectrum. So we’re our, our model is I’d rather do more for fewer clients then do a little bit for lots. So we’re more of a kind of white glove concierge service.
00:17:06:18 – 00:17:28:04
We are, you know, our our minimum monthly fee for clients now is two grand a month and kind of going up from there. We don’t really want to play on the bottom end. We we want, clients that, you know, are kind of they’re focused on growing and scaling. And in order to do that, they know they need like, reliable information.
00:17:28:07 – 00:17:54:10
Right. And so and that’s like where that accrual accounting is really important. And we’re going to say accrual probably a lot of times today. And I apologize now to everyone. You know, eyes glazing over with that boring terminology. But you know, on the low end, bookkeeping, you have the just do it after the fact for, for pretty much like compliance purposes.
00:17:54:10 – 00:18:11:17
Most of the companies start out like, oh, I crap, I need my books done so I can have my taxes file, right. Like you’re getting no value out of running your business. You’re just doing it so you can get your tax return done. And it’s always after the fact. It may not be time, you know, timely, but for a couple a few hundred bucks a month, you can get it done.
00:18:11:18 – 00:18:40:14
Cash basis. It may or may not fully, you know, makes sense. But maybe over a term of a year it it all balances out. But, you know, so there’s a huge spectrum, I guess, there from, from the, from the bookkeeping perspective. And depending on your business, if you’re not growing super fast and you’re fairly simple, hey, go to the lower end, that may be all you need, but the faster you’re growing, the more intentional you want to be about growth.
00:18:40:16 – 00:19:07:11
The more things you have moving in this industry. Inventory, is something by itself that complicates, you know, accounting and projections and things. So by default, you know who we’re talking to here. It is more complex because you have inventory when it’s fractional CFO time. What what does that take off the owner’s plate. Because I think that’s the way at least I think about it is like, okay, bookkeeping, we get it right.
00:19:07:11 – 00:19:26:08
Like no one wants to cruise through all these, you know, mash things up and categorize and all this stuff, you know, maybe. And the controller and then the CFOs, the fractional CFOs and the well, let’s just say these are part time, you know, both of them are fractional part time roles. Yeah. What does it pull off the owners plate that they would be doing or thinking about?
00:19:26:10 – 00:19:47:18
All right. You know, if if assuming the bookkeeping is after you’ve already arrived, coding and matching, someone has to review that and be like, hey, does this make sense? And ask questions about it because coding is coding. But so that’s one piece. If there’s not a like a controller or fractional controller in place, it’s on the owner.
00:19:47:22 – 00:20:08:18
So to look at what the bookkeeper did and to question things, and if you’re like me as an owner trying to grow a business early on, that doesn’t happen too often. And so you go, you know, many months or a while without things being looked at a properly and, you know, yeah, I had sort of this like internal stress always.
00:20:08:18 – 00:20:26:06
And, you know, it’s like grow the business. Or do I spend time looking back at the bookkeeping and like, does that matter really all that matters just going forward? For me, I got to focus on that. So like taking that stress off your plates, you don’t have to like spend time looking over what the bookkeeper is doing. And I want to red flags there.
00:20:26:07 – 00:20:55:21
You know cash is good. Were were, these books are clean. They’re good to go. Yeah. So that that’s like that controller level. Then on the CFO side, I mean, each owner is a bit different in their finance, abilities. And, you know, with Steven, he pretty, pretty advanced in his knowledge and understanding. No, I mean, I’ve seen what we work with, you know, over 100 clients currently.
00:20:55:21 – 00:21:18:06
I mean, it’s been probably close to a thousand over the 13 years since I started the company. And there’s a spectrum on the owners and where they where they sit and their knowledge of finance and accounting and, and and some ask really detailed great questions. And in that case, you know, you’re sort of validating them, giving them support for the thoughts they already have.
00:21:18:08 – 00:21:39:13
And some, some owners, like straight up super visionary, not finance focused at all, just going off a gut and a feel. And, you know, your job there then is kind of holding kind of putting the reins on them a little bit and say do your magic, but like do it, do it within here. So yeah, you can make some money.
00:21:39:15 – 00:21:57:21
So it depends. It’s interesting because as you know, the more I worked with, you know, like more professionals, like the individuals on your team, right. Like they were obviously helping my business, but I was just like learning from them. And I’d almost felt like a couple times a month I had like, accounting 1 to 1 class, you know.
00:21:57:23 – 00:22:13:00
And so that’s like you become a product of your environment, right? If you were to ask me the questions about accounting and finance four years ago, I wouldn’t have known them. And it’s like now, because I’ve worked with a firm for a while. It’s kind of like having a little bit of a coach, like, that’s not how EBITDA actually works.
00:22:13:02 – 00:22:40:21
Or, you know, those kind of things. I think one of the biggest things that I’ve seen is, you know, CFOs are going to look out in the future and just warn you of things that might happen that you need to be careful of. And I think in our ecosystem right now, it’s like labor, right? Like with labor rates skyrocketing, the percentage of labor to do sales like it’s I bet you in the industry it’s probably jumped 10 to 15%.
00:22:40:23 – 00:22:59:14
And that might be all the profit some shops are making. And so for me, it really taught me to like look ahead and say, okay, if we want to hit 25% labor, you know, we have to hit these numbers. And, you know, CFOs, that’s what they do. They’ll tell you, like, okay, you if you want to do this, then you have to do that.
00:22:59:16 – 00:23:22:10
And so it’s very goal driven. And then using the financial numbers to back end of it. Yeah I mean I don’t know Chris is there something I’m missing. Yeah I mean I think that’s a it’s a it’s a great example. And you know, one of many ways the CFOs can help. But but yeah, I mean being goal driven looking at that PNL and you give an example of labor.
00:23:22:10 – 00:23:49:22
Right. Another another example, could be yeah, I know you guys have talked about like, customer acquisition costs and lifetime value in the past, looking at like, you know, maybe, you know, maybe, you know, what your lifetime value is that you can expect on a customer, right? Like they’re going to they’re going to buy over the next few years.
00:23:49:22 – 00:24:16:14
They’re going to buy from me ten times at an average, you know, order of whatever. With with your gross margins of, 50%. I’m just making up some numbers right now. You back that and and say, yep, they’re they’re worth, this this, it’s average customers worth $5,000 to me. Right. They your CFO can say, okay, well, you probably want a at least a 3 to 1 ratio on on what you’re going to spend to get them.
00:24:16:14 – 00:24:35:12
And then they can help and back you in and say if you’re going to, you know, only get 5000 for them in a lifetime, then you can only spend, you know, 1500 ish, little more 1700 to get them initially. Otherwise your your sales and marketing spend doesn’t make sense for the value of the customers. And so that’s like backing.
00:24:35:13 – 00:25:05:05
And then you have from a strategy perspective you say okay well how what’s our go to market. If this is the customer profile we’re going after and what we’re going to make off them, and we can only spend 15, 1700 bucks to acquire them. What what channels do we have that makes sense with those dollars. So backing and that that ultimately is a, you go to market strategy, that you’re getting sort of insight because of the, you know, the CFO in, in for a shop.
00:25:05:05 – 00:25:32:06
It could be very, like you said, very order focused. And the mix around we talked about average order value, the no frequency of orders. I mean, if they really have a good understanding of business. Yeah. And I think if anything like, you know, using leverage properly, using debt properly, like the right type of debt vehicles to use when not to use debt, when to finance equipment, when to pay in cash, all that like good stuff.
00:25:32:08 – 00:26:03:21
It’s staggering. Unfortunately, how many shops carry a a lot of debt because they got really excited and bought the fanciest new presses at a trade show, and then they have to start taking a bunch of orders that are super low in price to just pay off those machines. And so like the equipment purchases, like those long term things, having a professional to actually run it by, whether you should buy or lease a building.
00:26:03:23 – 00:26:23:02
Right. It could actually be a really smart investment. In other terms, if interest rates aren’t good, like it might be poor. I want to talk, Chris, about cash positions because, I feel like the printing industry, we’re such gracious people. It’s almost like we decided to all be our own bank and, like, loan our customers money.
00:26:23:04 – 00:26:46:03
How many? How many businesses? And you loan the business money again or a little more personal or. Yeah. Or personally loan the business money. Right. And you had, you have this like, it’s called awesome accounting tips and it’s you on LinkedIn. And it said, you know, three reasons to stop ignoring your accounts receivable. Do you need a quick influx in cash?
00:26:46:08 – 00:27:14:01
Can you talk about this almost as, how often do you see this as a problem for businesses? Accounts receivable is a problem. Yeah, I mean, it it’s funny, like businesses think. And owners, they they talk so much about getting the sale right, getting the customer getting the order and doing it. And not enough people talk about like collecting the, the money, right?
00:27:14:03 – 00:27:44:10
I mean, if you don’t get the cash in the door, then there’s, you know, it’s all just like you’re playing. Yeah, you’re playing monopoly or something because like, there’s not it’s not real money. And and so like the whole purpose of a business is to use your cash, use a little cash to go out. And in this case buy some inventory, pay for some labor, do some work and get back more cash and just keep cycling that cash over and over.
00:27:44:10 – 00:28:07:18
Spend a little, get some inventory, do some labor. Get it back with more. That’s your profit. The faster you can do that cycle with your cash, the more cash you will have on hand. And if you’re trying to grow fast, the quicker you can grow, because that cash can be used and reinvested. If you have a bunch of accounts receivable out there.
00:28:07:20 – 00:28:36:15
And this is where I hate like how, how banks and, and accountants think of are like it’s an asset, right? Accounts receivable is on your balance sheet. It’s an asset. I call kind of bullshit on that. I sure can say bullshit here, but, the, it’s it’s not an asset. It’s it’s honestly, if it’s not cash, it it’s, it’s not real.
00:28:36:15 – 00:29:03:04
So, like, until you turn that air and collected and turn into cash, then it becomes real. So, collections is is huge. And you have to you have to think creatively about how you can do that. You don’t want to give terms to, to customers, that are excessive. And, you know, each industry is unique. But like, for us, for our clients, they pay, a flat monthly fee for our service.
00:29:03:06 – 00:29:35:15
I’ve, we’ve converted all of our clients, to a automatic monthly. ACH. Now. And we didn’t used to do that, and you’d be like, we’d have to like, you know, be like, hey, you still owe us our invoice from last month, and now you owe this next one, and we get him to sign that one, that when they sign up as a client now, they sign an ACH form, and we just pull it ourselves every month, and we’ve grown, you know, maybe forex since when I started doing this and our R is smaller than it was, you know, when we were four times smaller.
00:29:35:15 – 00:29:55:12
It’s smaller now because of that. So, you got to be, you know, creative and strategic. And it’s interesting the smaller the business, the more willing a shop’s to give out amazing terms. And in terms of business, wait a second. You’re giving them 60 days to pay you 100 grand like, can you even get a credit card for that right now?
00:29:55:12 – 00:30:15:07
Like, what have you changed your terms to even, like over time since you guys are smaller to now? Yeah, I mean, the second you get in, the second you approve an order, you get a payment request right away. And unless you have terms, you have to pay before the order starts right now. Like, we have different clients on the spectrum.
00:30:15:07 – 00:30:48:15
We have fraternities and sororities that must pay us before the job gets started. But we also have Dick’s Sporting Goods and big box stores. Dick’s Sporting Goods sets their own terms. It’s like, yeah, okay, but for me to take a purchase order for $100,000, you know, Dick’s might say that’s a 90 day IPO, right? And so you have to be in a position that’s like a real purchase order, like you have to be in a position to be able to take that and float the business long enough for a quarter of the year to finally get paid on it, which stresses businesses out.
00:30:48:15 – 00:31:14:15
And so sometimes, like, you know, they’re, they’re. They’re starting to give out terms way too early. And I think it really, like, suffocates them. Which is just, I think an unfortunate thing. And I think that. Go ahead, Bruce, first, jumped in with campus saying, did you have longer terms? Did you have to change them? I think the industry has changed.
00:31:14:18 – 00:31:35:13
Well, my business partners used to use carbon copy paper and mail them out. Right. So that’s that’s a natural term. Right. But, you know, it’s funny. You know, it’s really funny. Shops will complain and say I don’t want to pay the 3%. It’s like, wait a second. The time you take to collect that money is probably more than the convenience fee of just getting paid up front, right?
00:31:35:13 – 00:31:54:07
Yeah. And so it just drives me nuts when I’m like, wait a second, you have, you know, two times as much. Then you have an available cash right now and you’re complaining about a credit card fee. That money is nothing to you. Like Mark Cowdray says it’s accounts DC payable, not accounts receivable. So Chris you can use that.
00:31:54:07 – 00:32:16:05
One is how have you guys seen clients whether, you know, coaching clients even or on your side Chris, through Covid change because that seemed to come up quite a bit as cash was a lot tighter. You know, people were like, whoa, whoa, like we have to get paid ASAP and we are no longer offering an extension on that.
00:32:16:05 – 00:32:35:16
I saw that pop up a few times. Did that come up on your guys? Jason, everyone’s use Covid as a reason to change lots of things. Probably the thing that impacts me the most is at Costco. They no longer have Supreme Pizza, which I just, I hey, even COVID’s gone. They didn’t bring it back. They use this chance to like, simplify their pizza.
00:32:35:16 – 00:32:57:06
Right. But I mean, as it relates, you know, here, yeah, I think we’ve seen, you know, some clients use that as a reason. Yeah. And then it just kind of stuck after after Covid. And it’s a good I mean, it’s a it’s a good thing. You need to you need to pay attention to that cash.
00:32:57:08 – 00:33:34:23
What? Stephen, what was your journey through? You know, obviously you have someone that’s a full time CFO now, which is, he’s incredible. And that’s a that’s a big hire. But what was your journey from, you know, almost ten years ago to now with different finance structure in the business? Yeah. So and like, can you mention if you remember the revenue markers too or size somehow to understand the right point because I feel like we miss we miss that that turning point a lot where we’re on our back foot trying to hire for this role instead of maybe more progressively thinking, I’m coming up on this.
00:33:35:00 – 00:33:55:05
So when I bought in the business, it did $750,000, and in the first year we did about 1 million. And Jed calls it the root beer float. You know, we figure out how much money is left over, put it into another account, give our books to someone at the end of the year. And they get us ready for, you know, for taxes.
00:33:55:07 – 00:34:26:16
And that was 3 or 4 employees. That was fine. Right. But then I started running a ton of online stores. We started hiring. There were commissions, referrals. You know, I was starting to take bigger orders now. There’s, now there’s an app. And I think when the business got to like 1.5, 1.6 million, that local bookkeeper kind of old school in town, we just kind of we wouldn’t get our numbers back for like a month after months.
00:34:26:16 – 00:34:47:01
And, and so, like, it was kind of useless to me to do anything in real time. They were just kind of giving us, like, they’re giving us what we paid for, more or less what Chris referred to. And then we went to, you know, a group that did amazing work for us and works for a lot of people in the industry that was really like profit first.
00:34:47:01 – 00:35:10:05
So businesses going like 1.8 million, you know, and starting to get up into the three millions. And that’s where I actually brought them on to handle like paying our bills. Really dialing in our payroll. Right. Because I didn’t have a team to do this. And so they were very hands on to we weren’t necessarily doing accrual accounting yet.
00:35:10:07 – 00:35:40:18
We were still doing a cash accounting, but it was more real time. So they’d get me stuff like every two weeks, you know, I’d have they’d send me loom videos. Right. And then once we started kind of climbing into that, like three, $4 million range, 20 employees were taking on investments. I really needed someone that could help me look forward on the business and create budgets and forecasts and, like, study the PNL and look at the trends and like, start to migrate to accrual accounting.
00:35:40:19 – 00:36:03:05
And that’s really when, you know, that’s when we met, Chris. So, we did everything too late. I was I’m looking at, yeah. It’s like a million bucks too late or 2 million bucks a year. Totally. Right. But you don’t do it until, like, it really hurts. Which which, hopefully, you know, people can feel a little bit more.
00:36:03:07 – 00:36:28:06
Yeah. Early on it, because there are red flags of, like, things you should do early if things aren’t going well. Like, you should start doing layoffs 3 to 4 months ahead of time. Right. And you need someone that’s going to tell you to do that or sell equipment or downsize or, you know, do all those things. I’m curious, Chris, what are some of the biggest mistakes you see small and maybe not in the tech world?
00:36:28:06 – 00:36:58:10
I don’t know if it’s, you know, kind of our world. What are some of the biggest mistakes that you see? Small business owners make where you kind of grimace and say like, like another one bites the dust, you know? Yeah, some of the biggest mistakes. Let’s think about that. That’s a good, good question. We have, I’ve seen some, some businesses where they pretend they’re way bigger than they are.
00:36:58:12 – 00:37:30:17
Like, they’re like running around and investing in inventory or equipment or even people as if they’re like a $100 million business, you know, and they’re doing 1 million and they they just, you know, it catches up, right? You have to like, there’s just like a lot of business owners think you can just grow your way to profits. Oh, once I get here, I’ll be more profitable.
00:37:30:19 – 00:37:58:04
There’s it. That’s a, you know, a very big mistake. And I fell into that trap early on when I started. You know, I’ve said that before. I said. I’ve said that before, too. Totally. Yeah, yeah. And there’s part truth to it, but mostly not, you know, most mostly it’s it’s so there’s, you know, when you think of the way profit works, there’s the economics of one transaction, you know, what do you sell, what do you what do you charge for one short.
00:37:58:04 – 00:38:31:14
What does that cost you. What’s that profit for one shirt. Right. That’s your contribution margin or gross margin. As you have then other costs, the business that are like overhead that are sort of fixed, right. Like let’s say rent, maybe certain, salaries that are not specific labor to, to making the shirt. So there’s the concept of break even where, you know, you have to sell enough shirts with enough contribution margin to cover that, those flat costs, you know, once you do that, then you’re at break even as a business.
00:38:31:16 – 00:38:58:16
And then as you do more, you’ll get more profitable. So so part of it is true. Like as you grow, you’ll get more profitable. But if your economics of a transaction are bad, where you’re not making much margin on a, on a, on a shirt or, or an order, because you’re not paying attention to maybe those increased labor costs or, you’re not paying attention enough to, to all the costs going in not to keep that equipment going that you’re using.
00:38:58:18 – 00:39:25:14
Then you can grow yourself broke, very quickly. So a great example for shops is like buying a banner printer and trying to make money selling stickers. You know, like the time it takes to roll and print a banner could be the time it takes to run a 200 piece order. And so your order size could for 200 stickers could be 200 bucks, where that should be a $1,500 t shirt order that gets you $700.
00:39:25:16 – 00:39:47:17
Right? And so sometimes shops will buy new equipment to like add on, and then they’ll realize like, that’s the one that’s actually losing the money. So I feel that’s super true. That happens. What about business, small business owners? I said this on the last podcast, take pride in showing no profit. Like, oh yeah, we never show profit.
00:39:47:18 – 00:40:10:15
Right? Deduct everything. Everything. Like I want zero. Yeah. You got 200 K of profit or should I go buy it? To cure what’s. Yeah. What’s your. Is that just, you know, like that good or is it bad? Is that kids thinking they’re cool smoking since eighth grade? I mean, I see I see the I see the point of.
00:40:10:17 – 00:40:27:05
Yeah, maybe the reinvestment can help, you know, build for next year. But also, part of me is just like, why not just pay the tax and keep the money in the bank for a rainy day? But you know the thought as well. Why give it to the government when I can put it back into the business? But we don’t have control.
00:40:27:05 – 00:40:49:06
I think, as owners, where is the balance? Yeah, here’s the question. So, I mean, from a tax perspective, the cool kids are showing as little tax as possible. Right. And the the you know, the government sets out all the tax code and rules to tell you how you can reduce your taxes. And they want you to they want to incentivize you.
00:40:49:06 – 00:41:12:10
And running a business and reinvesting in the business, that’s a they incentivize you buying equipment to take massive depreciation upfront. So you can lower your taxes. They want you to buy equipment and do that. Right. So so that the tax code is incentivizing you just to spend your money. But the reality is, is there you have to have a good use case for it.
00:41:12:11 – 00:41:32:16
And, you know, don’t if your business isn’t making money and you’re trying to pass it off as a cool kid smoking in school and you’re trying to say, like, I meant to do that, right? Like everyone sees through you, right? And and they see through that. You’re not really the cool kid like you do. You’re not. You don’t have control.
00:41:32:21 – 00:42:04:02
But if you truly have a business that, let’s say, made 200 grand last year and you’ve taken enough, you know out that you need as an owner to have to, to, to have, you know, a life and to be financially stable. And then you, you’re, you’re actively having the cash and you decide, you know what? I have a real business case for buying this equipment, and it’s a sound business case that you have projections on.
00:42:04:05 – 00:42:20:14
Then heck yeah, spend it to get that tax deduction right away. But there has to be a real business case for it. And not just like you make an excuse and pretend you’re the cool Chris. You should come to the trade shows actually, printing United is going on right now in Vegas. And you should like, hold up a sign that says like, think twice before buying.
00:42:20:14 – 00:42:43:07
Do you have a good use case to buy back $150,000? That’s like three business plans here. Before you go mortgage two lives. Show me your financial model. Yeah, yeah. I mean, as printers, like, you know, the printing industry, the rebels, like. Right. Like a lot of former musicians, like, not a lot of college degrees. Right. And so there’s a lot of emotional buys justified with logic.
00:42:43:10 – 00:43:00:08
We go to a trade show. Oh, I could start a sticker company. Hell, yeah. Let’s get that machine right or. Oh, I want to get into embroidery. Like okay, let’s do it. And sometimes we don’t chart a thoughtful path. I’ve been one to do that. I’ll pull the trigger on equipment all the time. That looks I think there’s also a love.
00:43:00:08 – 00:43:18:20
That is why the the maybe the magic or the coolness factor. I mean, because it is cool, right? Like you, it’s a physical thing. You get it? It manufactured something. It’s, you know, you get to tinker with it a bit. But, Bruce, I think what’s interesting is you see shops mature, like our friends. Right? Justin Lawrence’s and the Brett Bounds.
00:43:18:20 – 00:43:45:15
And, you know, they are they will buy less and less now like they’re the last ones to buy these new DTF machines. They’re like, let the rest of them buy them. We’ll keep outsourcing, you know. And so like once you have those battle scars, you don’t make the same mistake twice for sure. I just feel like over a five year period, if you continue to reinvest to buy stuff versus paid a bit of tax, like, sure, you know, some of the stuff maybe you needed, you could stock up on supplies.
00:43:45:15 – 00:44:14:09
You could you prepay advertising like all this, some of this stuff. But you know, a bigger bank account after a five years that makes you feel good and can sleep at night versus cutting it super close, is a better long term bet. But in relation to this of like not having self-control, I think we also cut into ourselves as owners pay and not paying ourselves.
00:44:14:09 – 00:44:45:11
So like, you know, with CFO hat on, what do you do? You see this happen? I notice maybe it happens more like some call it 2 million or so dollar shops, but like, what’s the best practice? Like, you know, everyone’s probably read profit or print or profit first, and they’re supposed to be shoveling some cash all year long to to put aside in an envelope, but I’m not sure that’s actually done.
00:44:45:13 – 00:45:05:06
Is that the best way of trying to think about it? Should people be thinking about like, well, I want to make sure to hit 5% or 10% of revenue that’s owners pay or, you know, what are best practices there? Or, Chris, do you see owners not paying themselves a lot? Is that something that’s a common, common theme? Yeah.
00:45:05:08 – 00:45:36:01
I, I definitely do see that. I mean, that’s almost like, spending money on equipment or buying something, you know, to have zero tax. You know, you’ll have owners that don’t want to take much salary because they just want to keep it in the business and keep reinvesting it. But, you know, if if you can’t, take a proper salary, then it means your business isn’t, isn’t doing what it should be.
00:45:36:03 – 00:46:03:10
And you’re not running a business at that point. The business is running you. And that’s when you start to, like, make bad decisions. And the more flexibility you have in general, the more control you have over what you can do. And related to like the idea of like buying less equipment. I’m a huge believer in flexibility if you can, if you can lease something and yeah, you pay a little bit more over the life.
00:46:03:12 – 00:46:26:07
But at any point, you know, you’re not sitting with as big loan for this equipment, then you’re not going to be forced to take crappy orders just to keep the machine running. You’re not, you know, you have flexibility and control and like, isn’t that why we all start our businesses ultimately is is we want control over our life and our time and what we’re doing.
00:46:26:09 – 00:46:45:20
And if you if you start letting the business run, you, you lose that I like that. How do you get yourself more flexibility? What are the decisions you can make to give yourself more flexibility? Unfortunately, I think a lot of us start because it’s just like it was cool, like it was like, oh, sure, I think I could do that.
00:46:45:21 – 00:47:08:12
I can make that. I could sell that. And, you know, fast forward five years and you know, you’re like, well, what am I doing? Like, what’s going on? You’re right. The business has been running us for a while. Yeah. I mean, I, part of the reason I sold my business eight years ago was because I just kept saying, I’m going to grow.
00:47:08:12 – 00:47:33:08
I’m going to grow. I’m going to reinvest in the business. I wasn’t able to take enough out for myself. I wasn’t focused on my my financials enough for myself. And like, I’m a CPA, I’m accountant, CFO, like, so this happens to everybody. You know, entrepreneurs are just want to play from the gut. But like, you know, I could be, owning a much larger percent of a much bigger asset now that the business is bigger.
00:47:33:10 – 00:47:51:16
If I would have paid attention to this stuff early on, too, you know, so it’s easy to fall into, and but what’s not cool is, is, you know, sleeping on the, on the couch some night because you’re not sleeping in bed and you’re tossing and turning because you’re wondering how you going to pay payroll in a couple of weeks.
00:47:51:18 – 00:48:15:16
And so it’s like you got a, the there’s a quote, I think it was, Benjamin Franklin, drive thy business there. It will drive the, I like I like that quote. Chris, this has been awesome. So last thing I want to ask about is building a business that you can sell. I guess in a couple minutes.
00:48:15:18 – 00:48:40:18
Like, what advice can you give small business owners from your kind of. You’ve probably seen tons and tons of businesses get bought sold. You know, what are a couple of things that business owners need to be thinking about to make their business sellable? Or to have an exit. Yeah. I’m, I’ll plug iOS entrepreneur’s operating system a lot here.
00:48:40:18 – 00:48:57:09
I think it gives you a good foundation. You don’t need to run on it, but the tools that it teaches you, you know, having, an accountability chart, which is like an org chart to understand who’s doing what and the seats that are needed to run your business. If you’re trying to sell, make sure you’re not in many of those seats.
00:48:57:09 – 00:49:21:06
The fewer seats you are involved in, the the more of an operating business you have with it that that that exists without you. That’s more valuable to sell. So, it’s kind of a double win if you delegate and elevate. Right? They say, get yourself out of a lot of the positions. And in, in, in running your business one, you’ll actually enjoy owning the business a ton.
00:49:21:06 – 00:50:01:10
Maybe you won’t even sell it then, but two, it becomes more valuable as a result. So so I think I think that mentality, I think from a financial perspective, the, you know, the the more the better your economics of your, your, unit economics are the more the more value you can get. You can actually in and actually there’s businesses you can sell if bottom line, you’re losing money, but you’re showing profitability at the order level, a good profit margin.
00:50:01:12 – 00:50:20:05
And you’re showing that you can spend a dollar to get customers. And every dollar you spend, you get 3 or $4 back. If you can show that even if you haven’t gotten large enough where you’ve covered your overhead cost, you can still sell and have a valuable business that someone will want because they can see like, hey, we just got to take your business.
00:50:20:07 – 00:50:43:05
And once we double that size, we have a great operating business and a lot of people are that’s valuable to people just kind of start and buy a business at that point. So really proving out your, your order economics is is hugely crucial to, to valuation and selling. That’s awesome. I’m going to drop in Chris your info.
00:50:43:06 – 00:51:06:05
Really appreciate you being able to share a lot of this. Honestly, I wish we would have done this a lot sooner because I think getting rid of the mental load, thinking about financial stuff and maybe it’s just the controller level or, you know, and then getting to the fractional CFO level. Gosh, to not have to think about that and like to help, like, hey, here’s the goal.
00:51:06:05 – 00:51:30:09
We want to get to one of the building blocks to help us get there, but have been hugely beneficial. So, Bruce, I won’t embarrass you, but, Chris, I usually do this. Guess what Bruce used for the longest time, right? That was good. Before I thought bench SCO or whatever. Oh. Right on. Yeah. Don’t don’t,
00:51:30:11 – 00:51:52:13
But they’re still around. Spend time using them. Yeah, they probably have a lot of, chair and bench that goes like, in theory, it would, it was, controller type person, but, you know, a couple hundred bucks a month or something. But, gosh, it turned out was, when you really dig in, it was not good. There was no digging.
00:51:52:15 – 00:52:10:07
All right. Sorry, Bruce. Go ahead. Delco was not good. Pronounced. As we appreciate you guys, journalists every week. Chris, thanks so much for being able to join us. You and, sign up if you’re within this area. Give, give, give. Aubrey, a shot here. We appreciate you, trying that out. All right. Thanks, guys. Have a great week.
00:52:10:10 – 00:52:32:14
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00:52:32:14 – 00:52:33:01
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