Entrepreneur Intel

This week’s guest has a rich background in corporate finance, and experience managing over $85M in assets. Please welcome to the show, Founder and Fractional CFO at Midwest CFO
Chris Gwinn!

 Chris sits down with Host Wes Mathews and shares invaluable lessons from his entrepreneurial journey, emphasizing the importance of finding high-demand, recurring revenue models. Chris also offers practical tips for business owners to ensure profitability, strategic planning, and financial forecasting. 
 
Takeaways: 
  • Entrepreneurs should focus on finding and selling a product or service that solves a pressing, high-urgency problem for customers, which makes sales easier and ensures more predictable cash flows. 
  • To increase recurring revenue, form strategic partnerships and focus on understanding customer purchase frequency and proactively meeting their needs rather than just maximizing short revenue spikes. 
  • In order to effectively manage your business finances, start by ensuring your financial data is clean and well-organized to understand the profitability of different services and make strategic decisions. 
  • To accurately determine your gross margin, subtract the costs of producing your goods or services from your revenue, ensuring all expenses are cleanly categorized. Understanding industry-specific margins leads to better financial management.
  • Secure financing when business is thriving, not just when in need, to ensure you have the resources to fuel growth during challenging times. Maintain a cash reserve of 200% to 400% of monthly overhead to weather economic storms and seize opportunities.
  • To effectively manage business finances, focus on key performance indicators such as revenue, profitability, and customer metrics, while understanding essential financial statements like accounts receivable, balance sheets, and profit and loss statements.
  • Business owners should consider adopting the EOS framework for its simplicity and effective operational models. Success hinges on a professional EOS implementer and a strong integrator (COO) to align goals and ensure smooth execution.


Quote of the Show:
  • “It's going to be really, really difficult to figure out how to create a profit in your business if you don't understand what your margin is.” - Chris Gwinn



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Ways to Tune In:
Podchaser: https://www.podchaser.com/podcasts/entrepreneur-intel-5556614

Creators & Guests

Host
Wes Mathews
KC
Producer
Kyle Conover

What is Entrepreneur Intel?

Welcome to Entrepreneur Intel, a podcast where we discuss the most important strategies for success from amazing entrepreneurs. Host Wes Mathews sits down with business owners to learn about how they got started running their own business, what helped them succeed and the biggest lessons they learned along the way.

Be sure to catch new episodes every Thursday morning, and to make sure you never miss out on any insights, don’t forget to subscribe to Apple Podcasts, Spotify, You Tube or wherever you get your podcasts.

This show is sponsored by Stealth Consulting, your Fractional CMO. Stealth provides the roadmap and accountability to reach your business and marketing goals. Learn more at https://stealthconsulting.com/

Wes: Really excited for today's guest today. Um, during his time in corporate finance, he managed over 85 million in assets. Uh, he scaled his previous company by a staggering 400 percent before completing a successful exit. Uh, he's ran two marathons, which I want to talk about. And the best thing I want to talk about is your experience as a baby model in Toronto.

Uh, that sounds pretty interesting. A founder and fractional CFO at Midwest CFO, Chris Quinn. Welcome

Chris: Thanks for, uh, thanks so much for having me on today, Wes.

Wes: for sure, man. So, Hey, I got to ask you. So you've been an entrepreneur now for seven years, but reality was you started tinkering back when you were young skateboarder in your Yeah. But, uh, what's been one of the, I ask everybody the same question, but like, what's one of the most important lessons you've learned thus far with, with your experience?

Chris: Yeah, that's a, uh, that's a great question. Um, I mean, I'm still learning every single day, uh, but I would say probably something that I just didn't realize completely before, uh, going down this career path as an entrepreneur is that, Whether, I mean, there's a ton of different ways to be able to make a dollar and you can create, you can sell different muses and different services or products, but I think one of the biggest, learning experiences from, for me is finding that muse or finding that service or that product that you sell needs to be able to solve a Pressing a high level urgency type of issue, and that issue needs to be known by your customer. And that issue needs to be more repeatable in nature. And what I'm really trying to get at here is that you need to be able to sell whatever business model that you're creating, create it around a service or a product that has.

High demand, high sense of urgency. So it makes the sale a little bit easier and it's ultimately more reoccurring in nature because the more reoccurring your business model is ultimately just makes your cash flows a lot more predictable. It's a lot easier to be able to plan. It's a lot easier to be able to scale, and it can be sometimes a little bit challenging if you don't have that when you're kind of living and dying by your next big ticket.

And sometimes those cash flows can kind of come in ways where you can have one Absolutely stellar month and then you can have one month that's near zero and it can be very, very challenging to kind of build and actually really just gain some overall momentum. So I would probably share that.

Wes: No, that's great. I think one of my favorite things in business is reoccurring revenue. You know, I learned that early on, thankfully, and I built my first company around that. And yeah, to your point of like, there was some months where like, you know, bringing in new business was difficult, the market economy, whatever, but having that reoccurring revenue, but also then able to level your team up to make sure you're delivering a, A quality product month in, month out, but like, it's a great way to think.

But if you're a, uh, an existing entrepreneur, a new entrepreneur, like how, how do you, how do you think about that in the sense of like, okay, if I'm not in the reoccurring revenue model right now, is that, you know, Midwest CFO, I mean, is that something that you help entrepreneurs figure out, think about, or like, how can people start to think about that?

Chris: No, a hundred percent. And I guess let's try to give me an example of something that maybe you wouldn't think you would be able to create reoccurring revenue around. So that maybe we can kind of. Talk through an example.

Wes: So let's think of like, uh, like who's a, who's a big client for you? Like, let's say manufacturing, right? I make widgets, right? So fall, the auto companies give us a big order, but then it's famine for the next three months. Like I'm just being, I'm just making something up, but you've got some old school businesses that just have an old mentality, right?

Where they just, this is the way it is, or this is what we're doing. You know, what, how, how would you overcome that? Um, or like, what kind of ideas would you give as a fractional CFO to start thinking about that?

Chris: Well, I think the first step is just better understanding some of the overall like purchase frequency of Your customers and trying to be a little bit more proactive based off of their needs rather than just thinking about How can I just sell as much revenue as possible? I think ultimately you'll find yourself increasing the overall level of customer satisfaction, happiness, if we can actually form more of a strategic partnership.

And so as the example with a manufacturing, you might just be very reactive in nature. I'm just taking these types of customer orders as they come. Well, you can maybe start to develop more of a strategic partnership, help them to better plan out all of their inventory. Hopefully, maybe help them to potentially lower some of their supply costs.

Um, I'm sure they're You're manufacturing something that's maybe going into some other type of widget or other, uh, something, some other part of like inventory or cogs that you're probably going to mark up and then resell. So maybe helping that, uh, partner or that customer to be able to better predict that and then structuring it more into some type of like even cash flow or some type of model that would allow you to still provide that same manufacturing or like the same supplies, but then more predictable, uh, nature that you might be able to mark up.

Wes: No, yeah, it makes sense. And maybe we should like walk into that, right. In the sense of like, you, you came from corporate finance, right. And then you transitioned into, you know, founding your own fractional CFO company. So talk a little bit about that. I mean, what, what in the corporate world, you know, What did you see that eventually led you to become, you say, I mean, I don't know what the story is.

I'm excited to hear it. But at some point you were like, yeah, I'm good. I'm going to do my own thing.

Chris: Yeah. Um, honestly at my corporate job, I was just a little bit bored. Um, and so I. wasn't really challenged. And at the same time, my dad is a business owner and was really, really struggling to keep his head above water. He was constantly putting out fires, dealing with internal issues, and didn't really understand all of his finances and really what's working and what wasn't working.

So I, outside of it, I just took it upon myself to start to review some of their financials, dive into their operations and saw the entire impact firsthand With helping them to be able to increase their overall profitability, to be able to streamline some of their operations, and really just make the business a little bit easier to manage and more aligned with his goals.

And so that was ultimately kind of the first, I guess, getting your, into, Hey, there might be a much larger market out here. There might be some more need for this type of work. And so, um, started the first business model, um, or the first business I launched was Great Lakes Advisory thought there was maybe a better need around some of the more operations work.

Um, even though that maybe isn't my true, uh, passion or background, I guess. More of my background is much more in corporate finance. Um, but started off there with more like process improvement, uh, process documentation, training, uh, change management. And it worked really, really well. Um, but ultimately, and I was able to scale it and eventually successfully exit it.

But, um, really wanted to get back to kind of my core expertise and passion, um, which is finance and, uh, really being able to help, uh, folks to be able to drive growth and improve profitability.

Wes: So it's interesting. I want to explain or talk a little bit about like what fractional means, because I think, you know, we come from like an entrepreneurial background, work with entrepreneurial type, uh, companies. And to me, it's like the entrepreneur has an idea. Yeah. And in my experience, typically they're not financially sound, you know, they're big risk takers, but so like, talk to me a little bit about like what fractional means to you and the sense of the problem you're solving by coming in as a fractional CFO.

Like, what does that even mean?

Chris: Yeah, so I guess the way that I kind of think about it is. And I guess my audience is usually kind of the five to 25 million in revenue. And so usually what I end up seeing is, uh, folks maybe below the, let's say like 10 million in revenue, usually the founders or the partners that started this entire company and the business owner, they usually are very, very good at whatever that technical skill is that they might be selling.

I started a marketing agency. I know how to run SEO ads better than anyone else. I run an HVAC company. I don't know how to service your HVAC unit better than anyone else in the entire United States. And so you're usually, you're really, really good at that like technical skill. Yet at the same time, you still have to wear all the other different hats.

as a business owner. You have to wear the CFO hat. You have to wear the COO hat. You have to wear maybe the CMO hat. You have to wear the CEO hat. And you really have to be able to try to be proficient at all of that. And for a lot of business owners, that's just not realistic because they don't really have the overall acumen.

They don't have the formal training. They don't have the background. And so there's a lot they maybe just don't know. And that's where I think a lot of the fractional work can fit in because A full time C suite in some of these roles can be fairly cost prohibitive, and especially when you're first scaling.

I mean, some of these roles for a full time, I don't know, CMO or COO or CFO can fetch anywhere in the neighborhood of like 200, potentially to like 400 or 500, which is It's very, very expensive for a lot of folks out there, but to be able to pick that their brain gain, their insights for maybe a fraction of the time and still be able to get that same level of expertise.

I can be. I believe is really truly invaluable to some of those business owners because a lot of times they might not necessarily understand their marketing, they might not understand their financials, they might not understand some of these other areas. They just know how to do whatever that expertise that they're selling, uh, might be.

And so I think that fractional is really the, I think it's a growing wave. I think it's, uh, it's dramatically increased over the year and I think it's, uh, really filling an enormous need within the market.

Wes: Well, it's awesome having you on, right? Because outside of the podcast, like I'm my, my company is stealth consulting. Like we're fractional CMOs. That's what my company provides. So I love the idea that, you know, what are the options for a small business? Right. You can hire a C level executive to sit in one of those seats, as you mentioned, CMO, COO, CFO, you know, so that's one option, right?

I think as a business owner, now you're projecting that person's going to take care of all of your problems, right? And they're just going to be a home run. Or the option is you hire somebody that's more junior that needs to be led, managed, held accountable. They need to be led by a strategy. Uh, but I think bringing in a fractional that can come in and just kind of work with that visionary, To hit that outcome because I don't know how your business looks, but there's really no tied up investment with a fractional, right?

You pay as you go. And if that business no longer wants to work with that company, they can leave. I mean, versus hiring an employee direct, which can be very costly. There's legal, there's a lot of things that go into it. Uh, employer matched taxes, insurance, and quite frankly, to your point, I've, I've had experience with C levels I hate to say this, but I'm going to like Outside of meetings and certain things, like how much time per week is actually going into CFO ing, right?

And I would say that a fractional can come in and just execute the work and cut through all the other BS and move. Like, so what have you found with, with your clients? Like what problems are, are brewing or like what's pressing for them where they're like, Chris, we need, we need your help, you know?

Chris: I think probably the most common problem that I see in most clients is even as simple as this is that one, they just aren't working with clean financial data. And usually step one is helping them to be able to clean some of their overall accounting and how all of it's set up. And I would say probably nine times out of 10 when I first engage with.

They might tell me, Hey, we do like X, Y, and Z couple of different services, couple of different products. I go into their accounting and I just look at, I run a PNL or profit and loss statement and all it says is top line says revenue. It's all just one opaque box. I have no idea what the makeup of that total accounting is or that total revenue line item is.

And then they have like, And then they have like a bottom line that says net income. So usually what business owners typically are running into is that they understand probably, Hey, I understand what my top line revenue is. I understand probably what my payroll is. I understand maybe what my bottom line is.

And I. Look at my bank account occasionally. So I know how much probably cash, uh, is currently in my account yet. They don't really truly understand the true profitability of each of their different services. They don't understand where maybe some of these other expenses are going towards and whether or not those expenses, those overhead is actually contributing to their overall growth or making the business easier to manage, or maybe helping them to bring on great employees and whether or not they're actually Trending towards their financial goals.

So I think it's, can be oftentimes. very confusing to someone who maybe doesn't have a accounting or finance background to just be able to review some of your financial statements. So I think at a very simple level, it's just helping you to better understand where kind of your profitability levels are at for each of your different services and having more strategic conversations around that.

And then being able to better manage your business towards your financial goals. And then really, More advanced kind of the next step is really better predicting and forecasting into the future. I think a lot of folks don't really have a clear visibility into their overall pipeline or their sales and they have no idea kind of what their cash flows are really going to look like maybe over the next quarter or over the next couple of months.

And I think that kind of lack of visibility can sometimes, um, It can sometimes kind of paralyze some business owners and sometimes you can tend to get a little bit emotional with decisions where, Hey, yeah, uh, I'm getting a lot of pressure from this person to tell me to hire this person, whatever, just, just get it done.

Just hire that person rather than maybe planning a little bit more methodically and making better, more informed decisions based off of what's. What you want to happen and what you're planning for in the future.

Wes: So a lot of like fractional CFO, it's like aligning with the vision of that business, helping them make strategic decisions. Um, yeah, cause I feel like in my network and just people, I know it's either they love numbers and they know exactly what is going on, or they do not know any of it, and sometimes it's really scary.

And I'm like, I don't know how. This company has gotten this far. And if they actually paid attention, like they could really go and scale. So like, what do you recommend for an entrepreneur? Because, you know, where do they go? Like where, you know, you hear numbers and you hear things get thrown around. I mean, I know so many entrepreneurs and even myself, like income statement, cashflow sheet, P& L, like what should be, they, you know, they be looking at, you know, in the sense of.

If they're a healthy organization or when to pull that fire alarm to say, man, I need to get out of the way. I need to talk to somebody who can maybe give me some better insight.

Chris: I think probably the simplest things to probably focus on if I was starting maybe at ground zero would be one, is your revenue growing every single year? If you're seeing your revenue pretty much flatline, you're at the same number year over year, that's going to be something that you would run with a plan.

PNL or a Profit and Loss report, that's probably something that I would be concerned about. The other two, the other thing within that same report is, am I profitable? If you're not profitable, um, if you're, usually you want to be generating, usually kind of a good rule of thumb is kind of a 5 percent business or a 5 percent profitable business is kind of nearing potential issues, default, a 10 percent business is And then a 15 percent or higher margin business or a net income of 15 percent of your total revenue is a great business.

So one, making sure that year over year that you are consistently profitable. And a lot of times that goes into your pricing and that goes into your margins, but just at a very simple level, making sure that you're profitable. And then the next thing is just making sure that you have enough cash on hand to be able to weather the storm.

Any potential downturn in the economy, any type of, um, maybe issues with all of your clients and just making sure that you are collecting from your customers. And so you're going to be able to determine that based off of, uh, the cash listed on your balance sheet and based off of, um, your aging AR. So making sure that you are, have a low AR balance.

I mean, keeping things very simple, I would focus on. Making sure that your revenue is growing, making sure that you're profitable, making sure that you're collecting from your customers, and making sure that you have enough cash on hand.

Wes: Let me ask some specific questions around that. I think that's great. I appreciate that. So from an entrepreneurial run company perspective, right? Where the owners. Taking draws out of the company and, or paying a salary or funding their lifestyle, however, they're doing it. How do you factor in net profit?

Like, how do you figure profit from that? What's a realistic 15%? Is that if you're normalizing, like your salary as an owner, or is that not putting that salary into consideration? Like, how do you look at that?

Chris: Well, I kind of look at it like you, every single industry needs to really set up their own business model and figure out benchmarks that you want to manage the entire business towards. So, uh, let's just use a digital agency, for example. So for a digital agency, I usually like to see a 50 percent or higher gross margin, which means that your cost of service 50 percent or less.

And then an A5. 30 percent SG& A. And then within SG& A, I usually break that out between sales and marketing usually needs to be about 8%. Uh, operations and finance usually needs to be about 15 percent and then your executive needs to be about 7%. And then if you, so if you do kind of 50 percent gross margin minus.

30 percent SG& A that leaves you with 20 percent EBITDA margin. And so, uh, usually what you're going to pay yourself as an owner should be probably a market based wage, or when you're first getting started, you should target about 7 percent of your overall revenue. And then plus allow yourself to be able to take distributions from that profit.

Wes: Got it. No, it makes sense. Um, no, that's great. So, Again, can you explain, you know, there's some varying levels of finance, you know, that probably listen to the podcast, but what is gross profit margin, um, across all businesses? How can you calculate that quickly? Cause it's like, Hey, keep it under 50%. I hear 65 percent a lot is it's kind of a popular number.

Can you explain a little bit in super layman terms what that means?

Chris: I think about a gross margin of Revenue. So whatever the revenue is of your normal business. So whatever Muse that I'm selling, if I'm selling widgets, it is the revenue that I received from those widgets. If I'm selling a service, it is the revenue that I received from that service minus. All of the costs that go into producing said widget or said, uh, service.

And so usually for a lot of people orientated businesses or service based businesses, that's going to typically include a lot of your labor costs. And so all the folks maybe, uh, out in the field that if you're an HVAC company, all the folks on the field, maybe your contractors, maybe some of the, uh, technology costs that are needed to be able to support some of those operations out in the field.

Um, then maybe some of the contractors, maybe some travel costs, maybe some of the retention, uh, items, but making sure that you are accurately and cleanly categorizing all of those expenses. Cost of Service Cost of Goods And then your gross profit is going to be the revenue minus all of those costs and then the margin is just the gross profits divided by your revenue.

So, um, every single business is going to be different. vary a little bit. Typically manufacturing, you're going to maybe see a little bit of lower margins. Same thing with like construction versus more service based industries. Oftentimes, you'll see maybe a little bit of a higher, maybe 50 percent or higher margin.

Um, but really better understanding your, I mean, everyone is probably in a unique industry or niche, uh, within the audience. So there isn't maybe a, Hey, everyone has to manage it towards this. I would say. A good steppist, one, um, making sure, and if you're running all of your reporting, making sure that your accounting is actually accurate and that you are capturing all of those expenses in the right categories before maybe jumping to any type of conclusion.

But a simple search on some of the industry publications on what should my gross profit be within insert industry, um, will typically lead to a lot of results and that might help you guide in the right direction.

Wes: No, that's great. I think that there's some out there that don't even know what that is. And I think that's a good, good thing just to research, to make sure that. You know, it's a quick indicator of health, right? Is the, is the business healthy or not? Right.

Chris: Well, I mean and your gross margin really truly is kind of your top line like revenue It is really what you have left for all the rest of your overhead. And so if you don't understand what your total gross margin is, it's difficult to figure out how much I should be spending on sales, how much I should be spending on operations and finance and executive while still making sure that we're targeting a minimal profit.

Um, it's going to be really, really difficult to figure out how to create a profit in your business. If you don't understand what your margin is,

Wes: and how many businesses have you walked into where you're like, everything is perfect. There's nothing I can improve on here.

Chris: uh, I'd say, Maybe one,

Wes: Really?

Chris: I'll give it maybe a half. Uh, there's, there's still usually some tweaks, uh, but I would say very rarely do I find a business that everything is set up properly and They know exactly what their margins are. They know exactly what the profitability of each of their different service lines.

They know exactly how much they're spending on each of their SNA categories. They have, uh, a clear, uh, forecast and they're managing it towards their financial goals and they're reaching those goals year in, year out. Um, that doesn't really happen very often. That's usually the reason that they're even talking with us in the first place.

Wes: Right. No, that's interesting. Cause I think like what you do really kind of counterbalances what stealth does on the, on the fractional CMO side of, you know, predictable sales and marketing in terms of lead generation and, you know, how they're able to get that into their product. Into their business and then spit out, like, how does that marry well with the financial side?

Um, how do you feel about, like, educating the team, right? I know that there's a lot of owners, founders out there that they want to keep the numbers private. You know, they don't want to share that information. Uh, my experience, like with something like EOS has been share, like, the top Numbers and like, Oh, keep it real simple, but get buy in from the team.

So they actually know, like, get them to buy into the numbers and what they're working for. How do you, what do you think about that? And how do you, how do you start that process as a, as a company to get the company rallying around that?

Chris: I think some level of visibility is absolutely critical, no matter what. Um, I usually do kind of defer a little bit to the client, to who I'm working with. I mean, in my experience, I've always been a little bit more open book. Um, but I think for folks that are maybe a little bit more. apprehensive or like keeping things close to their chest.

I think at a minimum, at least kind of providing a lot of visibility to, I mean, one definitely having full visibility for everyone on your leadership team, but then at more of a employee lower level, maybe a tier below or tier two below, uh, definitely providing visibility into their respective department.

And if you're not. comfortable enough with providing full visibility into their department, um, definitely providing at least visibility into all the different percentages so that they can at least understand What it looks like from a percentage standpoint because I think building greater alignment and allowing, uh, some of those more Strategic goals to be able to cascade down I think can be sometimes challenging.

It's kind of like your uh, rowing upstream if all the folks down below or some of your other like frontline employees don't exactly know what they're working towards. And I think you can end up gaining a little bit greater buy in when we're all rowing the boat in the same direction and we're all aligned towards these bigger goals.

Organizational goals. And usually the way that it works is we're as a leadership team, as you're very familiar with EOS, we are setting kind of a strategic plan on kind of a one, a three, and a 10 year. And then we're cascading all of those goals into maybe a little sub or smaller rocks or departments. Um, so that everyone, all those goals are all contributing towards, um, the larger goals.

VTO or organizational strategic plan

Wes: How do you ease people into that? Right. Do you, is there anything that you recommend, like whether it's books or again, I feel like either people are like, I love numbers or they're, they have no idea. Where to start, what to look at. Is there any helpful books out there that you can think of off the top of your head that can get people in that mindset?

Chris: as far as the mindset for strategic planning or the mindset for

Wes: Yeah, I guess, I guess a little bit of all of it, but more specifically around like, how do you, how do you introduce that? Right. Like I understand the idea of getting rocks for the department, but for that employee team member that is this nervous around numbers, like they just don't know it, you know, where, where do you begin?

Uh, To get them to get a sense of understanding that stuff, because it can be overwhelming

Chris: Yeah, I mean, I'm a, I'm a huge advocate for EOS. Ran it at my last business, starting to run it at my, at this Midwest CFO as well. Um, I think one of the benefits that EOS does that's really, really great and why they found so much success is some of the overall simplicity of their frameworks and some of the education around the overall operating model.

And so, uh, the, I guess. The Bible within the EOS is kind of traction, just the book traction. Um, but then that's a little bit more, I guess, for the leadership team, um, at the employee level, they do have, I think in a book it's called what the heck is EOS. Um, I personally haven't read it, but I have employees that have, and it's, it's found really, really valuable just for introducing, uh, the operating model that your company is running on and helping to get everyone aligned.

But ultimately a lot of that alignment and implementation and understanding and cascading all that goal, all those goals down really comes into, uh, A professional or an EOS implementer, making sure that you're running on the operating model properly, and then really making sure that your number two, which is in the EOS framework, typically your COO or what they like to call an integrator, and making sure that that integrator is really, really the glue within the entire vision and making sure that you're executing and firing on all cylinders.

Wes: because I've had some leaders in the past that, I mean, they, they just had no concept of, of, uh, finance at all, like on my leadership team and I was like, how can I get them to, you know, so what would be like a handful of things that a business should just know? You know, like if you're talking to somebody, right. And you're like, man, if you know these numbers, like what's the most important thing from your perspective that leadership should know that a business should know, because I feel like that's a big part of like, You know, keeping the leadership team fluid or like, you know, what are those three to five driver daily drivers that people should be looking at and know, like the back of their hand?

Chris: Let's say, I would say the biggest things for just about, I'll try to make it a little bit more, uh, generic, um, so that can apply for more folks in the audience. Um, I would say, what is the overall kind of revenue that we are working towards? What is the level of profitability that we are working towards?

What are maybe the number of customers that we are trying to work towards? What are And then usually some of the leading indicators of like sales or marketing. Um, so what are the, like, I mean, some folks do more cold calling or more networking based, uh, sales. So maybe it's something as far as that, or maybe they're more, uh, paid ads, SEO.

So maybe building out around kind of your, your KPIs and then just the number of customers that you're actively serving. And then. Beyond that, I would say from a financial perspective, making sure that you understand how to read An AR statement, uh, which is just your accounts receivable. And, uh, making sure that you understand your, your balance sheet and your statement of cash flows and your profit and loss.

And I mean, something that's pretty simple, that's probably a good place to maybe potentially start. You can even just, uh, look on Investopedia or there's countless other websites on like How to read a profit and loss statement, um, or how to read a balance sheet or how to read a cash flow statement. Um, it's probably worthwhile kind of bringing that up, reading through some of the education there and then maybe comparing that to what you're, um, bringing up your Your company's P& L in those statements as well.

Wes: No, that's good advice. Cause I think, I mean, I could even myself, like I go always brush up, I get income statement, cashflow confused. There's certain, you know, there's just a lot out there right now. If you're not an accountant, your head's not down every day. In the, in the finance side, it's, it's kind of hard to, to think about.

Um, man, I had a question on that. I wanted to ask, it's, it's, it's kind of slipping me right now. What do you, what do you think? Um, for me, companies are people, process, technology, and then cash. There's a lot of other things that go into this, but. On the finance side, like what are, what are the options today for, for businesses? Like, what's the best way where a guy like you comes in and you've identified that you need access to more cash for growth or whatever that case is.

What does a business do in 2024 when they need cash?

Chris: Usually it's not the best situation when you don't have any cash and you need cash. The best time to find financing is when you're actually pretty healthy and applying for lines of credit when business is actually good so that when you do come across maybe some dire straits that you can actually maybe Tap into that line of credit to be able to fuel some of your growth, but something that I like to help business owners to manage towards is really something that I kind of call your your coverage or your your overhead coverage ratio of Having, and this will kind of depend on your overall risk tolerance, but and to be able to get there kind of is a factor of your overall profitability and your ability to collect from customers.

But typically what I like to see is I like clients to have about 200 to about 400 percent of their overall overhead. Monthly overhead in cash so which is basically the equivalent of anywhere from like two to four total months of their overhead expenses in cash. And the reason that that can be really, really helpful is that one, you can tap into that to be able to fuel future growth, but two, uh, it really helps you to weather any type of economic storms.

If maybe you run into one of your largest customers that fails to pay you, or maybe you run into another, uh, dire economic situation where, you know, Just a mass exodus of customers or maybe that new business opportunity that you thought you were going to win just ended up not coming to fruition and so having kind of a healthy level of cash can really become a power move for For a lot of business owners as when, because when everyone else is going into dire straits, you're now flush with cash in the coffers and able to start pounds and starting to actually grow a little bit more rapidly when everyone else is declining.

Wes: That's great advice. So two to four times your monthly overhead. And then what about like, uh, is there any ratio relative to like the size and scale of your company? So if you're a 2 million business, should you have X amount in a business line of credit? Like, is there any quick ratio there? Or is it just get as much as you can while you can

Chris: I usually like to, I usually like to extend the line of credit so that total between your cash. And your line of credit, if you were to max out on draw from the full line of credit, that you'd have a full six months. So, so figure, I mean, again, it kind of would vary on the industry on what your monthly overhead expenses is.

So figuring out Whatever, how much my overall payroll, all the other costs that go into like paying yourself a wage, but having that amount of cash on hand allows you to, one, if all those bad things happen with the economy and lose loss of customers, My operations can continue to run smoothly. I don't have to fire everyone.

I don't have to restructure. I don't have to take three steps back on all of my strategic plans and business can continue to resume as normal. Um, so I typically try to get to about Six months of total liquidity. Um, but that's, I mean, there's some business owners that are a little bit more risk seeking, um, maybe want to have a little bit of a lower, but at a minimum, I'd love to be able to see at least two months of cash on hand and then maybe another four months potentially of liquidity within that line of credit.

Wes: It's kind of a loaded question and I guess it could be all perspective, right? But how do you fund or future growth? You know, what are the, some of the best options out there? I mean, are you coming in and helping businesses with like tax strategy or whether they should, you know, give up 10, 20 percent of the company to raise that capital or go directly to a bank or.

You know, what, what do you do in those situations as a fractional CFO?

Chris: Well, I mean, a lot of it is all kind of depending on, um, their financial goals. So yes, uh, certainly kind of raising some fundraising could certainly factor into it. Um, potentially giving up some, uh, equity to maybe, uh, an additional partner, or maybe just taking some other type of outside capital or maybe some, some PE investments.

Um, that's certainly a factor, but that certainly dilutes your overall ownership in it. So I think typically the more traditional first step, uh, that would be more. Uh, again, it is really dependent on the business owner or the leadership team's financial goals. But, uh, usually what ends up happening is we're usually kind of focusing a little bit more first on, uh, those lead sources or where you're ultimately getting all the right customers from or the right clients.

And making sure that we're investing in those lead generation, those sales channels, and making sure that we're maybe eliminating some of the channels that are maybe are bringing in the incorrect customer. So a lot of it happens to really tie back into your work, uh, Wes, with stealth and making sure that we have a.

Really a marketing flywheel running that's ultimately bringing in the right customers. But two with fueling growth is yes, certainly fundraising. Um, taking on some outside investments is certainly something that we assist clients with as well.

Wes: So what does your process look like if there's anybody listening or like there's an entrepreneur that's like, man, I've avoided like finance. And you know, what, what does your process look like? Um, you know, is it like just a discovery? I mean, are you getting like, they're, they're give me two years tax returns and you find all the problems or what, what's your engagement look like?

Chris: Well, one, I mean, I like step one is one, just having a conversation and usually learning a little bit more about your business, some of your overall goals. And then what I like to do is receive the last probably three calendar years of financials, plus a trailing 12 months of financials. And then I'll put together a free, uh, complimentary financial assessment to help you just better understand where you're currently at.

And then I make some recommendations for you. from there. And for some business owners, hey, maybe it might just be helpful just to better understand your financials. And if that's all that I, I'm always a big fan of just helping business owners to be able to just, uh, gain better insight into their company.

But for many business owners, it can be really valuable and then it can help to begin a potential engagement where we'll build it all around their financial goals.

Wes: That's great. Um, so how can Chris, how can people get ahold of you? What's the easiest way to track you down?

Chris: Yeah, uh, reach out to me. Uh, you can reach out to me directly, uh, my email's c.gw n at Midwest C-O-M-I-D-W-E-S-T cfo.com, or, uh, you can visit us online, midwest cfo.com or uh, subscribe to our newsletter. Follow us on LinkedIn.

Wes: No, that's great. Yeah. I mean, I got to give you a personal endorsement. I mean, I think that the idea that I think any business to get their financials reviewed by a non interested third party, like that's just an amazing gift that can definitely generate some questions and some opportunities, so highly recommend if you're thinking about, or like financials keep you up at night.

Having a non interested third party. That's not your accountant. That's not somebody close to you. Again, I love this fractional world because I think the employee employer relationship, you know, they might not be giving you exactly what you want to hear. So I think you coming in and giving brass tacks, I think is a huge benefit.

So, uh, highly recommend if, if, if you need some help there, contact Chris, his company is phenomenal. But Chris, thanks so much for the time today. Appreciate it. Love what you're doing. Keep doing it. Thanks so much.

Chris: Of course. Thank you so much for having me on today, Wes.

Wes: Thanks, man.