Vidal Espinosa, Principal Partner and CFO of Invictus Advisors, joins Count Me In to talk about his theory that everyone is broke, they just don't know it yet! What he means by this is there's a lot more to business, and individuals, than just money and numbers. Vidal and Invictus Advisors help business owners manage and improve their cash flow through outsourced CFO services and strive to relieve the stress of business ownership and financial decision making. Vidal works closely with his clients to help them understand possible problems and develops strong working relationships to identify solutions. But this episode is really about more than just financials! Download and listen to hear how Vidal views various business models and also helps manage expectations to ultimately be successful.
Invictus Advisors: https://invictus-advisors.com/
FULL EPISODE TRANSCRIPT
Welcome back to Count Me In, IMA's podcast about all things affecting the accounting and finance world. I'm your host Mitch Roshong and I am here with the 70th episode of our series. Our guest for today's conversation is Vidal Espinosa, the principal partner and CFO of Invictus Advisors. In his conversation with Adam Vidal explains why he believes everyone is broke, they just don't know it yet. And he tells us how accounting is about way more than just the numbers. Let's listen into their conversation to get these answers now.
So you have this saying, that is, and I just have to ask, what do you mean when you say everyone is broke and they don't know it yet? It just baffles me when I hear that.
Well, it's probably exactly what you think it means. We all are broke and we don't even know it yet. But our saying goes most for business owners, most business owners think that, they're making it, they think that their business, it's amazing because they're taking some money to their personal bank accounts and their living the life. Unfortunately, when they review their financial statements, they realize that they're broke. They realized that holy, I am not making what I thought I was making. That's what we mean.
So how do you get started on that process of finding out that you're broke?
It's very simple. People are afraid, extremely afraid of knowing their numbers, of knowing their finances, of knowing how they are doing because deep down they really know that they're broke. So it's very easy to go into your bank account online and see the balance, and as long as there's money there, you're doing good. Oh, okay. Perfect. But they don't take into consideration everything that they owe. So we have a very simple system, which is two checking accounts for your business. Even for yourself, two checking accounts. One checking account, it would be for all your income, all your revenue, either from your payroll, from your business, whatever it is. And the other one, it's just your expense account. Meaning that every single monthly payment, meaning every single vendor that you have to pay goes from that account only. So at the end of the month, instead of reconciling which you need to do, which is reviewing every transaction in your bank account versus what you think it is. The income account, wherever the revenue and payroll came out, the difference, the balance that it's there, that's your profit, that's for you. You realize that sometimes that's going to be negative. That's when you realize your realization of, oh, I might be broke, comes true.
Now that makes a lot of sense. And I could see how somebody could apply that even in their personal accounts as well, not just their business.
Exactly. Exactly. You can use it for your business or your personal life. It's very simple. It's very simple. And you realized that your broke, as pretty much everyone right now in America, a lot of us are, are noticing that we are living paycheck to paycheck. We actually had a discussion and a conversation like, I don't know if you remember last year when the government shut down and they furlough a lot of government employees, but they were living paycheck to paycheck. I would have thought that we would have learned from that experience, and I'm advising that we did not. We did not learn from that experience just to save or rainy days like now.
Definitely. And I guess a lot of times we don't learn from our history. We don't learn from what's happening right in front of us. And then when the, when the rainy day does come, it's such a stress and we get past it. We don't, we haven't learned from our own experiences either. And so what can somebody do to kind of get started to getting over the broke, the brokenness?
Just very simple. Open two checking accounts or open an additional checking account that it's only for your revenue, and I mean revenue as if you're a business owner or your income only income sales or if you're in a working just your payroll goes through that account. That's it. You'll probably gonna have, two or three transactions in that, that account, which is . the two deposits on the 15th and the 30th and one, two, three transfers to your expense account just to cover your expenses. The balance on your revenue, on your income, on your funding account, that's your profit, and we are going to realize that we are broke.
So once you start seeing your profits and you start understanding that, okay, I am broke, but now maybe I'm not as broke, what's the next step?
Start controlling your expenses. Start controlling your expenses. It's on you. And even as a business owner or as an individual, you're going to see that on your expense account, lunch, Starbucks, a lot of things that are not necessary that you can actually live without. And yes, you can splurge a couple of times a month and things like that, but if you want to get out of broke, you're going to start by controlling your expenses. But really if you want to generate well and or get out of being broke, increase your revenue. I had an experience with one of our clients, very, very good friends of ours. They've been a client of ours like four, eight, nine, 10 years, 10 years, and we met them at a loan event. They were lending micro lending, for small, small, small business owners. So this company, they got a loan, and they came to us to help them manage their cash, structure their business. And in our very first meeting they said, Oh, we got a $10,000 loan. Mind you, that loan was like for, 25 or 30% interest. It was a micro, microloan. It was from, for a startup. So that money is very expensive. Six months down the road, they spent all the money and they came back to us and say, Oh, we're going to apply again for the loan. And I said, no, no, no, you're not going to apply for the loan. You're not going to apply for another loan. Utilize your energy and your focus on how we are going to increase our revenue. How are we going to make money not getting a loan or getting new credit cards to increase our revenue or our income. So, to make a long story short, now their revenue, it's $5 million.
The members of IMA are accountants, management accountants and they're the ones kind of looking at the books and finding all these things. You know, what if you're an analyst in your company, and you need to go to your CFO and say, Hey, we're really broke. What are we going to do?
I would have approached my CFO with ideas. I would approach my CFO on ideas on how to increase revenue. Now a days accountants, we cannot just be bookkeepers and analyzing financial statements and saying, oh, your working capital is this much, your, your debt is this much, your accounts receivables are this, your turnaround on inventory is this and that. You cannot do that. It's no longer feasible. What you need to do is you need to be operational, and you need to focus on sales. You need to focus not on tax strategies, not on saving on cost reduction on manufacturing, if you're in manufacturing industry. That's of the past. You need to be more operational focus on generating revenue, focusing on the marketing side of the business, on sales and stop focusing on the profit and loss. As of, what is it? March 13th? March 16th, when the economy close, it became an economy of a balance sheet. Is my company, do we have a good company? You'll see it on the balance sheet.
And I can imagine even during this time of this pandemic that we're in right now, a lot of people are having to relook at their balance sheets and see what's really going on, right?
A lot of business owners or even a good CFOs, sometimes we don't care or we didn't care about the balance sheet. The balance sheet is a mess, and now that we're going to start cleaning it for some of our company's clients, they're going to be like, Oh wow, what hit us? We tend to hide everything on a balance sheet. But now we need to review it and clean it and make sure that the company's worth something.
Definitely when, especially if you want to come out of this on top, because a lot of companies are struggling because their revenue is going down, because they're not getting the same sales, because the economy is just all over the place right now.
Well, if your sales are going down and you're in the service industry, you're doing something not right.
What if you can't be open?
If you can't be open and your revenue is down, you're doing something not right. You need to be, and I had a meeting yesterday with some of our clients and they will be, Oh, we're planning, we're cleaning, we are reviewing our systems and procedures, and I said, stop. Stop there. If you're doing that, I would suggest closing and shutting down the company because it's not time to be doing that. It's time to be focusing on your new business model and moving forward with that business model. It's been five weeks since we shut down the economy. It's for you, time to execute the plan, not start planning. We had ample time to plan. It's time to be executing our new normal, our new business models.
I think that's a great mindset. So, so let's say somebody has not, is not in a place to execute their new business because they didn't plan to approach. What advice would you give them to saying, okay, how do I move forward now, because I want to be at a place where I'm executing, I want to go forward and not look backwards.
I understand that it's a very difficult and crucial clients. Uncertainty it's all over. Okay. And most people are not driven by uncertainty. The majority of us are driven by certainty. So with that said, if you are paralyzed, if you don't know what to do, you need to find different sources or avenues from your same business that you can offer to your current clients or to your new client model. Let's say that you manufacture windows and you only sell windows. There's tons of opportunities of things that you can offer to your current clients or new clients around your windows. Cleaning windows from the outside of the houses, blinds, films, a lot, a lot of things, like you need to think outside the box. Our mentor, Tony Robbins and a lot of people might know him. He talks about the two millimeter rule. We are only two millimeters away from thinking outside the box. Don't think inside the box, you'll die.
So speaking of the future, what do you see the economy, what do you see this, you know, what do you see the landscape looking like on the other side of this?
It's going to take time to come back to where we were the day that we shut down. But, as a lot of economists have said a V-shape recovery. So I think that 2020 is going to be pretty much one of the worst years in history in our economy for businesses, for everything. But starting third quarter, we're going to start seeing recovery. We don't, we need to not get desperate. When we get desperate, we, don't think we just execute actions out of desperation. We need to think, we need to get us do a step back and really analyze whatever we're going to do? What are our actions going to be? And we need to think of the future. And the future is not as as, as great as we think it could be. Again, it's all on us. We need to be accountable. It's all on us. If you need help, ask for help. That's one big problem that we all have. We are so not wanting to ask for help, because we can do it on our own. It’s not true. We need to ask for help.
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