FYE 44 | Financial Management

 

Being good in business doesn’t automatically mean being good with finances. There’s a difference between generating income and knowing how to keep it, which is why tracking your numbers is vital to keep your business running. Here to talk about the importance of financial management is Pam Jordan, President of Pivot Business Group. Pam is a financial expert specializing in analyzing and streamlining the backend of fast-growing companies. It’s one thing to make a lot of money, but at the end of the day, what’s most important is what you walk away with. Tune in as Pam shares valuable and implementable tips to help you manage your finances, generate profit, and prevent bankruptcy.

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Financial Management: How To Increase Profitability And Prevent Bankruptcy With Pam Jordan

I want to introduce my special friend, guest, and somebody that I collaborate with. We work together on different deals. Pam Jordan, welcome to the show.

Thank you. I’m excited to be here.

Pam Jordan is a financial expert and speaker. She specializes in analyzing and streamlining the backend of fast-growing companies, as well as creating more profit-strategic growth centers. It’s one thing to make and generate a lot of money, but at the end of the day, the most important was what you walk away with. Pam has an MBA from Elon University and has been honored with numerous awards and accolades, including Outstanding Business and Financial Executive of The Year, Financial Executive of The Year, and 40 Under 40 in the Triad Business Journal.

She has been featured on Entrepreneurial.com. She’s also a certified Profit First professional and Ampyra Operating System coach. Pam and her team of Pivot Business Group manage over $500 million for their clients. Pam, I’m happy to have you. You also are married with three great children. You travel as I do. We met at the Board of Advisors Mastermind. Pretty quickly, we started working together on deals. I realized that we are like-mind. We share the same value and the same ethics, and we know finance.

We have a lot of fun too.

We like to have drinks, dance and have fun. Work hard, play hard. Tell us how you got started in this industry.

I was in corporate, specifically in construction, for a number of years. Due to some bad decisions, the company that I worked for went bankrupt. At the end of the day, I protected the owner and all of his assets. I got all my guys’ jobs. I was standing there and being like, “What am I going to do?” I had to figure out how am I going to support my family.

There are a couple of decisions that I made that day. 1) Bankruptcy was never going to happen to another small business owner if I could help it. 2) I had a skill set that could help people avoid bankruptcy. 3) I was going to build my own legacy. I was done building someone else’s company. That’s where the start of Pivot Business Group came from. We are a fractional CFO firm or Chief Financial Officer firm. We provide financial strategy so that business owners can understand their numbers, and they don’t have to get to that point where they’ve got to shut their doors.

Numbers tell a story. Share on X

That’s still a lot to unpack right there. You told a mouthful there. Tony Robin says that we’ve got to look at things differently. Don’t look at what happened to you. Look at why it happened to you. When you look at how it happens for you, you can truly use a horribly negative experience like going into bankruptcy to your benefit. If that company never went bankrupt, you probably wouldn’t be where you are today. It’s so important what you said. I want all of my readers to pay attention right here. In my book, Exit Rich, which Forbes endorses, we talk about only 80% of businesses on the market will sell.

That means you have less than a 20% chance of success in ever selling your business. Business owners are not existing rich. Business owners are exiting poor. They’re selling for pennies on the dollar. They are closing their business and even worse, they file bankruptcy as Pam said. That’s the number one thing I wanted to unpack. Number two is I love that the negative experiences put you on a totally different trajectory from where you are now. Let’s dive right into it. How do we prevent bankruptcy? How do we help companies? You and I have the same mission. My mission is to help save the American economy by saving one business at a time from going out of business by helping business owners to exit rich. Yours is the same, I believe.

There is so much in our industry that we can do to help business owners. The first thing is to recognize that most entrepreneurs are ballers and rockstars at what they do. For some reason, our culture expects them to be ballers at finance and accounting as well. That’s not fair because when business owners first start, you’re everything from the janitor to the plumber, sales, marketing, execution and everything. As you grow and your company and your team expand, you can only wear so many hats. For some reason, there’s a negative stigma around accounting and finance for business owners.

Part of it is helping business owners understand what their numbers are saying, and not run away, avoid or hide from them. Numbers tell a story. In your line of work, you know very often the story that those numbers are telling is not what the business owners want it to be saying. It’s like coming home with a report card that’s sealed in an envelope, and you are skipping home from third grade thinking you got straight A’s. Your mom opens the envelope and you’re like, “I didn’t get straight A’s and now I can’t go play with my friends.”

That’s the report card syndrome. Profit is the same thing. They say that’s the problem. You got F, C, B. No, your report card is a symptom of your lack of profits, which we talk about in the 6Ps. The last P is Profit. I always say that lack of profit is not your problem. It’s a symptom of not running on all the other 5Ps. That’s huge. Most business owners are exactly what you said. We’re all entrepreneurs and were control freaks. Our thought process is if we want it done right, not to do it ourselves. We have our fingers in every pie. We’re working in the business, not on the business. Most business owners are not financing experts. They don’t even understand accounting. They run from it and hide it. That’s why 2 or 3 out of 5 businesses get embezzled every year.

It’s ridiculous. The first thing that we do is help the business owners understand what the numbers are saying now. The next thing is to help them understand what their goals are, and how to create a plan to help them get there. Most entrepreneurs and business owners do want to exit rich. That’s the answer. “What are your goals?” “I want to sell this for lots of money.” “Fantastic. Let’s be realistic about where you are right now so that we can craft a plan and a strategy to help you get to that big exit.”

You can work with Michelle’s firm, get the valuation, and get that big check when you walk away. There are a lot of tools that we use that can help business owners grow their profits, increase their sales, and all of those wonderful things that are super fun for us financial people. It’s helping the business owner figure out what’s going on and create a plan with them of how to get to where they want to go.

Let’s talk about some simple steps for starting startup businesses, beginners, or somebody who is running small businesses. I have one client that was embezzled six times. You think you would have learned. I always say, “Focus on your strengths and hire your weaknesses.” My big advice is to have somebody like Pam. If you’re a small company and you can’t afford a chief financial officer, you can’t afford not to have one. You don’t have to spend a lot of money to get a CFO.

FYE 44 | Financial Management

Financial Management: Let’s be realistic about where you are right now, so that we can craft a plan and a strategy to help you get to that big exit.

 

You can hire an interim CFO, which is what Pam’s company does. They have different levels of how you work with clients. Number one is to understand what the numbers mean because a lot of owners don’t even know what a tax return is. They don’t understand any of the numbers. They look at it and go, “We’re making money,” but then they don’t realize that they’re close to going out of business or filing bankruptcy themselves.

A lot of business owners look at financial reports. They look at the top line and they’re like, “Look at me. I’m a $2.2 million company.” They ignore everything below that. They see money in the bank and think they’re okay. Just because there’s money in the bank doesn’t mean it’s your money. Too often business owners look at their bank balance and say, “I’m good,” but they don’t realize that payroll is Thursday, the AmEx bills are being paid on Friday, the mortgage is coming out next week, and all of those things, so they go on a shopping spree.

One of the big things that we work with our business owners on is to separate your personal from business. I know this is a nightmare for you when it comes to valuations. There are so many business owners that are living their lifestyle through the company like it’s their personal piggy bank so that when it is time to exit or it is time to focus on your profits, the money can be there. Your girlfriend, dog, jet ski, and all of those things do not need to be run through your company.

Pam and I have worked on some deals together. One thing I can say about Pam is she remains calm because they always get freaked out and they get crazy. That one company that you and I were preparing for to go on Shark Tank Camp were like, “Oh my gosh, the numbers.” I’m like, “It’s just Pam.” That’s what she’s talking about. Many business owners run personal expenses. I’ve been in this industry for many years. They run personal expenses through the business. They’ve been living out of the business. Yes, we can add that back, but you got to keep moving the records. You shouldn’t be adding all of that back. There’s a fine line that we have to walk in these personal add-backs.

The most important thing is to know because most business owners are living out of the business then they’re like, “I don’t know what this is. I don’t know what I’m running.” We’ve got to get Pam on the phone with them. You have to keep an annual journal by month of what you run through in January, February, March, April, and May. What those non-recurring expenses were because it is another big one that business owners forget about, and keep up with those financials.

The less you can run through your business, the better it is for your company. There were some legit add-backs the business owners can take, depreciation, amortization and interest. There are times when we can add back salaries depending upon how the business is. There are other things that we can add back like travel and things like that. You want to make sure that if you’re generating $1 million, $900,00-plus are add-back.

I had a client that had a six-figure-a-month personal AmEx addiction. The company spent hundreds of thousands a month on their American Express, but the owner spent $100,000 a month on everything under the sun that was fun and made his life shiny. The problem was when cash got tight, he couldn’t understand where the money was going. It was easy to show him the financial statements, “Here’s where all your money went. You got to change your lifestyle.” He did not appreciate the conversation that he couldn’t go to Cabo for the weekend for $50,000.

You got to be careful with $100,000 a month on an AmEx card if there’s an audit and due diligence. It is important to turn around your business as clean as possible. We know that business owners are allowed to do certain things for their business, Cars, health insurance, travel, and things of that nature could be allowed within moderation. When you got to get money on your business, guess what the lenders are going to do? They are now going to allocate a certain percentage of those add-backs to go towards your EBITDA. It’s a fine line but I’ll let the expert talk about it.

Just because there’s money in the bank, it doesn’t mean it’s your money. Share on X

There are lots of business-related expenses that are fine, but there’s a point where it gets excessive when it’s draining the company of cash, and when you’re not aware of how much you’re spending. When it comes time to go to the bank to get a line of credit, they’re going to show that you’re not making money when in fact you know you are because you’re living a great lifestyle, but that lifestyle is being funded by the company. The bank is not going to give you money.

The bank will give you some but they’re only going to allow for 10% or 15% of those add-backs that they will allow for. You got to be careful. The other thing too is they will look at their P&L and the balance sheets which is a snapshot of liabilities and assets. They’re like, “We got money,” but they’re not looking at cashflow statements. Most companies don’t use cashflow statements. What are your thoughts there on cashflow statements?

We love cashflow statements. Most business owners glaze over. What we try to do is come up with key metrics, and KPIs that are important for each specific business. We create a dashboard for our owners so they can see what’s important. Those numbers are different for every business. Sometimes it’s, “How much is in the operating account? How much do you have in receivables? How much is payroll running? How many overtime hours?”

There are lots of different variables that you can track. What we do is we go in and figure out what numbers tip the scale for that specific business. We track those because the financial reports, the cashflow statement, the P&L and the balance sheet are all very helpful. We find that those are helpful for outside entities but the business owners don’t necessarily understand them or want to pay attention to them.

We come up with 5 to 10 metrics that they do understand and that we can track in a visual way. We have stoplight reports. It’s red, yellow and green. A lot of entrepreneurs are visual so let’s make a graph with it, or whatever it takes so that on a weekly basis, track these 5 to 10 numbers to make sure that you’re good. If any of those go off kilter, then we can dig in and figure out what’s happening in that area of your business.

What I found is if I sit down and go line by line with the P&L, balance sheet, and cashflow statement, they’re exiting. They are not even paying attention to me anymore. By creating these dashboards, we’re able to go high level. If there’s an issue, we can dig into the P&L and those statements to figure out what the source of it is. We’re able to allow the business owner to focus on what she or he needs to, and not the minutia of things. No business owner wants to talk about retained earnings.

Most business owners don’t want to talk about finances. I love the dashboard. Give our readers some key KPIs that would be on that matrix. They start thinking about that. That’s something I want to start incorporating with our clients.

First, you can use big tools, software or spreadsheet. Don’t be intimidated by it. For most of our clients, we have a Google Sheet that we use. We also use ClickUp and some other software for other clients. The metrics are very basic Accounting 101 numbers to track. What were your sales for the last seven days? What is your collected revenue for the last seven days? Very often those numbers are different because you sell a $10,000 package, but you did it on a payment plan. There’s a difference between what you sold and what you brought in. It’s also important to know what your fixed monthly costs are. What is payroll? What does it cost to keep the lights on, rent, and the fulfillment of any loans that you have? What are your variable costs, the things that go up and down like your ad spend, contract, labor, cogs, materials, and those sorts of things?

FYE 44 | Financial Management

Financial Management: There are lots of different variables that you can track but what we do is we go in and figure out what numbers tip the scale for that specific business and we track those.

 

We can get down into the nitty-gritty. We’ve got some clients in the health and fitness space. One of the numbers that we track with him is the percentage of occupancy of his gym. That’s a huge telltale sign for him that if we’re not at X percentage of occupancy for the gym, we know that in three weeks, we’re going to be tight on cash, and we can course correct in real-time. Every week, he’s looking at these numbers and he’s like, “We ran below the threshold. I need to go and do promotion this weekend so I can get more people in the gym next week to help prepare for the downturn that’s coming.”

If you’re tracking those numbers in real-time, it’s a game changer. For some clients, it’s a number of proposals sent out. In other clients, they have a landing page and it’s the number of emails submitted on the landing page. In others, it’s the number of sales calls. It can vary drastically. It’s worth having a conversation with a financial expert to talk about what’s important to you and your business. The numbers that I tracked for my business aren’t the same numbers that any of my clients track.

There’s definitely commonality between the numbers, but each business is different and each business owner’s goals are different. My priority and what I want to track might not be what you want to track for your business. The goal is to figure out with a financial expert what is important to track, and then have some internal process that can be tracked. If you can automate it, all the better because then you don’t have to wait for someone to punch numbers in somewhere.

Let’s go back to the industries. That’s important what you said because it depends upon the industry. You’re looking at construction and manufacturing. You’re looking at a remodeling company, furniture manufacturer or construction company, you’re going to track very different because you’re going to track jobs that come in, those deposits that come in on your balance sheet and the inventory, the web and the work in progress. It depends upon the industry what you’re tracking.

It is such a good thing to have this dashboard and not just for small businesses, but for medium-sized and larger businesses too. We’re selling a $55 million company and they don’t always know where they are financially, and they have 350 employees. This is huge to be able to start there. I have several companies I own and I’m like, “Give me KPIs,” and they’re not giving me the KPIs on a regular basis. It does need to be automated. It could be automated through QuickBooks or any of the accounting systems you are using. That would be great. That’s where we can start digging into these other questions like, “Where do you get these KPIs in this dashboard? How do I pay myself more? How do I manage my cash?”

Once we have a system to track the numbers, then we can dive in and say, “We need to increase our profits. What changes can we make that would do that?” Because 1% here, 2% here or 3% there can put 15% to your bottom line. It’s not a 1 plus 1 equals 2. As strange as accounting and finance is, 1 plus 1 doesn’t always equal 2. If you can make a 1% change here, decrease by 2% here, or 0.5% tweak there, you can put 10% to 20% to your bottom line. That increase what you get to take home as a business owner, what your company is worth, and the cashflow that it frees up. There are a lot of tools and small tweaks that can be made that will have a huge impact on your business. If you don’t know where to start, it can be overwhelming.

The biggest reason that I want to have Pam on is because the most complex thing in business is the profit, the numbers or the financials, which is why Profit is in my sixth P. The reason why I put it last is because people come to me all the time and say, “I got to a profit problem.” I’m like, “Nope, you got a people problem. You got a process issue. You haven’t protected your proprietary assets. You’re spending hundreds of thousands of dollars protecting your trademarks and your patents.”

Lack of profit is never the problem. The most confusing thing and the thing that takes us the longest when we go to evaluate a business and sell a business are the financials. It’s digging in and understanding it line after line because, after many years of doing this, most of my clients are completely oblivious when it comes to their numbers. I asked them questions, they were like, “I don’t know that.” Even different things like, “Why did your costs increase 35% this year when your revenues went down?” It’s the simple questions.

Separate your personal from business. Share on X

You got to keep up with the industries and with what’s going on in the world because your cost might increase because of the supply and demand right now with what’s going on in the world with the pandemic, etc. There are lots of different reasons that can cause some of these numbers to be out of whack. First, you got to understand the numbers. That’s why I want Pam to come on to the show to do a deep dive, make it simple, and simplify the conversation around numbers. How did they manage cash? I would encourage everybody to get a cashflow statement because most businesses like this $55 million company do not even have a cashflow statement.

It amazes me how many companies aren’t tracking their numbers in real-time. We have clients that are multiple millions that come to us all the time that haven’t done their books in three years. They don’t even know how far behind they are on taxes. I’ve got some number ninjas on my team, so we can do three years of accounting in six weeks. However, it’s not going to be a fun ride because there’s going to be a whole lot of information we need.

An encouragement to business owners is I don’t expect you to be a bookkeeper, but have someone who is. Outsource it, get a VA, software or something. If you’re not tracking your numbers in real-time, you can’t course correct if you need to. You don’t even know where to start to make improvements. Very often we talk to entrepreneurs. They think their numbers are being covered, then we go in and we’re like, “No one has touched your books in six months. Who are you paying to do this because they’re not?” We’ve got to go in, get the books current, and get everything reconciled, then we can create a strategy. If we don’t know where you’ve been, we can’t help you get to where you want to go.

When businesses come to me and haven’t done their books in three years, I’m going to send them to Pam.

Please do. We like it.

We are in the business of that, evaluating their business, helping their business, growing their business, and selling their business. The reason why they’re doing that is because I go back to them working in their business, not on the business, and to what I said earlier about bankruptcies and most importantly, embezzlement. Three out of five businesses are being embezzled because there is nobody in charge. When they do decide to delegate, they delegate but then they trust, but they don’t verify.

They don’t inspect what they expect. You have to have your checks and balances in place. Pam could set this up for you where you have checks and balances to make sure that whoever you have in place to do your bookkeeping, checks, etc., has those checks and balances so you’re not getting embezzled. A lot of times, they say, “I just got a bad employee.” I’ve seen situations and I have a deal right now where the owner is being embezzled by her granddaughter or by his kids.

I got another deal in my Road to Extra Rich Program where we’re trying to get the business sellable, there were women who have been embezzled by their partners. It’s prevalent much more than you would ever imagine because owners are not inspecting what they expect, and they don’t have the checks and balances. Everybody should have an interim CFO like Pam so you have those checks and balances in place.

FYE 44 | Financial Management

Financial Management: The goal is to figure out what is important to track and then have some internal process that can be tracked. If you can automate it, all the better.

 

It can be in small ways, We have a client right now that I had to have a sit down with the owners and help them understand that there are employees taking advantage of them. It’s through their travel line item and their meals and entertainment line item. There are people in their company that do travel for the company and do justifiably need to have meals when they’re on the road. They are buying every other meal through the company. Thousands of dollars a month are being spent by employees for their meals because for some reason, they feel that it’s okay to run the company card every time they go out to eat. The business owners weren’t watching it. We went in and did our analysis. It was like embezzlement isn’t always writing a check to yourself. Sometimes it’s thinking that it’s okay for the company to pay for all of your meals.

You got to be very careful with the company expense cards and make sure that you check those. We have a business that we’re working on where the owner had a bookkeeper who gave him a company credit card and they were charging the company so much to do the bookkeeping, but then they were charging the partners separately and that partner was paying it. Plus they were taking the company credit card and doing travel, entertainment, and even going to Saks and things like that. Nobody wants a company expense card. It can be small things that you don’t even notice.

Gas cards are a huge one too. In the construction world, you got ten gas cards running around in ten trucks. Are they using that same gas card to fill up their personal vehicle or their partner’s personal vehicle? I’ve literally gotten photos of clients and employees at a gas station with the company truck on one pump on the other side is their spouse’s car and they’ve got the hose wrapped around, filling up their spouse’s car. A text that I got is, “So-and-so is filling up his wife’s car.” We promptly called that individual back to the office and fired him.

There are so many little leaks. Most of the time, it’s not someone writing themselves a $10,000 check and cashing it. Most of the time, it’s small things that people are compromising on, or think that they’re justified in having that they’re just walking out the door with. If you don’t have checks and balances, you don’t have an outside person making sure that everything is lining up. You have no idea how much money you’re losing.

It’s like having somebody in your company ordering things on Amazon and taking it home. I had that happened to me. He is ordering stuff for the house. Many were doing that. You got to be very careful. You go to inspect everything that you expect. I’ve seen it both ways. It’s those little things. Those little things add up to millions upon millions. I’ve seen it too where they will write themselves a $35,000 check or a check came in, and they signed it back and cash it. There are all kinds of different ways that embezzlement can happen. It’s important to understand the numbers and put somebody in charge, but also get somebody that is going to inspect that if you don’t have the time to.

Track your numbers in real-time, and have checks and balances. I’ve seen so many times where the same person is opening the mail, writing the checks, reconciling, and entering everything in. They think that this sweet person who has been with them forever is handling everything. She is handling everything and is quite generous to herself.

Explain that. This is how I set up my companies. You never want the same person checking them out, making the deposits. What else?

Writing the checks and reconciling.

There's a lot of tools and small tweaks that can be made that will have huge impacts on your business. Share on X

That happens a lot. You want to make sure you have different people. This cannot just be some sweet middle lady. This can be your daughter, son or grandma. That happens all the time within friendships, and partnerships, but especially in families. It’s shocking to me that it happens with families because they think they are entitled.

They think they deserve it.

You got to make sure you set that up. Talk to us a little bit about Profit First, and that means paying yourself first.

Profit First is a book written by Mike Michalowicz. It is essentially a cashflow management system. It’s a methodology of how to handle your money. It is a great tool. It’s not the right fit for everyone, but for a lot of business owners, it helps them think differently. It’s essentially the envelope system for your business. Think of 50 years ago, grandpa had come home from the factory. He had his cash. Grandma would put the money into grocery, gas, mortgage and clothing envelopes, and all those things. That’s what they would run the house on. It’s the same principle, but with bank accounts.

Business owners look and see there’s money in the bank and they think it’s theirs. If you look and you have five bank accounts. One of them says payroll, profit, tax and operating, and there are a number of other reasons that you would have a bank account. You realize, “Of the $100,000, only $15,000 of it can I do something with because everything else is already spoken for because it’s in a separate bank account.” It helps the mindset of the business owner, but it also helps them pay themselves more.

Traditional accounting says, “Sales less expenses equals profit.” Most business owners hope and pray that at the end of the day, there will be a profit. In this methodology, it’s sales less profit equal expenses. You’re guaranteed profitability and it helps you run your company with less because you’re taking the profit off the top. Not to the detriment of the company. Not so that you can’t make payroll and all of those things, but it’s so that you’re taking a piece off to the side as the business owner, and with what’s left, you’re making your company work.

It’s like Rich Dad Poor Dad with the cashflow. Does that strategy work with larger businesses too or just the small businesses?

I’ve seen the biggest success with $2 million and less in top-line revenue. In larger companies, we can implement portions of it where we’ll have like a tax account, an investment account or those sorts of things, but for large companies, in my perspective, the allocations and keeping up with all the bank accounts can be a lot once you hit $10 million.

FYE 44 | Financial Management

Financial Management: If you’re not tracking your numbers in real time, you can’t course correct if you need to. You don’t even know where to start to make improvements.

 

Most of our companies spend $10 million, $30 million, $40 million, $50 million or $100 million. They know what they would spend.

There are lots of little pieces of it that are helpful. I’m working with a new client who has seasonality to her business. We’re not implementing all of Profit First, but we’re going to create a vault account where it’s basically a savings account where when it’s raining, a bunch of the money is going to go into that account so that when it’s dry, she has money to cover payroll.

That was going to be my next question. I always advise my clients to have savings account for those rainy days. What percentage of the revenues or the profits? I’m not sure how you figure it out, but what percentage should go into a savings account and how much should I keep in savings? It’s different with different sizes of businesses.

Our minimum recommendation is three months of your monthly burn rate. If all sales were to stop, you would need three months of cash in the bank account to keep the business running. That’s payroll, mortgage, enough to pay any loans or liabilities that you have. I’m not talking about cogs. I’m talking about keeping the lights on your fixed monthly expenses and burn. It’s three months. I would prefer six months, but in our opinion, you’re not thriving if you can’t cover three months of your monthly burn.

For small businesses too. I always suggest that larger businesses have more than six months to a year. You need to know your working capital target. That’s one of the first things we do when we do evaluations, we include projections and calculate working capital. Most business owners have no idea what their working capital is. It’s important for you to know what that working capital is because that’s what is set aside for those 3 to 6 months.

A lot of business owners don’t understand the actual money it takes to keep the doors open for their business. When they first start out, they’re scrappy and doing everything, but as their team grows and they’re adding more zeros, they’re further away from all of those bills and all those expenses. They don’t realize, “It costs $200,000 a month just to run this machine.” That’s not even profit. That’s what it costs just to keep lights on, pay people, and cover insurance. That’s a lot of money. Once you can help business owners have that a-ha moment, it’s like, “Crap.”

Maybe they’ll stop at the $100,000 American Express deal. They go from scrappy, and then it becomes a little bit sophisticated and they get a lot more money coming in. They are like, “I can spend $100,000 a month.” They’re still not realizing what working capital is. All it takes is a pandemic, supply chain issues or something like that. You also want to make sure you have that working capital target and savings because when you get into a situation with supply and demand and you’ve got to load up on inventory, which I’ve had several clients that have to do that, especially in manufacturing businesses, you want to make sure you have that capital to do that.

It allows you to be able to take advantage of opportunities as well. There’s no telling how many millions of dollars we all have to pass up because we don’t have liquid cash when there’s an opportunity.

If we don’t know where you’ve been, we can’t help you get to where you want to go. Share on X

I’m a liquid cash person. Cash is queen.

She is nice to have around.

We would just get into the business with a lot of women entrepreneurs. I’ve been on 400 podcasts and a lot of women’s podcasts. I speak to a lot of different women’s groups. The women are getting started. What do they do? How do they start from the beginning? That was one of the big things that you help entrepreneurs work on.

For those female entrepreneurs that are tired of building someone else’s legacy and are ready to build their own, the first thing is to make sure that you’re set up as a true company. Sole proprietor, stop, don’t. Create a company and understand the corporate structure that you need. Understand the tax structure that you want. Get an EIN and a company bank account. Also understand what your worth is, so that when you go out there to the marketplace and you start saying, “This is what I’m worth,” it’s a fair number.

I’ve been coaching a female business owner. She has a successful house cleaning business. I was going through and she was making a lot of these mistakes. She was a sole proprietor and was running things through her personal checking account. She wasn’t charging nearly enough. The IRS is like, “Let me have all of your money.” I’ve been coaching her. She texted me a screenshot that she set up her LLC and has her bank account. She’s more than doubled her rates and she understands what it costs her to provide these services. When we first start out, as women, we don’t understand what our worth is. We don’t understand the value we bring to the marketplace. To those female business owners that are starting out, whatever you think your price is, double it and then go sell it.

Females, in general, tend to undervalue themselves more than men do. I love that advice. The other thing that I always tell my female entrepreneurs is, “You can’t be everything to everybody.” How’s that song going? “Bring home the bacon and fry it up in the pan. Make sure your man knows he is a man.” I always tell to my business owners, “You got to also learn to delegate. You’ve got to keep a monthly journal. In that monthly journal, you write down everything from the minute you get up to the minute you go to bed, and everything from brushing your teeth to showering.

You have your A, B and C buckets. You’re a bucket is only those things that you can do. You can’t delegate. It’s like, “I can host my podcast. I can make my box.” That’s your A bucket. Those are your core competencies. That’s what you focus on. Your B bucket is things you would be good at, but you can delegate to others. Those C buckets are things you should never do yourself like cleaning your own house. Get somebody to clean your own house.

Figure out what’s your worth. If you’re worth $50 an hour, pay somebody $15 an hour to clean your house or run your errands and things like that. Women, more than anybody has to focus on energy management rather than time management. Especially the C task sucks your energy. You’re no good to anybody. Your body is like a cell phone or a computer. The more apps you have open, the more tired and exhausted you are. You’re not going to be good for your clients, your family and yourself.

FYE 44 | Financial Management

Financial Management: Can you raise the bar of your expectations to get a bigger bang for your buck? Or, do you need to lower how much time and resources you’re receiving from that person because you don’t need them the way you used to?

 

I don’t believe there’s a work-life balance. I think there’s work-life integration and seasons. You can be a good wife, mom, and business owner. It’s hard to do all of those things by yourself.

Women need a team around their house to help them pick up their children, to help you with some nanny duties, cleaning your house, or those zapping-energy tasks. Figure out what you are worth and delegate those out. The other thing I want to talk about is when we’re looking at the numbers, it’s just not all about the numbers. It’s about many things and I have to have Pam back on. When I go through my evaluations, I’m looking and say, “Some manufacturing company has a manufacturing plant warehouse distribution center. In their warehouse distribution center, they have all 1099s. What happens if there was an accident and there are no workers comps?”

I had a company manufacturing plant that had all 1099s in their manufacturing. One of the employees lost an arm. That’s it. The company is gone. When we’re looking at financial accounts, I think you did this too, we’re like, “If you have all these 1099s, then you’re able to reduce dramatically because the buyer is going to come in.” As far as I’m going to look at that, I say, “If you got fifteen 1099s and maybe W-2s, that’s going to change for you. You can buy $500,00 right there,” or you have all your eggs in Amazon basket. If you use Amazon, you’re going to lose 95% of the revenue.

I wanted to bring up the point. It’s not just about the numbers and looking at those numbers, it’s about all of those 6P’s, the People, Product, Processes, Proprietary Assets, and Patrons, the vendor list and the customer list. Make sure you have vendor and customer diversification, not a vendor and customer concentration because all of those will kill your business and profits in one second.

We’re looking at these valuations, and I know you did this too, Pam. That’s why we worked together. You got to take all that into consideration. “I make $500,000 a year. I want that out of the back.” No, if the business can’t run without you, you’re not adding that back because you’re going to stay probably 2 or 3 years and you’re not going to stay for free. There are so many things like that. Also, paying family members that are not working in the business. There are so many things like that that you got to look out for, but there are so many things. I know Pam and I look at all the systems are up to speed.

We sold a distribution company. They had it all on paper. They didn’t even have computers. Everything was on Rolodex and charts. They kept up with inventory on paper. That costs hundreds of thousands of dollars to bring the company up to speed. We’re looking at these financials and Pam is working on growing the businesses and giving them over to me. I’m looking at giving businesses to her when I don’t want to do three years of reconciliation. We’re going to look at that stuff.

We look holistically. It’s not just the numbers.

It’s your people or your W-2s and 1099s. Do you have a manager and a right-hand person that doesn’t have a non-compete? They can leave you, which means your cell is going to not close. All of those things from the 5Ps to Profit are what we both explore to put you on the right path, so you don’t end up exiting poor. You’re exiting rich. I know you do that too Pam. I’ve got one client that’s got one vendor and that vendor does all their manufacturing. They have no backup plan. That vendor is 75 years old and he has no successors.

A lot of business owners don't understand the actual money it takes to keep the doors open for their business. Share on X

Everybody is about to be out of business.

When we are looking at evaluations and Pam is working with us, we’ll work on those. We’ll explore all of those on our end because we want to know the bad and the ugly. We want to know what’s going to keep you out of the business and take you out of business. What did I not ask you that I should ask you? Is it how to add 10% to your bottom line with an experience audit?

This is something that we recommend quarterly with our clients and we do an expense audit. There’s normally not one bleeding hole that companies have, but there are lots of little places where they can make savings. What we’ll do is we’ll go through the last three months of bank statements and credit cards, and identify what we need and what we don’t need. It is amazing how much money you can save just by doing that. For example, computer software is the biggest and lowest hanging fruit. If you need to tighten your belt, go to your credit card and look at all the software that is automatically being charged to your card and cancel half of it. Most likely you signed up for something at $29.99 two years ago, and you’re not using it, or you have more users for the software that you need.

I had one client that had three different subscriptions to the same software because they had three different people in the company, but they had multiple users. They were paying three times what they needed for that software. There’s a huge opportunity there. Another is leased equipment. Do you need everything that you have? Do you have the best deal possible? We had one client that was paying $1,300 a month for a copier because they always had it.

I asked, “Why do you have this copier?” “We used to use it to print our newsletters and mail out to our clients.” “Do you still do that?” “No, we have an electronic newsletter.” “How much do you print?” “Very little.” “You’re paying $1,300 a month for this copy printer?” “It was cool. It did some nifty stuff.” I was like, “Take it back right now. Go to Amazon and buy a $300 printer, and be done with it.”

That goes back to my evaluations, and what you do, Pam, and every aspect like why you’re paying for that $1,300. We’ve got a furniture manufacturing company. They used to send out these big, beautiful glossy brochures. I’m like, “Get rid of all that stuff.” They are like, “We never thought about that.” I did this with all my clients when the pandemic started because everybody was panicking. We went through their P&L, “What do you need? What do you not need? What subscriptions can we get rid of?”

They want to cut marketing. I’m like, “Don’t cut marketing.” What We did do is we go through marketing and we look at what’s working for us and what’s not. We get rid of the channels and platforms that are not working, and you double down on the ones that are all working. My personal card got stolen and I was on the phone with my banker to get another one. He goes, “You got a $50 subscription here. I said, “I want that for my girlfriend who wanted it for Christmas. He put me in a subscription model. They were taking $50 a month from my personal card and never sending me products.”

You got to go through your credit cards and bank statements because you get caught up in these subscriptions like I’m just talking about. Here’s the other thing, I had my clients and I did this myself, we would go to the Infusionsoft office and say, “We’re having tough times. If I’m going to cut my bill in half, I’m sorry, you’re going to be one I have to cut.” We get back to a lot of our vendors and renegotiate. I took credit cards and renegotiate. That’s important all the time, not just during a pandemic. That’s such a great point, Pam.

FYE 44 | Financial Management

Financial Management: Partner with people who are good at the things that you aren’t. Bring them in, hire them, have contractors, outsource something so that you can make sure that all of those six P’s are strong within your company.

 

It is amazing how much money you can save. Also, look at employees and contractors. Is everyone being as effective and efficient as they can? It might be because you, as the owner, have not given clear expectations. Can you raise the bar of your expectations to get a bigger bang for your buck or do you need to lower how much time and resources you’re receiving from that person because you don’t need them the way you used to?

Two people can do the job of one. That goes back to what seats you need to be filled and how many people can fill one seat, but you brought up such a great point. You’re handing me all these softballs. We were selling a manufacturing company that does plastic wraps for meat and stuff like that. It has slim margins. They’ve been in business for decades. They’re all about family first, “Our employees are our family,” which I think it should be, but you got to make sure you’re managing that correctly. They had all these employees that have been with them almost through inception and they kept raising them.

There’s such a slim margin in that industry. It is so competitive that what happened was it out-labored cost their profits. They weren’t making any money. They put money into the business just to pay the employees. When I say, “Lack of profit is never your problem,” it was a symptom of extreme labor costs because they kept raising without raising margins and prices or without cutting other open expenses. I can give you story after story like that.

We see it all the time. Business owners are rockstars at the thing they do. It’s a lot to ask for them to be rockstars at everything. Partner with people that are good at the things that you aren’t. Bring them in, hire them, have contractors, outsource it or something so that you can make sure that all of those 6Ps and all of the moving pieces are strong within your company, so when you are done and ready to walk out, you can.

Focus on your strengths and hire your weaknesses. Many entrepreneurs are intimidated to hire people smarter than them. There’s somebody smarter than everybody. Donald Trump, like him or hate him, I’m not here to talk about that. I’m here to talk about how Donald Trump, before he was president, never would have had the success that he had if he didn’t have George Ross because Donald Trump is a visionary. George Ross is the deal-maker. He makes sure I’s are dotted and T’s are crossed, make sure the devil is in the details.

You’ve got to not be intimidated by hiring people that have the core competencies that you don’t. If you can’t afford it, then you can always contract. You can find yourself a mentor. Not just any mentor but a mentor who has been down the road you want to travel and has been highly successful. What else did I not ask you? What more words of wisdom do you have, or golden nuggets?

Understand that your numbers are telling a story. If you’re not listening to it, other people are. Most likely, it’s not a story you want to be told about yourself. Understanding what that story is and changing the narrative.

That’s so important, especially when you sell your business because most business owners never enter into their business going, “I’ll sell it.” They don’t plan their exit. That’s the biggest reason why 80% of businesses don’t sell. One day they wake up and they go, “I’m getting a divorce,” which is 51% of the people in the country, or “I was diagnosed with cancer,” or “We’re in this pandemic and my numbers are down. We can’t get employees because staffing is the worst it has ever been.” They wake up one day and say, “I want to sell my business.” You always want to take their temperature because every business owner thinks their business is their baby.

Just understand that your numbers are telling a story and if you're not listening to it, other people are and it’s most likely not a story you want to be told about you. Share on X

Every parent thinks their children are pretty. I know Pam, you think your children are the most beautiful. I think my daughters are the most beautiful. Most business owners think their business is the most beautiful. I’m here to tell you that your business is not as pretty as you think it is. They’ll come to me and say, “I want to sell it for $10 million.” The EBITDA is $100,000 or $500,000. She’s right in the story. You got to know your numbers, EBITDA, and what you’re running through the business. That’s the biggest mistake. Business owners give us their numbers. Pam has been through it. They don’t know. They forget. It’s my job to increase EBITDA so I can get you more money. The numbers tell the story. If you want to sell your business for $10 million, you need a $10 million story. Any last words of wisdom?

We’re good. I would love to come back if there’s other time or topics because there’s a lot that we can talk about and lots of stories we can tell.

You come back and we’ll talk about the actual evaluation. That would be so much fun. Pam, give us a fun fact about yourself.

I’m an Air Force brat. When I moved into college, it was my ninth move.

You were never in the Air Force.

My dad was. We got to cart along every year or two to wherever he was getting moved to.

That’s tough. That will give you grit. I was the same way. I wasn’t from an Air Force family, my father is from twelve siblings. When he get mad, he would just pick us up and move. When you have to restart schools, it’s tough. When you look for employees, look for grit. How can our readers find and connect with you?

It’s super easy. Go to PamJordan.com. That’s my website that tells you all the services I offer, all of my courses, my book, where you can find me on social, everything.

I know you have a lot of different packages and flexibilities. We can work with entrepreneurs just getting started, all the way up to those larger types of businesses. Thank you so much for being on the show. I’m glad I finally got you on. You’ve got a wealth of information. A big thank you to all of our readers. If you like this show, share it with your friends, your community and fellow entrepreneurs. Your network becomes your net worth. Share this. Make sure you subscribe and like us on Instagram or Twitter. We’re everywhere. Until next time. Thank you for joining us.

 

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