EntreLeadership - #346: How to Recession-Proof Your Business with CFO of Ramsey Solutions

Episode Date: October 28, 2019

Considering that we’re experiencing the longest economic expansion in United States history, Ramsey Solutions Chief Financial Officer Mark Floyd says the likelihood of an economic recession in the United States isn’t a question of “if,” but “when.” Before you go into full-on panic mode, tune in to hear Mark explain the most important numbers to track in your business and why operating without a budget is a terrible idea. Bottom line? The more you know about your business’ financial health, the better your chances of success—in or out of a recession.   entreleadership.com/podcast Learn more about EntreLeadership Conferences The 6 Financial Reports That Can Save Your Company BELAY's Ultimate Guide to Virtual Bookkeeping Review this episode for a chance to win a $25 Amazon gift card   Want expert help with your business question? Call 844-944-1070 and leave a message or send an email to [e-mail]. You could be featured on a future podcast episode! Learn more about your ad choices. Visit megaphone.fm/adchoices

As of July, the United States economy has experienced the longest period of sustained economic growth in our nation's history. Folks, that's a big deal. We should celebrate that. But as a result, you only have to turn on the news or the radio for five minutes to hear some talking head losing their mind because a supposed recession is apparently just around the corner. And scarred by the economic crisis of 2008, business owners around the country are all too often to, taking part in the panic parade. From the Ramsey Network, this is the Entree Leadership podcast, where we help business leaders grow themselves, their teams, and their profits. I'm your host Alex Judd, and here at Ramsey Solutions, we want to make something very, very clear.

It's not a matter of if a recession will occur. It's a matter of when. And you know what? You can't control that. But as a business owner, there are several things you can control. And that's why today we wanted to introduce you to Mark Floyd. You see, Mark is the CFO that Dave Ramsey hired to steward the finances of our $200 million organization. And as such, he believes that responding to and even thriving through the next recession has very little to do with risk and chance and everything to do with preparation, diligence, and common sense.

This is the longest economic expansion in the history of the United States. So we're at 120-something months now. And I think the longest before that was in the 90s. So it's been a long time since a lot of business owners have been through a recession, if you will. So there's probably a lot that have never even encountered that. So that might be why there's a little freak out going on because they haven't experienced that up and down before. But those that are kind of the seasoned vets probably know that there's, you know, just as many difficulties that are coming. there's probably just as many opportunities.

And so I think you've got to look at it, you know, depending on what type of business you're in, might it affect you negatively, but there's a lot of businesses out there that can take advantage of a recession to some extent. Clearly, we don't want a great recession like we had back in 08, 0708. So I wouldn't let it freak you out. And the better that you understand what's going on in your business,

the less you should be freaked out, and the more you are asking questions and finding out what's going on in your world, reading about things, talking to other business owners, what they've seen before. Maybe you've only been in business for five years and not for 15 years and you haven't experienced this before.

Well, then go find somebody that has and talk through with them to find out, you know, what did you do last time? What did you see? What signs did you see? How did you start preparing? So that's just kind of in the broad umbrella of some action that you ought to take. But clearly, the better that you are prepared stepping into a recession, the better you are equipped to handle that.

And I spoke earlier when I said advantages, if you're sitting on a pile of cash, What better time to jump and in it maybe acquire something or do something if a competitor of yours or a different line of business that you were looking and going into if they are all of a sudden are struggling because they didn't see this coming and they didn't prepare for it or they were ill-equipped or they had too much debt and they had too much risk. All of a sudden you've got an opportunity in front of you that you can take advantage of. So you can get freaked out or you can kind of get pumped up about it. That sounds sick and twisted, but that's how you could approach it. But I think just in hearing you talk about that, it's almost like it's not if this recession is going to happen. It will happen eventually. So it's when and when it does happen, are you ready?

Right. I mean, it's a win. It's not if we're not going to have a 100 year long economic expansion. So at some point in time, this ends. They've been saying that for probably four or five years now because this has been going on and we keep having, you know, good employment report and all that sort of stuff. But it's coming. And so don't put your head in the sand. Don't think, oh, this is.

always how it's going to be, get prepared. And so how you get prepared is to probably I'd approach it two different ways. If I'm a new business, I probably, if I went into business having these best case plans, well, maybe I need to be thinking, what was my middle case plan? Maybe not worst case, but what's my middle case? And so how would I manage towards those numbers if I thought maybe I'm not going to have 10,000 in sales a month, I'm going to have 8,000 because of something going on? And again, maybe if you're in a Jimmy John's franchise, guys, you may sell more sandwiches during that time, but if you're in a high-end restaurant business, then that's probably not going to be the case. So it's going to be individual business,

just like it's going to affect individuals differently as well. But just, you know, getting prepared for that and knowing what's coming for your particular industry is important. And I think that that's kind of at the heart of this place, both for how we teach people to manage their personal finances, but then also how Dave and our company teaches businesses to be aware of and manage their finances. You hear the phrase all the time, know your numbers, know your numbers, know your numbers. In my time working with business owners, they know that it's important to know their numbers, but so often they don't know what it means to know their numbers. So I'd love you to just kind of walk us through. When you as the CFO of Ramsey Solutions sit down with a small

business owner, what are the things that you want them to know in order to feel confident about them being aware of the financial state of their business? Sure. I get that opportunity. you know, a couple times a year when we bring in folks for our Entry Master Series or at Entree Summit. And so I immediately want to know, so what's their, what's their knowledge level in this area of their business? And so, I mean, it's simple, simple questions like, you know, what's your top line? And if they look at me like a deer in the headlight, then I go, oh, no, we need to start with even more basic stuff. What do you sell and how much each day? But if they know what their top line revenue is for the year and they can go, hey, last year we did 500,000,

and we're on our way to 700,000 this year. Then I go, oh, okay, they understand what the past was. and they're current enough so that they know what their kind of run rate is and where they're headed into the future. So first, you know, if they don't know the revenue, then, well, we've got problems, right? That's right. Okay. So just for the people that are listening to this, I would recommend now's a great time to pull out a notepad. If you're driving, don't pull out a notepad, but go back and listen to this. The first one you said was annual top line revenue, essentially, and just awareness of where that lands year to year. Yeah, where it has been in the past and where it looks like things are going right now, because if I'm a new business and I start off with one, thousand in sales, but I'm doing 10,000 in sales this month, then my run rate is more like 120,000 annually because it's not 20,000 total for the whole year. I'm now operating at a 120,000 level.

Well, what does that mean? What does that mean I can do? Can I hire somebody now? Can I afford to do that? Hey, that recession might be coming. Do I want to do that? What would be a target that I would set? Or then I could go, if I get the 200,000, then I could afford somebody. You'd be adjusting your business plan all along going, here's one of those coming, but I know my, I know my, numbers. I know I know what's going on in my business to be able to make good decisions knowing that something like that could be coming. And so we talked to annual top line. And then obviously that kind of feeds into understanding and knowing where you're landing bottom line based on your expenses and revenue. Right. That's where it gets a little trickier, right, with small businesses in particular.

Because if they understand their top line, okay, so then what do you make? And then it all depends. Are they taking a salary out of the business or a large bonus at the end of the year? But I generally just want to say, remove that from the equation. What would it make if you weren't paying yourself anything? What does this business make? Oh, it makes $200,000 and you pull $100,000 salary out, so it has a net income of $100,000. That's great. But what is really telling me, you as a small business owner are making $200,000 out of that business. So I want to understand. I want to make sure they understand the difference between what their accountant says that they make a tenta on their tax return versus what their true profit is coming out of that business. And these are kind of the

fundamental things that really every business owner, whether numbers are a strength for them or not, they should have visibility and awareness of. Is that correct? I don't know how you would operate a business otherwise. And why you're even in business. I mean, I know you probably went into it with a passion to do something to serve somebody or to do something that where you're calling is, but you better understand your numbers or you're going to not be in that business for very long. You're going to wake up and you'll mismanage your business and you may have mismanaged with your team members and you may have led people down the path thinking they had a great spot to work and long behold, I'm going out of business and that's the last thing that any of these

business owners want to do. And I think that that kind of hits home the idea that, yes, there's tremendous opportunity and knowing your numbers, but especially for the basic things you're talking about right now. It's not just an opportunity. It's kind of a responsibility. Exactly. Exactly. The next one is really focusing on monthly run rate and I believe that's really focusing on how much it costs to stay in business month over month, is that correct? Right. And when I was talking about their run rate on the revenue, I mean, you really got three run rates that we could talk about. I was talking about the revenues earlier, but you also might want to know what your burn rate is. If you're losing money, you know, I've going into

business and I've set aside a couple hundred thousand dollars and I know it's going to take a while before we turn a profit. How much am I burning each month? So that's kind of your run rate on your expenses while you're trying to build up your revenues. And then I also want to know maybe what am I making each month? What's my monthly profit? tend to be, and that's kind of a run rate on that as well. So you kind of break down that P&L, a profit and loss statement in three different areas, your revenues and expenses, and then ultimately your profit. Next, we're looking at monthly cash flow, cash in, cash out of the business. Yeah, so I'm a CPA, and we tend to like to talk in kind of sophisticated terms, but been

here long enough, and I've talked with enough small business owners that I know. I need to take it out out of the classroom and take it into practical application. And so really, ultimately, it just comes down to what cash flow is coming out of your business. We can talk about accrual basis accounting or cash basis accounting, but really what I'm concerned about is how much cash is your business generating each month. And that's essentially your revenues minus your cash expenses that you're paying out. And boom, that's the cash flow at the end of the day. If you've got a business that has a lot of receivables, you're going to want to then add back if I collected some receivables this month. But if I had 10,000 in sales, but 9,000 of it

was to a client that didn't pay me yet, I don't have that $9,000. So I need to convert that accounting type of net income into what is a true cash flow to understand where my problem areas are going to be. Is it next month because I've just sold a bunch of stuff that I didn't collect on? And so I've got a cash flow problem for next month now. So you want to ultimately get down to cash flow because that's where the rubber meets the road. And it seems like, I mean, we hear that phrase all the time from business owners. They come to us in a crisis situation. And they describe it as I'm experiencing cash flow problems. And in reality, it seems like a lot of times they just didn't do the prep work necessary to have visibility into their cash flow and what they

could expect in and out of the business. So if you hear that phrase, cash flow problems, how do you respond to that phrase? I'd go back to where we started. I want to understand when they say that, is it because they don't have a clue as to what's going on in their business? And it's, I don't know how much profit I'm making each month, but I know that I've got these bills stacking up. And I've got three clients that haven't paid me yet. Well, that feels like a cash flow problem. Well, let's boil it down. And what are the numbers actually telling me?

And what were your revenues this past month? But what were your cash revenues? What did you collect on? And I would just kind of removed all the noise from it and walk through actually, you know, last quarter's worth of financials and go, so what did you bring in the door and what were the expenses that went out the door? And then what are you expecting in the next couple months? Usually the cash flow problem is they're feeling that pressure for something into the future.

So the cash flow problem is really just a symptom of a source. And it seems like sometimes that source is seasonality. Sometimes you're not collecting on receivables in a timely or punctual manner. But it sounds like what you're saying is identify the source of that issue. And a lot of times they may have bitten off more than they can chew. They maybe took on a piece of business, a government piece of business, let's say, because that happens a lot in construction business or whatever. And a municipality or county or whatever doesn't pay somebody for nine months,

know, six months, whatever it might be. And meanwhile, their suppliers or their vendors, et cetera, are expecting payment. That's where the cash flow problem comes in. But they should have anticipated that. They knew that business that they were taking on. So you've got to understand your numbers before you step in and take another piece of business so that you know the risk that you are creating in your business is my business sustainable and capable of absorbing this new piece of business. I know it looks great. I'm going to make $100,000 in profit off of this project. well, when am I going to get that profit? And so I need to understand that. And so if I don't understand where my business sits today, how can I take on that next piece of business and make a

proper decision when it comes to that piece of business? It seems like it's just all preparedness and awareness, just being prepared and being aware of what's going on. So if you are taking notes, the first one was annual top line revenue, then bottom line profit or income, monthly run rate of your business, monthly cash flow, and then kind of an awareness and visibility into the balance sheet of your business is probably part of knowing your numbers really well. Right. On my balance, yeah, I'm really concerned about four or five things. What's my cash balance?

And is what the banks tell me is what I also show me on my... It's kind of important that those things match up. On my general leisure, yeah, if they don't match up, at least I can reconcile. But so you better stay on top of that. So you better know daily what you're... I sign in every morning to know what our cash balance is in our bank account. Really? You do here.

I do. I do. And because I just, I need to know. I wish people can see your face getting a little bit red whenever you say, I need to know. I got to know. I mean, and so I don't know why every business owner wouldn't do that to know exactly where their business stands that day from a cash standpoint. So I want to know what my cash level is. I want to know what receivables I have out there. So I would look at an accounts receivable aging report that would tell me if I know that I generally collect my receivables within 60 days, I want to know what's out there close to 60 days that I might be collecting, you know, in the near future. So I'd want to know what my receivables are.

I'd also want to know what my inventory balances were. That's kind of the left side, the asset side of the balance sheet. Those are the three things that I'd really focus on. Then on the other side of things, I want to know what vendors, and if I could, I'd have an aging report of that too. We don't have an aging report on accounts payable vendors because we're paying them within a couple weeks. We get an invoice in.

We turn it around, and I'd encourage business owners out there to do the same thing because it creates all sorts of goodwill with your vendors. And occasionally you might go, hey, we're going to be a little bit late. and they go totally understand you guys have always paid great. You know, you create that goodwill. So you as a business owner do have to balance those things from your receivables and from your payable standpoint. But that's the most important side over on the right side of the balance sheet on the liability side. And hopefully you don't have debt, but I know some of our businesses out there do.

So clearly you want to know what's my next principal payment or interest payment or things like that from that standpoint as well because you don't want to forget that. That's the last people that you want to tick off. Exactly. That's kind of important. But just in hearing you talk about this. I feel like there's probably two types of people listening to this podcast right now. There's probably the type of person that spends time in Excel because they think it's fun, right? And they're pumping their fists right now because you are officially their superhero, right?

And they're rooting for everything you're saying right now, and they just can't wait to go look at their balance sheet. And they're going to make somebody else listen to this. See, I've been telling you. I told you about it. And then there's the people that this right now has officially become their least favorite episode of the entire year. Is that the sound? Please don't turn it off. There's going to be. There's hope. Please listen. Okay. And that actually hits home something really important. It's kind of this sinister cycle that we see that for whatever reason, people feel like the things that you just listed, they know they are things they should know. But because they don't, they feel inadequate. And because they don't want to feel inadequate, they don't press in and figure those things out. They run from it. And they just go focus on their passion or they focus on working with people, which are all great things. But I'd love for you to talk to those people that are feeling a little bit of a ping of inadequacy right now.

How would you counsel that person? Sure. First, I'd say a couple of things. There's no doubt that if you don't feel like this is an area of strength or I'm inadequate in this area, that you just tend to spend less time on it. And it just becomes a self-fulfilling prophecy. Then the less time you spend on it, the less you know about it and you're scared. I mean, you don't know what's going on.

So you've got to break out of that cycle a little bit. the encouragement that I would offer is that I would say 80% of the time when I sit down with clients and we walk through this and I asked them questions. I build up their confidence because as they are able to answer the questions and go, yeah, when they can answer the revenue. I know what my revenue is. I know what my profit is. And they start naming some things. And I just stop occasionally go, see, you know it better than you were saying, you know, your numbers. So a lot of times people aren't giving themselves enough credit. They walk in the door and go, what am I supposed to know? Tell me what, you know, what questions

am I supposed to be asking them of my account and what am I supposed to be doing? And so I turned it around and start asking them questions. And after a little while it just becomes apparent, and almost a little light bulb goes on and their confidence factor goes up and they go, oh, I do know this stuff, don't I? I'm like, yeah, you can always get better, but you know this better than what you're giving yourself credit for. So in a lot of ways, they just have to be convinced that it's not that intimidating, that they're better at it than they think they are. And particularly if they fully understand that if I don't know this, this is crucial in my business, that most of them understand that, but they've got to get past the hump of I'm inadequate in this area.

Then I'll run into them a year later or whatever and they, thank you, thank you. I'm now asking my accountant for this report and I get this every day. And I just see the confidence grow in them. So that's always fulfilling to see that. And I think there's something to be said about that they gain that confidence in the process of talking to someone. And in this case, they're talking to you. But it sounds like that's a pretty good action item for someone that feels inadequate is go talk to someone that this is a strength for them. You use the word discipline, and it seems like that's what this is. Knowing your numbers is a discipline that can be learned. But then kind of the next step is establishing the rhythms so that it becomes maybe even more habit than discipline. So I know the first thing that you kind of recommend is just a weekly rhythm of looking at your numbers and having visibility into what's going on. Is that right? Well, I go back to the daily where I said, you know, each day I'm logging onto our bank account and seeing what's going on there and I get a feel for deposits and checks that have cleared.

and going out the door. So that's kind of on that part of the business. That's every day. And that's just a quick check-in. That's a quick check-in. And then we've got multiple businesses in which I get a daily report that here are the sales that occurred in those businesses each day. And usually it's that day, but then it's a cumulative of here's what's going on in the

month against budget compared to prior year. And so I don't wake up on October the 31st and go, oh, how did October turn out? I've got a general idea what's going on on October 10th, October 20th. and I know where we're headed in October 31st then is not a surprise for how October ended up. It should never be a surprise. And so I would encourage business owners to stay on top of it. I mean, and sit down and go, what are my key metrics in my business that I want to know? Generally, there's going to be something related to sales, right?

But it also could be something related to production or your lawn mowing business. How many lawns do I have to mow this week and how many did we knock out the day? And there's the rain coming, so we need to knock out more tomorrow. I mean, establish some metrics and each day spend time looking at those and reviewing those and then have somebody who's the single wringable neck in that area that goes, okay, hey, we're behind in their area. Let me ping them with an email and say, what happened yesterday in sales? And that way there's accountability on the further down the chain, if you will. Well, then you're not wearing it all on your shoulders either. We are all collectively responsible for these numbers.

Right. So there's clearly a monthly rhythm from getting financials produced, but there are a lot of in-between reasons. that occur to get you to that point. And so that those financials then are not a surprise. So there's a daily and a weekly. And if you're supervising it and you are at the cash register every day, you might know what's going on. You know, you're ringing up sales and you know what's happening every day.

And so you don't need to, you know, you've got to study that. You've got an awareness. But each week you ought to go pull that together and go, okay, this week versus last year. How are we doing? And so then I have an idea of, oh, we've doubled sales. I need to think about it. Are we going to need to be adding people or do I need to buy more inventory?

I thought about you the other day because I was at a meeting of business owners and I think there were probably about 15 there. And the question was posed, how many of you are currently running your business on a monthly budget so you're planning your expenses and revenue in the door? One person raised their hand. No way. Out of 15. And I just thought to myself, Mark Floyd, would be losing his mind right now. I know one of the things we teach here is regardless of industry, stage of business, status of your business, a budget is pretty important. Right. So that just makes me mad right.

Anger is your reaction. Okay. All right. So I'm going to take a deep breath here and say, okay, so that's totally unacceptable, one out of 15. And I realize that budgets are kind of, it's a small word, but it's a scary word for a lot of people. And it's kind of troublesome to people that new businesses in a lot of cases. they don't have a clue as to what they... Because they don't have a track record. But I'd first challenge them to go, hey, when you decide you were going to go into this business,

did you build a business plan that you thought, I can do this much in sales and this much in profit in the first year? And you put together, hopefully you did put together a business plan. Well, in essence, you created a budget for that bit. It may not have had a lot of detail. Hopefully it did. But that could serve as your first budget if this is the first year you're in business. But let's just say that you're beyond the first.

year and one year in. What I do for budget? We'll look back and see what you did last January, and do you think you can improve upon that? Or, oh, by 10 percent? Well, add 10 percent to that, and that's your January budget and do that for each month. It's not rocket science. It's using past historical information in front of you and then knowing, okay, but today's environment, whether it's a recession that's coming or what expansion is still continuing? What then factors do I do to adjust those numbers to make a budget for this month? But hey, why do I want to do a budget? Well, because then you can measure at the end of the month that you achieve what you set out to do.

It helps your staff understand where you're headed towards. I mean, if you can set out to do something. Like if you aim at nothing, you're going to hit every single time. So the budget gives you the ability to say, okay, here's where we're going to go. And then you can measure, do we succeed or do we fail with regard to where we're going. And a lot of cases, it feels like I'm talking about the revenue side of things. But if you also are setting the budget on the expense side of things, how much did we spend last year on electricity or whatever it might be so that I generally know those expenses so then I can ultimately get to

my profit. But if I set a budget for $100 in entertainment expenses, just like I would in my personal life, I want to only spend $100 or maybe even less. I don't want somebody to feel like they're authorized to go overspend in some areas. So it's setting goals and it's also setting parameters on the expense side for guidelines of which your team or yourself can operate. So I am the personality type that this is not, we are so far out of the boundaries of my strength zone right now. It's not even funny. But it sounds like the rhythm that we should be applying ourselves to is at the end of every month, just look over the previous month P&L and out of that P&L kind of categorize and say, okay, based on what we spent and what we made this

month, what could we plan to spend and make next month and then also compare that year over year. And then that kind of starts the rhythm of creating a budget. If you've never done a budget, that's where you ought to start right there and go, okay, this month when October wraps up, I'm going to look at it and I'm going to immediately prepare a budget for November. Okay, you now know how to budget. And then who's to say that you couldn't the next time around go do about three months in advance.

I mean, you can wade into this pool if you want to and get it done. I mean, there's no perfect way to do this. And it sounds like it really is an educated guess. Is that fair to say? It's educated guess based on the facts that I know at this time using past historical evidence and I feel is going on in the business. We called a conversation with your customer. I mean, that's, that's what a budget is. It's a conversation with the marketplace so that I feel like here's what's happening. And so this is what I'm going to budget. And then on the sales side,

I can send my team after that to go try to achieve that. And on the expense side, I can say, here's how we manage our expenses so that we make sure that we stay within the constraints that we've set. And again, that's step one to do that. But hopefully by the time we roll around to the next year, you go, I now have a real good feel. I had budget. budgets prepared for each one of those months last year. And I have my actuals that I'm laying next to those. And I can now put a full year together. And I sitting here in the fourth quarter of 2019, I can now do a budget for all of 2020

because I've got budgets and actuals from the prior year that will tell me, here's generally where I hit and missed last year. And so that's what I think I can do in 2020. And it just, and it helps me forecast my cash flow. It helps me be ready to go. I know I've got some seasonality in my business. it will help me go, hey, it looks like we're doing better.

I'm going to have some cash. Might there be an opportunity to expand my business or to go buy something else? I mean, all those things or put money away because I feel like, hey, I'm seeing signs that things are slowing down or whatever. But if you don't know what happened in the past, you can't predict what's happening in the future and you can't plan. I mean, you can't operate a business that way. Okay. So really what this is is this is the guided path for making sure your business is in really good financial. shape. Number one was know your numbers. The next thing we talked about was the daily, weekly,

and monthly rhythms you should be focused on in creating a budget. And the next thing that is kind of unique to this organization and the way we teach managing your business finances is that topic of retained earnings. So I'd love for you to explain just as simple as possible. What do we mean when we use that phrase? Because it can be kind of intimidating, I think, to some. What do we mean? And then what is a good kind of framework to start doing that? Sure. Of course, retained earnings is a scary accounting word. It's a big retained earnings. I don't know what that means. Basically, think of it as it's my savings account.

It's my emergency fund. Rainy Day Fund. How every you want to look at it. In technical terms, it's essentially the earnings that you have retained, duh, in the business. And so that I didn't pay out to myself, that I didn't pay out to the government in form of taxes. It's net income that was left over in the business from a previous year. And then it accumulates year to year. People often worry, wait, I'm going to get.

taxed on that. Well, in the year in which you create that income, yeah, you're going to get taxed on it. Keep that money then in that year in which it's created is going to get tax. But whatever's left over that didn't get tax is retained earnings. It's your now emergency fund. And then each year, if I have that some retained earnings in the next year, then I add those two together. And that's still my retained earnings. Now, I'm just accumulating it. I'm, you know, building it up over time. But that's kind of the boring accounting side of it. Just think of it is, it's my emergency fund. It's how much reserves I have sitting in my company to do whatever I want to do if something pops up or if my business were to go backwards and I need to fall back and all of a sudden a top customer of mine pulls out and oh my gosh, there goes 30% of my revenues. Well, if I'm sitting on some retained earnings, i.e. emergency fund, I can withstand that. I can live through that time period. It's kind of like just being prepared for, again, not if crisis strikes. And this ties into recession as well,

but when it happens, are you ready? Right. And if you're opening up a business and you had no capital, no emergency fund set to the side, you are making a huge mistake because you're stepping out into something that you have never done before and you don't know how the first couple months are going to turn out. Super risky. So you, it's super risky. So you better have some set aside. Well, if that's what you would do starting day one in a business, having some extra cash reserve sitting around. Why wouldn't you do that month three or month eight or month 10? So that's the concept is you never know what's coming around the corner. So you need to have some emergency fund.

So at least one month and then the further you can get and the further your business can afford it, you ought to be somewhere in the three to six months. I would highly recommend the six months to use it in case of emergency or in case of opportunity. You've got to have something to fall back on because you don't know what's going to happen out there. And then related to that topic of research. risk too. This is why we take such a hard line as an organization on the topic of debt. We just built a $70 million building with cash because we believe that debt magnifies any risk you're already taking. Yeah, in my mind, you know, if you've got debt, you've increased your

level of risk. I understand. I took the same finance courses that Dave took and understand the idea of leverage and all that sort of stuff, but that sounds great on paper. But when you apply it to your life and your business and your family and the families of those people working for you, the less risk that you can take, the better from that standpoint. I'd rather you take the risk in stepping out into an area of growth that you can take for your business as opposed to the risk that you owe some bank or some money. And then, you know, so if that equals risk, then debt-free equals some advantage where you can take advantage of opportunities when they come along and not be holding to somebody else from a debt standpoint. If people do have debt on the business

right now, it's really important to create a plan for getting out of debt, obviously. That's correct. I sit down with a lot of folks and they've got it. They've got debt. They use it to get started. And then they come to one of our entree leadership and they had this guilty of like, oh my gosh. I didn't know. You came to a Dave Ramsey event. Let's be very clear. And so I, okay, okay, calm down. It's all right. We're not going to shame you. But let's put together a plan to how quickly can we get out of this? Can you instead of taking out $150,000 year out of your business for your compensation, what if you took out 100 and we applied that 50,000? 50 to that debt. And over a five-year period, we could. And so put a plan together in it, but it tends to be a longer plan than on the personal side, like you're saying, on the debt snowball on the personal side, we're going to attack, attack, attack, attack. And on the business I would say, we want to attack, but let's do it systematically, methodically, and let's put a plan together because you've got to operate your business in the meantime as well. You've got to

pay your people and you've got to pay your vendors and that sort of thing. So it's the same approach, maybe just a little bit more methodical, if you will. Very good. Let's Jim, to a topic, I would assume you get this question all the time because I know we get it in the coaching program all the time is people always ask, okay, should I be hiring someone to manage my finances for me? Or should, is there ever an occasion where I outsource this or should I be doing all this? And how do I discern who does what win with regard to the finances? How do you respond to that question? Yeah, that's topic number two.

Topic number one is tell me what I'm supposed to know about my financial statements and we walk through that part of it. And number two then is depending on where they are in their business. growth or business cycle, the conversation eventually comes around to, hey, how do I get somebody like you in my business? And so then we start the conversation of the kind of various thresholds that I like to talk about from who you ought to have in your business. And it's almost easier to work backwards to say, yeah, of course, in a business like this that Dave runs, we need a CFO. We need a business partner sitting at the table with other board members who knows everything about the business from a number

standpoint. I want others to know that stuff. But ultimately, they're going to look to me when we're sitting in room to go. So what do we do last year in that area? How much profit? What are the expenses, et cetera? So that large business on one extreme, it clearly needs a CFO. Down on the far end of the extreme, I mean, we're talking about, you know, as someone who's just starting out, they're less than a million dollars in sales. And they're basically trying to figure out how to pay themselves. They don't need to, they don't need a CFO and they don't need a controller, but they might have a bookkeeper or they eventually could have a bookkeeper, but they may just be doing those books themselves at that point in time and probably doing them just okay and maybe doing them

out of a shoebox and they take that shoebox to the CPA at the end of the year and say, here, tell me what do I owe? I would highly recommend not doing that. I'd stay on top of it much more timely than that. But those are the two extremes in between then we start talking about once you start getting to maybe north of a million dollars in revenues. Maybe you've got an accountant slash ops manager. Somebody who is kind of running.

Yeah, in-house. Sorry, yes, in-house. maybe helping to run the business while you're out of house running your business, you know, calling on customers or whatever it might be, but someone who's in there who can kind of open the mail and deposit the checks and put them into the right accounts, et cetera, in your accounting package. And so they're kind of bookkeeper slash accountants, but maybe they're just an upgrade from just, you know, Susie Q the bookkeeper.

They've hopefully got some education in that area. And that's around that one million annual revenue mark. Yes, yes. You start approaching, say, maybe five million of revenue. This tends to be where we say, I ought to start talking about a controller type. It's somebody who is a little more sophisticated, not just somebody who is doing the books, but they're working on budgets. Hey, this is where we introduce this concept of maybe the owner doesn't have to do the budgets.

You have a controller type to prepare them, put them together, and then you as the owner can sit down and go, okay, yeah, thanks. That looks great, but let's make these tweaks and these changes. But someone can do that preliminary work for you. And clearly, more timely financial statements, maybe some tax advice a little bit, some planning, that sort of thing. And then once we start talking about above $10 million when we start talking about, you need to be looking at a, probably a CFO type, more of a business partner, somebody that's not just doing the books, but somebody that speaks into the business. Those are kind of our delineations,

if you will. One thing I want to go back and add is I've never talked to any business leader, and Dave Ramsey would be one of those, who didn't say, I waited too long to hire this role, whatever this role is, whether you're above 10 million, it was the CFO or between five and 10, it's the controller. No one ever regrets, you know, thinks that they hired too early. It's always, man, I wish I would have done this two years ago, one year ago, whatever. And if you make the right choice on the hire, it's probably a position that pays for itself really quickly. Yeah, and it helps maybe if your strength is not there, then you get to go work in your strength of the business. More so, don't totally disconnect. I wasn't giving you that leeway, but you can step into other areas.

So my word of advice there is to not wait too long on that. And that's not because this is sponsored by the American Association of Accountants or anything like that. It's just because that is the right thing to do. No one has ever said I did that too early. And just for the folks that are listening, if you are a business owner and you are needing help kind of organizing your finances and just having a bookkeeper just to get everything in order with regard to the reports that Mark is talking about, the service that we recommend for that is Belay. They do virtual bookkeeper. for business owners and business leaders. And so if you are in that stage where you just need someone to organize your financial documents and your financial data for you so you can accurately read it and then provide it to your accountant or to your controller, what we're going to tell you to do is text the word bookkeeping to 3196 and you'll get more information on Belay's virtual bookkeeping service. That's the group that we recommend.

So again, if you're looking for that service to be able to get all this stuff organized, that's the word bookkeeping, all one word. to 3196. And that's really just keeping things organized and just making sure everything's in order. Sure. And that's a great first step where you don't have to have somebody in house, but you can use that so you can step out of that area and you're not spending too much time in that area and you're getting the proper financial data in front of you so you can make decisions, but you're not actually having to put it all together. And if you are outsourcing or hiring or working with any service, this is obviously one of the most sensitive things you could possibly hire for or outsource in your business. What are the things that you're looking for that you would advise business owners to look for in the person they're interviewing to be able to do this work? Sure. First and foremost, and this is probably the hardest one to discern, is this person must be the highest integrity. You are trusting your livelihood to them and numbers that you likely don't care for other people to know and who are intimately involved with the comings and goings of money in and out of your business.

You have to place a tremendous amount of trust in them. and so how do you not place trust in somebody unless you know that they're of highest integrity? So what I would recommend is clearly if you're hiring that person, you're getting all sorts of references and then don't just follow up on the references that they give you follow up on the references of the people that were referring. Take it a step further. Don't shortcut this one. Don't go.

In that interview and I met them, it seemed like a really nice guy, upstanding guy. I go to church. He's a whatever. Check into them from an integrity standpoint because that is you can make some bad decisions in this area and lose a lot of money in your business if you make the wrong decision. So integrity is the first thing that I would look for. You probably want to hire the type of person that isn't really annoyed if you ask them a question, right? Like kind of that servant's heart or heart of a teacher. Yeah. I look at our accounting organization as we're a service organization. So anybody in the

organization that asks for anything, I want us to be able to try to super serve them. That's mainly internal. We don't deal with external customers that much. So the heart of a teacher or the servant's or all the above is what we'd look for because, A, you don't want someone to be intimidated and not be able to come to this person, this group or whatever it might be to ask questions because they're going to be condescending, demeaning, whatever it might be. So you need to make sure that that person is a teacher and a servant. Those two skills will go a long ways. Clearly, on top of if they're controller, they need to be a CPA.

If the CFO, you probably want them to be a CPA as well, maybe an MBA, not required, but they need to have the right level of education and skill set to go along with all that. But, man, I'm going to boil it back down to integrity and teacher and servant. The things that you're talking about today, they could legitimately save someone's business and certainly prepare them for an impending recession, not if but when it happens. If you sit down in one of the Master Series mentorship sessions that you do with business owners and someone comes to you and just says, Mark, I'm just not a number. numbers person. Like, this is not my strong suit and they're overwhelmed. What do you tell that person?

I would find out, do they have somebody on their team first that can help them, that they're particularly overwhelmed? I want them to find somebody else who's gone down the same road because they're not alone in this. They're not the first person to feel overwhelmed from a number standpoint. So do they need to find somebody in their mastermind group that says, hey, yeah, I was there. I was at point A and now I'm at point Z because I tried to learn these skills. skills and here are the steps that I've taken. So you're not alone and there are a lot of others out there like that. And I'd go back to what we talked about earlier is you're probably selling yourself short in the first place that you probably understand this better than you

think. It's not rocket science. I would draw out of them what they think they know and then they would quickly realize that they know more than what they thought. And then I would encourage them to depend on the size of business, then step out and get help. I mean, get help that you bring it in-house. That's not your skill set, but you're big enough business that you can afford it, go do it. So it all depends on where they are along the spectrum and what their size of business. But basically, they need more confidence in this area. And if you don't have it, it's like, go get it somehow. Find it. And the confidence is probably going to come more from the discipline and the continuity of the rhythm that you're going to build up. And the more you do that, the more frequency you see

two sets of numbers together, the more you're going to go, oh, I now see what those numbers are saying to me. Just you got to get into it. If we could also. it down with you for a cup of coffee, what's the final word of encouragement you would give? I would say that, again, if you think you can succeed in this business and the business that you're in and not know the numbers, you're fooling yourself. So that doesn't sound like encouragement. Yeah, that's harsh. Yeah, that's harsh. Okay. So my encouragement then is you got to go do it. If you really want to succeed in this, Dave Ramsey, we walk through the financials every month. I mean, he's far enough removed from some stuff that he's not worried about the day to day, but we're going to walk through

the financials every single month, every week before payables go out the door. He's reviewing that payable list. So if he's doing that and he's got that business acumen and that background, then you need to be doing it because you've got to understand what's going on in your business. So I guess my word of encouragement is you're better at it than you think, but you absolutely have to do it if you want to succeed in what you're doing. Well, Mark, thanks so much for your time. I know we are all better for it. So thank you. Thanks, Alex. Hey, I truly believe that the information and the action items that Mark gave you in that conversation could be the thing that saves your business or maybe even prepares you

to thrive in the next season of business. So I'm going to put on Coach Alex hat for a second and challenge you take action on these things. And if you're someone that's in a position where you're afraid or you're scared or you're intimidated by this topic, don't let that be the reason why you don't do it. Just find someone that this is in their sweet spot that this is a strength for them and get their help. Don't be so prideful that you can't ask for help. And hey, our team wanted to do our part. So we created a resource for you to make sure you never get caught in a spot where you don't know your numbers. The guide that we created for you and for your team is the six financial reports that can save your company. It corresponds with a lot of what Mark said in our conversation and really details the things that you should be looking at routinely to make sure that your organization.

organization is in a good spot financially. So if you want to get this free guide that our team created for the podcast audience, text reports to 33444. Again, that's reports to 3344, or you can click the link that's in the show notes. Well, I hope you enjoyed this episode of the Entree Leadership Podcast. If you did, please give us a five-star review and tell your friends to subscribe. For a chance to win a $25 Amazon gift card, you can review this episode by clicking the link that's in the show notes. And be sure to follow us on social media at Entree Leadership. This episode was produced by Tim Hull, and it was edited and mixed by Will Rutter. I'm Alex Judd, and on behalf of the entire Entree Leadership team, thanks for listening. We'll talk with you again very soon.

If you enjoy this podcast, you should check out other great podcasts from the Ramsey Network, like the Chris Hogan Show. I am so excited to be able to talk to you all week in and week out. We're going to talk about your money, your life, your dreams, and your goals. You know why? Because I'm your coach. Whether we're talking about building wealth, paying off your home early, investing, paying for college, and guess what? How to become an everyday millionaire. We're going to focus on taking your calls because you matter to me. Together, we can do this.

This is the Chris Hogan Show. To hear full episodes, just search Chris Hogan wherever you listen to podcast or go to chris Hogan 360.com.