ERP060 - Cash Management in a Crisis

do not discount your services. That's that's a downward spiral. That's why people have cash flow problems is because their sales reps are like, look, I got a competitive situation right now. If I can give them 10% discount, I can close that deal. We can get the deposit check. I got some people who are sitting here idle. It's better to keep them busy. No, it's not. Welcome to Evolve Radio. where we explore the evolution of business and technology. I'm your host, Todd Kane. Today on the podcast, I'm joined by Stephen King. Welcome, Stephen. Thanks, Todd. Good to be here. So, today we're going to be chatting about cash management in a crisis. Um, cash management is a ever present and always required need for a business. Uh, but I think that this topic is going to become more and more relevant. I think a lot of organizations have seen the the challenges that have been 2020 in all aspects. Uh, and one of the things that I really wanted to to dig in with you, uh, Steve is, um, we had kind of chatted beforehand. And I'd suggested my worry that, uh, the economy is not going to look great, uh, probably kind of into early 2021 and and beyond. Uh, part of my concern is I think there's a lot of government money sloshing around in the economy, which, uh, creates sort of this, uh, false appearance of the water kind of being higher than it is. And, uh, once that money drains out from the from the system that, uh, maybe many businesses may start to experience the rocks on the bottom of this, uh, situation. Um, wanted to bounce that off you and get your perspective, uh, you deal with a lot of organizations and, uh, managing their books and their finances and and setting them forward on a manageable path. So I'm sure you think a lot about this and I'm curious your perspective on what you think the challenges of this new economy are going to be. Well, I strongly agree with you. Um, I think the worst is ahead of us. And I think the worst of it is ahead of us for a number of reasons. And we work with a lot of technology-based businesses. So it's kind of a tale of two cities. The, um, it's it's not just that the, you know, the the PPP money has pretty much run out for those who have gotten it. You know, as we're as we're recording this, we're right on the, you know, the verge of figuring out the results of the election. But the, you know, either way, there's there's, um, the underpinning of of where we are is challenged because the debt, the federal government's debt to GDP ratio is right now 137%. And a and a good a good economy is it's 60 to 80%. Wow. And and if there's another trillion dollars that gets approved, which is probably going to happen because it's politically, you know, everybody wants to, uh, take care of American small businesses, it's the backbone of the economy. We're moving to 150% debt to GDP. And what that means is, we're going to face inflation. We're going to start seeing the the impact of deficit spending, taxes are inevitably going to have to rise. And the the costs of everything are are already starting to rise. You know, we just got our health insurance bill for 2021. And COVID's going to have an impact of additional costs in the marketplace. And so what that means is that, you know, to my mind, there's kind of like a five steps to weather the storm. The first is, you got to get the right mindset. You've got to, you got to make data-driven decisions and not emotionally-driven decisions. This is really hard right now. I mean, I am 60 years old last month and it's never, ever been this hard. You, you know, work is hard, your clients are struggling, your employees, I got people who got COVID and they're struggling and their kids are, you know, home from school. And then you go home and it's, you know, the worst news cycle of my lifetime. And then, you know, there's a lot of fears. You know, we've got a 81-year-old mother-in-law living next door, which means that you can't take a risk of bringing a disease. And everything all combined, the kids in the schools and their identity, I've got two kids, 22 and 19. And so you you take all this stress and it's hard to not bring it to the workplace and come from a position of fear. And what we're finding is that when you really look at the real numbers, it's not as bad as you think. The first thing that that we're helping businesses do is figure out what scenario are you in? Are you in survival mode? Are you in restructure mode? Or are you in a position where you can strengthen? And I'm really surprised how many businesses are in a position of restructure and strengthen. It's like over 80% of our clients. Now, we don't do a lot of retail, so we're not struggling with that. We do service businesses and nonprofits. And now is a time where if you really focus on getting data at your fingertips, that's actionable, then you can start to make decisions over the next six to nine months and come out of this stronger. Yeah, I think that it's an interesting point that, uh, the the IT industry in general has largely been buffeted from the effects of the sort of the issues in the economy. Um, so I think that people again, like it gives you sort of that false impression that maybe things just aren't as bad out there as as as maybe they they would be or they could could be. Um, so I think that that is is again, a bit of that mirage around, you know, people when the the the the lockdown first started, everyone kind of tightened their belt and and went to defensive, but it all seemed kind of for not. Um, you know, certain sectors, you know, I know MSPs that were heavy into the hospitality part of the the business and they were quite heavily hit. But for the most part, everyone saw, uh, a minor, uh, deduction in their projects and procurement, others saw a huge increase in that, uh, some saw, uh, uh, uh, a limited spend for, uh, uh, for new new opportunities and others saw, you know, double digit growth in in new new revenue. So there's there's such a dichotomy of what's going on depending on where you sit. I think that that's a it's a good perspective of where are we right now and what do we need to get a hold of? Uh, I think that maybe some numbers, if you could around, uh, what should be people focusing on? Obviously, if you're not reading your P&L and and managing your finances, uh, certainly on a month-to-month basis, you should probably be be looking at that. Uh, but where should people start? Well, I just literally hung up the phone with with uh with a client who's a um managed service provider. And what when we were reviewing their their they're going into their year-end planning for 2021 right now, they got their traction meeting and I'm a big fan of Gino Wickman and the EOS model. Um, the number one driver is recurring revenue. And that's what keeps you afloat during good times and bad. And that's why I said earlier, it's kind of like a tale of two two cities, right? The companies that have real strong recurring revenue streams are are thriving. Um, the ones that are project primarily project-based are struggling. Now, they're starting to come out of it because like you say, you know, the fear is starting to people are starting to feel like, okay, I I'm I'm, you know, I'm I'm I've made it through the worst of it. But my view is, the worst of it is ahead of us right now. I hate to say that because I'm an optimist. I am, you know, absolutely a guy whose glass is not only half full, it's filled with red wine, right? And I look through those rose rose-colored glasses all the time. But I just see the combination of the deficit and the political uncertainty and the healthcare costs and and all the other things that we already had, you know, the number of baby boomers who are coming onto Medicare, all that stuff. Is is is cause giving us already some headwinds. And now I think what that's first step is, you know, getting the right mindset is having the data to understand what are your different scenarios? If you is it is it is it is it we're going to we're going to lose some top line or we're just going to stay status quo? You know, there's only three drivers of success in increasing profits, right? It's your top line revenue. Are you going to grow that? Is it going to stay status quo or are you going to start to see some decline? Especially on the project side, if things got worse. Do you have an above the line problem? You know, to my mind, the number one most important number of any company is gross profit percentage. Yes. It's why it's why the shark tanks always ask you. What are your margins? What do you how much you sell it for and what does it cost you fully landed because they're doing that percentage calculation. You know, there's five drivers in every business. Gross revenue dollars, your top line. Gross profit dollars. Gross profit percent, which to me is the most important. And then net income dollars and net income percent. And so you have to look to see, do you have a top line problem with your revenue? Or do you where most businesses I see right now, we look at hundreds of businesses books every month. Most businesses right now are struggling with the above the line costs, the cost of good sold or in a service businesses, the cost to deliver the services. And there's only two types of above the line costs. There's they're both direct costs, right? What the customer has directly paid for. It's your direct labor, the labor the customer directly paid for and your direct materials, the stuff you had to buy. The hardware, the software licenses, the routers, the wiring, all the, you know, the things that are needed to buy to earn the income. Those two costs, direct labor and direct material, go above the line. And the line is gross profit. What I'm seeing right now is most businesses are struggling with that gross profit percentage because just like the company I just left, revenue has slowed. But you don't want to fire your people. Right. You you know, your most valuable asset is your people. It's also your biggest expense. 70 to 80% of your expenses when you add in health insurance and 401k and recruiting and training. And so, and the cost of replacing somebody is one of the biggest insipid cost in a P&L. You there's no there's no line item that says cost of turnover, but you see it in lower margins. You see it in increased overhead, you know, in training and all these other hidden costs. And so you want to be looking at your gross profit margin right now. What does that trend look like year over year? And if if that's not trending the same way with your revenue, then you've got to start to look at what are the above the line opportunities. And there's a lot there. That's step three in my process. Okay. So I want to pause here, there's a couple of things to to to dig into. What I find especially in our industry, I'm sure this is probably the same in all other industries. Uh, but entrepreneurs and business owners, they tend to see if they have a cash flow problem or they're having a profit problem. Their only tool that they seem to be able to pull out is we need more revenue. Right? And this drives me crazy because they they often are not looking at the profit percentages and what their their cost of goods are. When there's plenty of opportunity to either sell to the existing client base or to tune the operations. And sometimes I I sort of have to check myself because I'm, you know, I'm a former uh uh VP of operations, sort of the COO role and you know, is this just the hat that I wear and the perspective that I bring? Uh, you know, can you give me your perspective on that? Is is the uh everything is a nail when you're a hammer, revenue solves all problems, actually uh a stronger position than I tend to think it is or is or are people just sort of that that's the only tool that they have? Oh man, you really touched on something that I'm I'm passionate about. I just discussed this because they're trying to figure out the year-end planning for next year. You most businesses think they can sell their way to increase profits. Okay, what is that? Why do they think that way? Well, if I can increase my top line and I don't have to increase my overhead, then I'll be able to have that extra money going into the bank account. And that's a that's a fallacy. It's it's it's only true if you improve your pricing. If you if you find the time leakage. Let's go into that dig into that above the line drivers, right? There's three drivers to success. Top line, gross profit percentage, netting and overhead. Right, if you can increase your top line and increase your gross profit percentage and lower your overhead, any combination of those three, you'll increase your your profits. But you can't just sell. You have to increase margins in order to increase profits, at least profit percentage. Because what happens is, as you increase your revenue, your overhead's likely to increase at the same rate. Your your sales and marketing costs are going to go up. You're going to you're going to have to you're going to pay commissions, you're going to have to hire more sales people if you're going to try and grow. You're going to have to pay more for for marketing and SEO and SEM. The biggest driver on profitability is increasing your gross profit percent. Which is why it's the number one measure of every business. And the way you do that is you need to study what is your actual cost to deliver your service. The payroll, labor costs, not payroll, fully loaded labor, which, you know, includes the taxes and the health insurance and all the benefits and recruiting and training are the biggest expense every service businesses have. And what you have to do, is use your your PSA, your your your your connect wise, your auto task, your of the world and take the time sheets that are in there and use that to allocate your payroll. And depending on which system you're in, depends on how easy it is and how automated. has the most automation, they integrate with QuickBooks online and QuickBooks desktop. Which QuickBooks has 82% of the market, so they're they're, you know, the dominant force because it's so powerful if you unleash the power of QuickBooks as a manager reporting system. And when you use into it payroll or insperity, which is an outsourced HR company, those two have automated what they call activity-based costing. And activity-based costing used to be a concept that was only available for the Fortune 1000. I was at Ernst and Young for seven years. I was a manager of accounting system design and my clients were Fortune 100 companies. And what I've seen is, if you are able to implement job costing, you now have the ability to have unit economics. What is unit economics? Unit economics is the profitability on the work that you do. Profitability on your unit. In a manufacturer, it's your widget, right? How much do you make on a widget? But in a service business, a unit is whatever you put on an invoice. It might be a seat. Right? It might be the project. It might be, um, the the milestones or whatever you invoice your customers, right? You've gotten X number of seats that you're charging Y dollars for. You have to see the economics of those units. And when labor costs is your biggest expense, the magic is doing that job costing, that labor cost allocation when you run the payroll. And it's pretty simple. Like, you know, this client I was just talking to has auto task and they're they're auto task doesn't have a great integration to QuickBooks desktop. It does for QuickBooks online, but so that's okay. You can copy and paste the time sheets out of auto task into Excel and then use an importer tool that we've got to suck it into QuickBooks. And then once it's in QuickBooks, when you run the payroll, it's automatically allocating that labor cost based on how people fill out the time sheets. Now, since you're doing your billing is, you know, you sync all your invoices into QuickBooks, you now can see profitability by customer, profitability by job, by service item. Now, when you see that profitability on the work that you do, on the units, now you can start to aggregate units and say, okay, which types of services make the most profit? Which of my teams make the most? Is it my my break fix team, my help desk team, is it my contract clients or my project clients? Which industries are the best? Where do we add the most value as a company? Do we do great like you mentioned, you know, some people specialize in healthcare, which is challenging. But if you're can conceive, I make the most money, like we make the most money on serving white collar service businesses. Then you can tell your marketing department, get me more that look like this. And what'll happen is if you add the most value, you're going to have the highest margin, you're going to have the most profit. So studying that above the line cost is way more important than trying to increase your top line revenue. So, uh, a couple of other things I want to dig in there as well. Um, uh, first, the, uh, the focus around gross profit, I think is really important. And and you touched on the fact that, uh, gross profit, um, on those unit economics are really, really critical. Most of sort of the, the, the, um, uh, the smaller or less mature MSPs that that don't have a a more detailed view of their finances, they tend to just focus on the profit of the organization. And they don't really have a lot of deeper analysis around, uh, you know, certainly what are the clients that make money? When that that's always a measure that I think is really important again from tuning that operations. If you find that a client that represents 10% of your revenue consumes 50% of your help desk, you have a serious problem. And if you're not entering the time against the contracts or having some unit economics around that, that's a really difficult thing to find and versus to just have a a gut feel on that. So I think you're absolutely right on on having that deeper understanding. Um, further on the gross profit, what people tend to focus a lot in the industry. And this I think is driven by, um, you know, the great work that Dipple does with service leadership. And Oh yeah. Everyone pounds the drum on Ebitda and it's always the measure in M&A, everyone's always sort of like, what what Ebitda should I have and how much can my I value my my company based on this? And there's sort of a word of caution that I would maybe put out around Ebitda and feel free to check me on this, you know, finances probably better than I do for sure. Um, the focus on Ebitda, I think is is practical, but I think people often get a bit sort of faked out by it and I think that that where that combination of gross profit and Ebitda is an important measure. Because I think what people often miss is Ebitda still factors in investment in the company and the company's growth. So the Ebitda in my mind is almost uh a variable number, you can't say that this this company is necessarily better than the other company unless you really understand where are those costs going. So if you have two equal companies A and B, one company has a higher Ebitda percentage, but has very little investment in the organization and its staff and potentially will result in higher churn. Versus another company that has lower Ebitda, but is making massive investments in growth through marketing and investment in their their staff, then those are not the same thing and one is certainly not better than the other unless you understand the contributions towards Ebitda. Whereas gross profit in a large case, if you have the detail in it, is probably a better measure of just the raw performance of the service delivery. You kind of check my math on that. Am I am I right? Am I wrong? No, I think you're right, but I think for a slightly different reason. Uh, gross profit is what creates Ebitda. Yep. So you you to my mind, that's why Ebitda and net income are the second most important measure of the health of the business. Because and again, I, you know, we do management accounting, right? You know, I'm I'm a CPA and you you mentioned, you know, I've been a CPA for 35 years, you mentioned that most businesses look at their income statement, they just look at the P&L at the company level. It's because that's what the accounting industry creates, right? They do financial statements. And financial statements are very different from management reports. And both of them can come out of QuickBooks. And you need both, you need an income statement and a balance sheet. But unless you can drill down to the work that people are doing, unless you can work backwards from the decisions you're trying to make each day to understand what are the drivers of that decision. And then, and only then, figure out what reports can you use to make a data-driven decision, you can't increase Ebitda. And and the, you know, Ebitda is a great number. I love Paul Dipple and all his work. Um, you know, Ebitda is a placeholder for cash flow. And and that's, you know, what why it's so valuable. But it's the result. It's not the source and the source of Ebitda and the source of profits is margins and gross margin and contribution margins. So, to my mind, the first focus is really trying to understand what does it really cost you to do that? And what I see a lot in in technology companies is, you mentioned the people side and the investments in the people. It's all about the people. Right? it's not that, you know, it's not the people are not an expense, I mean, even though they are technically, right, as an accountant, they're going to show up on that P&L. But you really have to be thinking of them as an asset. And what's the difference between an asset and an expense? You know, an asset is something that you invest in and you invest in it in order to get a return. I buy a stock and I expect a dividend, I expect that stock price to appreciate. I learned, you know, we we became an insperity client eight years ago and as an accountant, I always thought of people as an expense. You want to increase profits, what do you have to do with an expense? Cut expenses, right? So my mindset for, you know, most of my career was, I want to pay as little as I can in salaries. I want to have the I I get the cheapest health insurance I can get. And turnover is just the cost of doing business. And you know, we typically the the average turnover in the United States is 19%. In the accounting industry, it's 21%. There's not enough knowledge workers to do all the work that has to be happen. And that's really true in IT. And so when you look at trying to increase profitability, you you the the reason why you're so I agree with you, Todd, for the importance of seeing the investments, especially investments in your people is, when you invest in your people, they stay with you a long time. And turnover is the most insipid cost you have in a business. There's no line that says turnover expense. But that drives the revenue per employee, the labor cost per employee, you know, you have to spend a lot of money on recruiting and training those new people. And the companies that are wildly successful have low turnover. The AICPA, the highest body in the accounting land, they did a report called valuing the human dimension. And what they said was, they recommended that publicly traded companies should have a required footnote disclosure for employee turnover. I love that idea. Why? Why would accountants care about turnover? Because there was a direct correlation between companies that had teams that stayed together for a long time and earnings per share and the market leaders have have defined a culture, they understand behaviors that are successful, they recruit for those behaviors. And then they they they train the heck out of their people and then they recognize and reward the people who contribute the most to profits so that you get them acting like owners. That's why I like to look at gross profit because if you have low turnover, if you invest in the efficiency and the training of your people, you're going to see it in your margins. And that's the most important way to measure how your people drive your profit. Yeah, that's uh, fantastic. I love that perspective. Um, the first blog post that I put on my my website when I started my company four and a half, five years ago, uh, was managing turnover, right? Like because it's so critical, like I I do a few presentations. Um, to me it's really, uh, a hallmark because, you know, I focus largely on the management and the team structure, the management framework of how you lead people and produce productivity. Uh, and uh, so I'm I'm big on on the fact that those systems help to retain staff and lower costs. And you're right, it's an insidious number because people don't tend to think about the cost correlated with it. And the numbers that I've seen vary wildly from 50 to 150% of the annual salary you're replacing. So if you have an 80k position, that person quits, it potentially costs you at least 100 80 to 120k, uh, in replacement costs. Never mind sort of the the soft costs, uh, uh, losses of having to, um, the potential tribal knowledge or the cultural disruption that those things create. So I I agree, it's it's such a big thing. Um, similarly, kind of related to that, another thing that we wanted to talk about with around the people is, if you're coming into sort of this cash crunch and the issues that you're potentially facing in in, uh, maintaining the cash flow and and maintaining some level of growth in your business. A lot of people are now weighing, you know, what are my options? Um, you know, I want to do what's necessary, what's best for my business, but that may result in some some decisions that people are not necessarily comfortable with. They may have to lay off long-term staff. Uh, I'm curious sort of what your guidance would be on how do you balance the need or the the desire for a leader to carry some compassion and have some space to be able to retain staff despite some struggles that they may balance, uh, how do they balance that that the needs of the business and the needs of the people in their organization? How would you think about that? And this is the most, you know, the first most important decision every business will make is pricing. The second is hiring and firing because people are your biggest expense. So, you know, it comes back to those five steps to weather the storm. So first step was getting the right mindset and what that means is getting the data, right? So step two is getting control of your cash flow. And and what that means is the first thing if you're trying to figure out, do I have to furlo or fire anyone? Well, first you've got to get the data. What does the next 13 weeks cash flow look like? We recommend 13 weeks because it's not that long to be able to to solve a problem that's going to happen. You can't if you have if you can't make payroll in three weeks, it's not enough time. I mean, you can run around, you know, and try and do your emergency collections and you can try and generate some quick bills and get a get a, you know, a couple of deposit checks in the door, but that's when you make bad decisions. That when you start, you start operating from a position of fear. The worst thing to do right now, if you walk away from one thing from this podcast is do not discount your services. That's that's a downward spiral. That's why people have cash flow problems. It's because their sales reps are like, look, I got a competitive situation right now. If I can give them 10% discount, I can close that deal. We can get the deposit check. I got some people who are sitting here idle. It's better to keep them busy. No, it's not. Believe it unless you have unless you have, uh, uh, you know, uh, no opportunity costs, right? There's nothing else those people could be doing when you start to discount your services, it creates a downward spiral. And that so so you've got to do is you got to look at the cash flow for for 13 weeks to anticipate how bad is this going to be. What I found is, got a client in New York who, you know, we we used our cash flow template with them right after New York City shut down in March and he's he called me the next day and he said, I just finished with your team and I want to know this is the first good night sleep I've had in three days. It's never as bad as you think it's going to be. Hmm. And when you see it, when you see all the sources of funds and all the uses of funds, now you can do something about it. Now you can start to say, all right, you know what? I'm going to have to, I'm going to have to call my accountant and say, I I need a couple of months grace or I I'm going to call my my landlord or all the things that you you start to start to get into problem-solving mode. And that's where the the data helps you get the emotions out of this. You're not when your head hits the pillow at night, you can't be in a position of fear, otherwise it becomes a self-fulfilling prophecy. So step two is besides step one is get the right mindset. Step two is look at the data. And then implement the best practices in cash flow. So, collections is a mis. You want to ask? Well, just uh if we wanted to hit on we kind of cycled around uh one and two, I think we mentioned three. What are four and five? Just uh just to run through the list and then we can. Sure, sure. So, so, so step two is managing cash flow because you have that's the blood, right? That's what causes you to have to make cuts. Step three is, if you have to make cuts, let's focus on below the line costs first. Let's focus on overhead. Before you go to the decision about firing your money maker, your people. Let's look at every single line item that you've got below the line. So, first is to see, can you convert some of those fixed costs of having head count in the back office into a variable cost by outsourcing it? So, you know, IT is a great example. If you got a full-time IT person and your revenue has gone down and you're you're your head count is going to go down, if you had outsourced it to an MSP, now your costs are going to go down because you're fewer seats that are needed. Same thing is true with accounting, HR. Anything that you're doing in the back office, if that's not your money maker, if that's not your core competency, then that's where I would start to cut first. And then look at everything that's discretionary. There's a lot of savings in travel and people, you know, rent cost may be going down, you know, we don't we don't have to pay for office cleaning or office supplies, all those costs are the first one. Then, that's step three. Then step four is, now you review your above the line people. Who are the people that drive profits? Who are your most valuable people? How many can you afford to keep? And then which ones should you furlo if you have to? But it's only after you have looked at everything else. Right. And then step five is, once you have figured out what's the right size for your company, then you got to get back on offense. You got to sharpen the saw. You got to look at the people that you're keeping, think of them as an asset. Invest in their training. In then invest in their productivity. How do you automate everything? You know, when in the cash flow step, we talk about one of the simplest ways to reduce back office cost is to automate billing and collections. And bill payment. I'm amazed how many people still have have never looked at how many steps it takes to get an invoice out the door. And how much time they spend on on paying bills. All that can be automated. And that's a a real easy way. The last step in step five on playing offense is, now's the time to create a budget. Why? A couple of things. Harvard did a landmark case study where they said the simple act of writing down goals increases your likelihood of success by 82%. That's a huge difference. And I big difference. And I read that report and I thought, as as a CEO of a small business owner, I thought, okay, I want to know that. I I'm I'm not great at writing down goals. And what I learned was, there's a couple of things that are obvious, you're going to get alignment, you're going to get people all rowing in the same direction. But the report got into Maslow and Maslow's hierarchy of need. And if you if you make money on people, you really need to understand how Maslow applies to business. You know, above survival and safety is a need for belonging. We all have a need to belong to something bigger than ourselves. It's why, you know, college sports is such a big deal, churches, political parties, community groups, sports teams. And work is the second most important group that anybody belongs to after your family. And when you have a company goal and you cascade that down to the department and down to the individual, what Harvard found was, people are not going to let the team down. You start to get discretionary effort, you start to get people acting like owners. Because they belong to a team. And if you have the last step on the human capital strategy, you have a rewards and recognition system so that they know why increased profits is good for them and their family. You're going to have people who are going to give you that extra mile. They're not going to spend the there's two hours wasted every day on average. And right now with fantasy football leagues and and Christmas shopping on Amazon and, you know, who knows what they're doing on Bumble and, you know, uh, whatever other dating sites. It's you start to get that extra two hours of productivity of them working for you because they know what success is and why it's good for them. So, you know, that's the five steps. To my mind, playing offense, step five, sharpening the saw is the most important. And that budget really has an impact. It also turns your income statement, you mentioned that income statement that the CPA gives you, if you add a budget, it makes it actionable. Yeah. You can start to see where do you focus your time. That's that's a big one. You mentioned earlier about having scenario planning. I want to circle back to that because I found that that was really, really helpful for me, uh, as a as an operator, not and not an owner in the business. Of of really coming, uh, coming up with game plans with the owners and we had sort of predefined ideas of of if this, then that, right? So we we expect to have 20% growth, uh, if we have 10, then this, if we have negative five, then that, right? And that is really, really helpful that that like you said, you're then making data-driven decisions that have an objective reality and you're not just reacting and feeling emotionally about what the case is. And and being able to establish that alignment between the owner and the operator and having those preconceived, uh, game plans, I think is really, really helpful, especially going into a season with a ton of unpredictability on hand. And and especially, you know, this is perfect timing, right? The end of a year, the beginning of a new year. We recommend there's three cases you want to do your scenario planning. Your your your worst case, your mid case and your best case. And you want to look at two things. You want to look at what's the change in revenue? Best case, mid case, worst case. And then how long will it last? How long will it take before you can turn that corner? You know, are you going to lose 10% of your revenue, it's going to take, you know, uh, three months or are you going to lose 50% of your revenue over the next six months? You know, how bad does this get? Or how good can it get? And then there's only three drivers of of profits in a business, top line, gross profit percentage and overhead. So what does it look like those three scenarios? What does it look like if your top line goes up or flat or down? What does it look like if you can increase your margins by a little bit? This client I was just mentioning, by increasing their profit margins by 5% from 51% to 54%, helped them increase their profit from 12 to 17%. That's giant. And why does having an impact and gross profit have such a profound impact on the bank account and the bottom line? Because nothing else changes, all that extra dollar goes right into your pocket. Whereas if you try to grow your top line revenue, you have to spend money to make money. And so you, you know, you you don't you have a 100% benefit of finding time leakage. This is the one that I that I think most of our clients gain the biggest value. When when you have activity-based costing, when you can see the time that people spend and the labor cost, now all of a sudden you have visibility is where did I miss the pricing? Where did I miss project manager? Client interactions with emails and phone calls or the quality control, you know, I got a ticket, how many went to level two, level three? What does it really cost you to serve a seat? And and by having that visibility, it allows you to to demonstrate the reasons why you're worth more. What's the value that you give? You know, again, we work with, you know, dozens of managed service providers, there's a big difference between the ones that have quick escalation and the ones that it's like, all right, well, let me find my, you know, my level three guy. He's out at a client now, um, you know, three days later they call you back and it's like, yeah, so tell me about that problem. It's like, wait, wait, I I lost three days. Well, if you have that escalation because you have the people, you can you can explain why you're worth more. This is not a commodity business. You're not selling soy beans. You have what's your unique value proposition, who's your ideal client profile and that will allow you to be able to generate the margins to cover your costs, including the overhead and generate you your your your target net income. So operations is key to gross profit then. Yes, it is. And I'm not saying that because you're a COO. Excellent. Yeah, I I this is not a paid endorsement for the the services. Uh done and and the improvements made, but they are material. I think that that's the point that I I think is really important. Because the work that I do, it it doesn't seem to be common knowledge and I think that that's not necessarily mystifying to me. But it is perpetually frustrating that people don't recognize that they have the keys in hand to enhance the performance and the profitability of their business without having to go to market and win a bunch of business. That just tends to be, like I said, that that hammer that they want to use for everything when they have much more control over what's happening right underneath them. Yeah, and and what here here's the three steps that we typically recommend. You know, once you can see the profitability of your client. And and if you don't have the job costing and all the, you know, the activity-based costing that we we we recommend and we implement. There's another way to do it. You can use standard cost accounting, standard cost rates inside connect wise or auto task or whatever your PSA is. The most important step here is that you've got to reconcile every single month, what's your actual fully loaded labor cost per employee and update the standard cost rate inside your PSA. What I see all the time is people go in there and they put in a cost. And and they put in one cost across each across the level, right? Level one is 45 bucks, level two is 55, level three is 65, whatever the numbers are. And that's a mistake. Right, some people have health insurance and they're others don't. Some people, you know, have a higher base salary. You got to get actual cost per person to see are the people that you're paying the most to, are they really that much more productive? Are they generating that much revenue per employee? But whatever way you use, if you use standard cost or use actual P&L by customer, in QuickBooks, you have to look on a regular basis, at least quarterly, but at least in the start, we do it every month, look at the bottom 15% profit clients. Yes. And then and then do one of three things. And we're talking about gross profit, right? The first thing what we do is we suggest that you want to calculate your total overhead for the year. And then divide that by the number of billable hours that you've got. Or chargeable hours. So if you got 10 people and there's 2,080 hours a year and you're going to have 80% utilization, you got 1,600 hours, right, per person, just round number. You take your total overhead, divided by the total number of available hours. So 1,600 available hours, if you had 10 employees, that's 16,000 hours, right? If you got a million six of of overhead, that's $10 an hour. You got to make sure that your projects are covering their share of the overhead and generating your gross your net income profits. If you want to make 15% profit, right? A well-run company makes 12 to 15% profit. The market leaders make 15 to 20% margin. When you sell the company, the value of your business is going to be directly a function of what's your net income percentage. Are you a, you know, a well-run company or are you a market leader? And if you're below 12%, if you've got 8% margins, you're going to struggle to get your valuation. Now, if you look at the bottom 15%, you're going to get addition through subtraction, additional profit through subtraction. And you follow one of three steps. Step one is, dig into the details to see where's the time leakage. Where are the hidden costs? Project management. You know, I'm amazed how many people have project managers below the line in overhead. 100% agree. Why, why do they do that? Because it's management, right? It's a cost of management. And management is below the line. Well, they I hear clients often tell me, well, the client would never agree to pay for project management. Like that's your problem, not theirs, right? You're not telling them that they're paying for project management, but it has to be baked into your pricing. I agree, 100%, yeah. That's one of the the strongest drivers for me around fixed-based fixed fee pricing for projects is that it shouldn't be up to their the client's discretion about how you run the projects. It's a part of the cost. So if if you have clients pushing back on you against the cost of project management being a line item or hourly, that is a a strong motivator for for fixed fee projects where it's just value delivered, right? Like here's the cost, this is what you get, does that make sense? Don't look at these line items and say, well, you know, if we have Jerry from the stock room, if he does this part of the project, can you give us a discount? Like that, uh, no, no, no. These are not conversations you want to have. Now, now you're talking about transactional clients as opposed to transformational clients. That's what we when we when we bring on a client, you know, sometimes we have transactional clients, my bookkeeper quick, can you do the billing? Can you do the collections? Can you pay the bills? Can you reconcile the bank account? Yeah, no problem. We're good at that. And then you have other clients that come in and says, I'm making 7% profits, I I sometimes have cash flow problems because I'm only making 7% profits and that's why you have cash flow problems and I want to get to that 1250. Those are transformational clients. And then, you know, everything we do is fixed fee. Unless we're doing a a a QuickBooks system tune up or you know, a project that's just to clean up, you know, that's that we do on an hourly, but all of the accounting is is fixed fee because we don't want you saying to us, can you lower your fee if we don't have a phone call at the end of the month to read and interpret results, right? That's where the value is. So, you look at that bottom 15% and the first step is to look at the true cost and you have a conversation with the prospect and say, here is the scope of the work that we have outlined for you when we price this. And here's what reality is. So we have three choices. I can increase my fees to reflect the real value that you're getting from us. Option two is, I can lower my fees to stay within your budget, but you're going to have to be the project manager. And I'm not going to deliver this extra out of scope work or I need to transition you to another service provider and our contract calls for 60 days notice. So at the end of this call, if we don't work out, I'm going to start that 60-day clock. What I have found is, almost 90% of the time, if your clients are happy with your work and you can show them the value that they're getting for that additional fee, nobody wants to change IT companies. It's a nightmare. You know, it's at least another $10 or $15,000 startup cost. So if you're coming back to me and saying, I got to charge you $1,000 a month, done. I I'm I'm I'm if you're happy with it. Right. And that's that, you know, show the value or lower the scope. Or I got to get you out. And when you give somebody an option, they're now they're now more likely to be they'll feel like you've put it in their control. All the value pricing people say this, when you give them an option, they feel good about the process. They're more likely to say, okay. This this is what I can do. Another one I wanted to circle back on is AR. Because I think that this is a big trigger for cash flow issues and again, uh, sort of the the the steps around maturity and and changes that people could potentially be looking to implement. I I'm still shocked by the number of people that are, you know, 45 days on AR. Right? They're they're sending out a bill at the beginning of the month and then they're giving them six weeks to pay them on that when quite frankly, like this is a fixed fee business. Like you're most of the industry is doing all you can eat pricing on a per seat basis. The person knows how much they're going to be paying. So why not run it as utility billing? It's, you know, your agreement is 30 $3,000 a month or $8,000 a month, whatever it is, you build them $8,000 or $3,000 on the first of the month. And even better, you're direct debiting some form of payment on the first of the month. There's I don't see a scenario where it makes sense to give people such long terms on essentially a fixed fee service delivery. Would you what do you see as sort of the the percentage of people that are on the the billing on the first of the month versus sending out invoices and trying to collect over the next six weeks? Well, well, our clients, it's 50/50 coming in and 80/20 going out. Right? It's like this is one of the first things we do because cash flow is about the timing, timing of when money flows in and when money flows out. And and it's really helpful to understand if payroll is your biggest expense, if it's 70 to 80% of your expenses, you've got to have the timing of when you get paid be before you pay payroll. It's that simple. And the, you know, if you if if um if you and this is true whether you're in a recession or you're in a booming economy, right? These are fundamental aspects. You know, step one is get the cash flow forecast because that tells you, you know, do I have to focus on collections or, you know, uh, do I do I have an issue with the bank, whatever I need. Then the next step then is to really understand your day sales outstanding, your DSO. Your day sales outstanding is the number of days it takes for you to collect a dollar of payroll. And what we recommend is you want to automate the billing and collections process. So ideally, you're debiting their bank account and every bank has that ability. If not, and that's what we do, that's what we advise our clients to do. If not, then now's a good time to start to think about taking credit card. And the reason the reason is because the the the 3%, the 3 and a half% of cost for your merchant fee. Unless you have big ticket expenses, like if you got a $20,000 project, I would not put that on a credit card. You don't want to have that big amount. But when you're talking about, you know, the the the monthly billing, what it does is, number one, it eliminates the risk of default. Now, MasterCard and Visa have to go get that money. Number two, when you implement into it merchant services, you can automate the entire process. And this is comes to that sharpening the saw and lowering your overhead cost too. If you've got one person who's, you know, doing billing and collections, then what's the cost of that person versus can I eliminate that head count by automating it? And how does this work? Into it merchant services and into it payment solutions, to me it's magic. You you you have the ability inside basic QuickBooks, desktop or online to go and send an email to the client, which everybody pretty much does. But it when you turn on merchant services, it adds a pay now button. You've seen it from, you know, your handyman and the plumber. And it's like, you know, you get an email from QuickBooks that says pay now and then you can enter in the credit card number. And what it does is, it not only automates the the the billing and collections process. So now you got the money collected by the credit card, but because it's inside into it, it knows what the the invoices are and it automatically applies the payment against the outstanding invoice. So you've eliminated the bookkeeping function. So when you look at the cost of a bookkeeper, if you can automate that, that two and a half, 3% is nothing. But here's the magic. When you because it's all connected to the inside into it, if the customer doesn't answer the email, it knows. Okay, that customer balance is still outstanding. It'll automatically send another email out. So we set our clients up to send out an invoice every Sunday. Why Sunday? I got to be an Inc 500 featured speaker for a couple of years, which was really fun. And I did a study of the Fortune 1000 cash flow best practices. And what you find is that if you send invoices out on Saturday or Sunday, you get paid seven days faster than if you invoice on Tuesday, Thursday or Friday. Interesting. Because isn't it interesting? And I dug into it. Why? When people think, sorry, your customer thinks, oh, these guys are serious about doing invoicing. They came in on Sunday to send the invoice. No, it's just automatically scheduled for Sunday morning. And then what happens is when you get the second invoice, they're like, oh, I'm going to make this go away. Let me enter my credit card number now. And your DSO, if you're getting paid net 30 or net 45, like your example, drops all the way down to net 14. Because you made it easy for the customer to pay. And by automating the whole back office, you've automated the billing, the collections and the cash application, which is a lot cheaper than actually paying a human being to do that manually to pick up the phone and call. Right on. Well, we'll look to wrap up here, uh, Stephen, this has been really, really useful. Um, lots of lots of info here and, uh, lots of actionables and and stuff for people to chew on. Um, as we as we look to wrap up here, any final thoughts or or call to action for the listeners? You know, I think I think you know, in a tech tech business, it's all about the people. We've got a people scorecard that shows you revenue per employee, labor cost per employee and net income per employee. And I think you've got to look at that side by side with your P&L because if you can lower turnover, if you can increase productivity, if you can get people to give you discretionary effort, it starts to show in that revenue per employee number. And that drives your top line and your gross profit number. And so, you know, when we look at helping increase clients increase their profits, you got to look and say, what are the drivers of increase profit? And when you make money on people's time, it's always the people. So, either keep, you know, bringing the right ones in, keeping them a long time or increasing their productivity by having rewards and recognition and human capital strikes. You can measure all that in a people score. Awesome. Well, this has been great. Really appreciate your time, Stephen, and, uh, thanks for being a guest. My pleasure. And if anybody has any questions, they can reach me at Stephen, S T E P H E N at growthforce.com is my email. Or I'm on LinkedIn, Stephen King CPA and, uh, www.growthforce.com is our website. We've got a blog and a podcast that kind of shares all this stuff. Awesome. And we'll link to all of that and, uh, links to you, uh, in the show notes as well. Thanks, Todd. Thanks.