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Think Like a CFO.

Think like a CFO (Chief Financial Officer) to understand and use your financials to grow your small business (starting at 9:00) with Danielle Hendon.

Danielle Hendon - Think Like a CFO.

Regardless of the size of your small business, managing your financials is critical to the profitability, not to mention the survival, of your small business. As you continue growing your business, it becomes even more important to learn how to financially prepare for and manage that growth.

Danielle shares some valuable tips and advice on how to manage your business like a CFO (Chief Financial Officer), and perhaps consider that it may be time to add a CFO to your virtual team.

Danielle Hendon is the founder and owner of 4 Corners CFO, a firm offering financial advisory services to small business owners on a scale that fits their company and budget. Coupling her decade of experience in corporate finance and accounting with her passion for small business owners, Danielle brings the benefit of “big business” financial analysis to entrepreneurs. Now, instead of helping corporations increase share price, Danielle gets to help business owners increase their personal livelihoods so they can leave a legacy and lasting impact on their community.

Danielle lives in League City, Texas.

Think Like a CFO to grow your small business:

  • Please briefly share the story of what led you to launch 4 Corners CFO after a long and successful career in corporate finance and accounting?
  • Would you have started your own small business sooner?
  • When did you know you wanted to be your own boss? Who were early entrepreneurial influences?
  • Why are you a business owner? What does it provide you?
  • Please share a high-level overview of the Chief Financial Office services you offer your small business clients.
  • Why does growing a small business demand a greater level of financial organization (and why it’s important for hitting big revenue goals)?
  • How do I begin to think like a CFO to help me grow my small business?
  • What are the top three financial red flags, where to find them, and how to address them?
    • Are you paying yourself?
    • Bad Debt.
    • Gross Margins are insufficient, resulting in negative Operating Margins
  • What are the specific tasks that should be completed at a regular cadence to keep your small business finances healthy (and which you can outsource)?
  • What do we need to understand about Cash Flow as we scale a small business?
  • What are some of the different ways to create safety nets in your cash flow (line of credit, savings, etc)?
  • How do I begin to implement budgeting in my small business?
  • What are the 3 profit levers to pull when you have negative profit margins?
    • Focus on your most profitable products or services. Make sure you focus your marketing dollars on what’s most profitable.
    • Cut your costs
    • Raise your prices
  • At what size should a small business consider an outsourced or fractional virtual CFO?
    • When should I consider hiring a Director of Accounting, Controller, CFO?
    • Do I need a CFO (Chief Financial Officer) for my small business?

Episode Host: Henry Lopez is a serial entrepreneur, small business coach, and the host of this episode of The How of Business podcast show – dedicated to helping you start, run and grow your small business.

Additional information about the role of a CFO in a small business:

The role of a Chief Financial Officer (CFO) in a small business is crucial for its financial management and strategic decision-making. Here are the typical responsibilities of a CFO in a small business:

1. Financial Planning and Analysis: The CFO is responsible for developing financial strategies and creating financial forecasts, including budgeting, cash flow management, and financial modeling. They analyze financial data, identify trends, and provide insights to support strategic planning.

2. Financial Reporting: The CFO oversees the preparation of accurate and timely financial statements, including income statements, balance sheets, and cash flow statements. They ensure compliance with accounting standards and provide transparency to stakeholders, such as investors, lenders, and regulatory authorities.

3. Risk Management: The CFO assesses financial risks and develops risk mitigation strategies. They implement internal controls to safeguard assets, manage insurance policies, and evaluate potential business risks and opportunities.

4. Funding and Capital Management: The CFO plays a key role in managing the company’s capital structure and securing funding. They explore financing options, negotiate with lenders and investors, and manage relationships with financial institutions.

5. Financial Decision-Making: The CFO provides financial insights and analysis to support strategic decision-making by the business owners or executive team. They evaluate investment opportunities, assess profitability, and analyze the financial impact of business initiatives and potential growth strategies.

6. Financial Compliance: The CFO ensures compliance with financial regulations, tax laws, and reporting requirements. They oversee financial audits, liaise with external auditors, and maintain proper documentation and records.

7. Strategic Partnerships: The CFO collaborates with other departments and stakeholders to align financial goals with overall business objectives. They provide financial expertise in evaluating partnerships, mergers, acquisitions, or other strategic initiatives.

8. Investor Relations: If the business has investors, the CFO represents the financial performance and prospects of the company to shareholders and potential investors. They communicate financial results, respond to investor inquiries, and provide transparency regarding the company’s financial health.

9. Team Leadership: In a small business, the CFO may manage the finance and accounting team, providing leadership, guidance, and mentorship. They ensure the team’s efficiency, professional development, and adherence to financial policies and procedures.

Overall, the CFO serves as a strategic partner to the business owners or executive team, providing financial insights, managing risks, and driving financial performance. They play a critical role in ensuring the financial stability and growth of the small business.


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Other Podcast Episodes:

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The following is a full transcript of this episode. This transcript was produced by an automated system and may contain some typos.

0:00:05.6 HENRY LOPEZ: Welcome to this episode of The How of Business. This is Henry Lopez. My guest today is Danielle Hendon. Danielle, welcome to the show.

0:00:24.3 DANIELLE HENDON: Thank you so much for having me. I love getting to meet podcasters and their audience.

0:00:29.5 HENRY LOPEZ: Well, thank you, thanks for joining me, and in this topic and specific, what I’m calling small business CFO, CFO, if you don’t know it stands for Chief Financial Officer, we’re gonna dive into that because regardless of the size of your small business, managing your financials is critical to profitability, not to mention the survival of your business, and as you continue growing your business, it becomes even more important to learn how to financially prepare for and manage that growth, and so Danielle is with me the data share some valuable tips and advice on how to manage your business like a CFO, like a chief financial officer, and perhaps consider that it maybe even time to add a CFO to your team, perhaps virtually, and that’s an option now, and Danielle offers that service, and we’ll chat about that as well. To receive more information about the how a business, including the show notes page for this episode, and how you can continue supporting my show and receive exclusive content and discounts through a patron membership. Just visit the Hoosiers dot com. I also encourage you to subscribe to my show wherever you’re listening, so you don’t miss any new episodes.

0:01:41.8 HENRY LOPEZ: So Danielle Hendon is the founder and owner of 4 Corners CFO. 4 Corners CFO is a firm offering financial advisory services to small business owners like us on a scale that fits their company and budget, so at a scale that fits us as small business owners, coupling her decade of experience in corporate finance and accounting, and her passion for small business owners, Danielle brings the benefit of big business financial analysis to us as entrepreneurs and small business owners. Now, instead of helping corporations increase share price, Danielle gets to help small business owners increase their personal livelihoods so they can leave a legacy and lasting impact on their community, denial lives in League City, Texas, which is between Houston and Galveston, right, Danielle.

0:02:37.1 DANIELLE HENDON: It is.

0:02:40.8 HENRY LOPEZ: I drive my drive past you several times here in the last year is going down to take your cruise out of Galveston, but that’s as close as I’ve come to League City, but a great area… I was actually born in Houston, Texas, but my parents moved back to South Florida when I was very young. But anyway, Danielle, welcome to the show.

0:03:02.5 DANIELLE HENDON: I am so excited to be here, Henry.

0:03:05.8 HENRY LOPEZ: I’m excited to get into this and we are gonna get right into it because the time is gonna go fast ’cause there’s so much to talk about, but let’s start with your journey. I’m interested in that. So could you share briefly what led up to you launching 4 Corners CFO, I know there’s a lot there, but if you could summarize that, get us to how you got to launching 4 Corners CFO.

0:03:28.6 DANIELLE HENDON: Yeah, so I’ll give the background a little bit, I’m a military brat, so I’ve traveled all over being a daughter of a military veteran, and we landed in Houston, and I… Being in the Houston area, I went to uh… I loved the college I was in, I actually started as a music major, and I realized very quickly that my choice of major was not going to provide the lifestyle I hoped to live, so I had some friends in accounting and I jumped ship over there, tried a few classes and… Absolutely loved everything about it. I ended up getting my master’s in accounting and even pursued my CPA as I was working at one of the CPA firms in Houston, but then I started a family and I realized very quickly that I cannot work 80 hour work weeks with a newborn. And again, being in the Houston area, most of my experience was in oil and gas, so when I left public accounting, I went into oil and gas, and I worked for a company that functioned as a billion dollar business that thought they were a teeny, tiny, small business everybody knew everybody.

0:04:37.2 DANIELLE HENDON: It was amazing, and I’m gonna say this a lot today, but I loved what I did, however, oil prices tanked and the company went through bankruptcy. On the other side of that bankruptcy, they were owned by a lot of financial bankers that started to slice and dice, and then the pandemic hit, and it was a very clear sign that they were selling things for pennies on the dollar, the doors were gonna finally close for me, the pandemic was a bit of a double-edged sword. It was probably the first opportunity for this, what I will admit was a workaholic mom, to take a step back and be there for my kids in a way that I had never been before, I was driving them to swim practice, I was driving them to school, I was getting to know the coaches and the team, and the friends and the teachers, and I realized I have a unique opportunity to continue doing that, so I started researching opportunities and possibilities to continue doing what I love doing from a career perspective, the strategy and the analytics and the accounting, but doing it in a way that allowed me to be there for the people that I love, and I am so grateful for a friend of mine that introduced me to a fractional CFO, a virtual CFO, whichever term you prefer.

0:05:57.6 DANIELLE HENDON: And I’ve learned that the small business community is full of people that just want to empower each other, and she told me all about what she did and how she did it, and I fell in love and I launched 4 Corners CFO, and I haven’t looked back since

0:06:13.1 HENRY LOPEZ: It’s amazing. What does the name mean? For quarters.

0:06:17.3 DANIELLE HENDON: So I did a lot of thinking before coming up with the name and the branding, I wanted something that reflected building blocks, because for me, that’s what finance is, it’s a lot of building blocks. And if we can get the right four corners, the right building blocks, those cornerstones in place, we can build a really solid business that is profitable for years to come…

0:06:40.3 HENRY LOPEZ: Yeah, love it. And easy to remember as well, when you were back working for that oil and gas company before things begin to go south, if they had not… Do you think you’d still be there?

0:06:52.5 DANIELLE HENDON: I probably would, if I’m honest, I’m not your traditional entrepreneurial spirit, I very much like stability in my life, I’m very much an accountant that doesn’t necessarily like to take a lot of risks, and IT is part of what I’ve really had to lean into and practice as a business owner is getting comfortable with the uncomfortable…

0:07:13.3 HENRY LOPEZ: Do you talk about this topic of risk because it’s a common one, I have a perspective on it that maybe sometimes a little contrary, and I think that as business owners, as entrepreneurs, the perception is that we are risk-takers, but I don’t think that’s true. I think that we just do the analysis, we understand what we’re putting at risk, and we move forward with a bit of faith that we can make it happen, but realize that the consequences of failure won’t kill us necessarily. Right, those things combine allow us to move forward as your perception of risk changed now that you’re a business owner…

0:07:56.7 DANIELLE HENDON: I think you put it perfectly. I think my perception of business owners has changed, everybody I know functions very similar to what you just said, and I think I always thought being an entrepreneur at taking all those crazy risks and leap of faith… And don’t get me wrong, there’s leaps of faith that we all have to take to grow, but they’re calculated risks and being a numbers person, I can definitely get behind. Calculated risk.

0:08:22.1 HENRY LOPEZ: And it probably has a lot to do with what you were able to do during covid, those freedoms, but what is it that being your own boss provides for you now?

0:08:34.4 DANIELLE HENDON: It is 100% about my family, it’s the flexibility to be there for my kids in a way that allows me to not just watch but participate in them growing up.

0:08:48.1 HENRY LOPEZ: Yeah, that’s so common for a lot of entrepreneurs who certainly was for me, that flexibility, to be able to control a lot of things, and mostly time and where I am and who I spend it with is huge for us, I think. Alright, well, let’s dive in. I thought we’d start by, if you could give us a high level overview of the services that you offer in your practice, and that’ll lead us into what the heck is a fractional or outsource CFO. But let’s start with the high level. What are the services that you offer? Your clients.

0:09:20.0 DANIELLE HENDON: Yeah, so every CFU talk to is probably going to tell you something a little different, I love networking with CFOs and they all do different industries, different things, but for me personally, in 4 Corners CFO, we focus on the budget and the cash flow. With my corporate background, that’s where I know big business gets bigger when you set a plan in motion and you are able to monitor where you are compared to that plan, that’s how you grow, that’s how you take informed decisions, and you have the confidence to take those risks, because you know the plan. You know where you are and you know what could happen.

0:09:58.0 HENRY LOPEZ: Most small business owners, I have found, don’t do any level of budget either because mostly because they don’t know how, or they think it’s some complicated process, but what you’re telling me is that as we start to talk about those things at larger organizations do or that successful small businesses do, budgeting is one of those top things that you help people with, it is because the budget that really think of it about as…

0:10:26.6 DANIELLE HENDON: Think about it as a map, a road map for your business, it’s no different than sitting with a business coach, and I know so many of us hire business coaches and envisioning that future. Where do you want your business to go? And a vision is great, but you’ve gotta know how you’re gonna get there, and when it comes to profitability and putting more profit in your pocket, that happens with a budget.

0:10:53.2 HENRY LOPEZ: I often recommend for small business owners that are starting for the first time with budgets, is to start small, meaning start with select variable expense accounts that they need to be managed or better monitored, instead of trying to put together a budget for the entire chart of accounts right. What are your thought? You agree with that approach, or do you have a different thought on not…

0:11:19.8 DANIELLE HENDON: So I usually tell small business owners to look at their P and L, it doesn’t necessarily have to be account by account, but most really great bookkeepers are gonna group your accounts and you’re gonna want to assign a budget to those major account groupings, your sales, your cost of sales, your payroll, I hope you have some payroll and you’re paying yourself, or if you’re not, that’s when we get into taking that next step from budget to cash flow and making sure we’ve got cash to pay ourselves, if you are in an S-Corp, I definitely recommend looking at the P and L and giving each line, each major line on that P and L profit and loss a number that you expect to achieve, and if that feels overwhelming, I would recommend starting with your sales and your cost of sales, because that gives you what we call in finance, a gross profit margin, and that’s gonna be one of the most important numbers in your business…

0:12:16.6 HENRY LOPEZ: Yeah, so sales and cost of goods sold, those two categories would be where you would start, and then other categories, like you said, like payroll, so start at that category level, what is that target number and then… Everybody should be looking at their P and L on a monthly basis, but as far as budget scope for people starting out, do you ask them to look at how you’re doing compared to budget monthly, quarterly? What are your thoughts there?

0:12:41.8 DANIELLE HENDON: It depends on the size of your business. For a business that is in, let’s say, I’m gonna go with service-based businesses, if you are a service-based business in the six figures, I would recommend you should be looking no less than quarterly and really working towards that monthly process.

0:13:01.9 HENRY LOPEZ: Yeah, I agree, I agree. That’s my thought as well. Alright, we’ll come back to this. Budgeting Ash, low cash flow certainly is an important one, but you talk about the top three financial red flags, where to find them, how to address them, that we chat about that. What are those top three financial red flags that you look at often with your small business clients, Danielle…

0:13:27.3 DANIELLE HENDON: And I’m gonna get a little bit technical here, but I’m gonna try to explain it the best way I can. If you’re familiar with looking at your financial statements, one of the number one financial red flags when I have a new client and I’m taking them on, is whether or not they’re paying themselves, and that could show up in a couple of different places, depending on your business, structure and size, it might be in your payroll, if you’re an S Corp or a C Corp, or if you are just a sole proprietor and you have what we call pass-through income, it’s gonna show up in your distributions if you are not paying yourself and I get it. I’m a business owner myself, we all go through times where we feel like we’ve gotta give it all to our business, but if you don’t find a way to pay yourself, then you are going to burn out, and at the end of the day, if you’re burnt out and overwhelmed, you’re not gonna be able to help anybody. Yeah.

0:14:23.8 HENRY LOPEZ: Now the way I look at it is, we’re talking, of course, beyond that start-up period, whatever that is, six months a year or something like that. I think, in my opinion, I’m curious to see what you think. I think after about a year mark, if the business is in generating something for you, a, as you said, whether it’s profit distribution or a salary or some other owners’ benefits combined, then I think it shows that the business model is probably broken… You’re not profitable now.

0:14:53.3 DANIELLE HENDON: Yeah, you may need to pivot and rethink what you’re doing, and I would challenge your listeners, even if you’re in those first six months or that first year, to set aside a little bit of profit, even if it’s just 1%, and create the habit of paying yourself because there are so many things in a business that we continue to do over and over again without challenging ourselves to find another way to do it, and if you prioritize paying yourself in taking that profit, you’re gonna figure out how to pay the rest of the bills but if you pay the rest of the bills first, you may never figure out how to pay yourself… Yeah.

0:15:33.3 HENRY LOPEZ: Yeah, I know you and I chatted briefly. We’ll talk more about it in a moment, but the profit first approach is one that you’re very much in favor of, that is partly what you’re talking about here, right? Definitely. And one of the things I like about that mentality is, like when I started doing budgeting for real for one of my businesses, and it was a fairly mature businesses, working backwards, is the way I put it is, what was my realistic profit margin that I wanted to achieve, and it was based on previous years, it wasn’t like I was just picking a number out of the sky and then worked backwards from there, everything else, budget-wise, I had to be in alignment for us to realize that… Target margin range. Yeah, yeah, so that’s the other way to look. Okay, but that was number one flag is if I am not paying myself and I’m past that start-up phase, whatever stage that is, because I do think that… The reason I clarify that Danielle, is I think a lot of people are delusional sometimes, that their business is gonna start paying them commensurate to what they were making month, what…

0:16:37.6 HENRY LOPEZ: Now, maybe your business can… Fantastic. If it does, in reality, you gotta ramp up first before you are gonna make any money, but once you do get past that, you’re looking for that and that’s a red flag. What’s the other red flag?

0:16:51.7 DANIELLE HENDON: Debts, and it’s a red flag, but not very many people like to talk about, there’s a lot of mindset that goes around that from a financial perspective, if you are looking at your balance sheet and you have what I’m going to call negative retained earnings, so at the very bottom of a balance sheet, you’re gonna see a number that says retained earnings, if that number is negative, it means that your business has spent more money than it’s made, and most likely has some debt that they’ve taken on a lot of business owners that most business owners fall in one of two buckets when it comes to debt, you either are completely deniers, you don’t wanna ever take on a penny of it, you’re afraid to take on that debt, you don’t know that your business will be able to pay it back, and you just don’t want the burden to those business owners, I will say start with a business credit card because yes, your credit card counts as debt, pay it off every single month, and find a credit card that gives you some really good rewards because it will start to train your brain, that there is a benefit to debt when it’s used in the right way.

0:18:02.6 HENRY LOPEZ: Yeah, there’s good debt and there is bad debt. As a matter of the ratio of it, how much are you carrying relative to the profitability of your business to what your business is able to handle… Right.

0:18:14.9 DANIELLE HENDON: Yup. And then for me, the difference between good debt and bad debt is all about the intention, if that debt is going to give you a return on investment, great, if it’s not, if it’s unintentional, if it’s a last-minute resource, that’s usually where we stumble into the bad debt, and I’ll give the other side of the coin. Those that don’t have any aversion to debt, and we’ll take on as much as they can be given, can end up being burdened with these interest rates and interest payments that could affect their business for years to come. I have clients who we are in the midst of conversations with, how much are we gonna pay on the idol loan, because if all you’re paying on that, it alone is a minimum, that’s like the student loan for businesses, you are paying that sucker for 30 years and I don’t know about you, but I have no clue where my business is gonna be in 30 years…

0:19:09.0 HENRY LOPEZ: Yeah, yeah, a good point. The other thing we did, I’m sure, Danielle, is that debt that’s not under balance sheet, I know so many business owners who say, Oh, we took out these alo, but I also have a personal card that’s maxed out that’s related to the business, and that’s another… Yeah, feller. Yeah.

0:19:26.7 DANIELLE HENDON: Make sure you are not mixing personal and business, it’s a huge red flag for the IRS, honestly, but also for your business, you wanna know what your numbers are, and if you don’t have it all there… And I know it can be scary, and so many of us just wanna stick our head in the sand, but if you don’t know what the numbers are, you don’t know where you stand, and how can you move forward if you don’t know where you are?

0:19:48.9 HENRY LOPEZ: Yeah, yeah. Well, I said, Alright, so the first one was, Are you paying yourself second bad debt was the third red flag that you often look for.

0:19:56.9 DANIELLE HENDON: So the third red flag has to do with profit margins, and I talked a little bit earlier about making sure you know what your expectations are for sales and cost to get sold, and that that gives you what we’re gonna call gross profit margin, if your gross profit margin isn’t making enough for you to cover all the other expenses in your business, and you’re ending up with… What I’m gonna say is negative net income, so we talked about negative retained earnings, that’s at the bottom of your balance sheet, negative net income is the bottom number on your P and L, And if you’re running negative net income, even if you’re paying yourself… First of all, you’re probably paying yourself from debt, you’re accruing either credit card debt or some other form… And it’s not sustainable.

0:20:41.8 HENRY LOPEZ: Yeah, agreed. Yeah, at the end of the day, that’s the ultimate measure, we either… Businesses either profitable or it’s not. A business is an expensive hobby and probably one that needs to either critically pivot and get help to turn things around or you might have to shut it down, right. And those are hard decisions to make and you gotta get help with that. Alright, alright, so we’ll come back to these. The other thing that you often talk about it, and we’ve touched on a couple of them, specific things that should be completed on a regular cadence, and again, we’re thinking about this from the perspective of what does a CFO think about… And since we mostly don’t have CFOS and small business owners, we wear that hat, that’s why this input is so valuable, and we’ll talk about in a moment that maybe I can bring in an outsource CFO, but we talked about reviewing the P and L on a monthly basis, at least we talked about the budgeting components, we’ve just talked about specific Gunn profit, we’ve talked about managing debt, so that brought into balance sheet, what other things, or maybe it’s just repeating those things, should we be completing on a regular cadence, as you said, related to the financial health of the business.

0:21:56.0 DANIELLE HENDON: So there’s one other component to the balance sheet that not a lot of business owners think about because they rely on their bookkeeper to do it, and that is reconciliations, make sure, first of all, that your bookkeeper is reconciling or if you’re doing your own books… And I’m gonna use QuickBooks ’cause that’s what I think most people are familiar with. There is a reconciliation function and your cash… The balance left in your bank account should reconcile or match to the entries that you’ve made in your book keeping, and if it doesn’t, then we need to figure out why, and there’s good reasons why, sometimes there’s timing differences that will throw things off, especially with credit cards, but if you’ve got things that are not being recorded in your books, then you’re not looking at accurate numbers…

0:22:45.9 HENRY LOPEZ: Yeah, and that can mean all kinds of things, but inclusive, I think their reconciliation since around that point, Anna, as a business owner, a reconciliation of the bank account and credit cards is something that I need to review at a minimum, because that can really identify potential issues with fraud, embezzlement, all kinds of things that I could easily keep an eye on if I look at the reconciliations.

0:23:14.6 DANIELLE HENDON: Definitely because… And I mean this in the nicest way possible. Small business owners are prone to fraud and theft at an exorbitantly higher rate than bigger business because bigger business is already doing these things.

0:23:27.8 HENRY LOPEZ: Yeah, they’ve got the controls in place. They’ve got the division of responsibilities; we have one person doing it all. And we tend to give that one person, not that that person, it might be an error that they commit or they might get… They might get a virus or somebody might hack them, we never know, but that is one of the easiest ways to keep your finger on the pulse of what is actually flowing in the way of transactions through the business. Yeah.

0:23:53.5 DANIELLE HENDON: And then the other one that we haven’t touched on that I recommend every business owner look at at least once a year, I wouldn’t say I do this much more frequently than once a year, is pull a list of all of your expenses and ask yourself if those expenses are required to run your business, if they are what I like to call a personal part, the things that we know we can run through our business for tax purposes, but they don’t add value to the business, they add value to the business owner. And everything else on that expense listing is an investment in your business, and I would challenge you to ask yourself, what is your return on investment for each of those line items? And that may be a return in time, I pay so many people just to get some of my time back, but it could also be a return in the form of money, and this applies specially to marketing expenses that you… I’m gonna be honest, we all need to give them 90 days, six months, whatever that period is, to make sure that they work, marketing takes some ramp up.

0:24:59.4 DANIELLE HENDON: But you don’t wanna just keep paying something that’s not working…

0:25:02.2 HENRY LOPEZ: Yeah, great advice. And a great way to look at it. What is the return that I’m getting on? And I think that what happens, because so many things can be individually small amounts, and the whole concept now the subscriptions and monthly memberships, we forget about them, they get lost in the credit cards and… Those things add up, they add up. And so I think that’s a great point, a great advice, and once a year, review that very critically and say, What is this giving me? Do I still need this? I do that about once a year, and I end up cleaning up at least two or three things that I decide, this is not worth it anymore, but I had just forgotten about

0:25:38.8 DANIELLE HENDON: It, and especially as you grow, I think that a lot of us tend to start bolting on different software systems, this is all this problem, this will solve that product, and it’s a really good chance to say, Is there something else out there that could solve all of these for less…

0:27:49.9 DANIELLE HENDON: So there are two different perspectives to cash flow that are important to every business owner, one is, where does cash stand right now, can I afford the thing you’re trying to put on the credit card today, and I will be honest, I point all of my business owners to a profit first perspective for that, and we can talk a little bit more about that later, but what I do as a CFO is what I call forecasting cash flow, and I’m gonna be honest, I don’t treat cash flow like any other accountant that I know, because most business owners I know have no idea what indirect or direct cash flow means, and if I start talking about financing activities and operating activities, it’s just mumbo-jumbo… Right.

0:28:34.5 HENRY LOPEZ: And it over-complicates things. Right.

0:28:36.5 DANIELLE HENDON: It’s so over-complicated. So my biggest tip when it comes to cash flow is treat it like a budget, when you are forecasting your cash flow, treat it like a budget, if your clients are paying you upfront, then you know if you booked revenue or sales this month, you should have cash for it, and if you don’t, that means somebody owes you money, and if you are using a credit card for the majority of your expenses, which most business owners I know are using their credit card for most expenses, you’re gonna pay last month’s expenses next month… Treat it like a budget, the only difference is that we need to make sure we account for the things that are not in your budget, your budget is never gonna show you your profit distributions, it’s never gonna show you the payments you make on your debt, and it’s never gonna show you your savings, whether for emergency fund re-investment or what I like to make sure all of my clients do saving for taxes, because we want to be profitable, which means we are going to pay taxes.

0:29:44.8 HENRY LOPEZ: Okay, so what are you telling me that I should be doing? First here.

0:29:51.9 DANIELLE HENDON: Take your budget, so once we talked about first steps to making a budget, you’re gonna wanna be at the point where you have a budget, and you’re gonna take those same high level categories, Sales, cost of sales expenses, and then you’re gonna layer in from that your debt, your savings, and your profit distributions, and when you add all of that up, that’s giving you your cash flow forecast

0:30:19.7 HENRY LOPEZ: That… The way that I usually do it, as I do that in a spreadsheet, and I like to look for two or three months, is that what you often recommend as well? I know it depends, but how far forward do you think I should be looking…

0:30:38.6 DANIELLE HENDON: So I actually love to project out to the end of the year because I know a lot of business owners will start looking at How much can I put it in my SAP, how much can I take in profit, and especially if a business owner has a cyclical nature, let’s be honest, we all have some kind of cyclical nature, business is not always consistent, so you wanna be able to kind of forecast for those downturns

0:31:04.8 HENRY LOPEZ: To… I have a big inventory purchase that I do before fourth quarter, I need to plan for that, so that had be another reason I gotta look out farther

0:31:14.6 DANIELLE HENDON: And making sure you’ve got what I’m gonna call a cushion to get you through any of those dips or those big travel plans, I have clients that’ll take a really big trip to go visit vendors overseas, and that’s gonna be a huge expense and a hit to their cash flow, so

0:31:32.0 HENRY LOPEZ: If I do do 12 months out, none else my thought is… Depending on how critical it is, I’m looking at this and revising it at least once a month, but if cash is critical, then I’m looking and managing my receivables and looking at my cash flow position at least weekly. What are your thoughts on that?

0:31:51.6 DANIELLE HENDON: 100% agree with that. I would say the spreadsheet format is not always the easiest to maintain for a weekly perspective, which is why I really like the profit first approach from a… Where do we stand today? But I usually, on a monthly basis, at least out to the end of the year, if you have a cyclical or seasonal business, I recommend you go out to that next feast or famine

0:32:16.6 HENRY LOPEZ: Faith… Okay, at least through that phase that I know I gotta build up reserves for or that is coming, that I need to count for. And project, am I gonna have the cash flow to cover that invoice, let’s say.

0:32:29.7 DANIELLE HENDON: Yep, or how much cash flow do I need to build up now, and he decide to make sure that can happen.

0:32:36.1 HENRY LOPEZ: The other thing that forecasting does, Danielle, for me is that it allows me to anticipate, I’m gonna have a crunch three months from now or next month, so where is that cushion going to come from, as you say… Right. Measure, got it to go. Yeah, so ideally is working capital, but it could be a credit card that I’m gonna float some money on, or it could be a line of credit… Right.

0:33:03.8 DANIELLE HENDON: Oh, those are my favorites. So we talked a little bit before this about that safety net, right? I absolutely love having a line of credit, I don’t care what your business does, how big or small it is, I will be honest, they’re not the easiest to get in this market right now, but having a business line of credit gives you an immediate safety net for very little cost.

0:33:28.6 HENRY LOPEZ: Generalizing now, and I know like you said, it’s gotten harder it… And how much history do I need to have with my banker’s business before a bank is even gonna consider me for a credit line? What’s been your experience? How far into it do I need to be before? That’s even an option for most businesses.

0:33:48.6 DANIELLE HENDON: In my experience, they don’t like to finance hobbies, so usually about it, they’re gonna want your data, you’re

0:33:56.0 HENRY LOPEZ: In a teaser financials.

0:33:57.4 DANIELLE HENDON: Right? So you’re gonna need a year of truly completed year, of financial data to give them some accurate financial reports showing profitability. Yes, usually you might get lucky, but you’re usually gonna need to show some form of profitability or at least that you… I’ve seen it happen where there are businesses that have a long receivable term, and then… How do I put this? They may not have the most beneficial financial statements.

0:34:32.6 HENRY LOPEZ: Right, but they can go… I’ve got money coming, I’ve got a tutor Civ able. Yeah, yeah, yeah, that makes sense. Okay, good, thanks for that. Anything else on cash flow, we talked to her about forecasting, but what else would you share with us about cash flow.

0:34:50.8 DANIELLE HENDON: Just a reminder that cash is king. I know I said you need a budget to be able to forecast cash flow, but if you aren’t looking at your cash at the end of the day, businesses are not gonna go out of business because of a budget, they’re gonna go out of business ’cause they ran out of money to pay people.

0:35:06.3 HENRY LOPEZ: The number one reason we run out of cash… Yeah, it is what kills just about every business, unless we purposely shut it down, one way or another, we run out of cash and sources of cash, and that’s what kills us. And so that’s why it’s so critical. Alright, let’s talk a little bit more about profit margin, coming back to that point, or the other thing I wanted to mention, you know this, of course, better than it is, the other thing that I think is confusing for people is that they think their P and L reflects their cash position, so can you highlight why that’s not the case?

0:35:39.9 DANIELLE HENDON: Yeah, so the key to cash flow is timing, cash does not hit your bank account at the same time as a sale, and I’ll give an example, if you are… Take it from my business when I sell a client a new package, I will record that sale based on the fact that we have a signed agreement and they’ve made their first payment, so I’m estimating they’re gonna continue to make their monthly payments, but what if they can’t… What if one of those months, those payments don’t come through and now I’m short on cash flow, even though I’ve recorded revenue for a sale that I thought hit, and some of this gets into the technicalities between cash basis and accrual basis accounting it. But it also has to do with just general timing differences, I use the example of a credit card, when I told you to, if you’re putting most of your expenses on the credit card, this month’s cash flow is gonna show last month’s credit card expenses. That is a big difference, and it can be a big difference between your P and L and your cash flow because you didn’t pay that credit card until this month.

0:36:46.9 HENRY LOPEZ: Yeah, the other thing is tricky sometimes is inventory, which you reflected on the pl is just what I consume, the rest is sitting over on the balance sheet in, and so I’ve got money tied up there that doesn’t get reflected on the P and L

0:37:01.0 DANIELLE HENDON: Or debt. If you have a loan of any kind, Ethan’s not gonna show up on your P and L, if you’re paying 1000 a month to a term loan, that 1000 a month is coming out of your bank account, but it’s not hitting your P and L…

0:37:15.3 HENRY LOPEZ: Right, right. Only the interest might be coming out of there and it’s being paid by the company… Right, right. Yeah. Alright, great, excellent points. You talk about going to profit margins, now, the three profit levers or levers, depending on how you pronounce that word, briefly, what are those three levers that we have control over that can impact profits? And we may have talked about some of them already.

0:37:40.1 DANIELLE HENDON: Yeah, a lot of business owners, and I’m included in this when I started the business, everyone’s like Elmore, so more so more you think you just need to sell more. One of the key profit levers isn’t just to sell more, but to sell more of your most profitable product or service, we talked a bit earlier about gross profit margin, your Sales minus cost of sales, if that is not… First of all, if that’s negative, we have a problem, if it is not a big enough number to cover everything else, we have a problem, so one of the steps I go through with all of my clients is digging into what are the different sources of revenue, and what is the cost of providing that revenue, and if we can identify what is your me well, when not, if we identify what is the most profitable product or service, that’s what you wanna throw your marketing money at, if you’re gonna pay for marketing, you want it on the profitable stuff.

0:38:34.8 HENRY LOPEZ: I had. Fuel to the fire.

0:38:36.6 DANIELLE HENDON: Yes, so make sure you’re selling what is most profitable, the second profit lever is all about cutting costs, cut the things that are unnecessary, you are going to increase your profit by selling more of your profitable item, cutting the expenses and reducing how much money is going out the door… And last but not least, this is the one I think most business owners I know struggle with the most, raising your prices, make sure that you are charging what you are worth

0:39:08.7 HENRY LOPEZ: Right now, and these inflationary times, I’ve just talked about by many experts and I concur… I think consumers right now, more than ever, our understanding there’s nothing they’re gonna like it, but understanding of you raising your prices… And it is amazing, I’m sure it is to you, Danielle. How many people I come across have not raised their prices in five, six, seven years…

0:39:32.9 DANIELLE HENDON: Oh yeah, and I have people that feel… I’ve talked to clients that don’t wanna raise their rates because they feel bad because they are national… Exactly, and at the end of the day, what I like to tell, especially service providers, ’cause I know so many service providers that will say, Well, I don’t really pay for very much, my business costs have not gone up, but your cost of living has… That’s right. And you need to be able to fund that.

0:39:59.4 HENRY LOPEZ: Exactly, because at the end of the day, we all need to stay in business to provide that service or that product that we offer to our customers… Right. And we’re in business to make a profit. This is not a charity or a hobby that we’re running, so… Great advice, what’s most profitable focus on that, that comes back to that if you don’t know the financials, you won’t know what that is, and that goes to that foundational component, cutting costs, you touched on an example of that, which was that reviewing of those recurring charges as an example, but it’s more than that. I believe you gotta be ruthless about expense management, and then raising prices is three huge things that you can look at right away, and to your point that have nothing to do with, Oh, we just gotta generate more sales…

0:40:48.2 DANIELLE HENDON: Yeah, great, we can go generate more sales, but would you rather generate five new clients at a better rate than have to go get 10 of them at a smaller one?

0:40:58.0 HENRY LOPEZ: Yeah, yeah, exactly. Alright, great, thanks for all of that knowledge sharing there, I wanna come back to this concept, this thing called a fractional or outsource CFO. How do you define it? As you offer what is a fractional CFO to a small business owner.

0:41:16.5 DANIELLE HENDON: The most generic definition is that a fractional CFO is going to help you look forward in your business and not just backwards at what’s done… The goal of a fractional CFO, the goal for me personally, is to help clients make informed decisions and have the confidence to take action in their business when they may not have otherwise done it, and

0:41:39.1 HENRY LOPEZ: I would not be able to afford to hire you, but I can afford to bring you on as a consultant or… That’s where the term fractional or outsourced comes in.

0:41:51.5 DANIELLE HENDON: Definitely without having to pay six and multi six-figure salaries to have a CFO on staff, you can have a fractional CFO that you meet with once a month, once a quarter. I have clients, we meet once a year and just build budget out and then they maintain it.

0:42:07.5 HENRY LOPEZ: Anything that I think, and this is why I’m seeing fractional CFOS, even for a much larger up to medium sized companies is that you have the broader perspective of working with multiple companies, and so you’re able to bring to me that knowledge, those best practices, and that’s… I think can be a lot more valuable than someone that just works for me…

0:42:38.9 DANIELLE HENDON: Yeah, you aren’t stuck in a silo, you get to see… Because let’s be honest, business owners are creative people, and we all can see how other people are handling different scenarios…

0:42:51.1 HENRY LOPEZ: And it is the way at least we are offering it’s affordable to small business owners.

0:42:56.8 DANIELLE HENDON: Yes, depending on your business size there is, it’s not a one-size-fits-all, there are fractional CFO packages that can fit every small business owner.

0:43:07.1 HENRY LOPEZ: Separate from that, I wanna ask you a question, ’cause this is something I always think about. As we think of the pillars or the sections of our business, initially, we tend to wear all of the hats and small business owner, and then we might bring in a sales person in an operations person, usually a CFO type or a Director of Accounting is farther down is what I found, and as we get to be a bigger business because it doesn’t make sense, we have our CPA or accountant, or maybe we get to a level where we have a fractional CFO, especially now that that’s becoming more common knowledge, but what do you… Even for those clients that you act as their CFO as to… Is there a range that when you say you’re ready to hire a director of Accounting or an Accounting Manager, that then you complement with a fractional CFO. Do you understand the question I’m asking? When do I start to fill that position internally and perhaps in combination with an outsource CFO.

0:44:11.0 DANIELLE HENDON: It depends on the business model a little bit, so manufacturing or inventory-based or service-based are all gonna be a little different when it comes to revenue size, that makes sense. For that, but as a business owner, when you have a bookkeeper that you basically need full-time, and especially if you are getting pressure from the banks or from other funding sources that are wanting… What I’m gonna call accrual basis accounting. You are going to want to look at a more internal full-time degree, if not licensed accountant, and then as that team needs more resources, when you start to gain an accounting team of let’s say three, somebody doing AR, somebody’s doing accounts payable, and then somebody’s doing your general accounting, you may start looking into that controller role ’cause you want some oversight over those reconciliations, you need some processes and procedures in place. The fractional CFO, I would honestly say I’ve helped people who have nothing but a bookkeeper, so I feel like it’s a little bit separate than when you start bringing on these internal teams, I’ve helped people that just have a bookkeeper that they outsource to all the way to…

0:45:33.9 DANIELLE HENDON: Small businesses that have a team of five internally and to controller and need that fractional forward-looking CFO perspective.

0:45:44.1 HENRY LOPEZ: Well said, thank you for that explanation. That’s very helpful. Alright, we’ve touched on it obviously, but what have we missed, what else can you tell us about the services that you offer your clients through four corners, a CFO…

0:45:59.3 DANIELLE HENDON: I would just say you are never too small to start using a budget, and if that means preparing it yourself or getting your bookkeeper to help you prepare it, that is definitely the starting block as you near the six figures, having a fractional CFO like myself step in and help you in just an annual capacity to get that budget and to understand how to look at budget and cash flow and maintain it, and then moving forward into the quarterly and eventually the monthly packages where you’re really able to say, what was our budget to actuals every month. Because that’s where the magic happens.

0:46:33.3 HENRY LOPEZ: Yeah, great stuff. And if I wanna explore this further, I can schedule a free consultation with you, correct?

0:46:40.9 DANIELLE HENDON: Yes, I love meeting business owners, even if you aren’t ready to have fractional CFO services and you just have some financial questions, I would love to help you out through a free consultation and just talking about where your business is at and where you wanna go…

0:46:56.6 HENRY LOPEZ: Where do I go to schedule that?

0:46:59.0 DANIELLE HENDON: The easiest way to do that is on my website, the number four corners, cfo dot com, you’ll find a contact page, but there are also multiple links throughout the website to schedule a consult call.

0:47:12.4 HENRY LOPEZ: And if you don’t remember that, I’ll have a link to it as well on the show notes page for this episode at the holiness dot com. Alright, we’ve mentioned it already, but I know what book you’re gonna recommend, so tell me about that.

0:47:29.9 DANIELLE HENDON: My favorite book for business owners that are thinking about finance as profit first, it is very easy to implement, it’s easy to maintain, and best of all, it’s easy to see where your cash flow stands at any given moment in the business.

0:47:46.1 HENRY LOPEZ: Yeah, I love that book. It’s a great book and great actionable advice for small business owners to help them really manage the finances of their business. Yeah. Thanks for that recommendation. Absolutely. Alright, we’ll wrap it up. A great conversation here, but Danielle, which one thing, as it relates to me as a small business owner, thinking about what a CFO thinks about, thinking about maybe should I consider bringing in a fractional CFO, but really that if I put on my CFO hat, what’s one thing you want us to take away from this conversation?

0:48:23.5 DANIELLE HENDON: Don’t be afraid to look at the numbers. And don’t be too ashamed to ask for help. Most people that love accounting and finance, the way I do, the messier the better, honestly, we love cleaning it up, because that means when we finally put the puzzle together and we get that last piece in place, there is so much value that we can bring…

0:48:44.2 HENRY LOPEZ: I have found that there are so many small business owners that have surrendered on the numbers either ’cause they don’t like numbers or I’m not good at math, or finances is not my thing, and I find that when they get their arms around it, a, they realize, Oh, I don’t have to be a Mateen us. B, you feel so much, so much relief when you at least know what it is, right? And if you just will get the help and get some order, you’re gonna find a tremendous relief as opposed to looking at the end of the month and see if there’s any money left over in the bank account.

0:49:22.9 DANIELLE HENDON: Definitely, it’s… Even if the numbers aren’t great, I promise you, we can make a path to making them better…

0:49:30.1 HENRY LOPEZ: Exactly, exactly. Alright, tell me again to where to go online to learn more.

0:49:36.0 DANIELLE HENDON: It’s gonna be my website at ww, the number four corners, cfo dot com, you can also find me on LinkedIn, under my name, Danielle Hendon, or on Instagram under the business name 4 Corners CFO.

0:49:50.2 HENRY LOPEZ: Excellent, then you are also so fortunate we were able to connect then that you came on to show a lot of actionable information, a lot of great takeaways, so thank you for that, that’s what we look for on their show. Thanks for making the time and for sharing your knowledge today.

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