Aligning Personal Goals with Business Vision

In this episode of The Faces of Business, we welcome Kyle Smith, CPA and Managing Partner at Strata Cloud, to share his thoughts on the importance of aligning personal goals with business vision for small business owners.

In this episode of The Faces of Business, we welcome Kyle Smith, CPA and Managing Partner at Strata Cloud, to share his thoughts on the importance of aligning personal goals with business vision for small business owners.

With a sterling track record in guiding SMBs toward sustainable growth and financial acumen, Kyle is set to unravel the synergy between personal aspirations and business strategies.

A University of Texas McCombs School alumnus, Kyle has dedicated his career to the flourishing of small and medium-sized enterprises. His journey from an accountant to the co-founder of Strata Cloud Accountants is a testament to his commitment to integrating personal goals with business objectives, fostering an environment of positivity and rational problem-solving.

Download our free business valuation guide here to understand more about business valuations and view our business valuation FAQs to answer the most common valuation questions.

Damon warmly introduces Kyle to his show. He begins the conversation with an inquiry into the guest’s background.

Kyle, influenced by his father’s restaurant industry career, was initially torn between pursuing finance and his secret desire to be a professional poker player. He, however, opted to join his father’s company to learn finance while indulging in his poker passion on the side. His learning during his poker endeavors—that he wanted to create situations where everyone could win—sparked his entrepreneurial spirit.

After deciding to follow in his father’s footprints, Kyle joined in roles such as fractional controller and CFO for bars and restaurants. As a director of finance for Celis Brewery, he sought exposure to various industries. This led him to ScaleFactor, where he immersed himself in different sectors while leading implementation teams. Coming to see a difference in ScaleFactor’s software development direction from his vision, Kyle and his partners founded Strata Cloud, aiming to align personal and business goals while optimizing financial efficiency.

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Damon commends Kyle’s brewery experience as insightful. He invites the guest’s comments on difficulties and challenges inherent in cost management and running operations.

Kyle discusses overlooked business complexities, citing depreciation in breweries. He warns against underestimating initial investments, which can mislead about cash flow and affect investor returns, especially in low-margin sectors.

Similarly, Kyle advocates for a strategy that prioritizes building sales before scaling capacity. He suggests starting small, assessing the market and business location, and adapting quickly to changes to maintain efficiency and competitiveness.

Get the most value for your business by understanding the process and preparing for the sale with information here on our Selling a Business page.

Damon echoes Kyle’s point, giving examples of businesses overspending on infrastructure without sufficient demand.

Kyle finds profitability the most interesting aspect of businesses he works with. He recalls a past encounter with an SEM/SEO company that achieved a remarkable 60% bottom line on each deal, using a streamlined approach with minimal labor. Despite their success, they sought assistance, surprising Kyle. This example highlights the potential of businesses that focus on specific industries, build from sales, and expand with a lean team, showcasing profitability and scalability.

At Damon’s request, Kyle reflects on his time at ScaleFactor, where they onboarded 20 to 30 businesses weekly.

Amidst the busy workload, he observed a common trend: businesses setting ambitious growth goals without considering the practicalities or personal impact. Many aimed for arbitrary growth percentages without assessing feasibility or planning for scalability. This recurring scenario led Kyle and his partner to discuss the importance of aligning business goals with personal well-being, a topic they often pondered during their marathon training sessions.

Damon seeks examples illustrating the consequences of neglecting alignment between personal goals and business decisions.

Kyle recounts a recent conversation with a business owner facing rapid growth but struggling with cash flow issues. Despite impressive revenue growth, unexpected financial challenges arose, leading to the need for high-interest loans and hindering profitability. Proactive financial management, to the guest, is necessary to avoid situations where debt service eats into profits.

Agreeing with Kyle, Damon believes growth is complex and is not always as positive as it seems. He shares examples of clients who struggled with maintaining cash flow despite increasing profits.

In response, Kyle shares a recent example of a company thinking of hiring a billing person due to increased receivables. Kyle, as he talked about it earlier, advises investing in roles dedicated to ensuring cash inflow. He urges businesses to prioritize roles that maximize cash flow, as it’s essential for survival and growth.

Damon shifts the conversation to discuss the process of guiding businesses through goal-setting, particularly when they aspire to scale up.

Kyle notes that many projections overlook the inevitable increase in receivables as sales grow, advising to account for this to avoid cash flow shortages. Kyle shares an example where a pretty successful business expansion resulted in cash outflows to investors, prompting a reassessment of financing strategies for future growth.
“How do we keep the most cash in our pocket so we can keep the business going forward?” asks Damon.

Vigilance, flexibility, and adaptability, in Kyle’s view, are required to achieve success. Properly measuring the effectiveness of their evaluation helps business people make informed decisions that align with current circumstances and future goals.

Damon inquires about the key performance indicators (KPIs) Kyle prioritizes when beginning to work with clients to gain a deeper understanding of their businesses.

Kyle reveals that he focuses on five fundamental financial KPIs: revenue, gross profit percentage, net income, net income percentage, and net cash flow. Although these metrics are universal and widely practiced across industries, many business owners overlook them. He advises keeping financial analysis simple by prioritizing key metrics to avoid potentially detrimental situations like this.

Damon queries Kyle about the frequency of encountering businesses that measure fundamental financial metrics like revenue, gross profit, and fixed costs before seeking assistance.

Kyle says that the majority of businesses he encounters do not measure fundamental financial metrics before seeking guidance. It is important to understand metrics like gross margin and separating fixed and variable costs.
Damon requests Kyle to disclose the feedback he receives from clients.

Kyle reveals that his clients often start uncertain about the ROI of his financial services but gradually recognize their tangible benefits, such as significant savings from negotiations. He aims to better illustrate these ROI moments, emphasizing how his services transform business operations for the better.

Appreciating Kyle’s answer, Damon asks the guest about his favorite aspect of his work.

Kyle finds the most satisfaction in his work when he witnesses people growing. He takes solace in helping his clients with making money out of his efforts, particularly in negotiation scenarios where he can directly impact the client’s bottom line. He finds fulfillment in teaching clients about financial matters, empowering them to make informed decisions and move their businesses forward.

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Exit Your Way® provides a structured process and skilled resources to grow business value and allow business owners to leave with 2X+ more money when they are ready.

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43:02

SUMMARY KEYWORDS

business, work, growing, talked, cash, kpis, people, scale factor, brewery, net income, understand, pretty, coming, investors, cash flow, money, measuring, strata, thinking, location

SPEAKERS

Damon Pistulka, Kyle Smith

 

Damon Pistulka  00:02

All right, everyone, welcome once again to the faces of business. I am your host, Damon Pistulka. And I am excited for our guests today because we have Kyle Smith from strata cloud accountants in the house. And we’re going to be talking about aligning personal goals with your business vision. Kyle, thanks for being here today, man.

 

Kyle Smith  00:23

Super excited, David. Glad to be here.

 

Damon Pistulka  00:26

It’s gonna be fun. So we don’t, we don’t really get to talk about this much. And I think it’s gonna be really fun and, and interesting, because most people don’t think about their personal goals that their vision, business vision and how that kind of works together. So we’ll get into that in a moment here. But we always like to start off by understanding a bit about your background, and how you got into doing what you’re doing today.

 

Kyle Smith  00:59

Yeah, so maybe you can tell by the long horn clock in the background, I’m a UT, University of Texas grad. And, and coming out of school, my dad had been in the restaurant industry for his whole career. So I kind of grew up around that and, and he decided he was going to start some, a restaurant chain here or franchise, a restaurant chain here in Austin and San Antonio. So I thought, that could be a perfect opportunity for me. One, because I wasn’t exactly sure what I wanted to do, I have a finance degree. And Ken came from that space. But I secretly wanted to be a professional poker player. So So I was thinking I could work for my dad’s company and kind of learn the finance side, and then also secretly moonlight as a poker player. And that and so that’s how I started. That’s how my finance journey started. And, and while I was playing poker, I realized, this is a game. Well, one, I wasn’t the best player in the world. So that kind of forced my hand on the poker front, but to know, I realized, if I win, somebody has to lose, and vice versa. And I thought, I want to do something where if I win, the people I’m working with can win as well. The people I’m sitting down next to can also win. So that’s what kind of started the entrepreneurial bug in me, thinking I could, you know, start what became strata cloud down the line that started the journey. So worked with my dad for four or five years, I learned a ton, I learned a ton, what not to do, but also learn what works, and then started career as a fractional controller, and CFO for bars and restaurants here in Austin. And also worked as a director of finance for a brewery, which was really awesome, because I got to cut my teeth on cost accounting and learn how to make money in that industry. And it’s, it’s a tough industry, make money, argent. So there’s a lot for a Director of Finance to do on the cost side and making sure that everything is efficient working as it should. So that was about a two year Crash Course. And then at that point, I realized I’d want some exposure to other industries. So I went to work for a company called scale factor here in Austin. And they are industry agnostic, meaning we got I got another two year Crash Course and all the industries that I didn’t have familiarity with previously. And it was implementation person at that company or led the implementation team, which meant I got to see a ton of different companies. And we had to get their accounting fixed in their finance department fixed very quickly, a lot of times because more often than not Pete coming to scale factor or to me at Strata cloud and saying Our books are perfect. our finance department is perfect. Can you help us it’s usually usually the other way around. So I learned a lot of good techniques there. And in a lot of industries, like I said, scale factor was trying to build software. And me and my two partners, two amazing partners at Strata cloud. We’re all working at scale factor at the time, and we thought we could split off and focus on service and really working with clients using scale factors technology, and whatever else was the best technology at the time. And that’s why we started strata cloud. So you know, factor didn’t work out or they software they were trying to build definitely, you know, wasn’t didn’t hit their goal. But we were able to take our relationships and start strata cloud with the idea of like you said at the beginning, making sure that people’s goals and business owners and executive teams are goals are aligned with the Business, and then the business has an efficient back office finance department to make sure that cash coming in the door is used most efficiently. And, and we’re not leaving the money on the table. Because like I always say to clients, if something happens that you don’t see and not measuring on the financial side, a small mistake can become a very large mistake over time over periods, because month over month over month over month over some is something that you don’t address that starts adding up and can become a large chunk a large sum of money, that affects a lot of things that can affect the well being of the owner, it can affect the valuation of the business. That’s our strategy is that we make sure that those things are addressed. Yeah,

 

Damon Pistulka  05:42

that’s, that’s a huge thing. So let’s go back a little bit, because I tell you, your experience at the brewery is, is very interesting, because I do a lot a lot of work with people that are in manufacturing, and people look at all these breweries and I look at, it’s a manufacturing company, right? It’s a different process, it’s a different thing. But there’s, there’s like you said, the cost of goods, the labor and everything else. And then when you look at the end, these are the those are challenging businesses, for people that run.

 

Kyle Smith  06:13

Absolutely. And there’s a lot of, there’s a lot of things that people don’t think about, like depreciation. So we can be you can be working in a brewery and think you’re doing well in terms of your flowing cash. But you might have spent three times as much as you thought you were going to, to start it up. And the investors who invested in that brewery and that type of scenario, their runway just got a lot longer in a very low margin business, like you talked about. So there’s a lot of things to consider. And there’s, there’s a lot of complication when you’re working with breweries, which is fun for me if I’m trying to learn, you know, how cost accounting works and making sure that we’re making money. But a lot of things that people don’t think about, like that.

 

Damon Pistulka  06:58

Yeah, yeah. Yeah, there’s an A, you just see so many that start, and so many that go down, but the ones that stay there for for years and years, I mean, they they do have to have their costs in order and they run a tight ship? Because it is, it’s an easy business to get out over the skis too far. And, and pretty soon, you’re just not making it.

 

Kyle Smith  07:21

Yeah, no, I think it’s, it’s really a timing game, because I think you’re on the money. If a lot of times people are gonna say like, here’s the demand, here’s the market. So I’m gonna build for it. And that way, we’re not, we’re not missing out. On the demand side, which I kind of think is the opposite. It’s really, it comes down to costs are critical to surviving, but sales are critical to surviving. So you got to work backwards, you build the sales, and then you build capacity behind it. And that way, you make sure that you’re running lean and mean. And you’re not, you know, wasting capacity, because that’s the whole key is you want to be running as close as you can to max of what your brewery can do at any given time. And you kind of build into the demand. And then that way, if the demand isn’t where you think it’s going to be, because it moves very quickly, you can scale up and back. And if you have, I’m going to get into the weeds a little bit. But if you have the ability to pivot on what you’re making, that’s critical to so if you can pivot into making like water, or Seltzer, white claw type things quickly as the market changes, you’re going to be in better shape that way too. So to me it’s start small seaward, see where your market is and adjust.

 

Damon Pistulka  08:33

That is so huge. I mean, if people didn’t really grapple what you said, just grasp, what you just said, is you want to build your cells then put the capacity in behind it. Because what you’ll see, and this happens in a lot of businesses, I don’t care what business it is, is they have all this capacity B they could start up with all this capacity. Whereas you I think is a real smart and real cash savvy way is get the sales going. Start you know maybe you’re brewing beer in a bucket almost until you start some sales going and get get everything rolling and build them in little and build that capacity over time. Because I can go out and and you see it all over in Austin. And here where I’m at and north of Seattle is is people will come in and spend a tremendous amount of money on a brewery, they will they will spend it because the the tankage and I mean, it’s just a lot. It’s a lot and especially when you get into a larger size, but if the demand is not there, like you said the margin is not it’s not a fat margin. So you can’t cover the costs. It just not profitable is so

 

Kyle Smith  09:40

and you can project anything you want. You know what I mean? You can say here’s the market and you can make it look great.

 

Damon Pistulka  09:48

Yeah, yeah, we we sell a billion dollars worth of beer in this market and we’re gonna get you know, whatever percentage of it but getting that percentage is a lot tougher than people realize. Exactly. Yeah, yeah, good, good stuff. Well, I just want to say real quick, we had anger, anger, stopping by today Happy Tuesday to you anger. And so we’re gonna come on down the road here a little bit. So you you are out there and working with scale factor doing their tech, with their technology and helping accounting departments get up to speed. What were some of the most interesting businesses you got to help?

 

Kyle Smith  10:29

Oh, man. Well, interesting for me is profitable. I like seeing businesses work at the time, and this could be I’m sure it is different now. Because I just talked with a company that was an SEM SEO company that was selling a flat subscription, with a percent, according to them, I haven’t looked into it. But it’s 100% Ai. So basically, they’re saying we don’t need people anymore. We can do SEO, SEM using AI for a certain monthly fee, which I thought was pretty amazing. And I was looking to see if it was legitimate, because we could have clients that would be interested in that. That said, this was four or five years ago, there wasn’t marketing company, SEO SEM. And they had their business set up, they used a set number of people. And they made 60% bottom line on every every deal that they did, and not to, you know, not that numbers or everything. But that type of a business, and they were able to scale it very quickly to. So when I see that, and I see how clean and streamlined it is. That was one of the rare ones where I was wondering why why are you coming to us, you know your business very well. And it’s very clean, and it’s very profitable. And I didn’t I didn’t know, I’d never seen kind of behind the scenes how SEO sem worked. But they focused on very specific set, very specific industry and just built their business up that way, kind of, like you said, from the ground up, they start with the sales and kind of expanded the team behind it. But it was a business that required very little, very little labor for amount of revenue that they were doing. So that was a kind of cool one that I saw. They got got to work with them.

 

Damon Pistulka  12:18

Real cool. Real cool. Yeah, we’ve we’ve we’ve got a long term client that has been in an E commerce business as a reseller. And in eight figure business, runs it with three or four people. You know, and when you when you get these things going like that. It’s really interesting to see how something like that you’re talking about the the electronics behind it. And what’s happening with with no people is scary. Almost a security notice. Interesting. So yeah. Oh, good stuff. Be crazy. Yeah, yes. So as you’ve come along through this journey, you start talking about personal goals and business vision, what really kicked off this idea with you about the importance of aligning your personal goals with your business vision, as you’re working with people.

 

Kyle Smith  13:12

Yeah, so we were we were at the height at scale factor, we were onboarding 20 are departments onboarding 20 to 30 businesses a week for a while. And so I would see it again, again, that’s probably why I was trying to think back of cool businesses that we saw, I was so focused on, you know, making sure that we were flowing through all the businesses that we need to at the time, I was having trouble thinking back of actual businesses and cool business models that we worked with. But I would have to, I’d have to go back and think more on that one. But it said, working with 20 to 30 businesses a week. We I saw it again and again, where a business would say we talk in onboarding and we’d say what’s your goals for the year? And they would just pick a number. Not always at a time, they’d say, I want to grow by 50%. Okay, what does that mean? Is that possible? What’s that going to look like for your personal hours that you’re spending in the business because right now, you’re spending 50 hours a week, and you don’t have a team that’s behind you that can scale? So how are you going to grow 50% In a year, with no backup and no pathway to you know, move yourself out of the weeds into more strategic level. Not expect to work 7080 hours a week and burn yourself out? That’s a broad example. But I saw that scenario again and again, so that we would talk all the time my partner, and I trained for a marathon together when we were kind of thinking about what strata was and that’s what we chat about during runs is there’s so many people that you know, executive teams business they don’t think about what their goal is and how that’s gonna affect their life. And, and what’s their plan to get there? And so that’s why it was such a passion of already for us because it happens all the time. Yeah,

 

Damon Pistulka  15:12

yeah, that’s for sure. So give me some give me some examples that you’ve seen before where people don’t do this. And then they go down the road anyway, and have some real negative consequences for it.

 

Kyle Smith  15:26

Yeah. I mean, we’re just, we were chatting with somebody that just signed up with us today, and I was chatting with her yesterday, and their business was growing like crazy. And the revenue was, you know, going probably one to x of what they the prior year. And, but they had a massive cash flow problem. And it kind of to her came out of nowhere, very, you know, rightfully so because she’s not focused on the finances, she’s focused on growing the business. And so she had to react to that by getting some loans that I would call predatory, they were certainly not ideal, and can really put a strain on the business. And I’ve seen that more than one time where, you know, a business might be profitable, but the debt service is sucking up the entire profit. So if you look at like their EBIT, da, they’re doing pretty well. But if you add in the debt service, because of those type of loans, all of a sudden, they’re not making money. And that is the worst shame in the world, if you’ve got a profitable business that’s growing, that you’ve spent a ton of time on. But now you can’t, you can’t survive as a business, because you don’t have the cash flow to do it. Because of those loans that are sucking you dry. That’s the one thing that I would like to avoid or love to impart to everybody that you need to measure your financials, because that person, if they were able to see it, they could probably get better financing, at a much lower rate, take the burden off of them, and then the business can grow. And if you’ve got a profitable business, you know, that’s something that you can work with. That’s, that’s a rarity in itself. So don’t let cash flow be the thing that destroys the business is basically what I would say. And like you said in the question, the key is, you’ve got to be able to get ahead of it, you’ve got to be able to measure it. And he wasn’t, they were able to overcome it and get through it. And now they’re on the up and up, and we’re really excited to work with them. But that could be an existential threat to the business. Yes, it?

 

Damon Pistulka  17:29

Yeah. Yeah, that’s for sure. Well, and in growth, too. I mean, everybody thinks growth is good until you grow. And I mean, I say that from a lot of different directions, because you look at the profitability. And if you’re, if you’re a business that carries receivables, that’s, that can be a huge thing. We’ve, we’ve had clients before that grew so fast, that they literally can’t keep up with keep up with the cash, that you need to just fund the purchases of the materials, they need to keep growing. And it’s a huge thing when you get into that situation, because you’re looking as like, the business owner is looking at going well, I’m making more and more money every year, but I’ve got less and less money, it seems like in the bank account. And it’s, uh, like you said, the EBIT, uh, is is great, but the, the cash in the business is very low.

 

Kyle Smith  18:25

Yeah. And, you know, we’re our goal is the cash that’s coming into the business, we’re want to make sure it’s most efficiently. That said, we get questions all the time. That’s a great example. Another super passionate about that we got I got asked recently Do you want we have a we want to hire a billing person, I think because we’re growing like crazy. And our same exact problem, like you said, our receivables are going up, shoot, is it worth hiring a billing person? And I said, hire two billing people, you hire as many people as it takes, that is the best investment. Yeah, make the business is to make sure that cash is coming into the business. Because without it, you don’t have a business. I think people underestimate that. So anything that you’re if you have a position open, and in that position is to make sure that cash that you are owed is coming into the business, fill that position, make sure that person is doing their job, because that is critical. And you could that’s life or death for the business and, you know, maybe hinders your ability to expand if you don’t have it. I mean, everything opens up to you if you’re making sure that you’re maximizing the cash that’s coming in. So I hope they take our advice because it’s it’s so critical. Yeah.

 

Damon Pistulka  19:33

Yep. And that is that is true. It’s it’s billing and the collections are something that is is key to especially growing business, like you said, because if you’re if you’re running a growing business, reducing to three, five days off your collection cycle, could be a huge amount of cash that comes into your business. And that’s where Yeah, I agree. 100% Those billing people can make a huge difference. That’s for sure. So, as you’re, as you’re doing this, and you’re helping helping people come to terms of this, I want to be a $10 million business, but I’m a $5 million business now, what are some of the what are some of the things you help them walk through as their, their their setting? They’re saying what their goals are. And you’re thinking, that’s really nice, but you haven’t, you haven’t considered how this is going to, you know, personally and business wise, Cash Wise, you know, all haven’t considered these things, what are some of the things that you begin talking with them about?

 

Kyle Smith  20:43

Yeah, the first one, and I’ve seen good CFOs be included, and I’ve learned my lesson, when you’re, if you’re gonna go from five to 10 million, as an example, to go back to what we talked about before, when you’re, you know, projecting out, you’ve got to project out that your receivables are gonna grow at the same rate that your sales are gonna grow. So a lot of times, people will make a projection and say, I’m gonna go to five to 10 million, but when they’re actually making the projection, they don’t account for the receivable balance going up, which it’s going to unless you have some other way to magically make it stay the same as it is, when you’re at 5 million, you’re going to need to account for that. And that can be a large number. So to go back to what you said, when you’re projecting out, that’s the first one is the cash that you think you’re going to need. You know, we take it, actually and get into the nuts and bolts and make sure on these different items to get a good picture what it looks like. But on a high level, whatever cash you think you’re going to need, you know, double it. Yeah, as growing takes more cash, and you’re thinking you think it’s going to for those reasons, a lot of times people will just assume my receivable balance will stay flat, no, it’s going to grow along with your sales. So I just wanted to, you know, impart that because that’s something that I missed early on in my career that I would do a projection like that and not project a the receivables are gonna go up. payables might as well. But it might be at a very different rate, you might have to keep paying, you know, paying people. So understanding your cash cycle, I guess, another way to put it, it’s super important. But I have an example that I think is relevant, cool. Client, they had a very successful location that they opened up, and the way they funded it was with partial outside investors, and partially internal cash. The business was that location was a smashing success. And so those investors now have to get paid for life, because they took the risk. But that cash is now leaving the business. So we’re looking to open or they’re looking to open a multiple other locations. And now we’re able to kind of use the current environment and their cash flows and what they’re expecting to come in. And we’re recommending as an option to finance with a line of credit, or some sort of mezzanine debt. Instead of outside investors, or if they do outside investors, we’ve structured it differently to where investors are kind of out of the deal after a certain percentage, so that they can keep that money into the business, we’re able to do that now. Because we have the success of the first location. So we can go back to those investors and say, hey, it’s not gonna be as good of a deal as you know, Location One, but compared to what other opportunities you have, it’s still going to be a great location, a great investment, potentially, because look at how good we did on the first one. So basically, taking the knowledge of what you have in the current market and options. In this case, we were able to structure it differently to where, you know, if this location is like the location they just opened, it’s going to be six or seven figures, in the next two or three years that they’re going to keep into the business that they wouldn’t have to give to outside investors. So that’s the type of thing that we do with companies that are growing to where maybe if thinking about it, they just say, hey, let’s structure it the exact same way we structured it before, not knowing that, hey, this time around, we’ve got a lot more leverage because of the current environment. Let’s see, you know, what, what can we do to make it so it’s helpful to the business, but then also attractive to investors. So that’s just one example of something that if a business is growing, looking at the financing and figuring out ways to keep money in the business over the long term,

 

Damon Pistulka  24:33

yeah, that’s a huge thing, keeping money in the business like like you said, and it comes that funding that you just explained to somebody. I get approached by so many people that I want an investor I want to investor, one investor, one investor, and they don’t realize the consequences of that and how just others other funding options. How that might be a lot better over the long term, like you said, because they’re in the situation now with that one location where they are paying their investors for a very long time on that, and, and beyond what is reasonable. I mean, because everybody should get a reasonable return if their success but but and investors will take the deal they get.

 

Kyle Smith  25:22

And they’re happy in that case, that’s for sure. Yeah.

 

Damon Pistulka  25:24

Yeah. Most people don’t, don’t go well, am I giving someone too good of a deal. And that could be the case. And you talked about mezzanine debt and other sources of funding. I really, really like that, because you need to consider all your options, every time you’re looking at doing some sort of expansion like that, because may not be the easiest way to get money, but it might be the best way to get money. And yeah, yeah, exactly. And look at the look at the bigger companies. I mean, they that’s they they explore a lot alternatives to get funding. And a lot of different pieces come together in the same deal. Even stacking, you know, some of his equity, some of its regular bank debt, some of its mezzanine debt, and the way that they put things together, you really have to understand what’s best for the situation. And like you said, how do we keep the most cash in our pocket so we can keep the business going forward? Absolutely.

 

Kyle Smith  26:23

That’s better than then I can think about it. I’ll steal that one. It’s, but no, that’s it. That’s it. And the the piece I would add is, a lot of people when they decide something, I think in business, especially if they’re not, if it’s finance related, because they don’t want to focus on finance, necessarily. It’s okay, we made the decision, let’s, let’s keep going, which is important. But at the same time, you also need to think about the current environment today. And then you’re going to need to revisit next week. So you know what I just said, that thing I just explained about how their financing, that could change next week, yes, we need to keep talking about it and use the time that you have to make the best decision for the business, I think a lot of time consistently measuring is something that’s highly underrated, because there’s things that come up, and the best that you can do is pivot around the things that you don’t know about. So if you can learn more about what’s coming from week to week, take that knowledge, don’t ignore what’s coming down the pike, take it and, you know, adapt your plan if you need to. So that’s another big thing that we do when we come in is like keep measuring and make sure that what we’re doing makes sense, instead of just assuming this is the right answer, because we talked about it, and then forget about it.

 

Damon Pistulka  27:39

Yeah. Yeah, that’s a great point. We talked a little bit about this for you get on before we got on. But when you come into clients and start working with them, are there are there certain KPIs key measures that you’d like to like to see them start working with to really understand their business better?

 

Kyle Smith  28:00

Yes, and this, maybe, I know, they’re savvy people listening. So this might seem basic, but we really like to keep to the five basic financial KPIs that are on the profit and loss statement. So its revenue, gross profit percentage, net income, net income percentage. And I guess I lied, one is not on the income statement, but it’s on the cash flow statement, that’s net cash flow. So post high level five KPIs. Those can kind of go across industry. And there’s a lot of people that aren’t measuring those, there’s a lot of business owners that aren’t looking at those and looking at them consistently. And if you understand those from top to bottom, you can make decisions for the business. Doesn’t matter how big or small you are, if you can understand those, especially the difference between cash and net income that we kind of talked about before. If you’re measuring that consistently, asking questions, why that is because you don’t need to understand the cash flow statement. I think most non financial professionals don’t look at the cash flow statement and understand how it works necessarily. But you don’t need to know that you just need to know the bottom line of the cash flow statement, the bottom line of net income, if they’re different. You have to know why. Or you least have to ask the question and start on the answer. Because if you don’t, there’s a lot of things that can go wrong. You gave an example earlier, and I had an example that was pretty potent on that. That exact point as well.

 

Damon Pistulka  29:33

Cool. related,

 

Kyle Smith  29:35

so we had a business that came to us. They had gone to the bank, and they thought their cash flow was pretty solid. Yeah, you know, cash in the bank was pretty consistent. So they went to the bank to expand the bank came back to them and said, We can’t give you money, because you’re not profitable. And your payables balance is continuing to grow every month. And they were pretty taken aback of why that doesn’t make sense. We’re You know, our cash flow is pretty consistent. And, you know, they know, you know, but they didn’t realize that their cash was consistent because they weren’t paying this month over month over month, and that that Accounts Payable balance kept growing and growing and growing. So they had cash in the bank that was not theirs, it was cash that was owed to vendors. So the bank said, we’re not going to, we’re not going to give you money to expand, because you know, you’re gonna have to take that money and pay vendors off. And also you’re not profitable. So if they had been looking at net income, they’d see that their net income was negative. And they’d say they’re either Nashville was probably breakeven and maybe positive from month to month, but there would have been a big gap between those two numbers. And so that’s why we say keep it simple. You don’t need to understand everything about the financials, but you need to look at those kind of critical numbers like net income and net cash flow, and make sure if they’re different that you’re looking into understand why so you can avoid situations like that, that, you know, that could set that business back a year or two, maybe less, but, you know, they had a lot of work to do, then to get ready to actually move on to a new location in that case.

 

Damon Pistulka  31:08

Yeah, and those are the five that you you mentioned, again, are those are really, really basic, really good. I mean, a really fundamental because if, if, you know, we have similar ones, if you know, at the end of the day, if you know what your fixed cost is, in your business on a given week, month, whatever you you’re looking at, and you know, how much gross margin you’re generating on a weekly basis? I mean, it’s pretty simple after that, and you really got to get it down to that level. Because if if, like you said, if you’re generating the right amount and revenue, well, then am I generating enough gross margin that will pay for all my fixed expenses? And if I do that, I’ve got the first battle one, you know, because I got enough money, if I allocate it, right, that I should be making money, but like you said, if you’re, if your receivables or your payables are not are not carrying along in the same fashion, it’s the you can run and still run in trouble is not sure your cash flow statements, pretty, pretty solid to it. Those five things are so easy, and so underused. So how many times do you run into businesses that are actually measuring those things before you start working with them?

 

Kyle Smith  32:29

Like I said, before, it’s the minority, I’d say it’s the vast minority that because I know tons of businesses do. But a lot of businesses that are coming to us are kind of looking for that guidance. So we don’t see it a lot. And a lot of the times the things you just said, that’s a mind blower, when I’m on a call with somebody, and I can see their eyes light up when I’m explaining that exact thing of, Hey, your margin is 15%. And so to break even, you’ve got to sell 50% is much on a week to week to week basis. And they were thinking, wow, I didn’t know that. We’ve got a lot of work to do. So how can we do that, and then we can start talking about that. And then you’re moving the business forward, instead of going around in a circle. That’s really what it is. So the way you put it separating your fixed and variable costs, you have to do that as a prerequisite to make sure you understand what your gross margin is. Yes. And so it’s super basic, but it has to be done. Because otherwise you can’t answer questions about the business. And there’s an another quick example, on fixed costs, there was a company that was getting crushed by occupancy costs by rent, especially in the in the seasonal months. So they were super slow, during like, January, February, December. And so we were able to look at the books measure, like we talked about, and then isolate is a big cost, because we’d like to go big to little, you know, big costs first. And we then start landlord landlord negotiation where we set up a percent rent structure. So the landlord in that case, we changed, we effectively changed occupancy from a fixed cost, the more of a variable costs, so during those slower months, get lower, so it’d be easier for them to break even or not lose money. And then during their Gangbuster months, in the summer, the rent was higher, but they had way more revenue to handle that. And the landlord got to kind of make up with the loss during the slower months. So everybody won in that scenario. And that’s a critical case where if you didn’t measure it, you you know, just be going along and the landlord would be collecting and you’d be hurting every time. Winter came around. Yeah,

 

Damon Pistulka  34:44

yeah, that’s a great point. Because it’s it’s one of those things that people don’t understand that there are there are when you understand these things, you can negotiate you can work with people to find different solutions that will fit your business and and make The other the other party’s happy as well, it’s a, it’s a, that is a big one, especially like if you’re in construction or landscaping or something that really goes up and down with the seasonality of the year, that can be huge. That’s good, good stuff there. So now as you’re getting getting people going, and they’re down the road with you aways, they’ve got a good handle on their cash flow and things. What are some of the comments you get back from people? When when they let you start to see this?

 

Kyle Smith  35:35

Usually, they’re like I was, I wasn’t sure the ROI beforehand. But now I can see it. And that that’s what you know, me as a finance guy behind the scenes, that’s where I have to get better is showing people Hey, like that rent negotiation, that that ROI on what we’re doing and coming in and doing is, you know, it’d be 10x could be 100x, a financing scenario. So a lot of times, we’re like, wow, we, we thought you would just come in to fix the books and move things around. So we get some accurate numbers. But now we’re seeing direct ROI on the things that you’re doing. And that’s pretty amazing. So in, you know, it doesn’t always happen, you know, you can’t always find something like that. But when we do, that’s a really cool moment to see that they’re, they’re getting huge return on on our services, because it’s not just about the indirect things, because it’s, it’s hard to explain to people value of having accurate books, in terms of of what they’re paying out for that. But when you can show them, hey, we’ve effectively changed the way that your business operates to make it easier for you to survive and thrive as a business. That’s pretty magical. And that happens.

 

Damon Pistulka  36:51

Yeah, yeah. Well, in this it really, there’s, there’s so much missed opportunity caused by not understanding your books. Well, I mean, it’s it’s like, you know, we’ve helped clients on on different situations where it’s like, Hey, have you looked at this, you know, paying your suppliers early. This is one that a lot of people don’t understand how much money they can really make for them in a year. And now we’ve got people that are making well over six figures, just because they’re doing that with certain suppliers. And they’re actually using that to categorize who if we are in a cash crunch. Who do we pay for? Well, you’re paying the people you’re getting, you’re making money on? And it’s, it’s really interesting how once you understand the finance of a business, how you can use that knowledge to help run a better business and make it more profitable.

 

Kyle Smith  37:41

Yeah, absolutely. We did the same thing with credit card fees with a business that was running huge, huge numbers to where they’re saving, you know, four or five grand per location on on the card fees. And we locked that into where if they keep growing, which they will, you know, each look new location. That’s one of the examples where it compounds if you don’t address it, yeah. But to your point accurate financials, a lot of times will come in, we had an example, the business had a sales tax that was booked as an expense, which basically meant that they had a vastly overinflated expenses. And there was one negative net income. And that was just a simple nuts and bolts thing of hey, that needs to go on your balance sheet and off of your income statement, all of a sudden, their net income went from negative to positive. And that’s huge alone, and maybe showing that to a bank to loan. So like you said, even at a base level, it’s really important to understand, you have to have a finance department in the business is what I say if that’s you, as a business owner, if it’s us in the things that we can do. Obviously, that is super powerful, or if you have an in house CFO, but either way, you’ve got to have somebody that’s looking at those things to move the business forward, because it can be very costly.

 

Damon Pistulka  39:04

Yeah, yeah. So what’s your favorite part about doing what you do?

 

Kyle Smith  39:11

I’d say, when we get to save people, we get to save people money. So for me, when we we did that rent negotiation, this was a client last year. And that kind of got signed on the dotted line. That was really cool for me, because we spent a lot of hours kind of back and forth. With the landlord negotiating. So I guess for me, it’s, it’s seeing kind of the fruits of negotiation, labor a lot of the time is what I like best because that’s a direct thing that we can affect. So that’s what I’m passionate about. But otherwise, to me, it’s teaching. So if we see people, a lot of times people not looking at the books, not understanding. But if we start working together and we measure every month, because, you know, there’s people business owners They’re a lot smarter than I am. They just don’t stare. They don’t stare at the books every day, like I’m doing eight hours a day. So if they start learning on that month, a month cadence, and they’re getting consistent, and you can see that they’re starting to understand, and they’re starting to point things out on a p&l. That’s really cool. Because then that’s the work that we’re doing is that they’re able to take that make decisions about the business. And and like I said, they’re not going on to the circle anymore. They’re moving the business forward.

 

Damon Pistulka  40:27

Yeah. Yeah. That’s awesome. That’s awesome. Well, Kyle, it’s been awesome talking with you. I just enjoyed our conversation today. Because, you know, you brought up a great point about how your personal goals, you know, these, these business owners and founders goals really need to align with their business vision, because, you know, just going off and saying, hey, I want to do this. You really need to put some thought behind it, because it can get you into your personally and professionally into some situations, you don’t want to what is the best way if someone wants to get a hold of you to reach out to you?

 

Kyle Smith  41:07

Yeah, so our website is strata, Cloud accountants.com. And we’ve got a special landing page, landing page for the listeners and viewers of faces a business. It’s strata, Cloud accountants.com, forward slash faces. All right, strata cloud accountants.com. For its faces, we have a downloadable KPI tracker there gooery. More details on this KPIs that we talked about? So I’m all about, you know, free resources, when people get started on measuring, if anything else I’d love for every business owner to start measuring those KPIs every month.

 

Damon Pistulka  41:47

Yeah, yeah, good stuff. Good stuff. Well, Kyle, thanks for being here today. We really appreciate you taking the time to stop by and, and talk about aligning your personal goals with business vision and how really thinking about where you want to go with your business is important to make sure that that that fits with the business with what you really want to do personally and, and sharing your experiences and how you see that work well or not work well with people. So thanks for being here today,

 

Kyle Smith  42:16

man. Yeah, thanks, Damon. It was awesome to talk with you.

 

Damon Pistulka  42:20

Oh, great. Great. Well, I want to thank anger and anger, excuse me, and the other LinkedIn user, I can’t see who you are. They said, Awesome. Honor. Thanks so much for being there. All the people that are listening, but you were not able to comment today. Thank you for being here as well. If you did not hear Kyle, from the beginning, go back to the beginning. He’s dropped a lot of good nuggets in the beginning about really some of the five KPIs that you want to understand about your business, selling his experience and background. That will be very interesting. Thanks, everyone, for being here today. We’ll be back again later this week. Have an awesome rest of your day everyone. hang out for a moment, Kyle and we’ll finish up offline.

 

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