Winning In Difficult Business Environments

It's a crazy business world we live in. That combined with an election year can create a challenge for growth and sustainability.

As we approach the end of the year, our thoughts turn to planning. With strategy comes data collection. But what data do you need?

Books & The Biz shares what you should be considering for your planning session, and how that can impact successful outcomes as you continue to expand your business.

This information is going to be helpful for every business situation from startup to succession. Be sure to tune in.

[00:00:00.00] - Alice

Welcome to Books in the Biz, a podcast that looks at both the financial and operational sides of success. Please welcome our hosts, Dan Paulson and Richard Veltre. Dan is the CEO of Envision Development International, and he works with leaders to increase sales and profits through great cultures with solid operations. Rich is CEO of the Veltre Group and a financial strategist working with companies to manage their money more effectively. Now on to the podcast.

[00:00:32.10] - Dan Paulson

Thank you, Alice. Welcome back, everybody. Rich, how are you doing today?

[00:00:36.26] - Rich Veltre

I'm doing fabulously.

[00:00:39.28] - Dan Paulson

Fabulously. Rich, you are on site. You are actually coming in remote Yeah.

[00:00:46.28] - Rich Veltre

To put you to work. How to figure the tech out for being on the lamb. I'm on the lamb here.

[00:00:54.22] - Dan Paulson

He's on the run, folks. He's in parts unknown. We can't tell you where he's at. Anyway, Right. Stealth mode, exactly. So we've got a little bit of a... I guess this came about in our conversations, and we know many companies are getting towards fall, and as most companies look towards fall, they look towards what, Rich?

[00:01:18.06] - Rich Veltre

Strategy for next year.

[00:01:20.11] - Dan Paulson

Yeah. So as we're recording this, it is early August. We figured, hey, if you're thinking about strategy for next year, maybe there's some pre-planning You need to start thinking about as well. So that's the purpose of our podcast today. We are talking about winning in difficult environments, and some might argue that the environments are a little bit crazy. I have done a recent poll. Rich, I think We're going to be doing one pretty soon. And while it sounds like sales are good, so we like to hear that sales are still going pretty strong. I'm also hearing from people that things are starting to level off a little bit. So it's not that anyone's in a panic, nor Should they be? But we know it's the election year. People are holding off because of that. We also know that there's some volatility going on in the marketplace. If anyone's been watching the news, they probably saw that as well. So this is a good opportunity to take a step back, look at where you're going in the future, and maybe look at what you need to work on as a business as a whole. So we're going to go through our list of important items that you should consider.

[00:02:28.29] - Dan Paulson

And from there, we will talk further about that as we go along. So Rich, you ready to do this?

[00:02:35.14] - Rich Veltre

A hundred %.

[00:02:36.13] - Dan Paulson

A hundred %, he says. He's all set. So here we go. And the first one is actually on you. So tell me more about why cash flow is important.

[00:02:46.26] - Rich Veltre

So just really quick, depending on what monthly, quarterly, annual financial statements you take a look at, I would absolutely 100 % argue that you're probably not getting a good enough picture of your business because Nine times out of 10, when I say, show me your financials, the first thing they hand me is a profit loss statement, which shows me sales and expenses and bottom line. Then if I'm lucky and I ask a little further, dig a little deeper, I might get a balance sheet to go with that. But the third one that I never seem to get when I ask for financials is a cash flow statement. And arguably in the cash flow statement, there is more knowledge in one or two numbers than there is in any of the other statements you hand me. And that's the scary part that no one seems to get a cash flow statement.

[00:03:33.25] - Dan Paulson

So tell me, Rich, what are these one or two numbers you should be looking for?

[00:03:38.29] - Rich Veltre

Cash flow from operations is probably the most important number in the financial statements themselves, period. No question in my mind, because what that tells you is, are you generating enough cash to pay off debt and to pay shareholders? So the cash flow from operations says that when I go out and I actually do a job, I make a profit and there's enough money there to then go and do the things that I want to do, whether it's an investment activity, other equipment, et cetera, that I want to buy or paying off debt. If you don't have a sufficient cash flow from operations, you should be looking to find out why. Period. No question.

[00:04:22.10] - Dan Paulson

Let me ask you this because like you, I agree, most businesses look at your profit statements, might look at the balance sheets. Wouldn't somebody looking at their profit and loss, for example, say, well, my net income is X, how is that different from cash flow from operations?

[00:04:43.22] - Rich Veltre

Majority of your profit and loss statement is built off of what you build and what you incurred as opposed to what you received and distributed as far as cash goes, there is a difference. So the problem is if you're not collecting your receivables, your profit loss will look a lot better than your cash flow statement because you won't see that you got the money in your pocket. So that's why I arguably say, especially for business that are smaller or that are not this robust organization with a whole bunch of people doing the work, if you're looking for something to tell you, how's my business doing? Look at your cash flow statement.

[00:05:29.06] - Dan Paulson

Got it. That makes a lot of sense. I think most companies would miss that, especially, like you said, the smaller, medium-sized ones. Cool. All right, this one's on me. You can sit back in. Now you can Google me with questions. So one of the first things that I tend to look at is leadership, not necessarily org structure, but just leadership. Who do we have in charge? What are they doing? And how are they performing overall? Because I find that, especially in a lot of what I would say medium or privately held companies, leadership tends to center around the owner. And there might be other people involved that have a leadership title, but are they really performing leadership duties? Or does all that responsibility roll up to the singular boss. And what I tend to struggle with is often there is that one person who's in control of everything. And while there's other people assigned to do tasks, they're not fully given the authority to do those tasks. So then it becomes very centralized as far as what the leadership structure is. And if that leadership is not empowering their team to do more and be more responsible, then often that leader is burnt out or the company is stagnating, or they're running into a number of other issues that could lead to employee turnover, stagnation of business, of sales, impact of profitability.

[00:06:56.13] - Dan Paulson

So this is where some of our stuff might start overlapping there when that leadership is so tight and so tied into one central figure that you create a number of issues.

[00:07:09.10] - Rich Veltre

So let me ask you this question. Have you ever come across a spot where that center circle, that leadership, is actually missing?

[00:07:21.13] - Dan Paulson

Only in certain circumstances, usually where there has been a sudden passing of the leader. I guess a broader answer to your question, does that leadership push everything out? I guess maybe is what you're getting to.. There's that central figure. There have been a few situations where I've seen where they've tried to implement maybe a two or three equal pillar leadership style. I remember that one of the companies I worked for, they actually put the CFO, the head of HR, and I believe the head of marketing in charge. And all three were supposedly equal in their power and authority. That lasted, I think, less than a year. Because who do you go to when there needs to be a final decision made? Because in my world, there always has to be that top person. There has to be somebody who has say. The problem is often there is only one person that has say. So now everything flows into that individual, and nobody else can get anything done if that individual is not giving the blessing of whatever's Whatever is going on. So, yeah, there's been a few situations, I would say, where there's this collaborative leadership style.

[00:08:39.01] - Dan Paulson

I have found that that rarely ever works. Somebody has to have the final say. Otherwise, you create minutiae and monotony and also the spinning the wheels in the sand, as I like to call it. Nothing gets done.

[00:08:53.13] - Rich Veltre

Yeah. Yeah.

[00:08:55.23] - Dan Paulson

On to the next. Thanks. That was a good question. So back to you. I found this graphic. I know you just said working capital, but I thought, well, here's a graphic for you that supports the life cycle of working capital. So maybe you can speak this a little bit. Why is working capital such a critical issue when it comes to looking at your strategy or looking at what you're doing going forward?

[00:09:18.24] - Rich Veltre

The technical definition of working capital is your current assets and your current liabilities, which basically says the difference is the amount of money you have after you pay the next year's expenses. So in other words, if you're converting your current assets to pay current liabilities, it comes out to be a positive. If it comes out to be negative, we go back to the inventory or we go back to the cash flow question mark. You don't have enough working capital to pay your bills over the next one year, let alone long term. It's short term. It's just underneath that one year. So when you go through these, these are the things that affect your working capital and what you have available to pay for the next 12 months. So too many times, especially in smaller businesses, where it's really tied to the owner, where the owner is really working the business. So everything that comes out of the business is his or hers. Working capital tends to be an ugly number because it says the owner has to pull a certain amount of money to live. So they're pulling money out to cover their expenses. But if they don't pay attention to it, their working capital actually becomes worse and worse.

[00:10:35.22] - Rich Veltre

So working capital is so important because it gives you the immediate health of the business as opposed to even an overall health. But if you're looking at everything from, will I make it for the next year? Working capital is an enormous ratio. It's an enormous thing to look at.

[00:10:51.17] - Dan Paulson

So how does an operating loan, for example, impact that?

[00:10:55.09] - Rich Veltre

Operating loan, only the current portion of the operating loan would be part of the working capital. So the next 12 months of principle that you would pay would be sitting in your immediate payables or short term debt. So the rest of the loan is long term debt. So that's not included in your working capital. Because remember, we said it's current assets over current liabilities. So the current liabilities would only be the one year portion of paying off any long term debt.

[00:11:23.08] - Dan Paulson

Got it. Is any of that cash that would come in from that working loan or operating loan affect this number?

[00:11:32.13] - Rich Veltre

Not usually.

[00:11:33.18] - Dan Paulson

So that probably sits in the balance sheet again on the assets of life, at least. Got it. Okay. Good to know. All right. So since we're talking about work, let's talk about workplace culture before I talked about leadership. But leadership has an influence on how we all work together harmoniously or not. And so the next thing I tend to look at is how does that culture exist? Does it exist thoughtfully? In other words, did the leadership team go and organize mission, vision, values? They actually live by those things, or is it just a free for all? Because there's always a culture in business. It doesn't matter if you think about it or not. Culture will create itself if nobody's there to thoughtfully move it forward. So if you have those situations where it's a run amok style, and, well, we just let everyone do what they want, and this is what we get, then this is exactly what you get. You run into a situation where you have everyone doing their own thing, or you have leaders making their own assumptions about what the culture should be. Sometimes that's good, sometimes not so much, depending upon the size of your organization, because in any organization, you will start getting microcultures, even with a good one that the top leadership has tried to plan it out because everyone has their own definition of what those vision, vision value issues are and what they mean.

[00:13:03.17] - Dan Paulson

This goes on to affect some of the other things I'm going to talk about in the future, which is why I say this is also one of the important things I look at early on is how is that organizational culture structure How is it lived by? Do the employees believe the same things the managers do, believe the same things that the owners or the senior leaders do? And is there consistency across the board in that or are there disconnects? Because like I said, that impact other issues I talk about.

[00:13:33.27] - Rich Veltre

Right. I think you've spoken about this, or definitely we've spoken about this before, where this ties in really well to a lot of the communication that we talk about in our other podcast. Somebody has to communicate what the culture should be or emanate what you want to see out of the people who are there. And in smaller companies, it can be very difficult because I don't know. You tell me if you have any examples there. But if the leader gets too busy and doesn't communicate with the rest, then you're right. They wind up going off in their own direction or running in circles.

[00:14:13.16] - Dan Paulson

Right. Well, that definitely is an issue. And communication is a big part of leadership culture. I would say in some ways, the smaller the business, the easier the culture is to identify and to adapt to. Because, again, think about it, you have very moving parts when it comes to human beings. So in a company of 10 people, that owner is often very ingrained in everything that's going on. So it's pretty easy to get a feel for what the style is like. But here's a concern about culture, whether it's smaller, whether it's large. This ties back to you. How do they manage their sales, expenses, and profits? Because to what you were saying earlier about that whole working capital and cash flow and profits everything else, if they're just taking that money and treating it as a bank account and pulling all that money out of the business, it's definitely going to impact the viability of that business long term. And that's where I see companies running into problems or small or privately held businesses getting issue is now they're borrowing money to basically fund the day to day operations or they're robbing Peter to pay Paul, so there's money in today, but that's immediately getting expensed out to everything else.

[00:15:31.11] - Dan Paulson

There's nothing for future growth, nothing for sales, nothing for marketing, nothing for hiring. And now we see these problems of these consistent problems of how they manage their bills and expenses because they're not effectively disciplined when it comes to money management or profits or sales. So that's where I tend to see issues in smaller companies. It becomes less about the culture of behavior It becomes more about how that central figure manages everything and then manages the people. But communication is definitely a big part of it.

[00:16:08.00] - Rich Veltre

Interesting. I hadn't looked at it that way.

[00:16:10.15] - Dan Paulson

It all ties together. My stuff ties to yours, yours ties to mine.

[00:16:14.18] - Rich Veltre

True.

[00:16:15.22] - Dan Paulson

So Dio, this is not a rock concert, I don't believe. So I actually took your acronym. I spelled it out for people because we're not doing a Holy Diver or anything like that here. So deal, days, inventory, outstanding. What's that all about?

[00:16:36.27] - Rich Veltre

Playing a little finance as opposed to accounting, but let's not forget, finance is built off of accounting. So what this does is financially takes a ratio and gets to a point of understanding how many days of inventory you have in your warehouse or your storage room or whatever you use to count your inventory. Inventory A monetary balance on a financial statement is relatively a dollar amount. Sounds great, but what it doesn't do is predict anything. So you take a ratio of how much you're selling versus how much inventory you have on hand and you come up with the number of days that you can go without bringing in any more. So the key factor here is if that number is at a relatively stable state and then all of a sudden goes up down, then you want to figure out what's the issue. So it's not so much I take a calculator and I figure out my DIO today. I figure out my DIO today and then I track it against how it is from 30 days from now, 60 days from now, 90 days from now. That way I can see if any trends develop.

[00:17:49.29] - Rich Veltre

And that way also I get sometimes an indicator. We knew back in 2007 when the recession was starting, we knew that we had a problem because our started to go up as people started to cancel their orders because they didn't have confidence that they were going to need the product, that they were using our product to make. So we saw that happening and we cut our orders as well so that we would be able to survive. And luckily we did because it would have been a really bad situation to have to try to pay for inventory that we couldn't sell.

[00:18:25.25] - Dan Paulson

Good point. I'm glad you included this because to me this This is an example of why accountants can be helpful. But a lot of times you need something more than an accountant, if you're more than an accountant, because typically the accountants aren't going to look at these numbers. Dio is actually something I also look at. Because, and not always for the same reasons you do, I look at from an operation standpoint is how much inventory is tied up for how long. So for me, a typical retail or On a manufacturing basis, I want that inventory, this number to be as low as reasonably possible. And I say as reasonably possible because we've seen situations where that whole just in time thing, right? So the truck is backing up with the parts you need pretty much at the same time you need the parts out on the floor. That's the ideal for a lot of people when you're looking at just in time. But look at what happened during our little bout here over 2019 to 2022, really. Some of that stuff is just starting to get straightened out now. People didn't have the materials needed and demand went way up.

[00:19:37.25] - Dan Paulson

And now all of a sudden we're sitting with situations where inventory might be partially completed. Now it has to sit there because it's waiting for different products to come in, computer chips, whatever it might be. So you got to find that fine balance between this DIO number from an operation side. I've seen situations, especially with small businesses, where they've got 60 to 90 days of inventory sitting on the shelves. And I'm like, you got all your money tied up in product that's going nowhere. Why are you doing this? We got to figure out how to get that number to a more manageable level and get it something for me, closer 30 to 45 days, in most cases. If we can manage those levels, we're usually going to be better off than if we let that number creep up to really high amounts. Because now I was just thinking of a company that I was working with where they had product. Some of that product had been sitting there for two or three years. They overbought because, well, we might need it in the future. So instead of buying the right amount, they took the discount by buying too much.

[00:20:41.20] - Dan Paulson

And now they're sitting on that money. And that money is never... You're never going to get that money back. That product is going to sit there, it's going to decay away, it's going to get damaged. And in the end, you're probably going to end up throwing it in the dumpster. So you wasted that money. But again, it's that whole mindset, well, if I order enough, I save that five %. Well, no, you actually cost yourself far more than that, because unless the perfect situation comes along, which it never seems to do, you're back to where you were at.

[00:21:10.08] - Rich Veltre

I'm glad you brought up the, we'll call it stale inventory as well. Yes. Something that you can't sell because accountants don't know to write down an inventory value. So your financial statements are going to have the value of that inventory on the balance sheet, making it look like you're working capital It's better than it is because inventory is a current asset. So if your inventory really isn't worth what you say it's worth, whether it's because it's no longer sellable, it's three years old, it's stale, it went bad, and it's still sitting on the And nobody wrote it off, then your company is not as healthy as the financial statements are trying to show. So dig in a little bit. Do the DIO not only on the whole, but maybe on a couple of parts, too.

[00:21:58.14] - Dan Paulson

Yeah. And we know this Just through previous work we've done together, we know this creates numerous problems with companies, where it's everything from trying to grow to trying to sell. So you really have to watch what you're doing here, because this is one of those hiding things that You don't realize it's impacting your business in a negative way. All right. Well, that comes up to, again, both of us can probably talk about this as well. I found another nice graphic here that seems to work well for this, but business process. So Everything from the idea to the plan all the way up to how you sell sales marketing, I would say process and procedures is probably the one thing that's on this whole process here that's not included. I've been talking a lot lately with companies about standard operating procedures, SOPs. So there's my acronym for you. But we don't often have those processes or procedures documented. And I don't care if it's a small company of a couple of people all the way up to You have a large company of several hundred or several thousand people. Often, procedures are missing, and then you have your key person that something happens to them.

[00:23:13.15] - Dan Paulson

Maybe they leave the company. So they quit. They get another job somewhere else. Nothing is documented. Somebody else comes in. They have to spend the next six months to a year figuring out what that person did and fixing. And in most cases, that person doesn't document anything. So we perpetuate perpetuate this problem over and over again. Or in a worst case scenario, you have somebody who gets sick. Maybe they can't fulfill their job duties fully, or worse yet, they pass away, have a heart attack and die, and now you're suddenly out Hold on, lurch. At least when somebody quits, usually have two weeks to figure out what that person is doing while they're there. If somebody suddenly leaves and they don't come back, that's a whole another scenario. So having business process procedures It's well documented, ferreted out. It's also going to help with long term efficiency because if we can see what those procedures are, and when those procedures change, we can then adjust the documentation. We can also review processes over time because technology changes, situations change, where maybe it makes sense to do a process review. And I was actually talking with somebody yesterday about this.

[00:24:24.20] - Dan Paulson

The best way to do that is look at the peaks and the valleys. So when you're looking at processes and procedures, look at when things went really well. So, wow, that went so smooth. How do we do that? Let's repeat that again. Or when things go really poorly, wow, that was a complete screw up. We obviously have to look at how we're doing things here because things got stretched out too long or we have poor quality issues. We had to go back and fix things more than we wanted to. We wasted a bunch of money there. Those are the two issues I tend to look at the most because that's your biggest impact that you can affect most of the time. If you look at most business procedures, it's a bell curve. So 70, 80 % of the time is just steady as she goes type things. It's really those outliers you got to look at because as you change those over time, you minimize those or you find out where other gaps are along the way. Most people look at all the process and procedures they have and want to fix everything all at once or want to change everything all at once, and that's not effective.

[00:25:26.27] - Dan Paulson

So when you look at those outliers, that gives you a manageable number of procedures to look at and adjust and hopefully improve.

[00:25:35.12] - Rich Veltre

Yeah. I think I'd only add one thing, too. There's another piece, I think, the scalability factor.

[00:25:42.00] - Dan Paulson

Oh, good.

[00:25:42.25] - Rich Veltre

And the difficulty that you would have in trying to scale. I'm sitting in a company right now that I would tell you that from first glance, they seem to have fabulous procedures. It's a relatively small organization, maybe 16 people here. And Processes seem to be here, but they're not written down anywhere. So the problem becomes when you transfer to someone else, it becomes a problem. When you try to add someone, it becomes a problem. So you might grow really fast, but the scalability will actually come back at you because you don't have the ease of being able to add another person to fill the same role that other people are handling. But now you just need that person to be able to get up and running really quickly, and they can't. So now your training becomes a longer lag, and it slows down your ability to do the scalability factor.

[00:26:40.19] - Dan Paulson

That is a great point, because as you pointed out, training slows everything down. But it also creates a situation where you bring that new employee in. They think they're going to be doing one thing, they end up doing another or they're job shadowing all the time, and they're unclear about what they're supposed to be doing because maybe that person is not as good of trainer as you think they are. With those procedures not written down, here's where we see turnover in new positions because that person gets frustrated or they thought they bought into something else, and this is what they end up with, and they quit. They go somewhere else. We all know that for the most part, employment is pretty tight. There's more jobs than there are people, and that's still the case right now. So it's easier to move around if you're an employee that it is if you're an employer. So good point. Love it. Let's go on to the next one. More acronyms. Now, this is not DO. We're not doing any Holy Diver here. I don't know what rock band this is. Dso. What does DSO mean?

[00:27:43.05] - Rich Veltre

Dso, day sales. Outstanding. The reason I like this one is that it takes... It's the same thing. It's finance is built on accounting. The accounting tells you what your receivables are in dollars, tells you what your sales are in the dollars. Would So what DSO tells you is how fast a sale becomes cash. So how fast are you collecting from the minute that you ship a product to the time that you actually get paid? So what is that time lag? Is it 30 days and everybody's on 30 day terms? Great. You're doing fabulous. Is it 60 days when you got 30 day terms? You might want to look at some stuff. What's going on? How come it's taking so long? I had one company that's So it was so bad because they would do the work and ship the product or do whatever it was that they needed to do. But then the bill never went out. So it would take 30 days just to send the invoice and another 30 days to get paid. So DSO gives you a hint It tells you there's something wrong, dive in and take a look because process is not working the way you think it's working.

[00:28:54.28] - Rich Veltre

So that's what DSO is. It's basically looking at how fast you collect your money.

[00:28:59.22] - Dan Paulson

I've I got an even better one for you. I've got a client. They do the work, they bill. So they're already 30 days out. And then it takes anywhere from 120 to 180 days from the time that bill goes out to them getting paid.

[00:29:13.28] - Rich Veltre

How much does that suck?

[00:29:16.17] - Dan Paulson

That's not the terms. If you look at the terms, it's supposed to be much less than that. And ironically enough, this is a government situation, but there's more parties involved. So this This is a sub through another party, which then is they're taking that bill, and then they're passing that bill on, and the government entity is choosing to drag their feet on it, which is very unfortunate. Unfortunately, They look at this as going, well, this is really good business. This is a big chunk of what we're doing. So we push, we notify them, you got the bill. This is supposed to be a 30 day turnaround. Why are we not getting this in 30 days? But it is what it is. And as much as I've talked with the owner about that, what we made it clear is we cannot rely on that business wholeheartedly. You need to find ways to diversify what you're doing? Because while this company, when they do pay, the money is good, why do you have to wait almost six months to get paid? And that's six months after you've already performed the work that you've done. So that's very hard, especially for a small business to operate that And it becomes frustrating for the owner.

[00:30:33.20] - Dan Paulson

It also becomes demotivating for the owner. And they wonder why they're doing the business that they are. So there's many things here that this number becomes very important, not only from the financial side, but also the operational side, because I'm looking at this going, well, you need to do your own marketing. You also need to do your own product development. And you can't do that when you don't have the resources or the cash to make that happen. Also hiring. Okay, you need another person to do X. Well, you can't hire that person because there's nobody there to really... Or there's no money there to help you help you do that. So that's where this also becomes critical from an operations side. So we've talked about leadership. We've talked about workplace culture. Next thing is org structure. Does the organization support the growth that you're trying to do? Do you have the people you need? Are the people in the right seats on the bus? So this is all about right action here to me. So that's what makes it different than leadership and culture is now do we have the people doing what we need them to do when we need them to do it, the way we need them to do it to get the right results that we want.

[00:31:44.20] - Dan Paulson

And of course, the smaller organizations' org structure is pretty almost like a tree with one branch on it. It's pretty vertical. It's pretty straight up and down. There usually aren't a lot of different layers to it. But I've also seen organizations where I would say there's too many layers leadership. So it's not just the owner. It's now spread out in more of a pyramid fashion. And you got a Christmas tree going on with all these different parts and pieces. And does each department or division know what the other one is doing? So that's where we're going back to what you were talking about with communication, this becomes really critical. How is that organizational structure? Does that organizational structure support the overall success? Does it have gaps? Are there positions we need to fill or are there opportunities we're missing because we don't have anyone in that position? So there's a lot that I look at here from org structure and then how it influences the culture and the leadership of the company.

[00:32:43.15] - Rich Veltre

I think the other thing to add on to that is org structure could also mean, should you be one company or multiple companies?

[00:32:51.10] - Dan Paulson

Oh, good point.

[00:32:52.01] - Rich Veltre

They come from an external standpoint as well, because financially, especially from a tax standpoint, how are you structured on the entity by entity side, as well as all you said about the org structure inside, which is all the people, the org structure outside might be whether or not you're a multi-entity dealing with taxes or transferability of product. There's a lot that goes into coming up with strategy on the outside. So LLLCs, S-Corp, C-Corp, you hear about it all the time that people are talking about What structure should I be? Sometimes it's a little even more complicated to be right for you and your industry and your position in your industry. So I just wanted to bring that one up.

[00:33:42.10] - Dan Paulson

Got it. No, that's good. So Rible me this, Batman, since you brought that up. I have heard from other people that a good thing to do is separate out your marketing into a completely separate entity. Does that make sense?

[00:33:59.14] - Rich Veltre

That's the first. Marketing would not be the first place that I would think. Really? Okay. Yeah. We came across one where it was we actually had to put an entity in for a global reason. We had to put an entity in to separate our purchasing.

[00:34:16.22] - Dan Paulson

That makes sense. Yeah.

[00:34:18.13] - Rich Veltre

And because it would then question whether or not you would be attached overseas for all of your customers. So we separated customers and inventory So it's basically into a separate entity. I've never heard putting the marketing out into another.

[00:34:39.05] - Dan Paulson

So the reason that was explained to me, and again, I am not an accountant. I don't even play one on TV. But the idea was that from a marketing standpoint, marketing doesn't have a lot of things that are tax events that the IRS looks at. I don't want to get this This podcast or a two-tail flag for any discrepancies in that. But that was, typically, there's different ratios that the IRS, I guess, looks at as far as financials and If you separate out the marketing, there's supposed to be more flexibility. There's a lot of things that you put under the marketing bubble. But I have no clue if that was accurate. The fact that you have never heard of it tells me, probably don't do that. That's probably not a good thing. Or at the very least, they need to talk to you to figure out, does this make any sense at all? But yeah, that was an interesting side note. I figured I'd stop the financial guy on that one.

[00:35:43.03] - Rich Veltre

You got me there. I'm going to I'm going to do some research.

[00:35:47.11] - Dan Paulson

Let me know what you figure out. We'll do a separate post with that one. All right. So the next one here, everybody loves this one. Profits. Why does profits matter? It's a stupid question I know.

[00:36:00.26] - Rich Veltre

You made it green. I love it.

[00:36:02.14] - Dan Paulson

Yes.

[00:36:03.05] - Rich Veltre

Green, green. Well, look, it goes back to the conversation we had about cash flow. It's just take cash flow and reverse it. So profits, you can't pay off debt or build without profit, because if you're building and you don't have profit, that means you're borrowing to fund it. And someday you may hit a glass ceiling and then go, where am I What am I going to do now? So profits are very important. Understanding the structure of your business and the how you get to your bottom line adds to whether or not that bottom line is sufficient. So in other words, I would 100 % pay attention to profit. Even though I say the most important number is cash flow, I would say profit is probably the number two, because without it, you can't go anywhere. You're just going to get stuck somewhere. You're either run out of room to keep borrowing or you're just going to tank early. It's just the profits are that important. You have to get or have a plan to get to a profit point.

[00:37:12.07] - Dan Paulson

And especially small to medium-sized businesses, where do they borrow from? They borrow from their personal bank accounts. They borrow from their retirement savings. They borrow from close family members, someone who's going to give them money before they go to the bank often. So if you haven't resolved those issues early on and then you're going to the bank, now look at the line of people, including yourself, that you have to turn around and repay that money back to. And that's not easy. That takes time.

[00:37:42.11] - Rich Veltre

And the other thing is, too, don't be a smart guy. Turn around and say, well, I'm not going to the bank. I'm going to take on investors.

[00:37:52.15] - Dan Paulson

Oh, there you go.

[00:37:54.05] - Rich Veltre

Same difference, because I've heard people do that to me and I look at them and go, oh, boy. Oh, boy. Don't do that. Because at that point, it's relationships and everything as well as banks know the risk. Investors know the risk, but you're taking a risk when you take their money, period. So understand the risk that you're taking and understand- Usually, good investors, they build in other things besides that risk.

[00:38:22.27] - Dan Paulson

So do you lose control of your business? Do you now have to... Basically, are you an employee of somebody else? Because They lent you money. The bank is one thing. We can talk about the different ways that the bank can get you. But when you have another person involved and they've loaned you money, either personally or through their venture capital or whatever they're doing, they have If you don't have certain expectations. If you aren't meeting those expectations, do you all of a sudden get it booted out of your own company and they bring somebody else in or they take it over and take it away from you? Now you're left with nothing. So you got to consider that as well. Absolutely. All right. That leads to something And that I believe we both can talk about. Excellence. Excellence in, and I include everything from... Most people tie it into sales and marketing, customer service. But I look at it across the board. From everything from what are you doing process procedure-wise? What are you doing leadership-wise? What are you doing culture-wise? All these things factor in. And if we have a culture of excellence, so that's actually built into our business culture, We're always looking for ways to improve.

[00:39:31.20] - Dan Paulson

We're always willing to invest to improve, not just money, but time, and people, and resources, and all that comes together into one cohesive working unit. And excellence is often something that I believe is assumed but not included. So we assume we're doing things the best way possible, but do we always know? Are we seeking feedback? Are we always looking for ways to improve, or is It's just going the course. And as long as we're making money, good enough. And often that's what I see. Good enough is good enough. As long as it's profitable, we're fine.

[00:40:11.00] - Rich Veltre

Yeah. Good enough should never be good enough. You I always have. I'm not saying you have to be ridiculous about it, but you should always be a little bit of. I need a little bit of a challenge with a goal to aspire to. And so So I agree with you. I think it's never good enough to hang on to where I'm at. I think you should always be looking at what's next. And I think the other thing is to make sure that when you put it all together, there is some opportunities on the plate. There's opportunities on your plate that you can go after because you want to be able to move What am I trying to say here? I'm stumbling a little bit. I know what I'm trying to say, but I'm stumbling with it. So you don't want to get stagnant. You don't want to settle, because the minute you start to settle, you'll keep settling. And if you keep settling, everybody else around you is looking to eat your lunch. So make sure that you've always got something on your plate that's interesting for you, and then be looking at the next plate, because I think you always have to be looking ahead to what's next, because things change so fast, you want to be out ahead of them.

[00:41:32.20] - Rich Veltre

You don't want to be playing catch up.

[00:41:35.04] - Dan Paulson

That's right. That proactive versus reactive approach. I like that you're talking about you always have to be looking for that next thing. And I would also say with that, you also have to be willing to take some of what you're generating as far as revenue and profits and reinvest it back into the business. And it's more than just employees. It's more than just equipment. It is looking at that future and looking at what's going on around you and being prepared to do that. Because let's face it, we're all in situations where we don't know what we don't know. And what's scary is because we don't know we don't know it, we aren't even aware what's going on until it's often too late. And that's the benefit of reading, of researching, of bringing in outside people who maybe have a broader level of sight of what's happening in the world today, and having those people come in and work with you. So you don't need them there full-time. You don't need them there every moment of the day. But having that willingness to bring in outside expertise to show you what it is that you don't know, you don't know is something to me that becomes very important.

[00:42:49.19] - Dan Paulson

So I always look to... It's everything from going to your peers to going to other colleagues, to going to trade shows associations, to actually then hiring help in when you need to to find where these gaps are because it's the gaps to kill you. It's not the things you're doing right, it's the things that you don't know you should be doing right or that you don't know you should be doing at all.

[00:43:10.03] - Rich Veltre

Yeah. Totally agree with that statement.

[00:43:13.21] - Dan Paulson

So that leads us then to how maybe we can help you. We don't often plug ourselves on this, at least not too seriously until we get to the end here. But one of the things that you and I have done that has been quite successful is we've gone in and We've provided different levels of reporting to clients for us. You look at it from the financial side. I look at it from the operations side. We come and we meet in the middle and say, well, how does this impact that and whatnot? And we actually give companies a report showing them, here's what's going on. Here's what's going on with you. Here's what's going on around you. Here's what you need to be aware of. And then depending upon the results that you're trying to achieve, this is where the report changes. So for example, I've got a succession planning report showing on the screen here for those who are listening. And this was a company that wanted to find out how they could retire. So it's two partners. They wanted to know One wanted to retire earlier than the other. They needed to find out how that could possibly happen.

[00:44:19.21] - Dan Paulson

So we came in, we looked at their business internally, we looked at what's going on externally, we looked at operations, we looked at finance, and then we prepared a report to show them what they needed to work on. Now, as you're approaching strategic planning, same thing happens. You got to look at what's going on in your business. You got to look at what's going on outside your business. Bringing in somebody who can help in those areas to give you more concise information can be very helpful. I don't know if you've experienced this, Rich, but typically when companies do everything internally, there's a little bit of bias going on. I remember working for a business that did their own customer service report. Basically, research their clients and their competitors, and they then made a determination based off of their findings on how well they were doing. Lo and behold, I wasn't too surprised, neither were most of the people around me, that when we did that, by gosh, even though there were all these other issues, we were still better than our competition. Okay. Your report didn't say that, but apparently, that you justified why we were so much better based off of something that we weren't aware of.

[00:45:34.00] - Dan Paulson

So that's one of the challenges you get when you're doing everything internally, is we all have our own biases, and having a third party come in and look at what's going on can be quite helpful. I don't know what your thoughts are on that, Rich, but to me, it just seems like it's a no brainer at times to just have somebody come in and give the temperature what's going on.

[00:45:55.14] - Rich Veltre

Yeah, I think bias is a good word. Blinders Which is a little bit of another word.

[00:46:02.13] - Dan Paulson

There's a lot of that, too.

[00:46:04.06] - Rich Veltre

And there is a bit of not really understanding. So I think it goes back to your comment of we don't know what to tell them that they don't know. They don't know what to tell themselves that they don't know. They just have to assume that they know. It's a confidence factor. It's an ego factor. It's just that's how they know how to get through the next deck. That's That's how they knew how to keep pushing the business forward. But I think the independent report really brings to light the things that maybe they haven't been thinking about and suddenly become an issue. So the report's really important because we're finding that as we do reports like this, we're finding that people were not getting the information that they, that was complete enough, what they thought was not that big of a problem, set off big eyeballs and just red flags. So I think there's a lot of sense in saying if you need to have somebody come in or you want to have somebody come in, even if it's, like you said, part-time or just initial report, somebody to do an assessment, I think it's smart because I think there's a lot of people out there who don't actually realize that they need it.

[00:47:22.04] - Rich Veltre

And then the stuff that can be fixed if you find it early.

[00:47:26.19] - Dan Paulson

Yeah. Well, I think it also goes to help maybe with some validation Especially when it comes to being an owner, maybe you have an inkling that there's something going on or something isn't just right. Having something like an assessment or report can definitely help you out when it comes to validating where maybe those gaps or those problems are at. So that's another thing I think we should consider with this. You can contact either one of us for getting this report. We do it at a flat fee rate. So it's something that you can either bring us on and we can work with you through strategic planning process, or you can bring us on ahead of the strategic planning process. And this becomes the thing that you then build your strategy around. So we're happy to help you facilitate. We're also happy to give you the information and let you go on your own. But Rich, how should they get a hold of you? Should they want to delve into possibly getting one of these reports for themselves?

[00:48:22.20] - Rich Veltre

E-mail is always the best. So rveltre@veltregroup.com.

[00:48:27.06] - Dan Paulson

And my email is still too damn long, so I'll just send to danpaulsonletsgo.com. And that's the easiest way for you to get a hold of me. And again, get a hold of either one of us. We can schedule a time to go over a brief fact-finding mission and let you know if the report can be something that will help you out. I strongly encourage you to contact us. And Rich, this has been insightful. I think we've both come up with other things that maybe we weren't prepared to discuss in this and got a little bit deeper than we thought we were going to. But I think this is a It's a good example of why having outside help can be beneficial.

[00:49:04.23] - Rich Veltre

Yeah. And it definitely does express why we do this, which is the crossover between operations and finance.

[00:49:11.26] - Dan Paulson

Yes, it does.

[00:49:12.23] - Rich Veltre

There's such a connection between the two.

[00:49:15.11] - Dan Paulson

Exactly. Well, I know you probably have to get back to work with your client. I've got some other stuff I need to do. So thank you again for taking out of time of your day and out of hiding, coming out of hiding and talking with me. And we will talk again next week.

[00:49:32.00] - Rich Veltre

All right. Sounds good.

[00:49:33.20] - Dan Paulson

All right. Take care, everybody. We will talk to you again soon.

[00:49:36.28] - Rich Veltre

Take care.