Financial Scorecarding: Focusing on What Matters for Your Business with Michael Barbarita, Next Step CFO: Show Notes & Transcript

Welcome back to Strategic Counsel by ForthRight Business! Looking for Marketing Smarts? You’re in the right place. After almost 4 years of helping to make you savvier marketers, we decided to broaden this podcast to include more business-oriented topics that will make you savvier business leaders.

In this episode of Strategic Counsel by ForthRight Business, we’re talking clarity on where to focus with finances with Michael Barbarita. Listen to the episode on Apple Podcasts, Spotify, and your other favorite podcast spots – follow and leave a 5-star review!

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Financial Scorecarding: Focusing on What Matters for Your Business with Michael Barbarita, Next Step CFO

Many of us are not CFOs or finance gurus. But, understanding the financial metrics that drive the business is critical – no matter how intimidating a P&L or balance sheet can be. It can feel overwhelming thinking you need to track and understand every input and output. It just gets distracting, sending you in circles. We wanted to give you some clarity on where to focus when it comes to finances, so we welcomed on Michael Barbarita, Founder of Next Step CFO. He helps small business owners create more time freedom and more consistent profits by helping you implement financial and business strategies your competition is not using. Here’s a small sample of what you will hear in this episode:

• The Vital Five financial metrics
• Three components of professional forecasting
• Who should you involve in financial strategy
• Mindset shifts for business growth
• The components of a compelling offer

And as always, if you need Strategic Counsel, don’t hesitate to reach out to us at: ForthRight-People.com.

Check out the episode, show notes, and transcript below:

Show Notes

• Financial Scorecarding: Focusing on What Matters for Your Business with Michael Barbarita, Next Step CFO
  
  • [0:00] Welcome to Strategic Counsel by ForthRight Business
  • [1:26] Welcome to the show, Michael Barbarita!
  • [1:54] Michael’s business journey and lessons learned
  • [7:13] The vital five financial metrics
  • [9:43] Why business owners don’t track financial metrics
  • [11:35] The strategic role of a CFO (Chief Financial Officer)
  • [16:47] How to identify customer problems in any industry
  • [19:07] The components of a compelling offer
  • [23:21] How to integrate of marketing, sales, and finance
  • [25:45] Three components of professional forecasting
  • [28:33] Who should you involve in financial strategy
  • [31:46] Mindset shifts for business growth
  • [36:40] Strategic business planning implementation
  • [39:46] How to test ideas you love
  • [44:38] Getting team agreement on what’s working vs. not working
  • Quick-Fire Questions
  • [48:15] What Michael is reading: The Compound Effect by Darren Hardy
  • [48:29] His favorite lesser known destination
  • [49:36] The worst advice he’s ever received: “Listen to the customer”
  • [50:04] Connect with Michael Barbarita and Next Step CFO
  • Make sure to follow Strategic Counsel on your favorite podcast spot and leave us a 5-star review on Apple Podcasts
  • Learn more at ForthRight-People.com and connect with us on Facebook, Instagram, and LinkedIn

What is Strategic Counsel?

Welcome back to Strategic Counsel by ForthRight Business! Looking for Marketing Smarts? You’re in the right place. After almost 4 years of helping to make you savvier marketers, we decided to broaden this podcast to include more business-oriented topics that will make you savvier business leaders.

Thanks for listening Strategic Counsel. Get in touch here to become more strategic.

Transcript

Please note: this transcript is not 100% accurate.

00:03

Welcome to the Strategic Counsel by Forthright Business podcast.  If you’re looking for honest, direct and unconventional conversations on how to successfully lead  and operate in business,  you are in the right place.  In our discussions, we push on the status quo and traditional modes of thinking  to reveal a fresh perspective.  This unlocks opportunity for you, your team  and your business. Now let’s get to it.  Welcome to the Strategic Counsel Podcast. I am Anne Candido.

 

00:32

and I am April Martini. And today we’re going to talk about financial scorecarding. So what do we mean by this? So many of you who listen to this podcast are not CFOs or finance gurus. Yet understanding the financial metrics that drive the business is super critical. This is so you can operate as an owner of the business, understanding how your efforts impact other business makes money and grows. And this is at  all levels. This leads to more intentional and strategic action, which

 

01:00

again, is critical in order for you to be able to achieve your business goals. However, looking at a spreadsheet or even a PNL or a balance sheet can be extremely intimidating. Yes, even for seasoned leaders, it can feel super overwhelming thinking  you need to track and then understand every input and every output. This can be very distracting and just end up sending you in circles. So what we want to do today is drive clarity on where to focus.

 

01:26

In this way, you can quickly internalize the meaning of the numbers and then take action versus the swirl we were talking about. We call it financial scorecarding or defining what is critical to track and maintain vigilance over that. All right. And don’t worry, just like the recent Amazon episode, we don’t profess to be financial experts. So we have a guest who is and that’s Michael Barbarita. He’s the founder of Next Step CFO. Michael, do you want to introduce yourself and give the listeners a bit of your story?

 

01:54

Yes, great. Thank you very much for having me  in April. So,  you know, back in 1999, I just sold my second business successfully, my first business sold for multiple seven figures. And, you know, I thought I could do no wrong. Having sold two businesses successfully, I thought I had the keys to the business kingdom and that I could succeed in any business. So in all of this glory, I started an outpatient rehabilitation facility called Freedom Therapy Center.

 

02:21

Now, in all the previous businesses I owned, I  always implemented business and financial strategies that my competition wasn’t doing. For example, my first business was a ski specialty retail chain called Ski Town USA. We took the company from two and a half million to eight million in five years. And one of the contributing factors to that growth was a strategy called a risk reversal, where the seller in the transaction takes most or all the risk.

 

02:46

Now the problem the customer had in the ski industry is they really never knew if the ski they were being sold was the right ski for them until they got it up on the mountain and tried it out. So we implemented what we call the ski guarantee. Ski the ski three times, you don’t like it, bring it back for a brand new pair and keep bringing it back until we get it right. Well, as you probably know, when a ski gets skied on, it depreciates substantially. So my employees and managers thought I was uh clearly out of my mind.

 

03:14

But I knew two things. knew number one, my competition wouldn’t do it. And the second thing I knew is that all the customer really wanted was a great ski experience. That’s it. They didn’t want to put one over on the business owner because everybody does a risk reversal is thinking that they’re going to get murdered and the customer is going to put one over on them and try to sneak things through and all that kind of thing. That’s really, very rarely happens.

 

03:42

We sold 8,000 pair of skis the first year we implemented a 25 % increase and only eight came back. The next year we sold 11,000 pair, 14 came back. obviously the customer wasn’t looking to put one over on us. They just wanted a great ski experience. But then fast forward to the third business that I owned, which was Freedom Therapy Center, where I must have taken stupid pills or something because

 

04:08

I did exactly what my competition was doing, marketing to doctors to get referrals, bribing front office staffs with chocolate cakes to get to the doctors. I did the exact same protocols as my competition was doing with no risk reversals, no creativity, no strategic direction. And I’m a financial guy, so I know how to manage cash flow. uh We were hemorrhaging cash. Every month I was going into my savings to fund the operating losses we were having. You know those promises we business owners make to ourselves and then we break them?

 

04:38

Well, yeah, well, I promised myself I wouldn’t put any more money into the company bank account for my savings. And so I broke that promise twice. Thank God I wasn’t married. I’d be under the pressure of being told to get a real job. was staying up nights wondering what I was doing wrong after all the successes that had. I was waking up in the middle of the night with cold chills, worried about cash flow and all the customers I was losing.

 

05:02

There were many Wednesdays, there was no money in the company bank account, the payroll due on Friday, employees were leaving, they saw a sinking ship, vendors were calling left and right looking for money, there was personal liability galore, and then boom, it all ended. I fell on my face.  And so that’s my story. And what I learned is two things. Number one, the hardest step in life to take is the step after the fall, the next step. And so 30 days after I…

 

05:30

closed freedom therapy center, Next Step CFO was born. And then the next thing I learned is that you just can’t keep doing what your competition is doing. Can’t just like  lowest price, highest quality, great service. That’s messaging just like your competitors are messaging. So you can’t do that. Because I did it. I mean, I did it where I wasn’t doing what my competition is doing in the first two businesses that I owe which were successful.

 

05:58

The third business where I totally fell in my face, I did exactly what my competition was doing. Well, it’s interesting that you have had that experience because that’s exactly what me and April preach when it comes to branding. mean, branding is all about trying to find your differentiating factor in having it be something that’s above and beyond what everybody else can do. If we even say if you put your hand over your name, you put anybody else’s name in there, then you’re not digging deep enough in a differentiating factor and all those things that you said like,

 

06:27

price and service and years you’ve been around, all those things are just table stakes. And so really being able to go above and beyond is so incredibly critical and is the value that you actually end up selling when it comes to your business. And so we preach the exact same thing. We live under the same philosophy and we’re going to talk about that more a little later because I’m going to do a little bit of reversal here. Usually we start with like kind of building

 

06:52

the foundation and to kind of get to the apex, but I’m gonna flip it and I’m gonna go with the apex first and just really kind of hone in because I think setting the stage of what really should be on the financial scorecard based on the learnings that you’ve had over your businesses and then as well as in the Next Step CFO.

 

07:13

and then kind of building  onto the why of that and how does that then gets kind of trickled down into your business, I think is going to be a best way for people to contextualize this. if you could, can you talk to us about  what you believe are the most critical elements to be on a financial scorecard? What should be business leaders looking at on a regular basis in order to understand their business and make sure that they don’t fall on their faces? I call it the vital five.

 

07:43

Okay, so at all times they should know their vital five because then they’re able to make the best decisions  and they should get these numbers at least on a weekly basis. At least some of them I suggest on a daily basis, but here they are. The vital five are knowing what your sales are for that week. Your gross profit for that week, your gross profit percent.

 

08:13

your net profit, and your current cash balance. If you know those five metrics, you’re going to be 75 % ahead of not only your competitors, but you’re also going to understand the financial statements without looking at them and being scared to death, as I heard earlier, or something to that effect, or not having to know how to read them. If you know those five numbers, that’s it. And by the way,

 

08:43

it is better to really understand the story your financial statements are telling you.  So you should have a contracted CFO to be able to do that for you. beyond that,  you’ll know 75 % more about your business than your competitors know about theirs by just knowing those five numbers. And why those five? Because they actually give you an opportunity to measure the business. And more importantly,

 

09:12

make better decisions. Decisions about people, decisions about moving to another location, decisions that happen on a day-to-day basis operationally. Without a doubt, knowing those five numbers will allow you to make better and more accurate  financial decisions about the business. It sounds simple, by the way. It sounds simple.  And it all weekly. And in some cases, the cash balance, I think you should know daily.

 

09:43

It’s really interesting. We set up at the beginning and you repeated it kind of the fear around all of this. So if it’s that simple, why do you think people don’t know this, don’t have visibility to it, don’t think about it? Because as we said, we have lots of clients and people we all come into contact with, right? That should know this stuff and don’t. Right. When I speak and do speaking engagements, I ask how many people look at their P &L once a month, raise their hand. Maybe half the room will raise their hand.

 

10:12

Then I ask, show of hands, how many people look at their balance sheet once a month? Maybe 10 % of the room raise their hand. Third question, show of hands, how many people look at their cash flow statement once a month?  I might get one person, maybe. Sustain. Cash flow, the lifeblood of the business being totally neglected. And so that’s where really

 

10:37

That’s why if they know they’re Vital 5 and notice one of the Vital 5 is your current cash balance, knowing your  Vital 5 allows you to make those decisions better. It’s better to have somebody tell you the story that your financial statements are telling you. But if you want to avoid all that, which a lot of people do,  I don’t think they should, but they want to, you must know your Vital 5 at a minimum.

 

11:07

obviously a very important critical element. And I think a lot of people, even if they heard that, they could ask their whoever is managing the financial accounts side of the business for those numbers. A bookkeeper can provide those numbers. No question about it. Yeah. But then they’re like, now what? Now what do I do about this? So you’ve mentioned a couple of times about the power of a CFO. And I was going to get to that a little later. Maybe we should talk about that right now because

 

11:35

especially in small medium-sized businesses, a lot  of them  don’t actually  see the value  or maybe it’s lower on the priority list of a CFO or don’t even understand exactly the role of a CFO. You had mentioned about knowing the story and I think that’s so critically important  and especially when a lot of us will look at the numbers and say, yeah, cash flow is such and such, what does that mean?

 

12:03

So speak to the benefit of a CEO. What’s the role of a CEO, a CFO? What is a CFO supposed to do for you? More things. And there’s all kinds of other things like helping with bank finance. These are all secondary. Helping with bank financing, helping you buy or sell a business, helping you  determine the best employees or helping you with the  recruiting process.  All of that is secondary to what I’m about to say.

 

12:33

First is managing cash, which is the lifeblood.  That’s one of the roles of a CFO.  Number two, identifying the critical metrics in the business, which I’ve heard us talk about a little bit. Identifying those critical metrics. That’s knowing your vital five, but also identifying critical metrics. For example, one critical metric could be the long-term value of a customer. And I have a little story about that. When I was in the frozen cookie dough business,

 

13:02

The problem the customer had, notice I always go there, the problem the customer had was that they didn’t want to waste valuable oven space baking cookies.

 

13:12

So  what I did, and when I started the business, all I did is I bought recipes from a husband and wife team, and I bought a logo. That was it. And there were 4,000, at the time,  were 4,000 manufacturers of frozen cookie dough. And I needed to get the right price and the right margin in order to make money, period. So what I did  is I added more value to my product, but I understood the  long-term value of a customer.

 

13:42

Long-term value of a customer was $5,000. My average opening order was $50, but I added more value to the product by giving a free convection oven with any opening order. So my average opening order was $50. I was going to lose $200, but because I knew the long-term value of a customer and I believed in my product, those two things, that second one is critical. That’s why I did it, where most people would say, $50.

 

14:11

$200, forget it. That’s another thing that we identify as CFO identifies the critical metrics of the business. That’s a critical metric, especially when you’re deciding how to add more value to a product or service, which by the way, is one of the components of a compelling offer. And then most importantly, business and cashflow forecasting. That’s a third thing. Business and cashflow forecasting because

 

14:41

With a Business and Cash Flow Forecast, it helps you understand the outcome and ramifications of your decisions before you make them.

 

14:52

It’s a forward looking tool. It’s dynamic. It’s not a people perceive a forecast like the budget. You know where you throw it in the drawer after you do it and don’t look at it again. It’s a dynamic rolling.  Document. It’s dynamic. It’s  it’s obviously it can be in a spreadsheet. I have other software that I use for forecasting, but it’s dynamic and always active.  And.

 

15:21

Utilization of that is critical. So that’s the third thing. The fourth thing is something that most fractional CFOs, in my view, do not do that we do. And that is business strategy. Strategies that your competition isn’t doing. And we have strategies that range from all ends of the spectrum, from what we call the conversion formula to identifying the components of a compelling offer, understanding how to

 

15:49

manage the buyer’s journey. We also have strategies surrounding the 20 % that business owners should be working on that drive 80 % of their revenue. So those are the main things. You see, a Fortune 500 CFO doesn’t get the job unless they’re strategic. And that’s why number four in the menu is on our list.

 

16:17

Well, and it is really interesting and I’m rolling through our clients as we’re sitting here and the ones that have true CFOs and not right to the point you just made. And we’ve talked a lot about metrics, but I would love if you could dive into the strategic piece a little more, because for example, when you gave the example of I’m going to invest $200 for $50 order, right? There was some customer insight, some work done to figure out what that problem was. So if you could, you know, whether through an example or however contextualize,

 

16:47

that strategic lens and how it marries to the metrics  so that people can understand to something you said before. Like, I have the numbers, what do they mean? How do I know how to use them? OK, excellent question. So the best way to identify the problem that the customer has in any particular business is to understand the problems they have that the customer perceives with the industry. So when I was in the ski business,

 

17:15

The problem the customer kept saying is this hot shot skier is selling me this pair of skis, know, talking me to death, you know, talking circles around me. How do I know if this thing is going to work? You know? So that’s what the deli or the pizza power. I don’t want to take up space in my oven. I bake pizza. I don’t want to, you know, what they had to do is that what I’d have to do is as the, as in the morning, when I start.

 

17:42

As the temperature rises in the 800 degree level that I need to get to, I have to stick the cookies in at that right exact time to bake them and then take them out as the temperature’s rising. So that doesn’t work. So that, then if you just think of the construction business, just to throw a third thing out there that I have clients in, but I have no actual business ownership experience in, do they come on time?

 

18:09

Do they clean up afterwards? Do they elongate the job? In other words, it’s supposed to take two weeks. It takes 14 weeks because this and that, this and that. Those are the problems that the industry has that we as business owners need to solve. And so that’s part of the strategy is identifying the problem that customer has. Of course, you have to come up with a unique solution. Then you have to educate them on how your solution is superior.

 

18:37

And then you have to come up with a compelling offer. That’s the conversion formula. Problem, solution, we call it captivate, fascinate, educate that your solution is far superior to the competition and close where your offer is so compelling that they can’t say no. And we have, and like I said, there are five components to a compelling offer.  One is scarcity and urgency.

 

19:06

Scarcity is, there’s only three left. Urgency, you have to make a decision by Friday. You know, I’ve had some clients with scarcity and urgency tell me that  they don’t want to put that kind of pressure on the customer. And what I say to that is, is if you really believe in your product, then you’re doing the customer, the service.

 

19:30

by not selling your product to them.

 

19:34

That’s scarce in urgency. The second component of a compelling offer is risk reversal, like I did at uh SkiTown. The third  is adding more value to your product or service, like I did with my cookie dough. I added more value by offering a free convection oven along with the cookie dough. Great. The fourth  is bundling and packaging products together. There’s a strong perception of value when you package and bundle products together.

 

20:03

When I was in the ski business, everybody and his brother packaged skis, findings, holes. But what we did, and our competition never copied this, and I don’t know why, what we did is we took the most popular ski graphics and we went to the clothing department and we put together packages that matched those popular ski graphics with a hat, parker, pant, and sweater. They sold like hotcakes. They were packaged together.

 

20:33

We made the decision for the customer because they matched the skate, the most popular ski graphic. So that, and then the final one is, it’s tough for a lot of business owners. It’s called indifference to the outcome and being transformational, not transactional. What do I mean by that? Well, first of all, being disconnected to the outcome is a critical component because otherwise the prospect

 

21:02

just perceives that you’re just after a sale. You’re just trying to  make this transaction for your own benefit, all that. Almost coming across like a used car salesperson.  That never works. You have to be indifferent to the outcome. One of the things that I do is whether you work with me or someone else, there are five steps that you must take in order to implement business and financial strategies that your competition isn’t doing. And I list those five steps.

 

21:30

But I’m the one listing those five steps. But I said, whether you work with me or someone else, that’s a difference. Being transformational is  absolutely have to understand the prospect’s number one goal, number one desire, and number one objective. So if you understand that, then you’re able to  keep bringing the customer back to that.

 

21:59

Because what happens is that you talk about price, you talk about how your process, whatever that is, you talk about your features, advantages and benefits. That’s very transactional in the head of the customer. That’s when they say they have to think about it, that they have to talk to a spouse, they have to talk to the fairy godmother, whatever it is that they have to do to get the business,  to make the decision.  And  if you can tie it into the number one goal,

 

22:29

and make that the focal point. That’s transformational because their number one goal is some type of transformation unless you didn’t get it. Unless you didn’t get to their number one goal, which you’ll never be able to overcome the transactional nature  of the transaction. Well, I never thought I would ever  meet a brand-led finance person.

 

22:53

I was thinking the same thing. like, this is amazing. So my head’s spinning a little bit, ah but I want to  go back a little bit to  the decision making, the strategic decision making, because I think this is absolutely brilliant. And it’s what me and April preach all the time, especially with strategic business planning, which is the opportunity when finance and cult marketing, sales, branding kind of come together to really think about how to grow the business.

 

23:21

because you’ve hit all the nails on the head, which is if I’m as a marketing or salesperson wanna go sell something, I need to know what I need to go sell, like what’s gonna make money for the business. So I need to know  what that is. But then I also need to know  what my latitude is for selling. So for example, if my profit margin is like 50%, then I could have some space. I could have it be 10%, 20 % in order to go sell that. But if I don’t understand the numbers and I don’t understand

 

23:50

the strategic opportunity of what I’m selling, then I’m kind of just shooting in the dark. On the other side of that, if the finance guys are not looking at it with, hey, here’s an opportunity. we sell,  I’ll just use an example. Me and my husband, we own a tent world, which is car stylizing. We’re trying to figure out what we’re going to sell for the  latter half. And he’s like, we know it’s going to get cold. People want remote starts. Right? It’s like, OK, great. I’m going to go sell remote starts. Well.

 

24:19

What kind of margin do I have on remote starts? Can I sell them, you know, be really hot into it or not? Well, yeah, we have a decent margin on that. can, know, sell a little bit harder on that. Well, that’s good to know, right? And so for every one that I’m going to sell, I’m going to make so much money. So that’s the partnership and the opportunity between marketing and sales and finance. And again, it sounds so easy, but in so many opportunities that we come across when, especially in the strategic business planning, those conversations are not being held.

 

24:47

The forecasting is done with, well, this is our current path, right? And so if I’m going to project that out three years, this is where we’re going to land. And then it does get like put into a drawer because everybody’s like, all right, well, fine. There’s no point or opportunity for inflection there. But once a person who’s sitting in that seat, and it’s a CFO says, but we can make more money if we focus that then all of a sudden people have focus. Then the financial scorecard, like I was…

 

25:16

we were talking about, we were setting up, starts to have meaning. It starts to have some tangibility. So I was wondering if you could talk about that a little bit more about how do people, and how do you instruct people taking these kind of these bigger goals, if you will, like business growth and scale and these other financial metrics that people really gravitate towards from success of the business and really drill them down into their own functional way that they’re managing on their own, like,

 

25:45

piece of the pie on a day to day basis? Well, they have to first of all think strategically and not tactically. That’s number one.  they have to  see the beauty of what we do is that we were going to plug it into a forecast and we’re going to show you the financial ramifications of that strategy. So we’re going to ask you what your strategy is and you might be tactical in your approach and I get that, but we’re going to ask you what your strategy is. We’re going to show you what that looks like.

 

26:14

And we’re going to show you the other important thing is the reason why you can’t throw it in a drawer is because a professional forecast is made up of uh three components, a P &L, a balance sheet, forecasted P &L, forecasted balance sheet, forecasted cash flow. So we’re going to know the cash position  by month. And we’re going to see.

 

26:38

if there’s a situation where you’re going to need cash, you either got to go to a bank or take it out of hip pocket national bank, national bank, one of the two.  And the latter is a very unfavorable thing for business owners. Yes, hip pocket national. That’s the problem. So that’s where the forecast comes in. But what I do is I take the strategy of the business owner. I show them what that looks like financially. And then  I use the strategies that we

 

27:06

promote to  our uh business owners that their competition isn’t doing and show them what that looks like, both financially and  on a per customer basis. That’s what we do in terms of when a customer comes to us and says, look, want to sell this new product. I want to sell this new service. I ask them all the questions of what they say and I use all their numbers, everything.

 

27:35

Many times they’re optimistic. So we say, I say, one of the beautiful things about a forecast is here’s what it looks like if it’s off 20%. And of course that’s when they have a conniption because the cashflow doesn’t work. But at least once again, they know the outcome and ramification before they make the decision because of the forecast. So when you tie the strategy into the forecast, it all blends together, all those issues that you were talking about in.

 

28:05

They all blend together, the strategy, the forecast, the financial ramifications. So going back to the idea of a scorecard and then  what Anne brought up, which is the fact that we have a brand led finance person, which is still also blowing my mind.  Who do you have to bring together on these teams in order to get people to understand one, but then rally around what the options are and make those decisions?  And  how do you do that as part of that?

 

28:33

OK, first of all, if you talk about within the company or outside within the company, within the company, if the company is big enough to have a marketing person, we have to get that person involved.  If the company I like getting some type of financial person in the company, whether they’re just a manager who has financial acumen or the bookkeeper itself. To be involved. At the business owner.  And that’s where it starts.

 

29:02

That’s where I would start. But a lot of the marketing people don’t understand some of the strategies that are available to them. And certainly,  but the bookkeeper at least understands some of the financial situation of the company better usually. And so  I  rely on them to least, this is at the very beginning, by the way. I rely on them at the beginning of my relationship with them to give me some feedback. But then I also look at the financials and can get that kind of.

 

29:32

information as well. But that’s all I need at the beginning. I don’t  need a cast of thousands.  I just need a couple of people. I like the marketing person. I like the business owner and I like a bookkeeper. And then second part of the question, how do you

 

29:52

You said, and I think it’s true that sometimes marketing doesn’t understand numbers or the bookkeepers in the weeds, but they don’t know the strategies. So how do you bring that team together and bring them along? So when you’re showing them the options with the balance sheet or the forecast or whatever, they can make intelligent decisions that they feel good about based on your recommendation, obviously. But so that that scorecard that we’re talking about really works for them. What I find is that things like collapsed P &L

 

30:21

with just five numbers like sales, cost of sales, gross profit, expenses, and net profit is pretty simple for them to understand. So I start, I kind of start there, kind of like in the vital five world, I start there to help the marketing person understand the financials. And then if I have a forecast of what they’re planning to do, I collapse it down again.

 

30:49

This is what it looks like. And then I just show them the cash balances by month so that they could see if there’s trouble  or if there’s no trouble.  And then once again, because a forecast has what if scenario capability, I’ll show them downside, a downside look, and an upside look. But it won’t be a maze of numbers. It’ll be like five numbers.

 

31:18

And that’s really how the best way I found to give clarity to a management team. Well, I think there’s also an element  of  mindset too, which I think is incredibly important because a lot of times when you get those people in the room, the same mindset’s not there. So if I was going to use a very traditionalist  and maybe a little stereotypical  definitions, generally your finance person is trying to save money.

 

31:46

They’re trying to eliminate costs. They’re trying to reduce overhead. Your marketing person is trying to drive top line growth. They’re trying to spend money in order to drive top line growth. They’re not even talking the same language. So the fact that you in the scenario that you gave about the cookies could say, well, if our value of our customer is 5,000, we can give something at the beginning. lot of teams will not even get to that point because the mindset’s different.

 

32:14

So is there something that you instill or a way that you train or some sort of expectation you put on the conversation in order to get people aligned on the same mindset that if we’re talking about business growth here, we’re talking about customer acquisition here, we’re all thinking in the same way. Here’s what I say. Depending upon what level of sales the company is at, I say the mindset that you have from zero to 250,000 of sales,

 

32:42

is completely different. I would start the conversation, I usually start the conversation like this, by the way, is completely different from going from 250 to a million, a million to 2 million, 2 million to 8 million, completely different mindsets in every one of those phases. Now, increments could be different for different industries, but generally speaking, that’s the case. And so,

 

33:08

A marketing person or a business owner that’s used to doing the same thing has to understand that in order to get over the hump of whatever hump they’re on, they have to think strategically and differently. It’s just like when I said, if I said, would you give away something for $200 if I gave you $50?

 

33:35

That’s the zero to 250 mindset. No. The 250 to a million said, what’s the long-term value of a customer? Five grand. Oh, okay. So what you’re saying is would you give something away for 200 and get five grand? Yeah.

 

33:52

So it’s the different mindsets at different stages of the business. There are many business owners that are stuck with the zero to 250 mindset.  And it takes more than a simple conversation.  just  role played with you guys. That gets them to that mindset that gets them to the place where they can actually get away from 250. And so then follow up question to that. How do you…

 

34:20

deal with those types of mindsets when they are different. I mean, how do you level the playing field? Is it swapping people out? Is it bringing, you know, new people into the table? Is it, well, this person just doesn’t have the ability to go there? What do you do about that? Well, first of all, you don’t know that day one. So you explain it and then you watch it develop.  Yep. And there would have to be a change.

 

34:46

of some level if somebody is absolutely stuck in their ways and they can’t get out, especially the marketing person. And I should say especially the business owner, because the business owner is going to dictate to the marketing person. If the marketing person is creative or strategic, they’re going to get shot down by a business owner who’s stuck in that. So the business owner needs to get trained first about the mindset that 0 to 250 is

 

35:15

totally different than $250 to a million. Because the business doesn’t grow unless he or she does. The business owner does. People need to hear that. I I hope people just rewind and hear that part all over again, because it’s so fundamental  to  scale and growth.  And it is really hard to get business owners, business leaders out of that current mindset that they’re in, even if all the data  speaks and says differently. Right. And I think that is

 

35:44

to the point that we were making before, the power of the CFO, if you have a strategically led CFO, because a lot of that  knowledge of understanding business,  just principles for business with regards to branding and marketing, and then understanding how the numbers work in could be such  a  huge, huge advantage  in really putting together things like the forecast and the strategic business planning.  I mean, April was asking all the questions and it’s…

 

36:11

wrapped around a lot of my frustrations when I go into strategic business planning  is you have people who  want to think like that, then you have the people who are just totally stuck in whatever rut that they are currently in, and then you kind of get to a stalemate. So I’m wondering too, as you’re  thinking about then the compliment to whatever the financial scorecard is, is really the strategic business plan. We talked about a lot about thinking strategically, but then having to put a plan in place.

 

36:40

What does that look like to you, Michael? Like what do you advise these businesses to go do or do differently in terms of strategic business planning in order to get to this mindset, this structure, being able to be open to these processes? They have to understand, really understand the strategies. And so we have a lot of education or teaching upfront. Our job is to implement,  my job is to implement, period.

 

37:10

Here you can report. You can learn anything on Google, chat, you can learn anything you want. Okay. You can learn my strategies on chat, GPT,  all you want, but it’s the implementation that’s the key. So let me just reflect back to one thing. Remember my employees when I told them about the ski guarantee.

 

37:33

Thousands of Paris skis are coming back and we’re going to lose a ton of money and we have all this extra work to do. What are you doing to us? But that didn’t happen. You need to have the right mindset to see things. The right way. And so. If I was a business owner that had my employees mindset, we would have never done that in a million years.  And.

 

37:57

But because I kept educating my employees on  what the customer really wanted, which was a great ski experience, they eventually believed that because they were skiers and all they wanted was a great ski experience.

 

38:12

I stepped back a little bit because I  wanted to talk about mindset. But  to address your question, there’s an education process that has to take place. Some business owners never get it, and I will not succeed in that situation. I’ll have to fire them, or they’ll fire me, one of the two. Because  their mindset is going to be stuck on 0 to 250. I  keep going back to that.

 

38:39

their mindset is going to be stuck on 0 to 250. But if they believe in what I’m doing, that at least theoretically, what I’m saying sounds right. They will stay the course, but there’ll be friction along the way, but they’ll stay the course. And those are the ones we make progress with. And once again,

 

39:05

The business owners first. If we can’t convince the business owner, it doesn’t really matter about the employees because he’s just going to instruct them to do the old, go back to the old stuff.

 

39:16

And so then as part of that, and I think, and maybe where you’re going with the strategic plan question is what happens with the execution to get there? So once you make the decision, like, all right, they’re, bought in, right? They’re going to, their mindset’s good. They’re going to, they want to grow from 250 to a million or whatever.  What is that plan that goes alongside that to compliment the scorecard of, which says, are we doing it or not? Right? What are the projections? How do we get there? Whatever. But then how does it actually happen or what does that process look like? Okay.

 

39:46

So there are certain things. I’m going to be very as generic as I can to give you an example. So one of the things that could be done is a squeeze page that looks like the conversion formula. Let’s just pretend we are. Problem, just also on the squeeze page. Problem, solution, a video that educates them, and an offer. That offer could be a free report. It could be anything. It could be the actual product.

 

40:14

So we have to figure out how to implement that. So with a marketing person, because everybody’s bought in,  in the example you gave me, the marketing person will go through a step-by-step process on how to build that squeeze pay, first of all, how to identify the problem, how to come up with a unique solution that the company can do within its parameters  and resources. And third, educate the prospect, put together that video, and then fourth, come up with an offer.

 

40:44

So the process follows our strategy. Our strategy is the conversion formula on a squeeze page.

 

40:55

The conversion formula is four steps, problem, solution, educate, offer. And then we implement each one of those four and we give direction on each one of those four steps. And then there’s the layer too that you spoke to in the beginning and I said I would come back to it, which is this whole  idea of doing what your competition isn’t doing.

 

41:17

which is very scary for a lot of folks because they tend to  want to be as risk adverse as possible. And that’s when me and April always preach testing and learning whenever possible. Right. Good idea. And then mitigate your risk whenever you can. Right.  Even Richard Branson talks about the fact that he always has plan B and plan C and on all those sorts of things. doesn’t go as willy nilly as everybody thinks he does. So.

 

41:45

I love for you to speak a little bit more  on that because I think the more socialized that concept  is,  the more commonplace it’ll become and  the more comfortable leaders will get with it. So can you speak a little bit more to  how that became such a core principle  of how you advise? uh Well,  because  I am an incredible advocate of testing. I think that’s one of the biggest advantages business owners have that they don’t take advantage of.

 

42:13

The ability to test. Even if  they love the idea theoretically, why not test it? They love the idea theoretically,  or they love the idea because they invented it. Let’s say this idea that they invented. Play into the ego, oh yeah. They love  it. And so they dive right in full bore and that’s a problem. You gotta test. If you don’t test, you’re dead.

 

42:41

In the example I gave about the squeeze page, that thing would be tested before we got because we don’t know if we have identified the problem. The real problem might have identified a Mickey Mouse problem. That doesn’t mean anything. So you always have to test um and this is how and through the testing and tracking. If you don’t have the data, I know business owners take data that but but if you don’t have the data. You’re in trouble because you can’t make any decisions without the data.

 

43:12

If you don’t know your open rate on your drip campaign, or you don’t know if they’re clicking once they get in there, you’re in the dark. I can’t tell you how many times where I’ve looked at business owners and we go through all the advertising they spent. How well did this do? I don’t know. How well did this do? I don’t know. How well did this do? I don’t know. You know, so they don’t know, but they think because there’s their ratio of advertising to sales is kind of in line.

 

43:41

that the world is wonderful, that the advertising is working. But they don’t track it. That’s a problem. Huge. You’ve got to have tracking mechanisms for everything. Well, we are definitely philosophically aligned there, too. We talk about testing and learning all the time. And all of our listeners, think, aren’t surprised to hear that, as well as to your point, going back and making sure that we understand what the outcomes are.

 

44:10

In addition to financial things, but like you said, all of the other metrics  as well. ah So I was going to ask when you  get to the point of having some  input from the testing and learning, how do you  get the teams to either pivot to  get to the point where, okay, we know we’re seeing progress and this is correct, ah or we should be doing something different.  What does that look like as you get down the line of working through this with?

 

44:38

Well, first of all,  whoever the team is, we would make sure that there’s agreement that it’s either working or not working. All right, that’s number one. Because if you have disagreement there, then you’ve got a couple of people on board, a couple of people not, it’s really not working. What are we doing investing in this thing? We tested it and it’s got metamets of in my view or it’s a metzor in somebody else’s view. You have to all agree with the data. And then at that point,

 

45:06

You put in your forecast, you measure the degree of risk that you have, and the business owner makes a decision on whether they want to go forward and invest in it.  It really comes down to that. And if you don’t have the mindset, you’ll never invest in it. And if you do have the mindset, you’ll be open-minded to it. And if you tested it and you’ve gotten results that everybody agrees with,  I’m not saying it’s a no-brainer, but it’s worth the risk.

 

45:31

Yeah, and I think  to go back to one of our earlier questions to our discussion topics about  how does each individual then business leader understand their KPIs? This is the way they understand. You understand your KPI. So if you understand what the scorecard is in the the big five and then you drill down to  what that looks like in terms of the marketing and strategic plan that has then been put into a forecast that allows you to assess your risk, you can test and learn and know then what the metrics are that

 

46:01

or signals of success, right? And that then gets fed back up the other way. And that goes fed back up into the forecast, back into all of the five. And you can kind of see how that fluctuates in order to  really deem, are you moving in the right direction or you’re not moving in the right direction. But that, again, it just continues to reiterate the importance of having a CFO who is strategically minded, who is…

 

46:26

fit into the team in a way that is integral and not just sitting out here.  This is Anne’s hands that nobody can see, but sitting out space  that is like just reporting numbers. And I think that’s, if I wanted somebody to get one thing out of this episode is the importance of having that strategic alignment across the board, not just that the marketers are strategic and that’s their role.

 

46:53

or the business owner strategic and that’s the role, the importance of being strategic across every function at every level. Right.  And understanding  what the financial upside and downside is. Just understanding the risk. I mean, that’s a big role of a CFO is to understand the risks and the opportunities. That’s the whole thing.  mean,  and getting the business owner to understand those. And then you know what questions to ask. So then you can ask, know, how much

 

47:22

cashflow do I have and if I have enough cashflow, do I have enough cashflow to invest in this? Do I have enough, again, margin in order to play with the pricing or to play with our amount of investment in the customer? So you can start having more, it’s tactical in its nature of conversations, but strategic in the overall outcome of it. I found this,

 

47:48

this conversation to be so enlightening and I hoping everybody sees the opportunity here because it’s gold. It really, really is gold. But before we wrap this up and Michael, let everybody know where to find you. Are you open to some rapid fires? Sure. All right, let’s go for it. I’ll start  with the easy one. It’s always the same for everybody, but everybody always seems to be very curious about this. And that is, what are you reading right now? Or listening to?

 

48:15

You to do podcasts. Yeah, the compound effect by Darren Hardy.  I’m listening to uh Grant Cordon a lot lately.  Cardo. Cardo. Cardo. Yep. OK, gotcha. Yeah. What’s your favorite place that you’ve visited or been that maybe people don’t know that much about? Cable Beach in Nassau, Bahamas. What’s so special about that?

 

48:39

What is uh it? The weather is  fantastic. The beaches are pristine. The sunset is uh elegant.  There’s things to do all over the place.  It’s just a real, I think, unknown. Now, I shouldn’t say unknown, but it’s not very widely known. At least,  I think it is. Yeah, I think people mostly know Paradise Island and those areas of

 

49:06

the Bahamas, Nassau. So I think that’s a different one. I hadn’t heard of it. So what is the worst piece of advice you’ve ever been given? Listen to the customer. Henry Ford once said, if I asked my customers what they wanted, they would have said faster horses.  It’s not just shut your ears from the customer. It’s understand what they’re saying more than anything else. It’s great to get feedback from them, but understand what they’re saying.

 

49:36

Some of that feedback is better served if it’s about the quality or lack thereof of the product versus what they want in the future, what they’re looking for in the future. I would say that’s the worst advice I’ve ever gotten. I love that. All right, Michael, tell people where to find you. Also, if there’s anything you feel like we’ve missed that you want to put a bow around or anything that you want the audience to take away.

 

50:04

When somebody says they have great service, lowest prices, been in business since 1920, family owned, all that stuff, I call that, I hope so, marketing. Why? Because the customer is saying to themself, well, I hope you have the highest quality. Why would I do business with someone who doesn’t? I hope you have a great location. I wouldn’t want to go to Al Capoco to get nails. I hope you have good service.

 

50:33

Why would I do business with a company that has lousy service? So I call it, I hope so marketing and it’s damaging as damaging could be. I love that. We wholeheartedly agree. Wholeheartedly agree. Excellent. So next step, CFO.net. What I love to do is I love to do book interviews. I have a book called Powerful Business Strategies and I’m always updating it because you know, like a year ago, tariffs was hardly a word anybody said. uh

 

51:02

And now all of a sudden, that’s a word.  so I do book, I interview business owners and basically it’s 60 minutes on Zoom. I present strategies for my book. And then I have them comment on whether or not they think the strategy would work in their industry. And then I document it for the book. So I would love to interview. Yeah, I’d love to interview business owners. You can go to my website, nextstepcfo.net.

 

51:31

Hit the contact button or you can go to nextstepcfo.net forward slash contact, fill out the contact form, put in the remarks section book interview  and we’ll schedule a book interview. And I promise you this, you will learn business and financial strategies that your competition isn’t doing. There you go. There you go. The gold people, the gold.

 

51:55

And with that, encourage our listeners to take at least one powerful insight you’ve heard and put into practice has been  a lot today. So a lot to  take and put into practice. Cause remember strategic counsel is only effective if you put into action.  Did we spark something with this episode that you want to talk about further?  Reach out to us through our website, ForthRight-People.com.  We can help you customize what you have heard to move your business  and make sure to Follow or Subscribe to Strategic Counsel on your favorite podcast platform!