Terminal Value

Managing Cash Flows with Kate Johnson

Doug Utberg

Business Growth Authority | Technology Strategy & Resourcing | Cost Optimization Expert | Business Process Architect | Financial Strategist | Founder - Terminal Value Podcast

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I have Kate Johnson with me today, and what we are going to be talking about is managing cash flows for a business. And it can actually be equally applicable to a larger enterprise as a small and medium business, although in a lot of cases, small and medium sized businesses will tend to have less accounting and finance resourcing to really keep an eye on their cash flows and bigger enterprises. But some larger companies have managed to get themselves in trouble as well. So, Kate, I solely swear I’ll let you introduce yourself in a minute, but I just kind of want to tee up the topic a little bit because I think that in a lot of cases, it’s really easy, especially if you get used to reading earnings reports to be looking at net income. The problem is net income and cash are not the same thing, which is that in a lot of cases, what will happen is either revenue or expenses will be recognized when they are based on what’s called an accrual basis. So in other words, you will have say expenses say you have an expense that is 100% paid today, but it’s amortized over a year. Then what will happen is the cash will all go out now and the expense will be recognized in the book over the course of a year. Well, so those two transactions are very different from a cash perspective. And if you don’t keep your eye on that, it can really create trouble. Kate, don’t let me talk too much. I introduce yourself.

Okay. Very good. Thank you, Doug. Nice to be here. So my name is Kate Johnson. I’m with Stryde Savings and a company called The Katetheconnector.com. And yes, we’re all about identifying and obtaining overlooked tax incentives and cost reductions with companies similar to you. And that’s absolutely correct. It’s really about the money that you keep in your coffers versus the money that’s flowing out.

Yeah, because it’s kind of funny because I’ve kind of lived in a couple of different domains because my background is in financing, accounting, principally on the finance side. I’ve also worked a lot with information technology, too. But of course, then also getting my own business going, I had to work a lot in the marketing, kind of the outreach, marketing prospecting, et cetera. And I forget the source because I want to give credit where it’s due. But there was one thing I read that I thought that was very precious, which said that knowing a lot about how to do something, basically

knowing the most about what you do won’t make you any money. Knowing the most about marketing what you do will make you all kinds of money.

And kind of where I’m going with this is that I think marketing minded people tend to think, okay, well, if you can just get revenue to grow enough, you don’t have to worry about the rest. And while that certainly helps, there’s nothing that helps cash flow quite like growing pie. You still need to keep your eye on cash flow, even if you are full-on focused on revenue growth. And I would actually argue, especially if you’re like, say, a number of these venture-backed companies where their entire business plan is to grow fast to attract more venture funding.

Cash flow management is actually even more important for venture-backed companies because they tend to be burning at such a high rate that if they miscalculate what their cash needs look like, they could find themselves completely out of cash and basically dead in the water.

And also, Doug, I would argue that while they’re growing and accelerating, scaling wherever from cradle to grave, a business sometimes doesn’t know what they don’t know what they’re entitled to to offset their tax liability. So many businesses microbusinesses, Main Street, Wall Street, whatever, they’re tax burdened. If they have a tax liability, who doesn’t have a tax liability these days. Right. And so then the question becomes, what are the resources out there? And there’s so many with the labor force down as much as it is across the country, the executive decision-makers are making they have so many hats that they’re wearing, so to speak, and that it’s difficult to manage multiple buckets. And on the flip side, it’s critical to have resources out there, too, that are trusted to support their trajectory, where their direction, their vision and scaling.

So, yeah, well, one of the things that you kind of brought up or kind of made me think about as we were talking is that particularly in the current environment, I think there are a lot of cases where you have, say, accounting and finance teams or management teams where they’re thin on resourcing, partly due to. Well, I say now it’s probably more just that it’s really hard to get people.

Mortgage happening, too.

Mortgage, yes, exactly. It’s just really hard to find people to bring on as hires. But in a lot of cases, I think it can work really well to partner with a specialist such as you or myself. So in your case, we’ll use tax savings to accentuate one of your business’s primary Lions, because if you are, for example, let’s say that I am the CFO for a mid sized manufacturing company. Right. I’m sure there are all kinds of tax incentives, and there is absolutely no way that I’m going to know about all of them. And so what I could do is I could try to internally staff up and get someone to learn about all of them. But it might just make more sense to partner with somebody who already does this and leverage their expertise so that I don’t have to carry more headcount, which I would have a devil of a time finding and retaining anywhere stepping over my tongue here, let me know your thoughts, but just kind of my intuition is that I feel that this is really a direction that a lot of businesses are going to go, I think because from a long term perspective, I think that a lot of businesses carry a pretty heavy head count burden that I think where affordability will get difficult over a longer period of time. And over the short term, even if you wanted to staff up and try to cover all of your bases, you just couldn’t get people on board fast enough.

It’s interesting. I just got off a call with an accountant whose background was 30 years working with a C Corp HR, and there were 500 employees. And she knows taxes. She’s in the trenches, and now she runs a bookkeeping practice. And she said at this point in stage in her life and her career with her company that she works with all vertical sorts of companies she knows. Well, that to delegate is the key, because we kind of talked through this. There’s over 2600 pages in the tax code alone. And not every bookkeeper or accountant or tax advisor is made of the same cloth, quite frankly.

And there’s not a lot of pictures either.

Right. Not all of them embraced technology. Right. And so if you always do what you’ve always done, you get the same results that you’ve always received. So to have strategic partnerships, what you’re speaking to is huge. And to master that, to have that ability to collaborate, to be a master collaborator, to facilitate, to be able to deliver. Then there’s the audit defense, not on every tax advisor has the audit defense, nor engineers on their team to deliver. So they have to stop and think for a second, wow, I get paid no matter what, whether it’s billable hours or yes, you do. And I’ll help you deliver that and expedite simply with my internal team, just as you would. So it’s kind of interesting to rethink the possibilities and expand their book of business. So that’s one of the things that I think we’re living in an age where the economic footprint is sort of demanding that that we can sell things to all people.

Yeah, well, one of the other things as well, because one of the things I’ve done is, of course, I was a corporate employee for a long time, and I’ve also done some contract work, too. And one of the things that was a really unique experience as a contractor is that I kind of had a front row seat to how much time a lot of people who are full time employees have to spend doing internal posturing for either trying to secure budgets, secure favorable reviews to try to get promoted to try to make sure that their team retains scope. And one thing about bringing in an external expert provider is we don’t have that overhead. Now, I’m not trying to turn this into a sales pitch for Kate and I. If I am, it’s an accident. But one thing about an external provider is that we don’t have that internal posturing overhead. We just have a job, come and do it as quickly as possible and then go on to the next person, unless, of course, you really like working with it with us, and then we can set up some kind of retainer or something like that. But I think that there’s a part of me that really feels like there are going to be more companies kind of moving toward that model. I felt like for a long time, there was sort of this kind of thought that companies were trying to insert as much as they could and handle as much as possible with internal resources. But I think, like, we’re saying it’s hard to, A, locate and retain the expertise and then B, just even if you could before, it’s just way harder than it was back then now. And I think it’s kind of almost by necessity. A lot of companies are sort of moving to that, moving to that model. Now, we’re getting far afield from the idea of cash flow management. But let’s just finish the tangent before getting back on topic.

Well, I think it relates because you think about your most affordable commodity as a W two employee employees. You’re absolutely correct. We’re entering well, the labor force is down, and there are shifts in the marketplace where people are working more remotely from home. What is the new employee look like and culture in the workforce that is designed by design supposed to enhance your bottom line cash flow as well? So I’m an employer. I’m looking at how long is this employee going to stick and stay with me 90 days, or is it going to be two years? I just spoke to veterinarian clinic. They had two applicants come that applied for vet tech jobs, and one of them didn’t show up. It was just a drive by. And then millennial folks in the office, he was just like, what does it mean to ghost somebody? And I started lucky, and the ladies in the office were just like, yes, doctor, you don’t know what that means. That’s a term that millennials use. You just got ghosted. And I said it’s kind of like a drive by. They didn’t really want to go for an appointment. And he’s like, what is it with this world? Don’t they know they can have a job? So he’s willing to pay top dollar because the economy is demanding that’s. The other thing is, what do you call it? Incentives to do, like, a $2000 bonus? Not all microbusiness can afford something like that. You’ve got mandates now for if there are more women entering the workplace if you have 15 or more employees to make accommodations for working mothers. So that’s all money out of pocket. This is all having to do with the bottom line. I think businesses are dealing with a lot of things coming at them. It leads back and forth all the time.

Yeah. I think that you’re kind of getting on the topic of cash flow management. This is actually where I think a number of contingency based consulting models, I think are going to start coming into Vogue more than they have already, because I think the old corporate model is you call up somebody like McKinsey or Bain, and then what happens is they’ll descend on your company with a team of about 30 people where they’re billing you about $500 an hour per head on that team. By the way, not all of that is making it to the people on the team. It’s usually about a third or less. And then, of course, the first thing that will happen is before anybody starts anything, you’re running a purchase order for $100 to $300,000, and who knows what it’s going to cost before the whole thing is done. And then you may or may not have real tangible benefits. Now, I think that’s the model the management consulting business is built on. I think there’s actually a more productive model, which is kind of what both you and I do, which is the contingency based, which is where you have a specific scope, a specific set of deliverables that are measured. And then what you do is you bill based on a percentage of that monetized benefit. I think that is a good way of marrying those incentives so that you have effective cash flow management for the company. But then, of course, you also have equitable compensation for the interest.

I would have had that you put your money where your mouth is if you’re what you do. No, truly, because you’re leading with your expertise and you’re getting a lot of your time. It’s the time value of money. And people take that. The services get hit and look, we get hammered all the time with the services. People take that for granted. I’m not just coming here for a visit. I’m really putting in my time, too. I wouldn’t be having this evaluation or conversation with you if I didn’t see the value in it, right?

Yeah, exactly.

And if we don’t find anything, we can part as friends or there’s no benefit, then obviously. But because I am an expert in what I do, I can tell you ahead of time. I kind of have a hint that there’s something there. But let’s get together and that’s the collaboration, if you will just take a look.

Yeah, exactly. Going down the cash flow, the cash flow management rabbit hole. I just kind of wanted to get your thoughts right, kind of coming out of whatever you call where we’re at right now? I don’t know. It’s kind of COVID, but it’s kind of yes, COVID, but sort of not quite like. Yeah, exactly. But whatever the title is for where we’re at now coming out of it, what are some of the things that you see that are going to be really important, kind of cash considerations for companies?

Great question. I’d say not only there’s the mental resiliency of businesses, but to probably conservative and being able to pivot again always be on the ready to pivot, to hold back, not to be maybe physically conservative. We’ve seen I’ve talked to CPAs that have their restaurants have just taken off, the companies that have shut down for every company that has they’ve taught them business planning and think about how to leverage the sources for them. And so now we’re going into a third year of the economic pandemic, literally, this is the third year. So resiliency again, to get through that, to know we know our clientele. And how do we expand that to paying attention to the first couple of years? We’re kind of a trial. There’s more of a resolve. So to be, I think conservative, the businesses are just kind of waiting it out for summer time. That’s what I think.

Yeah. Because the thing that I keep thinking is it feels to me like having a game plan for what the response will be if there is a material disruption. And because I think just reading the tea leaves, one of the reports from the St. Louis Fed that I consume on a regular basis is there’s a report that’s published showing the total indebtedness across all sectors. And I’ve been talking about this for a number of episodes. So people are probably getting tired of hearing about it by now. But total indebtedness in the United States right now is over $90 trillion. That’s a lot of money. At some point there will presumably be defaults. We know that the interest rates are going to be going up. And if you start seeing different sectors, the default rates start going up in different sectors, then that’s going to shift the demand patterns because right now demand for everything is on a hockey stick growth curve because there’s so much debt expansion. Right. Principally because the federal government is spending a whole lot of money that it’s having to go out and borrow. And then, of course, there’s also banking is more lenient. And but right now there’s a lot of credit expansion. At some point that you hit a limit. And when you hit that limit, there’s going to be a turn in the business trajectory. Now, I don’t know when that is going to happen. I’ve been thinking something like that’s going to happen for at least the last five years now, and I’ve been dead wrong that whole time. But at some point we know there’s going to be a turn. And so at least to me it’s really important to think not just to the next 90 days, but also thinking, okay, when that turn happens, what is the game plan for me? I’m a Bill Walsh, San Francisco 40 Niners fan back in the day with Joe Montana, and his whole thing was having an extremely elaborate game plan so that every single possible game situation had a plan for it. Because the idea is

if you planned for everything that could possibly happen, then no matter what the situation is, you know exactly what you’re going to do. It may or may not work quite the way you thought.

But if you know exactly what you’re going to do, that takes a major source of anxiety off your head, off your mind. Because the worst thing we want to be doing is having a time of enormous crisis and then shooting from the hip, which is what a lot of businesses end up doing.

That sounds good. Yeah. I would think that’s something that there’s just like a lot to take in there for what we’re talking about today.

Yeah. We’re going a little ways of field here every now and then. These conversations tend to go off on tangents.

No, but it’s all a good topic and good subject. There’s such a huge need for microbusinesses right now, 88% of them that have fewer than what is it, 20 employees or something? I just can’t emphasize enough how much they need resources they don’t know, what they don’t know. And if we can powerfully deliver and execute what we say we can do, then they’re in a much better place. There’s all this trepidation in the world going on with social media, the news, the headlines, the pandemic technology. At the end of the day, it’s going to take more time to kind of navigate through the truth, if you will, or just somewhere in there is a way, a path not just to survive, but to get ahead and be profitable. Because at the end of the day, there really has been a transfer of huge wealth over the last year. Am I hopeful? Absolutely. That’s what we have more than anything. I’m excited for opportunity for clients to still take advantage of the services that are out there for cash flow taking advantage. It’s just really getting them to look up the gate to pay attention to and stay with the times, really, because you can’t afford not to talk, to not just talk, but just be advised to embrace new technologies, new concepts, or customers that have been there already that are established that, well, maybe there is a way, a value proposition. Maybe I need to rethink this. Maybe if I always do what I’ve always done, I’m going to get the same results or this is not going to survive the situation that I’m in. I’m going to have to maybe have to disrupt myself. This whole last couple of years has been full of disruptions.

Yeah. Precisely because 2019 and back I now refer to as the before times. The world as it existed in 2019 is never coming back right now. It’s kind of that. I don’t know what it is. I hope it ends soon, though, and then eventually we’ll get the kind of world next and exactly what world next looks like. I don’t know that we really have a firm view yet, but I think one of the things kind of bringing this all back on topic again, one of the things that’s really important for businesses Is to still make sure that your cash flow managing through all of that, because, of course, when there are opportunities, you want to take advantage of those opportunities, but you also have to understand that there can and will be another very major disruption at some point in the likely near future. And that’s going to need to that’s something that you need to plan for. Well, anyway, Kate, I just kind of wanted to say I really appreciate your time today. Give us a last thought and let everybody know where they can find out a little more.

Absolutely. Thank you for your time, too, Doug. I appreciate the back and forth. I’m with Kate Johnson and strike savings. And katetheconnector.com if you want a free assessment of your business and find out if there are potential savings or tax incentives that have been overlooked, Give me a call, send me a message and I thank you for your time today.

Outstanding. Well, Kate, the connector have a wonderful rest of your day.

All right. Take care. Bye. Bye


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