In this episode Josh talks with Blaine Bertsch, CEO of Dryrun and author of “Pandemic Cashflow“. They discuss how critical cash flow is in a business and how many business owners fail to manage it.

Blaine Bertsch is the Co-Founder and CEO at Dryrun, where he oversees the strategic direction and core operations for the company and the software platform. Blaine also leads the application’s design direction, resulting in a beautiful, flexible and actionable customer experience.

Blaine’s mission is to have a lasting positive impact on businesses all over the world by helping them collaborate with their accounting team to manage cash flow and grow.

In 2019, Blaine released his first book, Pandemic Cash Flow, which explores the problems businesses face and offers a collaborative and effective solution to crushing the affliction.

In today’s episode you will learn:

  • Why is cash flow important?
  • How cash flow can grow your business?
  • Why many business owners don’t manage properly?
  • Why engaging a pro to help is critical?
  • How using cloud technology can help your business?


Transcript

Narrator:         Welcome to The Sustainable Business Radio Show podcast where you’ll learn not only how to create a sustainable business but you’ll also learn the secrets of creating extraordinary value within your business and your life. In The Sustainable Business, we focus on what it’s going to take for you to take your successful business and make it economically and personally successful. Your host, Josh Patrick, is going to help us through finding great thought leaders as well as providing insights he’s learned through his 40 years of owning, running, planning and thinking about what it takes to make a successful business sustainable.

Josh:                 Hey, how are you today? This is Josh Patrick. You’re at The Sustainable Business podcast.

Today, my guest is Blaine Bertsch. He has just published a new book called Pandemic Cash Flow. Both he and I have this thing about having positive cash flow in your business. I’m hoping we’re going to have a great conversation. I’m actually positive we’re going to. Instead of me meandering on, let’s bring Blaine on.

Hey, Blaine. How are you today?

Blaine:              I’m doing great. Thanks for having me on, Josh. I appreciate it.

Josh:                 Well, it’s my pleasure. As usual, I’m trying to some new technology so we’ll see how well it works out.

Blaine:              It’s always an adventure. I know it well.

Josh:                 Yeah. Well, that’s how it is these days, I guess.

Tell me, why is cash flow important?  

Blaine:              Well, cash flow, I know you’ve heard this. You know this really well. Cash flow is literally just the lifeblood of a business. Usually where people get misled is they equate revenue to cash flow, promises to get paid is cash flow, or profit is cash flow but the fact is that it’s literally getting that cash in the door so you could pay your bills. Usually, what people get caught is they have clients that are paying late, or refuse to pay, or any number of reasons can put them into a real shortfall.

Josh:                 How do you prevent that from happening?

Blaine:              Number one that we talk about all the time is to really understand what’s happening in your business. It’s ongoing management. It’s not something you can do in fits and starts. We see that too often where businesses will get into a crisis, will start looking at, “What’s going on?” and try and figure it out. As soon as the crisis has just sort of passed, they stop paying attention – until the next one hits. Inevitably, you’re not going to survive every time you hit a crisis like that. The number one thing is truly understanding what your cash flow looks like, predicting what it’s going to look like, keeping track of all the money that’s owed you, what money is going out and building a system and process so you’re not spending every waking minute on it but you’re on it all the time.

Josh:                 One of the things I find that’s really useful for managing cash is to have a good – what I call, a predictive dashboard. Where do you stand on dashboards?

Blaine:              Full disclosure, our company Dryrun is all about cash flow forecasting. We have cash flow forecasting tool in the cloud. It connects to other tools, brings in data.

The biggest thing to me is there’s lots of different ways to really understand what you’re looking at in your cash flow, all the way down from a spreadsheet up to various dashboards. The biggest issue we see is when you’re looking backwards. If you’re looking at reporting – historical reporting, the past few months, it’s not going to help you that much. It’s useful information but the most important thing is understanding, “What is the pinch point? What is the big issue in your business, in your model?” and tracking those key points. “Is this getting paid on time?” Like construction companies, design shops, architect firms, engineering firms – all of these different companies, we have customers we talk with all the time. They have trouble getting paid on time. They have so much outstanding money and they’re trying to figure out when that’s coming in. It’s not just knowing that you’re owed this money but it’s trying to predict when that cash flow comes in to your business. You have to have a forward‑looking forecast to really understand that.

Of course, the other side is having money on hand to do the things you need to do. Manufacturers need to make sure they have enough money on hand to buy materials, to make sure they can produce the products. Retail needs to make sure they have enough inventory on hand. They need to make sure they have the cash on hand to buy that inventory. It has to be very much forward looking, granular enough for your business.

Some businesses can see more of the overall numbers but there’s a lot of businesses, they have to track those individual invoices, those individual bills, those big movers that are creating that volatility in their cash flow.

Josh:                 I agree with you, by the way. I think that dashboards always have to be predictive. It’s nice to have a balance sheet and a profit and loss statement but it’s not going to tell you anything really useful about what’s going to happen tomorrow in your business. In my opinion, all dashboards need to be predictive and you need to know what it is that drives your business, that’s going to create cash, what drives your business forward that’s going to eat cash.

Blaine:              Absolutely.

Josh:                 Let’s talk about our growth for a second because I tend to think that growth is probably – we all want to grow our businesses but it always tends to be more expensive, in my experience, than you ever thought it was going to be.

Blaine:              Always. It’s always more expensive. It’s always more chaotic. There’s always more surprises than you ever thought.

In my book, you have whole section on growth. Like, I talk about cash flow all the time. But even when we’re talking with our customers, when we’re talking with, you know, just looking at our website where we’re always talking about your near-term cash flow – making sure you have cash on hand, cash in the door, your revenue projections because if you have a shortfall today, there’s a good chance – outside of outstanding bills, you had a sales problem six months ago or whenever it was. You’re not bringing in enough revenue.

And then, of course, growth planning, to start looking at the longer term. Fast growth, in particular, could be highly risky. It’s necessary. And growth is really for virtually every business, it’s necessary and it’s a good thing but it does bring this risk. It’s just like you mentioned. It’s always more expensive and more complicated than you ever imagined. You need to make sure you have the capital on hand to make sure it goes smoothly.

Josh:                 How do you get that capital?

Blaine:              That’s a tricky one. Of course, if you have cash on hand, if you’re actually building up basically a nest egg or a war chest, that is oftentimes the best way to fund growth because there’s lots of different ways. You can basically do it through investment. You can do it through debt, taking on loans. Often times, it’s really necessary. If you’re trying to do it with just cash on hand, you’re very likely to be undercapitalized. But if you overreach and you’re taking in loans and investment and you’ve kind of got it right to the cap, you don’t have a lot of wiggle room. It’s a really tricky situation. To be honest, you likely will fund it from various means.

The big thing to me that I always say is, “However you’re funding your growth, do kind of a best, worst, and likely case scenario. Make sure you have access to the capital,” even if you don’t bring it in but you have some sort of safety planning so that if things start to go a little bit wrong, it starts costing you more than you predicted, you’re not at the end of the rope, that you actually have some options there. I highly recommend overcapitalizing and planning, planning, planning, predicting and definitely looking at that worst case scenario and being prepared for it.

Josh:                 I had some mentors in my business career, along the way, who used to say, “Take the amount of growth you think you’re going to have and cut it by half. Take the amount of expenses you have and double it. And then, if you have positive cash flow, you’re probably okay.”

Blaine:              It’s absolutely true. I’ve seen, on both sides of the coin, things always cost more to do – absolutely anything. But there’s also – like every time you expand, you’ll see it. When you’re predicting, you’re bringing new staff on. You know what, it takes them longer to get going and get productive and generate revenue than you every predicted. Any time you’re making big changes with anything from machinery to equipment, you always run into problems. I think that’s a perfect thing to do is “double your cost, cut your revenue in half” and that gives you a better idea of where you may land.

Josh:                 Yeah. Well, you have a chance of saying, “Well, this could be my worst case. Now, I can do something about it.”

What do you do with business owners who don’t know how to read a cash flow statement and don’t even really know what a cash flow statement is, which I would say is about 97.3% of all business owners.

Blaine:              Yeah. It’s absolutely true. I think I read— [inaudible 00:07:49] references in the book. I saw a study, not too long ago, from Intuit that showed that it was— I don’t remember the exact number, somewhere around 80% of business owners have a basic or failing grade of financial literacy. Not a surprise because business owners so often come from their sort of domain of expertise. They don’t have a formal finance background which makes things really difficult.

The thing that we recommend to every single business owner we talk to, everyone that comes to us and actually buys subscriptions from Dryrun, we encourage them to engage a professional to make sure – first of all, that the data they have, they have access to it, that is up to date, that is reconciled so they can make use of it. They also should have somebody watching over that, someone with a second set of eyes, someone that can draw their attention to issues. And then, educate them on what they’re seeing and how to work their way around it.

Josh:                 It sounds like you’re in favor of what’s called the rent-a-CFO industry.

Blaine:              Absolutely. That is sometimes from sort of these fractional CFO firms. Often times, it’s an accounting firm that’s offering those types of services. With this big flux in the accounting industry with so much change and so much going on that industry, we see a lot of crossovers on the sort of terminology or roles. In the end, absolutely, we’re really in favor of making sure you have what would be today’s bookkeeper and making sure that you’re sort of tech stack like all of your tools, all of your products are all plugged together properly and sending data back and forth properly. It’s up to date. It’s reconciled. And then, a professional that is basically serving as a fractional CFO or whatever it is can offer you some of that insight and really move you from that insight into action and how you can actually make use of it.

Josh:                 Do you believe it’s important for the business owner to make that fractional CFO teach them the basics of cash flow management?

Blaine:              Absolutely. The business owner needs to understand what they’re looking at. And so, it cannot just be a one-way dialogue. If they really don’t understand that they’re going to have trouble putting action into play. They really need to, first of all, be honest with their accounting pro. Also, I want to make clear, a lot of companies have internal professional finance staff which is outstanding as well, of course, but they also need that relationship and that communication to make sure that if it’s an internal person or an external pro that the owners are actually getting educated and truly understanding what’s going on because, in order to make those decisions, they can’t sort of fluff past it, and fake it, and make them think that they know what’s going on. They really need to understand what’s happening.

Josh:                 Yeah. I would agree with that too. They need to understand what drives cash and what eats cash in their business.

Let’s spend a little bit of time talking about sales. You sort of mentioned that there’s a ramp up to any new expense before they become useful. I agree with you. I think that, most especially younger businesses, if they fail it’s because they don’t have a backup when sales goes south or they hit the hills and valleys of sales where they sell like crazy and they have no time to sell. Then, they deliver like crazy. They run out of business. They run out of cash as a result of that. I would suspect that most businesses that fail, fail because they run out of cash.

Blaine:              Yes, for a number of different reasons, sales is one of the biggest ones. You hit the nail on the head with younger businesses often times – maybe they’ll have a short burst of sales when they first open. They got a little bit of a marketing play. If they don’t have a dedicated sales process in place – a lot of young business owners, they don’t want to talk about processes and things like that, they need something in place to make sure that they’re generating that buzz, the marketing, the leads that they have a process of identifying, qualifying leads, making sure that the right people that they’re talking to and they’re generating those sales.

My previous business was a creative firm. It was a project-based business. Again, very much like design firms, construction companies, architect firms, engineering firms, that sort of thing. You’re looking to land big project after big project. That’s where – like you mentioned, those peaks and valleys where you can be suddenly overwhelmed and you have capacity issues. You don’t have enough people to deliver. And then, inevitably, everyone’s so busy doing that. They’re not doing sales and you see a big dip afterwards. It’s really hard, by the end of the year, to be profitable when you’ve had these big ups and downs. You’re paying overtime one day. And the next day, your staff’s sitting idle. A lot of that can be remedied by instilling a very disciplined sales process.

Like I said, with cash flow, it’s being very consistent so you’re always nurturing those sales, always marketing. Making sure that you’re bringing that in. And then, we recommend, of course, doing sales forecast. I mentioned a fair bit of detail, in my book, how to build a forecast for that in a somewhat sophisticated manner so that you can predict ahead of time where you may have a shortfall, but also where you may have that capacity issue. If you predict it ahead of time, you have time to do some negotiation to try and change those start and delivery dates. A lot of different ways to kind of help smooth that sales pipeline out.

Josh:                 Well, that fits into actually two things. One is, I always recommend people as a part of their dashboard of managing backlog. Backlog is work that you book, you haven’t delivered on yet. The reason is if backlog falls too low, you know you’re going to have a cash problem. Backlog gets too big, you have a different problem which is you’re going to have unhappy customers because you’re not delivering on a timely basis.

Blaine:              Yeah, absolutely.

Josh:                 Of the two, I’d rather have the latter than the former, frankly, but that’s just me.

Blaine:              It’s true. I’ve been in that business. I know what it’s like. Sometimes, you need cash coming in the door. It can be chaotic when you’re overwhelmed but it’s better than just simply not having cash coming in.

Josh:                 Right.

Why don’t we go back to sales for a second? A lot of people, when they are looking at the efficiency of their salespeople, they focus on the amount of sales that are closed. In my opinion, that’s a huge mistake.

Blaine:              It’s sort of almost like a confirmation via sales process, in a way. I agree with you. It can cover up some hidden issues of how you’re qualifying your leads. Really, in the end, it’s how much money are you bringing in? But also, there’s all these underlying things. “Are they discounting to close those deals? What are the size of the deals? How long does it take them to close? Are they bringing in a ton of leads but not qualifying them properly? And making more calls but not generating good sales?” There’s all sorts of problems.

Josh:                 In my experience, most of the time, if you’re managing the sale and not the process, that’s where your problem comes in. What I want people to be managing, first, you’ve got to be very clear about who is your A customer and only let your salespeople sell to A customers. The second thing is you want to be managing activity more than results because if I have the right amount of activity in my sales process, I’m going to have the right amount of sales.

Blaine:              Yes. That makes perfect sense. I know I keep hammering on the exact sort of same thing that it’s building a process, you’re qualifying properly down to the point where you even have some talking points or scripts to make sure that everybody’s on the same page as you bring in more sales staff, being able to scale up your sales team. Then, it all comes down to the process and having a successful and well-oiled machine over somebody who just landed one big one. I totally agree with you, right.

Josh:                 The truth is if I’m looking at, “How many proposals am I putting out? What’s my percent of closing ratios?” Those are all really important things. I mean, I was talking to a construction company one day and it was more around business process than it was around the sales process. But I asked him, I said, “What percent of your bids become contracts?” They said, “5%”. By the way, that’s not an unusual thing in the construction industry.

Blaine:              It is hard because you put a lot of time into all those proposals. It costs money to do those.

Josh:                 Right.

So, I said to the company, I said, “What if I could show you a system where that closing ratio went from 5% to 10%?” In other words, they would double their sales on the same amount of effort. People think that 5% to 10% is not a big deal.

Blaine:              It’s double. It’s a huge deal.

Josh:                 It’s at 5% to 10%, you’ve just doubled the amount of business your business is doing for the same amount of input.

Blaine:              For the same amount of work and the same amount of cost.

Josh:                 Right.

Blaine:              There is a huge cost. Our closing rate, when I was in the creative industry, was a significantly, significantly higher than that. We actually got to the point where, if we were closing too many deals, we just raised our prices because we— but, I suppose, we were highly, highly, highly qualified before we would put in a proposal because that was one of the things we learned is how much money, time and effort it takes to make these proposals. We wanted to be really confident. There was a lot of potential.

Josh:                 The construction business has a different sort of a way of looking at things. They like to throw junk against the wall and see what sticks.

Blaine:              Yeah. It’s a tough way to do business.

Josh:                 They just believe that a 95% failure rate is the best they can do.

Blaine:              Yeah.

Josh:                 What they often say to me, they say, “Well, do you want me to lose money on the deal?” I said, “No. I just want you to learn how to do your deals more efficiently.” Like, for example, I don’t know if you’re aware of Agile Technology or not.

Blaine:              In broad strokes, yes.

Josh:                 Right. Well, if I use Agile Technologies in my planning process, if I’m a construction company, I have now just created an unfair advantage over all of my competitors because literally nobody in the industry does that. And if you do that— I actually had an electrical contractor I worked with at one time that had a 20% pre-tax profit.

Blaine:              Wow [laughs].

Josh:                 Now, a 20% pre-tax profit from electrical contractors was seen. I asked him. I said, “What did you do?” And this was well before I even heard of Agile. He said, “It’s the way we plan our jobs.” They could bid the same as their competitors, get the job, but have a significantly higher profit margin because of the way they manage their business. By the way, this is all around how you create cash in your business.

Blaine:              Absolutely, yup.

It’s interesting, I had that conversation with one of our customers last week. Part of the conversation that came out was I said, “What you’re delivering doesn’t make you money. Like, you guys are good at what you do. The way you’re making money and the way you make profit is all on— exactly, as you said, how you manage the business is everything that goes around it because they can be really good at delivery but if anything else breaks down, it just bleeds that profit out of the business world.

Josh:                 Yeah. No question about that.

Hey, Blaine, unfortunately, we are out of time. I’m going to bet– heck, I’m going to actually read your book because I just got it today and didn’t have a chance to read it before.

Blaine:              Well, I hope so. Yeah.

Josh:                 By the way, that’s a compliment because I get a lot of books and most of them I don’t read.

Blaine:              Well, yeah, you know what, you’re going to know everything inside out. I think it will help give you a bit of indication of what we’re seeing in businesses and where they’re failing, where business owners are struggling to understand things. At then end, we also have a whole section for the accounting pros and how they can better serve their community so.

Josh:                 Cool. How do people find your book and how do they find you?

Blaine:              Well, you can find me, our business is Dryrun – dryrun.com. The book is called Pandemic Cash Flow. You can find it at pandemiccashflow.com or you can find it on Amazon, Apple, and Barnes&Noble.

I would love it if you would reach out to me. You can reach me at blaine@dryrun.com. It’s B-L-A-I-N-E. Of course, just hit up our website. We even have a chat bubble there. You can even track the mail from there, if you like.

Josh:                 Cool.

I also have an offer for you. I have a program called Cracking the Cashflow Code. Probably, relatively similar to what you folks do. To get the one-page infographic on the success path of what it takes to create cashflow freedom in your business, really easy to get, just go to www.sustainablebusiness.co. Click on Cracking the Cashflow down there and you’ll have a button you can get in and it’ll give you the free infographic.

This is Josh Patrick. We’re with Blaine Bertsch. You’re at the Sustainable Business. Thanks a lot for stopping by. I hope to see you back here really soon.

Narrator:         You’ve been listening to The Sustainable Business podcast where we ask the question, “What would it take for your business to still be around a hundred years from now?” If you like what you’ve heard and want more information, please contact Josh Patrick at 802-846-1264 ext 2, or visit us on our website at www.askjoshpatrick.com, or you can send Josh an email at jpatrick@askjoshpatrick.com.

Thanks for listening. We hope to see you at The Sustainable Business in the near future.

 

Topics: recurring revenue, sustainable business podcast, Sustainable Business, cash flow statement, cracking the cash flow code, emergency fund, cash flow, dashboard, predictive dashboard, system, pandemic cash flow, blaine bertsch, excess cash

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