Effective Financial Management

February 15, 2024 Theresa Rex

business leader giving a seminar on the results of effective financial management to colleagues

Small business owners encounter multiple difficulties when it comes to making wise financial decisions. Limited resources, lack of expertise, effective management, and time constraints can often restrict their ability to make informed choices that can enhance the financial well-being and success of their businesses. But Danielle Hendon of 4 Corners CFO is on a mission to change that.

Danielle helps business owners earn their deserved income and increase their profits annually by helping them understand their finances and the reasons behind their fluctuations. With over ten years of experience in corporate finance and accounting from her time at LINN Energy/Riviera Resources, UHY Advisors, and Devon Energy, she offers small businesses tailored financial guidance that aligns with their budget and requirements.

Show/Hide Transcript

Megan - 00:00:18: Today, my guest is Danielle Hendon. Danielle is the founder and owner of 4 Corners CFO, a firm offering financial advisory services to small business owners on a scale that fits their company and budget. Coupling her decade of experience in corporate finance and accounting with her passion for people, Danielle brings the benefit of big business financial analysis to entrepreneurs. Now, instead of helping corporations increase share price, Danielle gets to help business owners increase their personal livelihoods so they can leave a legacy and lasting impact on their community. If you'd like to connect with Danielle, you can do so by visiting 4 Corners CFO. That's the number 4cornerscfo.com. Danielle, thank you very much for being my guest on today's episode of CFO Weekly.

Danielle - 00:01:39: Thank you so much for having me, Megan. I am super excited at any opportunity to talk numbers and money with people.

Megan - 00:01:45: Yeah, today we're going to be discussing operational profit, specifically as it relates to entrepreneurs and how small business owners can put themselves first so that they can be in control and feel confident to weather any event that comes their way. Danielle, I'm excited to learn about you and your thoughts and experiences with this topic. So let's get started.

Danielle - 00:02:05: Awesome. So I can tell you a little bit more about me and give you what I like to call the origin story. I am a CPA. So I went to school, got my accounting degree, did everything they tell you you're supposed to when you do that. I went into public accounting after college and I went the audit path. So I worked on a lot of different teams when I was in public accounting and loved what I did. But I started a family and very quickly realized that newborns and 80-hour work weeks don't mesh very well together. So when I left public accounting, being in the Houston area, which is where we're at right now, a lot of my experience was with oil and gas. So I landed in a corporate position in oil and gas in downtown Houston. And again, I absolutely loved what I did. I loved who I worked with. The company I was at liked to think of themselves as a small business, even though they were a billion-dollar business. But you get to know your co-workers and they almost become like family and like I said, loved what I did, loved who I worked with. But oil prices tanked a few years ago. Well, I guess more than a few years now. I keep saying a few years, but I've been in business a few years. So when oil prices tanked, they went through bankruptcy. And they came out the other side and the bankers just started slicing and dicing. And before we knew it, the pandemic was on top of us. And we were at home with the kids doing all the things. And it became very clear that the doors were probably going to close. They were selling pennies on the dollar. We were down to the last few things. And it was sort of a double-edged sword for what I will admit is a workaholic mom. When you love what you do, you do a lot of it. And the pandemic was a very different perspective of parenting for me. It was the opportunity to be with my kids while they were trying to learn what they needed to learn, to get to know the teachers and the friends and the swim team coaches. It was just a completely different perspective. And I realized, I didn't want to give that up. I wanted to be able to do what I love doing while being there for the people that I love the most. And that was the driving force behind me launching 4 Corners CFO. I had a friend of mine who very graciously made an introduction to another fractional CFO that was running her own business. And she basically said, go for it. You can do this. She gave me all the encouragement. And we had very similar backgrounds. And I took a leap of faith. And I started... I started 4 Corners CFO in order to provide more flexibility for my family. And to be able to take those big business concepts. And I never thought I would say this, but I say it a lot now. I am actually grateful for having walked a big business through bankruptcy. Because at the end of the day, I was the one that would get the call from the controller saying, hey, we're down to two people. How do you want me to do this? Because we had to stay compliant. I was over all the audit stuff. So realizing how to take those big business processes and make them small because we had to. And now I get to take those big business concepts, making them small for small business owners. And instead of just increasing shareholder value, which is what you do so often in corporate, I get to help people increase their livelihoods and their legacies. And that just feels really cool. So from the client perspective, I now feel like I get to have a much bigger impact on somebody else's life. And then from a growing my business perspective, I get to help employ people just like me that want to do what they love and be with the people they love. It doesn't always have to be work hard, play hard and hustle even harder.

Megan - 00:05:47: Wow. So you started this during the pandemic. That must have taken a lot of courage.

Danielle - 00:05:53: It was definitely a leap of faith. But I will say it's not for lack of looking into things and making informed decisions, because when we did it, I'm going to be completely transparent and say oil and gas takes good care of their people. So when everybody was let go, there was a safety net there. And I gave myself a window. I said, look, it can take two years to really get a business up and running and off the ground. And I made sure that we could survive those two years. If the business wasn't able to get me back to a corporate salary in two years, then I would go back to corporate.

Megan - 00:06:24: And talk to us about burnout, the scourge of small business owners. And it seems to be the thing that you're really driven to help guide people away from.

Danielle - 00:06:35: Absolutely. Being a business owner myself and having come from an accounting background where, let's be honest, burnout can happen really easily in corporate too. When you are running a business, it's so easy to give it everything. You want to give it everything. It's your baby. It's got your time. It's got your money. It's got it all. But if you don't save a slice of the pie for yourself, if you don't put yourself first, if you don't put on the oxygen mask first, you don't have anything left to give and you do burnout. And I tell my clients all the time, if you are constantly giving, giving, giving to your business without taking anything from it, you're going to burnout and then you can't give anything. If you can't stay in business because you're burnt out, you're not helping anybody.

Megan - 00:07:18: Yeah, I'm sure as a small business owner, it's easy to get into a mindset where you just feel like you need to reinvest everything back into the business.

Danielle - 00:07:26: Absolutely. Especially in those first three to five years when the business is very much in growth mode, it's so easy to put it all back in, but you've got to pay the bills yourself. That one of the messages that we give to a lot of our clients right now is we are, as we're recording this, it's record high inflation. And we work with a lot of service-based business owners. So even though inflation is really high, they don't necessarily feel like their business costs have increased. And I have to remind them that your business costs are you and your personal costs have increased. And you have to make sure you can keep taking care of you in order to stay in that business.

Megan - 00:08:05: So who are your clients and how do they find you?

Danielle - 00:08:08: So we serve a variety of clients. I actually just talked to a business coach and changed some of this messaging recently because I would have told you if you asked me this last week, I would have told you that professional service-based businesses are primary client. We serve a lot of attorneys, therapists, people that are coming from a corporate background and starting their own business. That being said, we've taken on some clients that are outside of that realm. And I think the better way to phrase who we serve at 4 Corners CFO is we love to serve businesses that are passionate about helping the people that we're passionate about. One of my absolute favorite clients helps the neurodivergent community. They're a group of clinical coaches and they help kids with ADHD or autism or things like that. And as a mom of a kid with pretty severe ADHD, it just makes me feel really, really good to get to give back to the people that are giving to the communities I love.

Megan - 00:09:08: That's awesome. So how do companies know that they need you?

Danielle - 00:09:11: So I'm going to start and say everybody needs somebody looking at their finances. If you don't have a CFO, you at least need a bookkeeper. You need somebody to help you translate the numbers into a story and understand the story that your numbers are telling you. The CFO place specifically, if you are a business, and I'm going to speak to service-based businesses because it's a little easier to put into a box of numbers. But if you are a service-based business and you're starting to get into those six figures and you're looking to hire what I like to call the mini-me, you're looking for somebody else that does what you do in the business, that is exactly when you need to be looking for a CFO. Because a CFO is going to step in and they're going to help you figure out what does it look like to make these decisions financially? What does it mean for the future of your business? When you hire someone else, how much can you afford to hire? What are the expectations need to be for you to reach the revenue goals that you want out of that business?

Megan - 00:10:08: And how can small businesses and solo entrepreneurs benefit from thinking like big businesses?

Danielle - 00:10:16: Telling a story with the numbers. Big businesses are looking at those numbers constantly. They have a team of people that are looking at these numbers. But they're not just looking at dollars and cents. They're looking at the why behind the movement. And that's the biggest part of what we do at 4 Corners CFO is help people understand why the numbers move. It's not necessarily just about having a budget or having a cash flow. It's about measuring that budget against your actuals and understanding the story that the numbers are telling you. When revenue comes in higher than you expected it to, is it because you suddenly went and got a bunch of new clients? What did you do to get those clients? How do we do it again? Is it repeatable? Do we want to change our forecast and our budget for that higher number? Or was this a one-off event because something happened and you don't necessarily know how to recreate it? Or one of the examples I love to give is if expenses come in high. Everyone automatically thinks that expenses coming in high means that there was something bad that happened. It's not good for expense to be over budget. But if one of your expenses is for contractors that are helping to serve the people in your business. And those contractors expenses came in high. I would venture your revenue also came in high. And if you've got good profit margins, then we want those contractor expenses to keep coming in high. Because they're bringing in more revenue. And at the end of the day, they're going to have a higher bottom line.

Megan - 00:11:44: And you talk about how when a business hits a certain point that they start making more administrative hires. And at this point, their profitability is impacted. So talk to us about this tendency. And when does that point come?

Danielle - 00:11:58: Absolutely. So we mentioned earlier that probably one of your first hires in the business is going to be kind of that mini me. The person that can do the client work that you were previously doing. As you grow, and it usually happens for service-based businesses, it's when you're starting to get upwards of half a million and start approaching those seven figures. You have enough of a team that you now need to fill what I like to call the administrative positions. You probably have somebody that is helping you with marketing. You probably have somebody that is purely supervising the doers to make sure everybody's doing all the things. You might have somebody that is in charge of answering the phones. Those are not what we call directly revenue generating positions. They are not earning you billable hours. But they are impacting your revenue and they are definitely impacting your expenses. So this is where your profitability starts to sit in your productivity. And it's where we really want to hone in on what we call key performance indicators, KPIs, for those positions. One of my favorite examples to give is if you are hiring, let's say, a receptionist. Their job, their role is to answer the phones and make sure whoever's on the other side of that phone gets booked on a consult call. You want to make sure that that's what they're doing. If they're answering the phones and you're not getting consult calls out of it, then you're not going to be indirectly generating revenue from that position. So the key performance indicators. That's often associated with a receptionist is going to be how many consults get booked. Similarly, if you have somebody that is responsible for those consult calls, eventually one day you probably aren't going to be the one taking all the consult calls. Their key performance indicator is going to be how many of those consult calls turn into clients. And if people are not performing the role that they're hired for and supporting that revenue driving function, even though they're not directly generating revenue, then you're going to start seeing profitability problems.

Megan - 00:14:05: Yeah, I imagine that those roles are, it's hard to quantify the benefits. And I'm sure for that reason, lots of people don't even try.

Danielle - 00:14:15: But they're highly beneficial from the perspective of you being able to step out of the business and work in more of that CEO visionary capacity instead of constantly being the doer in the business.

Megan - 00:14:27: So is that where you come in? Is this where your expertise is in helping people maximize operational profit?

Danielle - 00:14:34: Yeah. So from the hiring perspective is a huge part of it for any business owner, but also just from knowing what your numbers are. We work with all of our clients in the same six-part framework that works us through from the foundation of your finances, which is your balance sheet, all the way through revenue and expenses. Then we build out a budget. We start looking at the budget to actuals, and we use that budget to then build out a cash flow forecast. I'm not a huge fan of cash flow statements. Most accountants don't like preparing them, and most business owners do not understand if you start speaking in cash flow statement language. So we build a forecast that looks just like the budget. It relies on the budget, but it layers in the timing components. And then every single month after that, we're there for our clients, not just to support the hiring questions and the what-ifs, but to help them understand the story that their numbers are telling every month, to maintain that budget, to look at those budget to actual analytics, and to update that cash-flow forecast. Because at the end of the day, cash is king. And if there isn't money in the bank account, that's when we start really having problems.

Megan - 00:15:39: And when a small business is looking to invest in projects to improve efficiency. Is a long-term approach always the way to go? As an example, is it always better to invest in something that saves time, even if it means an initial outlay that stretches your budget at the moment?

Danielle - 00:15:58: I'm going to give the general accountant answer and say it depends. It depends on your financial position and your level of confidence in the investment that you're making. One of my favorite ways to do this is going to be if you have a CRM that's not giving you the information you need to help generate those KPIs we talked about, then you probably need a better CRM. And I have a client that did that and we implemented a huge CRM shift. It was a big financial outlay and time because then you have to train everybody on the team to use this new CRM. However, the use of this new CRM is now exponentially increasing profit margins because they have visibility to information that they otherwise had no clue on. So yes, a long-term approach and looking at the return on investment for those financial outlays is the way that we prefer to work. However, if you are a small business that's in those early years, I don't necessarily recommend going into debt, especially if you are not confident in the return on that investment. There are great ways and reasons to use debt, but you want to make sure that you're going to be able to get the return on investment in a way that's going to allow you to stay in business and maintain that cash flow in the bank account.

Megan - 00:17:17: And what are some of the most obvious or at least some of the most frequent fixes that you recommend to people with regards to their operational profit when you first start working with a client?

Danielle - 00:17:28: First and foremost is to look. I can't tell you how many clients I've talked to that they almost always know their revenue number. Sometimes they know their profit. Sometimes they know their net income. But if you're not looking at those numbers and if you don't know what your profit margins are and you don't know it by product or service, you don't know where you want to focus your energy. You don't know where you're making money or losing money. The number one thing, and it's the second part of what we do with any of our clients, is looking at that revenue streams and seeing what different revenue streams you have and which one is the most profitable product or service that you have. And if we can't pin down which one's the most profitable, then we get to talk about what do we need to change so that we can see that information?

Megan - 00:18:12: And do you find with small businesses that trying to grow quickly, that the desire to grow quickly takes precedence over growing sustainably?

Danielle - 00:18:23: Absolutely. And that's where the burnout and stuff comes in so heavily. It's also why I'm a huge fan of Profit First by Mike Michalowicz and the framework that's used there. If you aren't ready for a CFO, if you want to do it yourself, walking through that framework and being able to prioritize yourself in your business isn't just a gift to you. It's a gift to your business. It's a gift to the sustainability and longevity of your business because you aren't just avoiding burnout by paying yourself and being able to stay in business. You're also training your brain to think about things a little bit differently. Everything is not the crisis that it feels like, and we can always get outside of the box and find other ways to do things more efficiently.

Megan - 00:19:07: And talk for a second about Profit First. Is that where you kind of determine what you're going to take from the business and you work backwards from there?

Danielle - 00:19:17: Yeah. So Profit First, and this is not my framework at all. This is Mike Michalowicz. He has a book and a whole program that you can go through. But Profit First focuses on your bank account because that's where most business owners put their time and energy. I guarantee if you don't know your profit and you don't know your net income, you know what's in your bank account and if you can pay the bills that are coming up. And that's what he hones in on. And the whole term Profit First is making sure that you take your profit first out of that bank account. So when you get paid by a client, take the profit first. Don't go pay the bills and then pay pay yourself with what's left. Pay yourself first and set it aside, out of sight, out of mind. It is your profit. And then go figure out how to pay the bills. Because you are not in business unless you are a really smart person. And you can figure out how to get the rest of those bills paid and how to achieve the results that you need after paying yourself first. But if you pay all the bills first, and then there's nothing left to pay yourself, you're not going to figure out how to pay yourself the way that you would to pay somebody else.

Megan - 00:20:22: And let's talk about pricing. Is it ever okay to undercharge? Or do you always suggest that your clients set their rates at what they're worth, even when they're in the early stages of business or trying to win new work?

Danielle - 00:20:37: I think the early stages of business and trying to win new work is when we all inevitably are undercharging. So I'm not going to tell anybody to undercharge in the beginning because I can guarantee you already are. But I don't honestly recommend undercharging unless, and we can get into kind of some complexities with like lost leader type stuff where you've got something you know you're not necessarily making money on because it leads you confidently and consistently to something that does make a lot of money. That's a little bit of a different story and slightly more complex. But in the grand scheme of things, I can guarantee 90% of the people listening to this are not charging what they're worth. It's worth looking at what the market supports. And you would be surprised how many people are really transparent, myself included, with pricing sitting on the website. How many people are charging two or three times more than what you are. And you're over here thinking that you need to charge small numbers to get people in the door. But in actuality, in what I've seen in my business and with my clients, business owners that are willing to pay more know that they're getting what they want out of it and they get more value for what they're paying. If you are undercharging, you honestly end up with a lot of the smaller but also more time-consuming clients versus the less time consuming and more hands off that are willing to pay you to just get it done.

Megan - 00:22:00: And with your clients, do you find that small business owners are often not particularly well-versed on the financial side of things? And in that case, what are your communication tactics for explaining money to people who aren't money people?

Danielle - 00:22:16: So there's a little bit of both. I have come across business owners that have taken some business classes or a lot of times, especially with professional service-based businesses, when they went to college, they probably took some form of a class that introduced a little bit of finance, but it definitely didn't go into the details. And most people would rather stick their head in the sand than look at the financial numbers. In those circles and when working with small business owners, we are huge fans of what I like to call Approachable Accounting. It's not about a bunch of jargon and lingo and words that don't make sense. Because if I can't make sense to you, then you're definitely not understanding what you need to in your business. Our whole goal is for you to understand everything we're saying. Because if you don't, then you don't get to make the best business decisions that you can in your business today. So like I said, we don't do cash flow statements because you start getting into investing activities and financing activities. No, no, thank you. We just want to know what came in from sales, what went down at payroll, what paid the rest of the bills.

Megan - 00:23:25: And efficiencies are often thought of as quantifiable and numerical, but what are some of the less quantifiable efficiencies that you encourage with small business owners? Things that maybe improve the mood of a company, its workers, and its owners?

Danielle - 00:23:39: So I'm going to go to one of my clients who I adore runs a really great culture in her business. And in fact, they paid an employee through a really rough time in their life this last year, and we're so proud to be able to do that. As small business owners, while it isn't directly quantifiable, we are not often able to provide the same level of financial benefits that an employee would receive at a big corporation. You may not have medical benefits. You may not have 401k benefits. You may not have that nice big chunk of benefits that sits on top of salary for compensation purposes. But you do have other things to offer that help provide efficiencies through team culture and through being a small business owner. One of the biggest benefits we have in small business is flexibility. And like I said with my business, we actually tend to hire 20-hour a week accountants. We don't hire 40-hour a week accountants. Because it's the moms and the people that want to spend time with their family that are coming and joining our team so that they can get the flexibility to do what they love while being there for the people that they love. And that's where those efficiencies come in. Because while it's not directly quantifiable, you cannot usually in small business, especially in those first few years, afford to set up a medical plan, afford to set up a 401k, afford to set up all these things. And if you can set them up, you're probably passing a lot of that cost off on the employee rather than holding it at the company level.

Megan - 00:25:16: And do you find that... Oh, sorry.

Danielle - 00:25:19: Oh, no, go ahead.

Megan - 00:25:21: I was just going to ask if you find that these intangibles are often overlooked or maybe not taken advantage of. Maybe a small business doesn't realize that they have flexibility to offer.

Danielle - 00:25:35: Absolutely, especially in the employee side of things. I feel like there is so much, there's a growing market in the employee base that is desiring flexibility and freedom. And it's something that big corporations are honestly too big and rigid to be able to do or to do efficiently. But the remote work environment that we can offer for small business, the flexibility or what in my business, I like to say we're family focused, it's family first. That personal touch that you can give to your team isn't just saving you money in terms of the benefits that you may not yet be able to afford, but it's also saving you money in terms of turnover and the cost of hiring a new employee. Because I've been there, I've done that. I've done the like, let's go look through a million different things on Indeed and either I'm spending my time or I'm paying somebody else to spend their time trying to find the right fit.

Megan - 00:26:29: And last question, but as you look at your own business, or maybe some of your clients' businesses, what has you worried about the future? What keeps you up at night?

Danielle - 00:26:39: I think what keeps me up at night is usually what keeps most business owners up at night is cash flow. But it's also the idea that every business owner comes to me wanting to fix cash flow, wanting to better understand cash flow. And so many people will jump into a cash flow forecast or start trying to figure out cash flow without actually understanding the nuts and bolts underneath it. And that's why we use the framework that we do. Because if you don't understand the balance sheet, you don't understand the things that could affect cash flow. And if you don't truly understand how money is coming in and going out through revenue and expenses, then you don't understand the things that are going to affect cash flow long-term, or the cycles, or the... So many of my clients go through kind of a feast or famine cycle if they're project-based. And at the end of the day, we will all probably stay in business until we absolutely can't. And that's when the bank account's empty. And making sure that you're building a cash flow forecast that's grounded in a really solid foundation is probably what keeps me up the most at night.

Megan - 00:27:45: Danielle, thanks so much for being my guest today.

Danielle - 00:27:48: Thank you so much for having me, Megan. This was a blast.

Megan - 00:27:51: Yeah, I really enjoyed speaking with you. And thanks for finding the time to be here with us today to share your experience and knowledge. I wish you and 4 Corners CFO all the best. Congratulations on taking that leap and making it work.

Danielle - 00:28:04: Thank you.

Megan - 00:28:05: And to all of our listeners, please tune in next week. And until then, take care.

In this episode, we discuss:

  • Strategies for improving operational profit

  • The role of CFOs in small business success

  • How small businesses can benefit from thinking like the big ones

  • The value of non-revenue-generating roles for scaling your business

Key Takeaways:

Why Self-Care Matters for Small Business Owners

Self-care is critical for small business owners. Danielle shares from her personal experience and accounting background that while it's natural to pour your heart and resources into your business, it's vital to also prioritize your own well-being. Neglecting self-care can lead to burnout. Personal expenses are part of business costs. However, ensure you take care of yourself to sustainably develop your business.

Quote self care matters for effective financial management

“When you are running a business, it's so easy to give it everything. You want to give it everything. It's your baby. It's got your time. It's got your money. It's got it all. But if you don't save a slice of the pie for yourself, if you don't put yourself first, if you don't put on the oxygen mask first, you don't have anything left to give and you do a burnout.” Hendon claims. - 06:24 - 08:05

Thinking Like the Big & Effective Financial Players

Small businesses and solo entrepreneurs can significantly benefit from adopting a big business mindset, especially regarding financial analysis. Beyond just tracking dollars and cents but understanding the stories behind their financial movements, businesses can make better-informed decisions, allowing for smarter budgeting, forecasting, and overall financial management.

Quote Danielle Hendon of 4 Corners CFO

“Telling a story with the numbers. Big businesses are looking at those numbers constantly. They have a team of people that are looking at these numbers. But they're not just looking at dollars and cents. They're looking at the why behind the movement.” Hendon said. - 10:08 - 11:44

The Secret to Scaling Your Business

As your business grows, especially a service-based one reaching towards half a million in revenue and beyond, you'll find yourself hiring for administrative roles that don't directly generate revenue but are crucial for your business's efficiency and scalability. Although not billing hours, roles like marketing assistant, supervisor, and receptionist greatly impact your revenue and expenses. However, it's important to measure their success through relevant KPIs to ensure they contribute to your business's profitability.

Quote scaling your business secret

“Those are not what we call directly revenue-generating positions. They are not earning you billable hours. But they are impacting your revenue and they are definitely impacting your expenses. So this is where your profitability starts to sit in your productivity.” According to Hendon. - 11:44 - 14:27

Unlocking Sustainable Growth Through Effective Financial Management

Closely monitoring your financial metrics, such as profit margins across different products or services, is key to identifying where your business is thriving or lacking. Danielle shares that embracing the "Profit First" approach by Mike Michalowicz is recommended as a practical strategy for prioritizing financial health and sustainability, ensuring the business fosters a mindset shift towards efficiency and proactive problem-solving.

Quote sustainable growth with effective financial management

As Hendon said, “The number one thing is looking at those revenue streams and seeing what different revenue streams you have and which one is the most profitable product or service that you have.” - 17:17 - 19:07

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At Personiv, we go beyond crunching numbers. We understand that effective financial management is the backbone of thriving businesses. That's why we build lasting partnerships tailored to your unique needs, empowering you to make informed decisions and drive sustainable growth.

Contact us today to unlock your financial potential!

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