The Resilient CFO: Mastering Crisis Leadership

Megan - 0:49: Today, my guest is Daniel Fulton. With over a decade of experience spanning leadership roles in corporate finance, construction finance, health care management, and political finance, Daniel constantly looks to build new skills by seeking out roles in uncharted territory. Today, he is the president and principal consultant at Locust Street Advisory. Locust Street specializes in financial strategy, financial management, and business consulting. Strategic financial management is an organizational imperative. Locust Street has successfully designed, implemented, and executed financial operations processes directly leading to increased cash flow and shareholder returns. Locust Street Advisory also specializes in turnarounds, restructuring, and startups. Creating stability in urgent situations is key when circumstances change. Built by tested leaders in challenging situations, Locust Street has guided businesses through high growth start-up periods and through challenging restructures and turnarounds. And lastly, they specialize in financial, political, and global communication strategy. Telling the right financial story aligns teams and attracts partners. As a regular media guest and veteran political fundraiser, Daniel Fulton, founder and president of Locust Street Advisory, learned financial communication through experience, working alongside a set of successful global entrepreneurs. Daniel, thank you so much for being my guest on today's episode of CFO Weekly.

Daniel - 2:18: Thanks for having me, Meaghan. I'm excited to be here and glad to share some of my experiences with the audience you've built over the years.

Megan - 2:24: Yeah. I'm excited about this topic today. Today, our discussion focuses on turnarounds and cash forecasting, and I'm looking forward to learning about you and from your experiences. So let's get started.

Daniel - 2:36: Let's jump right in.

Megan - 2:37: Alright. So first of all, you've worked across such diverse industries from construction finance to political finance. So can you start by giving us a bit of background on your career and discuss how these different experiences shaped your approach to financial strategy?

Daniel - 2:54: Glad to do so. And that's true, Meghan. You know, I've had a pretty wide spectrum of roles during my career. Started kind of at the ground level as a marketing intern with a VC backed startup here in Central Kentucky where I'm located, and then ultimately moved into a portion of my career that was in fashion marketing and then fashion licensing before jumping into more business oriented roles. Over the years, I've been really fortunate to be given more responsibility than maybe I've earned. I mean, that really started when I left the fashion marketing world. I was able to join,  frankly, a political campaign that was taken on behalf of one of the more well known entrepreneurs here in my home state of Kentucky. And that campaign, I say pretty frequently, was really my kind of my first experience with business school. Again, this particular political candidate has built a $3,000,000,000 plus general contracting firm and then jumped into public service from there. And so I got the great opportunity to kind of sit with him for many, many months and many, many hours each day and really absorb the thought processes and the types of decisions that someone that is the board chair of a company that size, the types of decisions that they're going to need to make. Following that experience with political finance, which let's be honest, was really fundraising, I jumped into general management of a home healthcare company. That was what I referred to as my first opportunity to get involved in a turnaround. Pretty aggressive person. I had built a relationship with an entrepreneur out of state that owned a business here in my home state, and the business had dropped revenues significantly year over year. Revenues were down approximately 60%, and his staff, being a home healthcare business, his staff was also shrinking. So that was my first opportunity to get involved in kind of what I'd say a situation where the fires needed to be put out before we could really pivot to growth perspective and really enjoyed that process. And those two experiences for me, between the,  opportunity to join a political campaign on a finance team and also to lead the turnaround of a small business that in this home healthcare business did about 4 to $5,000,000 a year in revenue, at least in the year prior to my arrival. But those two opportunities, frankly, were very pivotable. Again, kind of embarked up what I call the food chain in business from kind of lower levels of marketing coordination and up into general management, ultimately into financial management. Following that experience of turning around that small business in the healthcare space, I jumped into an engineering and construction startup. Now it was backed by a pretty significant company, but I was the fifth person on board there with this engineering startup focused on industrial automation. And during my tenure with this particular company, we grew from, you know, five people as I mentioned, and about 700,000 in revenue, about two eighty people, and nearly 100,000,000 in revenue. During the bulk of that time, it was me and just a few other people. So I really kind of got ground level exposure to every process and every accounting and finance process that a startup in high growth mode would need to be able to manage. From there, I did,  thankfully get accepted into a business school program in the United Kingdom, studying strategic finance, which was great for me. I'm somebody that regularly reminds people that I'm actually fairly bad at math, believe it or not, which may be scary for some of my clients if they hear this. But yeah, ultimately it culminated between my professional experiences, personal experiences in the educational programs that I've taken part of, ultimately culminated in an opportunity for me to kind of go independent. I found that I love the chaos. Frankly, I love to make,   string music out of the chaos of a startup or a turnaround. I have a relatively decent network thanks to my time in political finance and struck out on my own about three years ago, and that's what led me here.

Megan - 6:39: From fashion marketing to financial turnaround, that's a significant pivot. And, yeah, congratulations. It's quite a career.

Daniel - 6:47: Well, thank you. I appreciate that. And the fashion and licensing company that I was with was a turnaround as well. So I didn't necessarily recognize it at the time, but the president of that company, actually, it was also a turnaround person. I mean, I was able to absorb a wide variety of lessons from him, and I'm really thankful for that ground level, entry level experience that I got many, many years ago.

Megan - 7:09: Sounds like you've had a lot of hands-on real life training along the way.

Daniel - 7:15: I think that's a fair statement, and that has certainly empowered me to coach other management teams and other entrepreneurs and owners as they kind of embark on their own turnaround missions to hopefully return to the value when engaged with me. But yeah, I mean, I'm not going to shy away from it. My experiences operating both overhead departments, as well as small businesses as a whole, have given me great insight into where some of these kind of these break points occur when a company is struggling financially. It's given me insight into some of the challenges that companies are going to face day to day and how those challenges can ultimately result in failing financial results and then over the long run, illiquidity or bankruptcy.

Megan - 7:59: So along those lines, in your experience leading companies through turnarounds, what are the most common financial pitfalls that you see businesses face, and how do you address them early on to avoid falling into an even deeper crisis?

Daniel - 8:12: The main challenge that I encountered when I initially engaged with the company is complacency. Well, we once did this. Our results used to be that. Mhmm. Um, here's our process that we developed 15 or 20 years ago. Our marketplace is the same as it was 15 or 20 years ago, and the world is rapidly changing. So complacency really is the number one thing, almost universally. It's almost ubiquitous that I encounter a level of complacency or flat footedness that either management or the individual owner has found themselves mired within. I usually encounter really kind of a lack of insight into either cash on hand or what that cash forecast looks like. Oftentimes, I encounter management teams or individual owners that just don't understand what's going to happen tomorrow, let alone four, five, six, or 13 weeks down the road. And there's not a lot of foresight on the table. That lack of foresight around cash, which ultimately accounting profits are great, but cash in the bank is what's going to drive business results over the long run. And so not understanding what's happening with your cash, um, next week or even further on down the road is something that I, again, almost ubiquitously encounter. Gross margin complacency, I mentioned, but particularly around gross margin complacency as well. Over time, I've found that owners, operators allow kind of this cost structure to spiral out of control. Usually it starts with, you know, one segment of the business. It was kind of an investment, so to speak, that we're looking to grow here, and that growth maybe never really appears, but the cost and the change in growth in cost structure typically remains. Lack of foresight around cash flow and then complacency around gross margin and protecting that gross margin are things that I almost always encounter. A lack of understanding around a particular firm's cost of capital as well, and that's maybe a little more cerebral, typically kind of beyond the scope of knowledge that I would expect the type of entrepreneurs that I'm working with to truly understand. But, you know, entrepreneurs are going to make investment decisions on a pretty regular basis. So not understanding their cost of capital and essentially how that represents a hurdle rate that they would really need to be confident that they're going to be able to surpass is something else. Again, I kind of alluded to that a moment ago related to gross margin, but really kind of sunshine and flowers around what this business may do. We're going to increase costs as a result of where we think we're headed and then ultimately not pulling back from that as a result, maybe become a little more tenuous than planned.

Megan - 10:44: And when you're working with a turnaround, how do you prioritize cash flow management, and what specific strategies do you use to stabilize cash flow during times of distress?

Daniel - 10:54: Cash flow forecasting and management, it's not rocket science. You and I both know that. It's fairly straightforward. Essentially, what we're tracking is when do we expect money to come in and when do we need to send money out? So I really kind of try to simplify this process. Usually I will start with three buckets related to spending or those cash outflows. And those buckets are pretty straightforward. What must I spend? What need do I need to spend? What do I need to spend? And what would I like to spend? And so we're going to address, we're going to tackle head on with ownership or management, those must spend items. We're going to make sure that we have cash on hand to cover the must spend items on a regular basis. But after I get into kind of those three lists, and I am, I'm a very hands on turnaround person, I'm going to start with reviewing bank records, you know, day to day bank activity, what's actually being spent and on what frequency is it being spent. So after I create those buckets, I'm going to start looking at the timing of those buckets. So obviously that must spend bucket is very critical. Those are the items that are going to be directly tied to the ability of that company to bring revenues in. If that company can't bring revenues in because it's not paying its, you know, its direct costs, then, you know, what are we doing here? Frankly, after we identify those things that must be spent on on a regular basis, I'm going to look at timing, and then I'm going to start to ask myself and ask ownership or management, what can we do to extend these timelines, if anything? From there, you know, I'm really going to look at when do we expect funding to come in and what are our funding sources? Obviously,  receivables is the main funding source for most businesses. Typically, what I find when I engage in a new turnaround is pretty startling level of illiquidity, current ratios that are, you know, point five to one or something of that nature for those of us that track those kind of metrics. But it's not uncommon for me to have 30 day payables that are three or four times 30 day receivables. So I'm going to start looking at how can I plug these gaps, how can I plug these outflows, and these differences in timing between when I expect money to come in and when I need to push that money out? Ultimately, my goal is really to slow down outflows the best that I can without impacting those revenue generating operations. And then frankly, on the other side of that, speed up the inflows as much as I can. There's obviously a bit of a balancing act here, but once I get all of this down, I'm able to see where those future gaps are going to exist, and these are gaps that are moments of illiquidity. As we both know, moments of illiquidity can very rapidly become moments or permanent insolvency. So if I have these gaps, and it's pretty obvious, you know, normally these gaps do exist in funding required and funding available, that's where I think storytelling becomes very important. So from there, I'm going to start looking really at, can I create a plausible or even a probable cash forecast plan that a potential funding source would buy into? That's really how I prioritize it. Again, what must I spend? What do I need to spend? And what would I like to spend? And then how does that pair up with what funding or what cash I expect to be coming in through the door rather than going out the door?

Megan - 14:13: And how is it that you balance the short term financial needs of just keeping the business afloat with long term growth and sustainability that would come after the turnaround?

Daniel - 14:24: So my first order of business is usually stabilization. Right? It's certainly stabilization, but there's several different reasons why a business may be experiencing illiquidity and trying to kind of stave off or fight off insolvency. So when I'm looking to balance that short term stabilization against potential opportunities for long term growth and ultimately, as we hope, permanent sustainability or near permanent sustainability of the firm, let me go through a couple of things. The main thing that I'm going to look at initially is where is this company at kind of in the corporate life cycle? Is this a company, and also in the kind of a life cycle of the industry that it's operating within. If there's a company that is operating in an industry that is kind of on the way out, so to speak, is is on the downturn, you know, maybe consolidation has already occurred and overall the customer base, the potential users of that product or service are just starting to dwindle because there's been replacements, then my series of recommendations isn't necessarily going to be based around long term growth. It's going to be around a kind of phased out stabilization. So we can then kinda get into a series of decision making processes that would reflect the reality and circumstances that particular firm faces, both at a micro level, but also at a macro level. On the other side of the coin, there's a lot of businesses that have experienced pretty rapid growth. I experienced this myself in previous role, as I've mentioned in our intro there. I was with a company that was growing by leaps and bounds and going from, you know, under a million dollars of revenue year one to nearly 100,000,000 in revenue in year four. Those kind of firms with high growth possibilities also can grow too quickly as we both know. So after I do that analysis and understand kind of where this company lies in its unique ecosystem and what kind of possibilities exist for it outside of this moment of illiquidity or outside of this moment of instability. That's going to help me really leverage my cash forecasting models and methods. Either number one, try to clear up some kind of,  remaining items on the balance sheet or a positive circumstances, where are those opportunities where we can ultimately kind of fund future growth by making operational changes, becoming a little more stringent with how we spend in order to kind of sock that cash away onto the balance sheet. So when those future opportunities for growth are identified or or even secured, we can fund them without causing another round of illiquidity or another round of instability.

Megan - 16:54: And like you mentioned, I mean, you don't often think about it, but the growth can be just as dangerous if it's not done in an orderly smart fashion.

Daniel - 17:03: Absolutely. You know? And a lot of the firms that I've been fortunate to work with, Megan, over the years have been in the trades or around the hard construction industry. These are companies that oftentimes squeeze between supplier and customer mainly around payment terms. If you're in the trades, and for example, I'm working with an electrical firm right now that does $25,000,000 a year in revenue, you know, has indivisible gross margins at the moment, but we're fixing that. But this is a company that every time it gets a chance to grow a little bit in an industry that is growing, that is in high demand in the electrical services, they really have to be diligent with what that pricing of those opportunities looks like. And they also have to be diligent with how they're going to fund a six month project. Ultimately this particular company and a lot of its peers probably have labor costs on a weekly or biweekly basis and may not get paid for upwards of 120 days. These are the kind of things that we look to solve once we kind of get past that initial stabilization. If we can't solve them, then ultimately we're not going to be able to grow without further risking the stability of the firm or the long term viability of the firm. So growth is something that we will have to take very seriously, but it's also something that I'm not willing to even start to look at until we can get the initial quarter stabilized and funded. Once we get that initial quarter stabilized and funded, or at least have a path to funding that, that is when we'll start to look at opportunities to peel off, frankly, again, that free cash that we can sock away on the balance sheet, save for those growth opportunities. But also, it also matters to me, you know, what's the nature of my engagement? Just because I've been hired by a firm to stabilize, that doesn't necessarily mean that the shape of the turnaround plan always needs to be the same. Infrequent basis, I'm actually engaged by investors in companies, and they're just kinda seeking to kinda limit their losses and wrap up their investment in a way that that stops a bad investment going worse. So again, the nature of the engagement that I've been asked to take on will, to a degree, dictate what I'm looking at strategically over the long run, medium and long terms. It's not always about trying to keep the firm viable. Sometimes it's about doing the opposite, and it's about what's the best way to wrap this shop up and protect the different stakeholders and shareholders that are involved.

Megan - 19:23: And what do you find to be the key elements of a successful cash forecasting model, and how do you adapt it for businesses that are facing financial distress or undergoing restructuring?

Daniel - 19:34: Absolutely. Great question. I've alluded to it a moment ago, but I really evangelize a very straightforward method of cash forecasting. Simply money in and money out. Break down those component pieces into each different input. Where is money coming from and who is it going to? I will manually list those out initially to kind of show the management team where they're bleeding cash. Then it's often a very revelatory process for that unique management team or sometimes that investor. Again, I recommend a very straightforward method of cash forecasting where you're literally starting with, what's my starting cash balance? What do I expect to add to this during the week, and what do I expect to deduct to this during the week? And I get very granular initially with this process, Megan. It's important to me to get hands on with companies because that's where I can start to identify operational breakdowns, and usually a company is in a turnaround state because of operational breakdowns. So the most important inputs there, a critical element for me, is sound and complete data. I don't spend a lot of the time on accounting when I engage in a turnaround, but I do need to have confidence and trust in the data, the accounting data that I'm going to be hands on with. Obviously, the bank data is the bank data. The transactions that are coming in and out in cash are what they are, but I really need to understand and have confidence in the accounting data that's going to inform my initial first pass of that cash forecast model. Then I'll also need very clear timing requirements. When does money actually do and when does it actually need to be pulled out of whatever bank account we're operating within? The kind of very nuts and bolts stuff, but it's important to stabilize. That good sound data is critical, a really confident level or a high level visibility into bank records and even bank access is something that often I'm granted. I don't initiate any transactions, only make recommendations, but having that kind of hands on visibility in that actual banking system that my clients are using is also very helpful. All data related to inflows. I keep talking about expenses, but ultimately, what funds the company is money coming in. And our goal is to get that gross margin expansion. Taking care of overhead expenses is relatively straightforward, we can reduce those in knowledgeable and wise ways, but I really need to hone in on gross margin expansion in almost every case that I get to work on. So ultimately that comes back to cash inflows. So not only do I need realistic and honest AR numbers, a lot of companies that I get to work with, you know, they haven't necessarily written off any kind of bad debts or AR that's aged, you know, for multiple years for a long time. So on my initial cash forecast, this uncollectible AR could be hanging out there and could ultimately kinda throw off where I expect this company to be as related to its cash balance week over week. So I need a good, realistic, honest AR number, but I also need to know what's your sales pipeline? What point do you expect these pipeline conversations to turn into purchase orders or contracts? And then from there, when do we expect the first payments to start to come in on this engagement? Again, I typically work with service companies rather than product oriented companies, so I do kind of think in terms of milestone payments or time and material payments and those kind of things. And then also, what does your work in progress look like? What does your backlog look like? These are important items for me to understand and kind of wrap my arms around because these are central inputs into a good cash forecast or good cash model. So without clear and complete visibility into where money's going and to where money's coming from, then the cash forecast is going to be absolutely worthless in the long run.

Megan - 23:07: And you mentioned being a storyteller a little bit ago, but how do you work with management teams and external stakeholders to communicate the financial realities during a turnaround, I'm sure the need for transparency at a time like that is of the utmost importance. So how do you go about that?

Daniel - 23:26: And you said the most important word right out of the gate, and that's transparency. So depending on the unique factors or unique circumstances of the engagement, I do have some standard reporting processes that I'm going to undertake. And every company that I get to work with is going to get regular reports for me, not just related to cash, but also to either improvements or declinations in their income statement and balance sheet. But, yeah, transparent and with urgency. That's the most important thing. Oftentimes, the first month or two of my engagements will include daily calls, daily Zoom meetings, or full disclosure. I actually have a few companies that I'm currently working with where I actually have a desk at the CEO's office. I'm not afraid to get involved at that level. So, but I do communicate with utter transparency, utter genuineness, and full urgency. We are typically engaged when the financial house and the operational house, so to speak, are burning down. And one of the things that I kind of neglected to mention about a successful or a kind of a robust cash forecasting model a moment ago is I'm always going to include some level, um, of ability to gain out different scenarios very rapidly based on the inputs to cash outflows and cash inflows. So if this, what's the impact on cash? If then, what happens with our cash balance? What does that do to our potential investments, our growth investments that we're hoping we'll be able to make in the months ahead? So, urgent and transparent storytelling, along with the ability to display very rapidly the financial impact of operational decisions via scenarios built into my cash forecasting model is critical. A lot of times, I will get kind of eye rolls or lack of concern from management when I say, if we spend this, here's the effect. But then when I'm able to show them that mathematically in a way that's relatively undeniable, oftentimes, I'm able to stimulate or get the behavior changes that I'm after. And that's really what this is, Meaghan. The turnaround is not necessarily about the nuts and bolts of finance and accounting and managing your cash inflows and outflows. It's really about changing behaviors. And so what I'm really after is not necessarily great financial processes. What I'm after are the thoughts and beliefs, the culture, and the behaviors that are frankly underlining or pushing forward whatever financial results have been achieved. And so my ability to communicate, my willingness to communicate, and my willingness to make very difficult recommendations, and in some some circumstances, follow through and execute those recommendations on behalf of management, paired with, again, kind of undeniable scenario and gaming of these situations certainly is central to my communication style with the companies that I get to work with.

Megan - 26:23: And you mentioned changing behaviors, and that's a great segue into this next question. So turnarounds often require significant operational changes. How do you ensure that those take hold so that companies don't find themselves right back at the same place?

Daniel - 26:39: Great question because that's not an uncommon scenario, shall we say. My background being both an operator and an independent consultant as well as fractional CFO in many respects has given me kind of this wide gamut of understanding where operational breakdowns are occurring, frankly, the financial output or the financial results that are going to follow from those operational breakdowns. So my goal is to get a company back on stable footing and to give it a game plan to go forward. And so I mentioned the behavioral changes. My typical engagement runs anywhere from a year to two years. I wholly believe that it takes a minimum of two business quarters to stabilize unless a company has some real wind in its sails. It takes a minimum of two quarters to stabilize from a cash perspective, and frankly, a full fiscal year to start to see the results of our change in strategy and our change in operational planning and execution on the income statement and balance sheet. If they had an engagement, it's like, well, I want to get in and out on this in a quarter or even two quarters, then I'm likely to walk away because it does take much longer than that to shift the behaviors and ultimately shift the cultures that are perpetuating or driving those behaviors. And a lot of times, this starts at the top. A lot of times, this starts with management that has become laxed, as I said at the outset of our conversation, management that has become complacent, a management that used to achieve x results and now they're getting by. My goal is to be on the ground long enough, typically, like I said, a year up to three years, on the ground long enough to start to shift behaviors and cultures in a permanent way. At the end of the day, I am an independent operator. I do not stay around companies over the long run. I don't want to stay around companies over the long run. So I'm really looking to drive into management or ownership, particularly in the engagements where, you know, the goal is to remain a going concern. The goal is to secure some of those growth opportunities. I'm really looking to drive into management's mind that the results that caused me to be here are an outcome of behaviors and culture. If you don't want to get those results back, as you alluded to, then you've got to change the behaviors and culture. I will give them a roadmap to what needs to be changed. I'll also work with them and their individual departments or key team members to reshape processes, particularly those that are around driving revenues into the building, turning revenues into cash and getting that cash in the bank. That's an area of process that I really focus on because ultimately, um, if you have enough money on hand, you can start to kind of work through making the proper decisions without a lot of pressure. At the end of the day, I'm also a huge advocate of personal responsibility. At one point in time, I was a high school dropout. And so without personal responsibility, none of us are going to achieve any level of success. So I wanted to give management or ownership every tool in the playbook I can to improve their operational processes. Again, those tools are things that I developed over many years being in many different operational roles from, again, kind of ground floor marketing internship roles, all the way up to the executive director level roles in certain enterprises. So the tools that I offer are there. I make them available, and I'm willing to engage with ownership and management as much as they would request. But, ultimately, these companies do need to fly by themselves because I do leave.

Megan - 30:09: And I'm just curious about technology, but does that play a role at all in your turnaround efforts? And if so, what tools or platforms are you particularly fond of?

Daniel - 30:22: So it certainly does. And, frankly, that's an area where I'm exploring more and more as different artificial intelligence tools come online. First and foremost, for me, it's about accuracy. Anytime that we can take the possibility of human error out of the equation, get more accurate data, that's going to be a win. Now at the end of the day, we'll sometimes recommend software changes or platform changes to companies, but I am usually kind of stuck with whatever accounting or financial platform that that particular company is already in. These are companies that often don't have the cash or the in-house technology to make a big jump up on the platforms they're using. And frankly, I really need to focus on operational processes rather than improving those rather than making recommendations around a particular platform. The platforms are only as sound and solid as the users that are behind them. First and foremost, I'm looking to improve the efficiency and the effectiveness of the people that are behind that platform. And, again, I'm locked into whatever systems a particular whatever tech stack that particular company has already built. With that being said, obviously, technology is an area of the financial world where we can improve accuracy and reduce errors. So I'm certainly going to lean on technology for that front. I will make a variety of recommendations as related to specific platforms and processes if there are substantial cost savings at stake. So for example, I had a company that I was working with, a great company. The owner grew too rapidly and was in a bit of a niche industry that was very much subjected to the ebbs and flows of interest rates. She grew very rapidly when interest rates were very low based on the kind of her clientele. And then as interest rates started to tick up a couple of years ago, her work started to evaporate and she was left in a near in a situation of insolvency. When I jumped in, I noticed that there was a pretty robust tech stack that was put in place, but a lot of it had become unnecessary based on the diminished size of her team. And so and then also there's always opportunities to at least assess, again, cost savings. Another company that I was able to work with was doing payroll in house. I don't know if you've ever heard of it or not, but the little accounting formal accounting training that I've had started with, here's the first rule of accounting, don't do payroll. I've learned to kinda take that to heart over the years. And this particular company was doing payroll in house. It was taking a key team member about 25 hours per week to get payroll processed. And then also there were just a lot of errors because there was so much human interaction. There were a lot of errors. So what we did was implement a basic payroll service of most companies out there using our outsourcing payroll. It's an easy choice. Ultimately, it freed up a very important team member with this particular company to do other things that are more impactful for the business as we're trying to expand its gross margin. So on the technological front, I'm looking for systems that are either in place or that are needed to improve accuracy to reduce errors, and then I'm looking for cost savings. I am very much system agnostic and feel like at the end of the day, it's the people that are going to dictate what the systems do. So if I can improve the behaviors and the culture that are found within the people in these companies, then we can, at that point, start to make decisions around technological developments should we need to. And then personally, I'm also again, I mentioned it a moment ago. I'm always investigating ways to automate as many processes as I can. I was fortunate to be around a bunch of automation engineers in a past role, several 100 of them, actually. These are brilliant people, engineers that automate factories that are producing billions of dollars of goods in each year. And so I'm always looking for systems that can automate or take out human interaction as much as possible. Again, if a company gets to a point where they can make those investments, we'll engage in that decision making process and help to shape the technological tools that are being determined around the processes that the business needs in order to continue not only surviving, but hopefully thriving.

Megan - 34:33: And last question, but can you leave us with an example of a company that you worked with during a turnaround where cash forecasting was a key driver, how you approach the situation, and what were the key outcomes?

Daniel - 34:46: Absolutely. And I'm going to talk about a company that I just mentioned a few moments ago. This is the company that I'm currently engaged with, although we have successfully come out of the forest in the example. This is a marketing firm, exclusively serves venture capital funds as well as venture backed companies. And so when I mentioned that I was working with a firm that was very much subjected to interest rate movements, this is the company that I was talking about. As a lot of people know, lower interest rates, higher availability of money out there leads to a willingness to invest in more risky platforms and potentially risky companies. So if we go back to 2019, 2020, 2021, certainly interest rates were pressing on zero bound, and lots of money, billions, if not trillions of dollars, was flowing into a variety of venture funds around the world. The company that I am engaged with, the operator, grew up in the Bay Area. She had a great network there. And many, many years ago, she struck off on her own and started offering marketing services to venture capitalists and the funds that they have built, as well as a variety of portfolio companies that those funds were invested in. Over the years, she was able to grow her team from a couple of people to about 50, and then interest rates started to tick up in mid-2022. And almost immediately, her clientele stopped spending. Most venture capital funds, most VC funds out there are kind of on the 22 model, and 2% of a billion dollar fund's pretty hefty, but 2% when your fundraising starts to drop through the floor becomes a much smaller number. And as we both know, oftentimes, when it's time to kinda cut overhead spending, even if it's growth oriented overhead spending, that marketing budget gets looked at first, and that's what happened to this particular firm. In mid-2022, um, revenue dried up, backlog dried up, work in progress started to shrivel as those projects came to completion and they weren't being replaced. So I am engaged with this particular company in 2023. She was very much insolvent at that moment. The current ratio was about 0.2 to one. So for every dollar she owed, she had about 20¢ in cash coming in, which was a pretty scary situation for her. This was also a lifestyle business that was designed and continued to operate in order to provide the owner, the singular owner, with frankly a good return on her efforts and the effort of her team. So got started again in January 2023 and immediately kind of followed my process. That is to list out my buckets. What must we spend? What do we need to spend? And what would we like to spend? And then we can compare that to what was likely to come in. The first round of cuts was very painful for her. So we took the team, she already had some people that kind of just phased themselves out of that team of about 50, but we pretty quickly took the team down to around 24, and that wasn't quite enough. So from there, we took the team down to 10. And so this was a business that went from just shy of 50 people in mid-2022 to 10 people in mid-2023. We stayed diligent. We continued to cut expenses. This company also, as I mentioned, had a pretty robust tech stack that was designed for several dozen people. Again, not a substantially sized company, but fairly significant in terms of headcount. And it had the tech stack to match it, and it was also a fully remote company. Had the tech stack that would be required for a company with several dozen people, several dozen creative people, but also several dozen creative people that were dispersed throughout the United States. After we took the team down to 10 and also cut a wide variety of recurring charges that were frankly not necessary, we started to stabilize. I was able to start to show her on a weekly basis, frankly, positive movements on the cash forecast. You know, there was at one point in time, and then I often will pull up the example of the cash forecast that I saved in May 2023. This particular company, you know, had several $100,000 negative cash balance with no access to liquidity planned. There were no investors. There were no credit lines coming to bail this company out. That final round of layoffs occurred. I was very proud of the owner to do that. That's what needed to be done, and she made the very difficult decision to do that. And pretty quickly thereafter was rewarded with some great projects. And we took those projects, we took the profits from those projects, and improved the balance sheet. We paid off some debt that she had taken out kind of unwisely. We got that taken care of pretty quickly. And by the time we got to mid-2024, so about six months ago, this was a company that was back to thriving, and her formerly top line focus very much became a bottom line focus. And that's something that I'll consistently remind entrepreneurs and owners and management teams that I work with is that I don't care what your top line looks like to a degree. What matters to me is can you manage the top line in a way that keeps some free cash flow at the bottom at the end of the day. So we were able to shift this particular entrepreneur's perspective from one of, I'm going to drive as much business as I can. Whether or not it's profitable business is immaterial to me. Number one, because I don't really understand what profitable business is yet. We were able to shift it from that perspective to one of focusing on the bottom line. And so over the last two years and two months with this company, we have erased several $100,000 in debt off the balance sheet. And, again, this is a lifestyle business, so I'm not really necessarily looking to have a lot of debt on the balance sheet. And we've erased almost all the debt off the balance sheet, very little remaining debt on the balance sheet. We have increased owner equity by roughly a thousand percent we got started, and last year was a very profitable year for this particular firm. And it was all based on wrapping her arms around cash flows and the impact that her decisions were going to have on future cash flows. And so when I was able to go back to that scenario functionality that I've built in my forecast models, when I was able to point to her and say, you know, if we take this project on X rate with this timing of cash inflows, here's what's likely to happen. And she started to kind of see first the potential, but then frankly, the importance of really kind of gaming out the type of work that she was willing to take on. We stabilized, got rid of some initial, very much pressing debt that was there with the first kind of infusion of cash that we were able to get our hands on. And then we created larger infusions by reducing the cost structure of the business. Again, did involve some pretty hearty heavy recommendations that she undertook. But now ultimately we are no longer talking about what is the best way or what is the scenario in which we need to wrap the firm up. We're now talking about how do we back into a valuation of around 4 or $5,000,000. So, you know, in February, if she wants to sell this firm, she's able to. Again, that was all based on her taking her cash on hand seriously, understanding the inputs and and the inflows of cash, importance of timing there, but also minding the middle section of the income statement, really minding her cost of services, really minding her the overhead structure that she had got allowed to get out of control through that complacency, that word that we use to kinda start this whole conversation. She was very complacent initially, and then became, over the course of the last two years, became very active in the finances of her business and stopped thinking it was just going to take care of itself. And now she has a company that, frankly, in the years ahead, again, depending on what happens with interest rates and depending on whether or not we're successful in getting her clientele a little more diversified, she has a company that actually could go on the market and be purchased and fund a very nice lifestyle for her retirement.

Megan - 42:48: That's an amazing story. And, Daniel, thank you so much for being my guest today.

Daniel - 42:52: Thank you so much for having me, Megan. I've appreciated it, and I can't wait to hear your next episodes that are coming up. Always a great conversation you have with guests, and, hopefully, I lived up to my side of the bargain this afternoon.

Megan - 43:02: Absolutely. I've enjoyed speaking with you, and thanks for finding the time to be here with us today to share your experience and knowledge, and I wish you all the best.

Daniel - 43:10: Thanks so much. Have a great evening.

Megan - 43:13: You've been listening to CFO Weekly presented by Personiv. Please subscribe wherever you get your podcast to hear all of our episodes. Want to learn more? Check out personiv.com. Thanks for listening.