When Too Much Business Makes For Bad Business

#77. When too much growth in a business spirals out of control ... in today's episode, Sevana and Tiffany take on business lessons from the story of Barry Minkow, owner of ZZZZ Best Carpet Cleaning and share with you how to avoid the same mistakes in your business, including:

- how too much business can be a serious problem

- making desperate decisions in a desperate situation with a desperate mindset doesn't give your wins for your business or for you

- accidentally (or intentionally) finding yourself in the situation of "robbing peter to pay paul" can only lead to more serious cash flow issues

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Got questions or have a topic you want Sevana and Tiffany to cover? Email us at thebusinessbehindsmallbusiness@gmail.com and see your question answers or topic of interest discussed on a future episode!

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About BBSB - We are two business owners with two very different perspectives on building business, and the business behind that in order to achieve your goals. One of us built to sell, and will continue on the serial entrepreneur path, which means your focus and drive should include very particular tools and tips in order to achieve your goal. The other, is building a generational business, one that can go on long after she’s let go of the wheel. This type of business also requires very specific tools and platforms to achieve this goal. Both women have been successful in their own right, but in honesty - haven’t scratched the surface! 

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Disclaimer - Details of today’s story was inspired by true events. Also, we are NOT licensed financial experts, nor do we give financial advice. Anything we share with you here on our podcast, whether it be a personal experience or submission, or advice/tips that have worked for us, or that we believe would work for you should not be viewed as either financial, business, or tax advice. We ask for you to do your research, have open and honest conversations with your company’s own support providers and make decisions based upon that. Throughout this broadcast we will share our knowledge and give suggestions and hope you will receive them as part of your overall research to better your own company.

Transcript

SPEAKER_00 0:00

Resita California is one of the most suburban suburbs nestled in the San Fernando Valley of Englewood, where sunshine is plenty and lawns are impeccable. Childhoods here are idyllic with most families squarely set in the middle class. So, how is it that a child raised here would grow up to be known for one of the largest investment frauds ever perpetrated by a single person, as well as one of the largest accounting frauds in history? We're going to dive into the sordid details and then share with you how quick growth can actually be the ruin of your business. Welcome to our show, The Business Behind Small Business. Whether you're selling or staying, we're here to remind you that just because you own a business does not mean you are a business owner. We are your hosts, Savannah Stone and Tiffany K.O. Sharing the more finite details of entrepreneurship, revealing the dots between startup and success. No one gets to a million without getting a little dirty, especially in this case. There's a lot of business behind small business, so let's get to it. Before we begin, please note our disclaimer. This is available in both our show notes and on our website and should be referred to before and or after this podcast. Barry Menkao grew up in a middle-class Jewish family where his mother managed a carpet cleaning business. And um, I don't really know a whole lot about his father, couldn't find it, but that's okay. Point of this is for you to focus on the carpet cleaning business. Barry may have been born middle class, but it was clear he had no intention of staying there. Even at a young age, his eyes twinkled with entrepreneurship. So at the age of nine, his mother got him a job at her workplace as a telemarketer. Barry worked there in between going to school. And uh at the age of 16, Minkao started his own carpet cleaning company. He named his company Z Best. Or is it Z Best?

unknown 2:07

I don't know.

SPEAKER_00 2:07

Is it Z and then Z Z Z? Z Z Z Best. Um, side note, it makes me think of like a B company, not a carpet company, but whatever. Um Minkal ran his best Minkal ran his business in his parents' garage with three employees and four phones. Success did not come easy for Barry. He relied on friends to drive him to cleaning jobs since he had yet to get a license. Two banks closed his business account because California law of the time did not allow miners to sign binding contracts, including checks. But this was the least of his I can see why that's important. Oh, totally. And you know, this kind of starts off as being like, oh, look at this entrepreneur who goes on to great things. No, no, nay nay. Barry was inundated by customer complaints and demands for payments from suppliers. There were times he wasn't even able to make payroll. Barry's resources were dwindling, and his dreams of caviar and wishes for champagne were beginning to feel like a fantasy. Instead of bootstrapping or finding more legal or moral avenues, Minkow financed his business via check hiding, stealing and selling his grandmother's jewelry, uh staging break-ins at his offices, and running up fraudulent credit card charges. In doing this, Barry found that he'd stumbled across a business that would help him hit it big. Wasn't really a business though, was it? Minkow decided to pivot into insurance restoration. And with the help of his friend and claims adjuster, Minkow forged documents, created a fake company, and waited for the money to come pouring in. In 1986, Barry actually took his company public. So how was he able to do that with a Ponzi scheme? Well, his accountant, the one that audited ZBest before it went public, didn't visit any of the sites. If he had, he would have found mailboxes with no real businesses attached to them. Minkow continued to soar the colour. I mean like a whole, whole heck of a lot. And and remind remember, this all started because he was having cash flow issues because of how quickly he was growing. So Minkao continued to soar to bigger heights by launching a massive television advertising campaign. To Barry, Z Best would become the General Motors, true story, the General Motors of the carpet cleaning industry. Well, all of this is a true story, but I meant like verbatim. Um, with his earnings, he bought a Ferrari, a BMW, and a mansion in the wealthy community of Woodland Hills. In one year, ZBest was trading at $18 a share and was valued at $280 million. The company had $1,030, $1030 employees with offices in California, Arizona, and Nevada. Barry was starting to feel the heat though. What he was real employees? Real employees, real, real people who probably didn't know what they were doing. They just knew they had a job. Knowing he was finally achieving his dreams of success, he was worried it would all come down. Really? If he didn't peel away the Ponzi scheme part that he'd created and made ZBest a legitimate, reputable company. So a lot like Peaky Blinders. He had to separate the con from the legitimate so that he could continue on in the legitimate legitimate part. So Minkao knew that the only way was to buy Key Surf, Sears' authorized carpet cleaner. The deal was for $25 million. Barry was salivating at the sheer power of it all, and began planning to buy Service Master out with a raised 800 million, expanding into the UK and just the rest of the world. His dreams were huge. He wanted everything. And he had even begun discussions to buy baseballs Seattle Mariners. The world was positioning into his greasy palm. Just the way he planned it since he was a child. Meanwhile, back in the valley, a homemaker was broiling in anger. She'd hired Z Best to clean her carpet. She was excited for the experience. I mean, she'd heard so much. She'd expected excellent service. However, however, she did not expect to be overcharged. It was such a hassle to be sure, but she figured he had such a great reputation, it's not going to be difficult for her to be refunded, and it was probably just a user error. She didn't realize it would be such an uphill battle. The longer it took for her to get her refund, the angrier she got. She had heard that Barry had paid back others who had been wrongly charged, and she was starting to suspect that this was not a situation of user error, maybe this was an actual crime. She grabbed her notebook and started tracking down others who were in the same predicament as her. She was shocked by how many people Ming Kao had defrauded, but as shocked as she was, she took meticulous notes, knowing she was over going to get him. Oh, she was gonna get him. She worked her way all the way to the LA Times and convinced them to do a story. She handed them her notebook with all of her meticulous notes. Barry should never have ignored her. The story ran days before the merger was to close, and it sent Z Best stock plunging. But that was just the iceberg at the tip of what brought down Barry Minkow. Eventually, Minkow and ten other insiders were indicted by a federal grand jury on 54 counts of racketeering, securities fraud, money laundering, embezzlement, mail fraud, tax evasion, and bank fraud. It's a lot, a lot of fraud. The indictment also accused him of fraud or like Oprah, you get fraud and you get fraud and you get fraud. Yeah. Um the indictment also accused him. It's a lot of F words. A lot of F words. Uh the indictment also accused him of milking banks and investors of millions of dollars and setting up dummy companies with phony invoices with as much as 90% of the company's revenue actually being fraudulent. Of course, there's a lot more to this story. And although we may not have the time, we definitely have the topic. Barry was malicious in his dealings. And sometimes, as a business owner, you have to be very calculating uh with your growth. And if you're not paying attention, you will find yourself on that slippery slope. And what you don't know really can hurt you and eventually cost you your business. But before we switch gears, we're gonna take a break. Wouldn't it be great to hear the sound of us promoting your business for you right here on our show? Of course it would. You can have that and more by producing a show or multiple shows. All you have to do is email us at the businessbehindsmallbusiness at gmail.com to express your interest and we will share with you what you will receive with your investment. You'll have the opportunity to have your name and the name of your business mentioned multiple times on our show, having your company logo on our social media along with details on how to get in touch with you and other marketing opportunities as well. Please support us so that we can continue supporting you.

SPEAKER_01 9:58

So to me, Barry sounds just uh a little bit shady all around. A little bit, just a touch. I do wonder if he started out with any intentions of sh, you know, shysting his way in or something through, you know, to success. Because he sounded like he started pretty early on.

SPEAKER_00 10:15

Yeah, I think the I think that he had these grandiose ideas, ideals, grandiose ideas of himself. And when he started out out with his mom, that that was the direction he was gonna go in. Uh I think he kind of fell into the crime part as a way to supplement the a growth that he could not support. And then he's like, oh hey, this just came a little too easy for him. So he was one of those big minds that could either become a CEO or a criminal, and he is he chose criminal.

SPEAKER_01 10:50

Whoa, yeah. I mean, I think there was somewhere they were saying that like entrepreneurs are like, or like is it entrepreneurs, or that most everybody's a psychopath or something? I can't remember what the yeah, yeah, highly successful people. Yeah, highly successful. Yeah, highly functioning psychopaths, right?

SPEAKER_00 11:07

Yeah.

SPEAKER_01 11:08

So I guess you can go either way.

SPEAKER_00 11:10

Totally. And uh that's absolutely like I think that he could have achieved anything if he put left put his mind to it. I think the part that made him go in the dark place is that he was expecting it to happen faster than it did, and then when it happened fast, when it did finally pick up traction, he was not prepared for it because he was constantly looking forward, constantly looking forward and not looking backwards into the internal structure of his business.

SPEAKER_01 11:45

Yeah, it didn't sound like she he also spent a lot of time actually building substance in his business, right? Because he wanted the superficial success, which um when did this take place? 1985, 1985, I believe. Well, I mean, it's kind of scary because we we're dealing with that now where people are chasing superficial success because that's all you see on social media. These overnight success, and I think that's where it gets people in trouble, like you say, is that if they actually get the momentum and they get a lot of customers and they're growing, things start falling apart. Yeah, so I would I I would say that today, certainly the uh takeaway and the moral of the story is um well, don't make desperate decisions in desperate times with a desperate mindset. Absolutely that'd be a little easier for you to get you know, fall off that slope, do things you probably otherwise would not intend to do. Um, but the other couple things, you know, I was thinking about while you're talking is just that very real problem that a lot of owners get into, which is when success hits, you don't have the infrastructure to support it because you're so busy trying to look for the next customer and the next big growth, or in in his case, going public, with whoo, that's a that's a big monumental step, but you're not doing all the things you need to do internally to make sure you can support all that. So too much business can be an actual problem for business owners, right? Um, and I I would say it comes down to a couple things is that one, quality control always suffers, especially in growth. Uh, it's so easy for any business owner to have quality control when they they are themselves in the business. So you know they're doing all of the things, and it's very easy to instill quality control. But when you get more customers, what happens is you have to hire somebody to be able to support delivery to those customers, and you need them to perform at the same level you are, and that's where that's where problems happen. Um, and that uh process of getting somebody hired and getting somebody to deliver and emulate basically how you want things done is incredibly hard. I think much harder than most people know uh with that first hire. And you quickly realize how, at least for me too, like how lacking your uh skills and communications are, how what you say may end up not what was being heard, and it's not like malicious intention of the other party, it's just that you weren't clear in communicating what you wanted. And that, um, on top of having to manage the new person while you're still juggling your existing customers, and you know, all this all this balance takes a lot of energy. And if you're already operating at a hundred, a hundred, a hundred and ten percent in your business, man, that's just tiring at the end of the day.

SPEAKER_00 14:42

Yeah.

SPEAKER_01 14:42

Um, so I think like the underestimation of business owners when it comes to your first hire and getting your hire set up to be able to support you in a business is really what is a downfall for a lot of businesses that are scaling up. No matter, and here's the thing, and I know Savannah, you can attest to this like no matter how good the hire is that you have, you may find somebody that you're like, that person really knows what they're talking about. They're coming with experience. I can't believe they actually want to work for my little business, but you know, they're gonna be a heavy hitter. No matter how good that person is when they come in through the door, you still have to train them. Yeah, you have to spend time teaching them to do how you do things in your business. And this takes repetition, this takes reinforcement, and it just takes time for this stuff to sink in. And during this period, well, there is that, right? That helps because because then, like, they don't have to come bother you for every little question. They have something to reference because otherwise, if you don't write it down and they're new to the process, they're not gonna know the nuances of what they're missing. Eventually, you're gonna have a question and then they're gonna debug you about it. And you know, here you are already way over your head and trying to keep up with customer demands. I mean, when are you gonna find the time to stop and answer questions and train your new hire? It just it's really hard. So um I think that you know, if owners could be a little bit more, have a little more foresight into making sure that before they hire the new person, their first employee, even your second one, maybe you have a different position, like you're ready internally to bring them on and train them and make sure that you have processes and controls in place so that your quality doesn't suffer. Yep. While this is happening. The other thing, too, is I noticed that uh Barry, our buddy Barry here, seemed to have been owing a lot of money everywhere while he was growing. Yep. Um, yeah, as a business owner, especially if you're in some kind of business that requires credit from your supplier, do not let your supplier hound you for payment. This is where you're already in trouble.

SPEAKER_03 16:54

Right.

SPEAKER_01 16:55

Um, it absolutely kills your business credit, first of all, which is not the same thing as your personal credit, but you know, it it could lend itself to that if you're using your personal guarantee or your personal credit to actually have uh started working with that supplier. And if you have any kind of um, and just to clarify, if you have credit with your supplier, it just means that they're willing to extend time to you from when you buy the uh the uh supplies or materials from when you buy in, they ship it to you to when you actually have to pay it. So sometimes they'll extend like a 30-day or 60-day credit. So it allows you, it gives you time to be able to essentially meet your customer demands and have your customer pay you before you have to pay your supplier. And that's why that that you know setup is so important because you need that float time in between. And but you know, when they extend that to you and you decide you don't want to pay them, you end up, they'll they'll one get really mad at you and call you all the time. But more important than that, they'll probably report you to like the business credit bureaus, which means it kind of kills your credit, and it'll be hard for you to get credit from other suppliers, and this could also potentially affect how you can get uh commercial loans in the future.

SPEAKER_00 18:04

Um also using your business. I mean, this is a different topic, but also to keep in mind that if you commingle your accounts or if you have uh a business account that you use as a personal account, let's say if you have two business accounts, the one you use for business, the other one you use as personal, that creates such a muddy line that if they wanted to come after you, they could also come after your personal, your personal assets.

SPEAKER_01 18:34

Yes. And you see that happen a lot too when um businesses get desperate for cash. They end up using maybe their personal credit cards to uh basically fund their business, which one ruins your personal credit as well, especially if you're not paying it back readily. But then at the same time, like you're saying, like you, you, you muddy those lines, you muddy those waters. And in the future, if you're out looking for more people to lend you money, they'll absolutely see that and shut you down because who would want to lend you money like that when it's clear you're in a desperate situation?

SPEAKER_00 19:06

Or they'll take you to or they'll take you to court. And this is another situation, they could take you to court, and if they win, if they win, then they can also get the money from your personal, like not just from your business. So there that veil, if you will, will be gone.

SPEAKER_01 19:23

Yeah, yeah. I'm sure people have heard that whole phrase, you know, piercing the corporate veil, and that's very much relevant. There's still cases, even as recent as this year or last year, where the um the um the judgment was against the owner um because they basically pierced the corporate veil, meaning that they didn't treat their corporation as a separate entity from their personal, which means that whoever is in um whoever is coming after them, not only can come after them for their business assets, but they can come after them for their personal assets, right? Which is huge because the whole point of incorporating is to be able to have the separation of liability. And so that's just not a great position to be in. So um, of course, like there are ways to prevent this. I don't think most people go into business looking to scam somebody. Um, I doubt Barry did.

SPEAKER_00 20:12

Maybe his ego got to him a little bit. So that's what I'm saying. I think that he discovered something and was like, oh, if I just do a little bit of it, no one will notice. And then it just got, I think, ahead of him, and so did his greed.

SPEAKER_01 20:24

Yeah, exactly. And so, like, I think, you know, not that, not that, like, uh, not that Barry would have heeded any of these recommendations.

SPEAKER_02 20:33

No.

SPEAKER_01 20:33

But there's a quite a few of really easy things that any business owner can do to basically stay on top of their cash flow. So that's the thing, is that if your suppliers are hounding you for payments, if you're well, I mean, don't go down the road of check hiding, that's just bad in general. But you know, I want to say that Barry was doing all these things is because he ran out of cash um in his business. His cash flow plummeted and he had to find a way to make up the shortfalls, which is why he ended up being in desperate situations. Um, but for a business owner, like while they're growing, like cash flow is absolutely one of those things you want to stay on top of because it does get a little tricky, especially if you're borrowing money from other places. There's interest, you want to make sure those things are being paid off. So the timing of when your cash is coming in versus when it's going out is really key. And so, like to stay on top of that, that's why people have budgets. Um, a lot of companies should have budgets, even if you are small, you just have a smaller size budget, maybe a simpler budget. But a budget will help you stay on target and make sure that you don't overexpend, essentially, um, based on the projected growth that you think you're gonna have coming in. And budgets are something that you want to look at once a month. It's uh it's live. You don't just you know set it up in the beginning of the year and then forget about it. Uh, you should look at it once a month and compare to how you're actually spending and how much you're actually growing.

SPEAKER_00 21:54

And I think I think to add to that, I think the reason why it's good for monthly is also because. Every business um in every industry has cycles. There are you know good seasons and bad seasons. That's why I think monthly is important because you know you want to know what's going on in the good time, and then also what's going on in the lean, the the fat times and the lean times.

SPEAKER_01 22:18

Yeah, I think with businesses who have seasonal like seasons, seasonal seasons, that made a lot of sense.

SPEAKER_00 22:24

Authentic seasons, but I do feel like all all businesses in all industries will have some form of a season. I mean, frankly, even us in in bookkeeping and accounting, there are seasons that are that are bigger than others, right? Even if it's like a just a little bit different than the rest of the months. It's still a season.

SPEAKER_01 22:44

It is. I think even within a month, sometimes you'll have seasons. Um like a lot of times people collect cash in the beginning of the month, right? And that you have to make sure it'll extend for the next 30 days and you know cover all your payroll for the next, you know, 30 days and things like that. So um there are there are like every business ex has some seasons to it. Um, and but you're absolutely right. There are certain businesses that have very large and long seasons, especially um if there's like 30 or 60 or 90 days in between where you're really slow just because of the business you're in, your industry. So like a lot of trade businesses are this way. Like in the winter time, it gets really, really slow and you don't have that much cash coming in, but you still have people you hire that are paid, that needs to be paid regularly on salaried or you know, like 40-hour weeks or anything like that. So you got to figure out how do you keep that float. And you know, if you're somebody who doesn't look at your budget and you don't look at the next recommendation, which is like cash flow projections, um, you may, you know, during a high season, you know, have all this clock cash and be flush with it and you're spending like crazy and not storing away for those winter seasons. And that's where you're gonna get into a lot of trouble for yourself. So that leads to the cash flow projections, which are, you know, not that complex to do. I know it sounds really complex, but there are templates out there that makes it fairly easy for you to basically project your, you know, kind of project your cash flow week by week. And you know, if any of our listeners are interested, if you know they would like a copy of a template or something like that, you know, leave us a message or email us or leave us a DM and you know, we'll shoot you over a copy that we've used with our clients. That works great. And you just watch that every week and you project it out for I would like to say three to six months. And then that way you you'll know if you're coming like close to having a cash issue, like weeks before you actually get there. So you have time to prepare. And then last but not least is of course stay on top of your financials. Um, you may have a net positive in revenue that you but if you still have payment like payment problems, meaning that you still can't make your payments, that may just mean that you're not collecting from your customers fast enough or you're spending elsewhere in your business other than paying your bills, right? So that's pretty indicative of those kind of behaviors, which you know you can always turn around. And then if let's say you have a net negative on your bottom line, then you kind of know you're gonna have a pretty big cash problem coming soon. Maybe it's not today, because you know, depending on how your cash cycle goes and how much money you stocked away. But if you're basically not making a profit and you're losing money on your profit and loss, that means you're probably gonna run into a cash problem in about 30 to 90 days' time, most likely. Right. Unless you have a different funding source, like a credit uh line of credit or something. But in lieu of that, like you're headed for a wall if you don't do something.

SPEAKER_00 25:34

So there's a uh because uh I know that I always speak in allegories, but I I feel like it makes more it just it makes more sense to me. So hopefully this makes sense to our listeners. But um, so my husband works in development now, but for many years he worked in construction. And um, one of the things that I remember him telling me that they do for safety, um funny enough, I kind of translated it into business. And so one of the things they do when they dig uh a hole for a foundation for a house is that every time they go down X amount of feet, let's say every time they go down every like two feet, three feet, something like that, um, they create a ledge and then they go down and create a ledge, and then go down and create a ledge. So that way, if there is some dirt disturbance that could contribute to some form of a dirt slide, not a landslide, but you know, like a dirt slide, it doesn't all fall in at one time and kill whoever's inside of the hole. It just falls into that one ledge, whatever, wherever that ledge is. Uh so that's basically how you want to prepare your company as well. As long as you're creating those ledges. So that's if you fall, if something happens, there's a little bit of a slide. You don't want to engulf and kill whoever's inside. Um which is usually you. You're in the center of that. Which is usually you and of course anybody else that works for you because you essentially, you know, you kill your business and you kill um that person's way of getting income from you. Granted, they can always go get a job, but what about you? I mean, yeah, you could go get a job too, but you're you've created a landslide when you didn't have to. And I think I think that the two of us know enough people out there who run their businesses with um the millions in mind, which is fine. Have your millions in mind. As you should. As you should. Have your big audacious goals. And you totally but you should also pay just as much attention to those little goals where you pay attention to your back office. How and who is doing your bookkeeping, how and who is doing your administrative work, your operations, who's your operations manager, and how are they doing it? Well, it is the quality of the person doing it. Investing the money into the people that are structuring the back office is that back office, which I hate the word back office. Really, that's your infrastructure. Really, that's the the core and the heart of your business.

SPEAKER_01 28:15

Yeah, I I I think it's like you were saying it's like you're like you're trying to build a skyscraper, but you didn't even poured a foundation yet. Like you don't even know how to pour the foundation for a house. Right. Right? You're like, oh, let's build this huge building and it'll it'll be fine. It'll take it, no, it won't really take care of itself. And that's where you find yourself in these really desperate, desperate situations. Yes. Um, and in it's more common, I think, than people think, because like I said, nobody goes into it thinking that they're gonna be desperate and gonna get into a desperate place. But the one thing I will tell you is that in business, I feel like the universe has a very odd way of teaching you the lessons you need to learn really, really hard. Um, and so more often than not, we do come across a lot of business owners who are in these very desperate situations. And it's a great learning lesson for them of how they get out of it. And we've seen people get out of it. We've also seen people just fall deeper and deeper and deeper into it, too. Um it's a shame because it is a good business on the surface. It it does, you know, it's it's a great contribution to society, but the owner not really realizing two things. And Savannah, you'd let me know if like these are things you've seen or things that you or other things on top of this is that I feel like people mix up profit and cash all the time. And they they they think that if they have profit, they must have cash, where they're actually two very distinct items for an owner to keep their eye on. Now you have to keep your eye on both, right? Like I was saying, you should look at your profit and loss. But you know, you manage your profit by looking at your profit and loss report, but you manage your cash in other ways because they're not interchangeable and one doesn't always equal the other. And cash is more about timing, um, making sure that when that when the cash comes in and when the cash goes out, they're timed well. So you don't end up having cash go out before you have enough cash coming in. Profit, I feel like profit's not really so much about timing, but more about performance. Almost like um, almost like a quality like versus quantity, like quality meaning that you know yeah, are you like charging high enough to actually cover all your costs and then some? And then quantity, like you know, being that are you bringing enough business in? Are you stacking enough profits that will end up resulting in cash to pay for your expenses and reinvesting your business and pay for yourself and you know spend on all of these things? But it's like you have to look at both the quality and the quantity when it comes to profit. Um, but again, not the same thing as cash.

SPEAKER_00 30:52

Yeah, I kind of see it as like big picture, little picture, like cash, cash, little picture, not little picture, but more in the weeds, I guess. Cash is more in the weeds, cash is more the trees, cash is more the day-to-day, profit is the bigger picture, is the forest. So yeah, yeah, and yes, I have. And there have been times when I have been yelled at by people who are like, I thought I had more money. It's like, no, you really don't, because you are seeing this number, but you're not seeing all of the other. And I'm even though I'm showing you all of these other numbers, these are the things that matter, not just this one thing over here, which is why it's so important for people to learn really how to read a profit and loss report and the numbers that are most really most important, not just the top and the bottom line, but also balance sheet. I think the balance sheet is where a lot of people get lost.

SPEAKER_01 31:50

And don't well, yeah, and understandably so, right? Like, even for I know classically trained accountants, meaning they went to school for a degree, like it takes them years to really understand the power behind the balance sheet.

SPEAKER_00 32:02

Right. Um, and there is a lot of power behind it, and that is something that is not just misunderstood, but also ignored oftentimes. And hey, it's no secret, this is the reason why businesses they say, like I don't know how high the statistic is, but it's pretty high as to why businesses go out of business within five years.

SPEAKER_01 32:21

Um, and then there's another thing like 95% of businesses go out in five years or something along those lines. Yeah, you have to dig up that percentage, but I think the uh yeah, I think the department of like statistics or something had published that last year. Like it's it's pretty high.

SPEAKER_00 32:36

And and then the next number I think was for a seven or ten years or something like that. But I know why, you know why, and we're talking about the why is because oftentimes these businesses will either grow too fast, it's always a mismanagement of something. They either grow too fast and we're not prepared for the growth, or they grew too fast and realized, oh crap, I'm really good at doing the job, but I'm not good at owning a business. The business part, yeah.

SPEAKER_01 33:07

Well, like you know, it's part of it's part of the business part, I feel like, to manage the profit and manage the cash. And I think that that is a responsibility that a lot of owners don't truly understand that they need to embrace, or somebody in their business has to do it for them. And they oftentimes push that responsibility unknowingly to others. So I've seen this happen again and again where business owners push the responsibility of managing profit to their employees who may not even be C-level executives. They could be just managers in a business who wholly have no idea that they're even responsible for you know managing profit and may not have the experience because managing people and delivery is not the same thing as managing the profit in your business. And then managing the cash, I've seen this unreasonably so always, always for some reason push to bookkeepers or bookkeeper-like positions in the business. And I just, you know, for the record, uh the responsibility of bookkeepers is to report, not to actually manage your cash flow. That is your responsibility as a business owner or somebody else that, you know, in your business that you've kind of ordained with that responsibility. But it's not inherent in a bookkeeper to basically man, I mean, it's not even inherent in an accountant to actually manage your cash. Um, they'll report to you when something is wrong and something is about to go wrong, but you know, who has the authority to act on it? I mean, that person is usually you or somebody else that you've, you know, given that authority to within your business, like explicitly. So like a CEO or a CFO or somebody like that.

SPEAKER_00 34:51

Yeah. Yeah. Yeah. I think I feel like I know more than I don't know people or business owners that request and require that level of responsibility of a bookkeeper or an accountant. They just they check out, and then when they check back out, they're like, hang on, I thought I had more money. And it's like, nope. Yeah. And and this is not just a uh a small teeny tiny business issue. This has been a multi-million dollar client issue. This has been a this is this is an issue. And as Barry, like I know for some people who maybe can't imagine, like, how do you get to $280 million and you still don't know what you're doing? Um it's not hard.

SPEAKER_01 35:36

Yeah, it's not hard. And sometimes the the the scene behind the curtains, like kind of like Wizard of Oz, it's not that pretty. So don't always feel like taking it on face value that a company is doing amazing and they must be making all this money. I can tell you for sure, in my many years of peeking behind the curtains, because you can't hide anything when you're you can't hide anything from your accountant or your CFO, right? Oh, yeah. Like peeping behind the curtain, that is one big hot mess behind the scenes. Yep. So yeah, so I think that that is, you know, and and and and to be quite frank, this is not something that they teach you in business school. This is something you learn by experience as being a business owner. And as sooner you understand that profit and cash is your responsibility as an owner or one of your C level executives, the you know, less likely you'll find yourself in a desperate situation. Right. Um, the other thing I would say is about like not being ready for growth. Um, yeah, I people don't think that far ahead. And I think the one thing I see them do is they hire only when they're in a desperate, desperate need, meaning that they're so in over the head with how much they have to keep up with. That is when they choose to hire. Um, and that's really tricky because that means that like you how are you ever gonna have the time to actually train a new person properly? Um, if you're already like, you know, up to your eyeballs and beyond with things you have to do. You know, nobody comes as a ready-made package. And, you know, so my advice has always been, and I did this in my own business too, is that, you know, I didn't wait till we're 150% like booked and busy, you know. I I you know foresaw that when we're about 80% is when we hire the next person. Because then you have room, you have breathing space in there to be able to give them the proper training, give them the proper information. Um, and it's tricky because guess what? Like when you do that, uh, usually you have to take a little bit of a step back in how quickly your business is progressing. You may see a little dip in the money that you're netting and bringing home, right? Because you have to pay for the new person and you have to pay for them to get onboarded. It's not instantaneous. So there is some cost associated with that. Um, the great thing is these days, you know, the alternative to hiring a person could also be buying a new software to basically automate some of your processes, and that might get you a quicker return because a software is a little bit easier to onboard, but for the most part, most people are in a people business. If you don't hire people, you may be outsourcing people, right? And um, I'm sure you get called into this all the time, Savannah, is you get called when everything is on fire and they think that your team can come in and magically just clean it up, like you know, Mr. Clean Magic Eraser or something. Yes, yep, and you're like, whoa, you know, like give us a week.

SPEAKER_00 38:24

Come on. That is exactly what happens. And then if we do not match the you know, the one week turnaround, we must suck. And it's like, yeah, this took you, yeah. You know, it's like when you gain a ton of weight, and then you're like, why isn't my trainer making me 30 pounds, you know, less in a month? Like, that doesn't work that way, man. Like you gotta, you gotta put the time in, you've gotta put the effort in, you've gotta learn new habits, you've got to um break old habits. You've you've you've got to even discover what your habits are. You might not even know what your habits are. So it is a learning process, and it does take a long time. And I think it's I think it takes like what 90 days for a for an addict to uh stop being an addict. So you know, you got to overcomparing it to these days. I know, I told you. Just all I do is speak in allegories. But I mean it's but it's not it's true. I mean, you you really have to give yourself the time, but you also have to forgive yourself. I think that's probably one of the biggest things. And I had that conversation. I had that conversation with an owner um last week where she was uh unaware of a lot of the things that um we thought she would have been aware of, but it's okay. And I told her, you know what? No one told you you're supposed to know this, and that's okay. Forgive yourself. It it's not like, oh my gosh, how could you not know that? I didn't want to do that to her. Like how oh, how no, we're not here to demean, we're not here to condescend. It's about if you don't know, it's okay that you don't know. That's why Tiffany and I are here. We're here to tell you about this because the one of the things that I think you and I lament over all the time is how there's all these great mile in the high mile in the sky, high in the sky, whatever the saying is, uh people who tell you about their issues along the way, but never give you the solution. And if they give you a solution, it's a solution that works if you've got like if you're a billionaire, like, thank you so much for that. But like, what do I do when I'm boot bootstrapping mom, you know, trying to run my business in between taking my kids to school and back? Like that is where the missing piece is. But you know, that's why we're here. And I want you to first and foremost, our listeners, forgive yourself for anything that you don't know about. And if you knew and you still made the wrong decision, it's okay. Forgive yourself, don't do it again. Don't do it again.

SPEAKER_01 40:52

Yeah, and how you how you come back from a mistake just says everything because exactly in business you'll make a lot of mistakes. That's you know, it is it is a journey, it is a training for yourself, too. Um, so like if you make that mistake, like I mean, what we're here to do is basically at least let you know and give you warning signs, yeah. Uh if you're headed down a certain path, and then also give you some tidbits and ideas of how you can turn things around and pivot once you find yourself there, right? If you find yourself right now already feeling the squeeze, meaning that you're like, oh my gosh, like it's great, my business is booming. Everybody wants to hire me, but there's not enough me to go around, right? Then you're already kind of headed for that desperate situation where you're saying yes to all the customers, but you yourself are running around like a mad person and you can't keep up with all of it. And I will tell you, in that situation, you will never find a good hire in time. Absolutely not. And people can smell the desperatism in you. You will make desperate hires, and that never ends well. You should hire slow, fire fast. Yes, and you can't hire slow if you yourself are in a panic.

SPEAKER_00 41:58

Yes, I agree a hundred percent. I have made that mistake, and a year and a half later, still paying for it.

SPEAKER_01 42:06

So yeah, and it is an expensive mistake, and it always bites you like way down the road. It's not while you're in it, it is you get reminded of the mistake six months, even after the person's not there, uh, because you're still essentially making up for it. And it is hard cash that goes out, it's hard cost that goes out, and that's not even counting your energy and your emotions that also kind of gets put on to pay the bill for that. So, yes. So I was gonna say that um if if you listen to our podcast, maybe you will know a little more of the things you should know. Um, but you know, again, you know, if you find yourself in a position, it's okay. We've all done it here and there, just pull yourself out of it and do better next time. Yep.

SPEAKER_00 42:53

Then this is the reason why we give you guys recommendations, books, apps, and all of that kind of stuff. So that's what we're gonna move on to now so that um we can go along with the saying that goes, put your money where your mouth is. So uh let's drill down a little bit further to connect what we've discussed here at a granular level for tangible sources that you can uh take to get you to that next level. So I have some recommendations, but let's start with you, Tiffany.

SPEAKER_01 43:22

Yeah, yeah. I got a couple books here. I mean, I think a lot of it today, what we talked about, centered around money. Yeah. Um, because not having money is what puts you in a desperate situation, and you also went into business to earn money. So a lot of it it comes down to money, yeah, in a sense, and you need money to actually hire people. So a lot of it is about managing money properly to make sure you don't put yourself in that desperate situ desperate mindset and in a desperate situation trying to make desperate decisions. And so, with that, I found a couple of neat uh books. Um, the first one is called The Money Book for a freelancer. Poor timers and self-employed, the only finance system for people with not so regular jobs. So I kind of like the cheeky little uh title to that book there. Um, the other one is um I think a lot of people have heard about this book. I've I've read it myself. I don't follow it uh because it's not quite for me, but I can see the principles behind it and I can see why it does work for a lot of people, which is why I'm including it here, which is profit first, the book Profit First, and the methodology behind how to um how to basically use your profits properly. Um and the last book I have here is uh Conquering Cash Flow. So this is a complete guide to small business cash flow management. Um, I think that kind of speaks for itself. But again, all these books I chose are uh very much in layman terms that one day speak to their readers, which I think is so key because we don't expect business owners to be a finance or an accounting guru by any means. You go be what you're good at, but you know, learn enough about this to be really dangerous.

SPEAKER_00 45:03

Right. I agree. Uh so my recommendations are more um talking to people. I'm that's good. I I really recommend that if you do not already have uh a bookkeeper or an accountant that you do hire one, and I say this all the time that you should hire someone that is part of a firm, not just a singular person. Not that they are not fantastic, I'm sure they are. It's just that the firm will be holding a higher level of liability insurance and can um can cover errands omissions better. I don't know if that came out right, but that's what I mean. Um, you just want to work with somebody who's gonna be a little bit more insured. And so what you should do with that person is ask them to go through your balance sheet together and ask them all of the things that you don't understand, line by line. Uh there are no dumb questions in my mind, except for the ones that do not get a question. So you have to ask all of the questions. What does this mean? What does that mean? Um, of course, they're not giving you financial advice, they're just giving you the definitions of these things, what that means and where to find them. But in this case, you will then know what they mean, how to find them on your own. And uh, same thing for your profit and loss report. Uh, there are going to be lines there, like your taxes, your liability, or not your liability, sorry, your taxes, um, how much you spend maybe on marketing or how much you might spend on payroll, compare that to how much you make, what does your AR look like, what does your AP look like, you know, have a good meeting to go line by line on all of the words that you don't understand so that you can better understand what those words mean. U next, if you are in a place where you know that you are going to need an admin or that you um should hire an admin, do not think that an admin is just a 1960s receptionist answering the phone. I always consider the admin the person, the gatekeeper, the person who's basically the mother of the company. They are taking care of so many things for you to make your life easier and your business run smoothly. Hire someone who can be fantastic as an either an administrator or as an operations manager. But how do you hire that person? First, write down what you expect them to be able to do. Then write down all of the things that you do in a day on your busiest day, and then highlight those things you don't want to do, or those things that you don't feel a owner of a company should be doing. That's how you will identify what that role will look like because it doesn't make sense to hire somebody and they look at you and go, okay, well, what do you want me to do? And you go, because that's a waste of time and money. And uh that happens a lot where people hire people then have no idea what that person's supposed to be doing. Uh that is my recommendation. Of course, it goes further than that uh with everyone that you hire, hire them based on your expectations and then articulate those expectations. Uh, if you do not already have a schedule of payments, uh a schedule of receivables, create that, or make that the job of the operations manager or an account manager, whomever it is that you've hired, you need to know how much money comes in, how much money goes out. You need to know what these lines mean in your uh financial reports. And that's gonna help you when you have conversations with your um loan provider, with your uh financial uh advisor, with your bank. Like uh, like you said, Tiffany, you don't need to know everything, but you need to know enough to be dangerous. Otherwise, you become dangerous. And like an illegal. That is a good that is a good point. Otherwise, you are the danger. You are the danger, and then you become an illegal danger without even knowing it. Which, again, I will say, has happened when clients did things they didn't even know were illegal. And I'm like, oh my gosh, you gotta stop doing that. And they're like, Oh, I didn't know it was illegal. And I'm like, you know what? I get why you don't know this is illegal. I get it, it's not general knowledge, but stop doing it. Just stop.

SPEAKER_01 49:36

I think, I think that like I said, I don't believe Barry probably got into this thing, you know, thinking I'm gonna go scam everybody out of their money. It's something that he fell into and it kept spiraling him until he had no choice to go all the way. And you can argue it's the ego, whatnot. I mean, we obviously didn't have a conversation with him to know what he was thinking, but uh like you said, sometimes it's really unintentional. Um and you just don't want to find, but just because it's unintentional doesn't mean that you don't have the liability or the responsibility. So we hope that you will not find yourself in this position. And if you have any kind of doubt or you just want somebody to be a sounding board, I mean, feel free to drop us a message and see if you know we can kind of help you figure that out.

SPEAKER_00 50:22

Always happy to help. And with that, please join us for our next episode where we will discuss how to grow out of the owner operator role. Stay tuned and please show us your support by following us on your preferred podcast platform, social media, and YouTube. We'd love for you to also share our episodes. All of our links will be posted below. And until next time, mind the business behind your business because all great successes start small.