CEO To Rainmaker
CEO To Rainmaker
You Can’t Be A Rainmaker Without Finance Skills
Hi, viewers and listeners. Welcome to January's podcast. I recently posted on LinkedIn about the high percentage of clients I have had that were functionally illiterate in the subject of finance, and that this illiteracy was the leading cause as to why 70% of businesses fail within the first seven years of their opening. That's an exceedingly high mortality rate that can be avoided. This post garnered such a high number of impressions that I decided to do a deeper dive on the subject of finance by using my podcast, CDO to rainmaker, as the communication method. Before we do a deeper dive, I would like to step back a bit and review the definition of rainmaker. Maybe some of you are keenly aware of the definition, some may not. The term Rainmaker originated in the Native American culture many, many years ago. Native Americans believed that certain individuals could make it rain through science, religion, or mysticism. Over time, Raymaker became a part of the American business vocabulary. As we speak today, Raymaker refers to CEOs that can make it rain year after year. In this context, rain is an analogy for customers' money or profits. Rainmakers are brilliant at making customers' money or profits literally fall from the sky like a never-ending downpour. Today's mission statement for the podcast is this unless you have basic finance skills, you will never be a rainmaker, and your business will suffer accordingly. There are some basic skills of finance that I believe that you should at least know. I'm not asking you to be a CFO. I'm just asking you to be a little bit conversant on these subjects, know what they mean as tools to help your business by using numbers. Because what it all boils down to is every business in America, whatever their whatever the product or service it is, can be reduced to numbers. And the numbers give you clues as to what's happening with the business. So you might hear the term, well, I manage my business by the numbers. Well, that's what you should do. You should manage by the numbers. That's typically what financial management is about. Managing your business by using numbers. Now you might say, Well, I'm not a numbers person. I'm a creative type. I hate math. It's your business, your hard work, your savings that are invested in this company. So don't do anything to shoot yourself in the foot by avoiding the basics of finance that I believe you must know. So let's outline some of those basic skills. And again, I repeat, I'm not saying that you have to be an expert. You just have to know the basics. All right. Number one, the first basic of finance, is you need to create a quality accounting system and hire and train someone who has the expertise to produce accurate financial statements every month to give to you. Give to you, not for you to take it and throw it in the in your desk or don't even ask. There's an old saying, garbage in, garbage out. If your original book entries are incorrect, then the ensuing financial statements are not going to help you because they're not telling you the true picture. So they have to be good, accurate, quality, and frequent. Now, let's talk about what those financial statements are. The basic financial statements of finance for any business is a balance sheet, an income statement, and your monthly bank checking statements. You need to know what those statements are measuring. What are they telling you about your business? What is a balance sheet? Well, a balance sheet is strictly the number of assets that your business owns, the number of debts that your business has, and the resulting difference is your equity in the company. That's what a balance sheet does. But you need to know how the balance sheet and the income statement intertwine. Essentially, what happens when you make a profit, there's a term called retain profits. Rather than pulling out all of your money out of your company, either in salary or dividends or distributions, you take some of those profits and you retain them in the company, and that will those profits will show up on your equity in your balance sheet. And simple as that. Simple enough. So we have already said what a balance sheet is. What an income statement is, is everybody in America should know what that is. That's your profit or loss statement. That's your sales less your expenses, which equals your net profit. That's your number one motivator for being in business is to make a profit. But there are more specific details about the profit and loss statement that you should know about. But I won't get into that because we're just going over the basics. So you need to know what the profit and loss is measuring, it's measuring the profitability of your company, and you need to review that. Okay. So the next thing I think you should know about finances is you need to learn how to create a 12-month budget for the next fiscal year. So for 2026, you, in my opinion, should have done a forecast of your sales and expenses and profits per month for the next 12 months. And that's your targeted profit for the year. You need to monitor it every month to see if you're on budget. No money gets spent, period, without your approval. And if you have the discipline and the focus to adhere to the budget, then you should reach your goal, unless your profit and loss budget was too ambitious. It was not realistic. If you put in a 25% increase in sales, that's probably not going to happen. If you put in a 50% increase in profits, that's not going to happen. So when you create your 12-month budget, be realistic, but have a little bit of improvement from the prior year. Because all things being equal, every year inflation is running about nearly 3%. You need to grow at least 3% in your sales and your profits. Otherwise, your purchasing power as a business person and as a personal human being consumer is going down. So you have to grow a little bit every year. Not something crazy, but a little bit every year. So we've gone over what the balance sheet measures. It measures the financial condition of your company. Do you have a lot of debt or do you have a lot of equity? The profit and loss measures how profitable and how your sales are doing. And number three, the bank checking statement. This is important. And this dovetails into my next subject. You need to learn as a basic financial skill how to create a 90-day forecast of your cash flow. Now let's define what cash flow is because many people have different definitions of cash flow. My definition of cash flow is this it's the money that goes into your checking account, less the money that goes out of your checking account. And whatever the difference is, is your cash flow. Cash and sales are not the same. Especially if you have a lot of sales where you have given your customers terms and you have created accounts receivable. Accounts receivable may be on your balance sheet, but unless you collect that receivable, you can't use it to pay bills. You can only use it when it comes in. So your bank statement is going to tell you what cash has come in, what cash is going out. And there's three scenarios. You can have a positive cash flow, meaning that the amount of cash that came into your account that month, less what went out, was higher. Or you can have a break-even cash flow where the cash coming in and the cash going out was the same. Or worst case, you can have a negative cash flow where cash going in was not enough to pay for the obligations that you have to perform on in the form of cash out. That's a no-no. In street language, that means you're trying to bounce checks. And everybody knows in today's market that the banks won't let you do that. They'll contact you and say, hey Bill, hey Sally, um we have some bills that we have to pay on your behalf, and you don't have enough money in your account to cover it. You need to come in with a deposit of another$25,000 or whatever it is. So negative cash flow really doesn't exist because it's not going to happen. Those checks are not going to be honored. Now, one of the easiest ways to create a cash flow budget in 90-day increments is to look back at your last 12 bank statements from the prior year. In my experience, every business has some predictability to it and patterns in terms of their sales and expenses. So you can look at your last 12 months and see what the patterns are of your cash flow. You maybe have some months that are high, some are low. But use that as a guide to create these 90-day budgets. And if you are forecasting slightly higher sales, then you should forecast slightly higher levels of cash flow. And if there's some seasonality to your business, there are going to be some months where you're going to have a tremendous amount of cash flow, and some months where you may have a negative cash flow. But remember, you're forecasting this. So when it does hit, it's no surprise to you. You knew this was going to happen in advance. And so that can easily be done. It's not that difficult to do. It just takes time and discipline, and you should not delegate this to somebody else. You may have somebody help you, but you need to go over your 90-day cash flow budget meticulously, because as you all know, you have many people that want your money. Your employees, your utility bills, your landlord, the mortgage, etc. etc. And if they don't get paid, havoc runs loose. So one of the things about cash flow management, which I think is the most important skill ahead of analyzing your profit and loss statements and analyzing your balance sheet, is that you must become an astute cash flow forecast professional of your own company. You're going to save your company and stay in business. Number one reason why businesses fail is due to poor cash flow management. They don't have the cash on hand to take care of the obligations that they've signed up for. They throw their hands up and say, I can't do it, and they end up going out of business. So here's an important tip. Once you have done your 90-day forecasts and you have determined which months that you think you're going to be having a negative cash flow due to some seasonality in your business, you know what that number is. And let's say that number for purposes of this example is a negative 200,000. Right now, you should start to try and develop a close working relationship with a banker. Now you may say, I already have a banker. Well, if you do already have a banker, call a meeting with them and say, I'd like to apply for a line of credit. And what you would use the line of credit for is for emergency cash reserves in the event that either the month is the negative cash flow month, is worse than you thought it was going to be, or maybe it's less. But it's just an emergency cash reserve that you can tap into. You could deposit the borrowings from the line of credit to your checking account. And so those monies, in addition to your organic cash flow, which is money that just comes in on time, those two sources of cash, your own organic cash flow and your borrowed cash under the line of credit, will be sufficient to balance the checkbook and make sure everybody's paid that you're obligated to do that. And you need to do that before, not after. After is a crisis, then you're scrambling. Oh my God, I have no cash to make payroll. I can't pay my vendors on time. They're threatening to shut me off, etc., etc. And when people and when CEOs, in my opinion, get in a cash flow crunch because they didn't have haven't had poor planning, what they do is they don't pay their vendors on time, or they don't pay their taxes on time, is they're starving for cash. And that can't happen. You can't do that. You can't have a juggling act, a high wire act every month. You need to have a sufficient amount of cash to keep your enterprise running. And the only way you can do that is determine what kind and size of money you need in advance and monitor it and watch your bank statements every month. So that's enough on that subject. Now, developing a good relationship with the bank is a tricky proposition. I would avoid, and this is what a CFO or a finance manager would do, is they usually are the um primary contact with the banking relationship for the CEO. I would develop, and I'm assuming my target market, and I'm assuming I'm speaking for the small business owners, those that are doing 500,000 to about 20 million annual sales, is that you avoid big banks, mega banks like the plague, because they do not, their bureaucracy does not allow them to provide a high personal touch service that you need. So research the banks in your community, find out the banks that are smaller, find out the banks that are small business oriented, and interview a few to see if there's some chemistry there. And they are willing, in your opinion, to roll up their sleeves and understand your business and be your financial partner, if you will, uh, by providing the scope of banking services that they believe will help you to achieve your goals. And one of those would be a line of credit. Um, never ever pick a bank because of the price. Proximity of the branch because it's convenient. And if you don't, as we speak right now, if you don't know your banker's name, and they haven't visited you at least twice in this last given year, or you haven't visited them, or they haven't invited you for a meeting, then you're dealing with the wrong bank. So, next tip, next skill, I believe, is maintain good spending habits both on your business and personal. So don't let your personal credit report deteriorate. Pay your bills personally with as much discipline as you pay your bills business wise. Then your spending habits personally could be an indicative of how you spend money on the business side, and you need to have discipline on both sides. So you might even consider having a personal budget. But that's up to you, that's beyond the scope. These are just some of the minimums. Having good accounting systems, understanding what these accounting systems are preparing in terms of financial statements, what they mean, what they measure, how to read them, managing cash flow, developing a bank relationship. These are all CFO, essentially a job description of what a CFO is supposed to do. Um but this is just the surface. What I would encourage you to do is to try to be even more skilled as best you can. And I realize that you have to run a business and you have people for that, but many times the people that you have in quote unquote your finance department, if you will, are not talented enough to do what should be done. So try and be a decent CFO by being a CFO. And the second CFO is the chief fund officer. That's F U N. Make your learning process fun. Don't make it a drudgery. You owe it to your vendors, your bank, your landlords, your employees, the taxing entities, and your family. But you want your business to survive. You don't want to be in that high mortality rate of 70% that fail after their first seven years in business, excuse me, their first 10 years in business. You want to survive, you want to create a legacy. And maybe you view your company as a place where you have a job, you could do essentially the same thing in the job market, but you prefer to be your own boss. Or maybe you believe your business is an investment that you would like to increase in value over time. And when you're ready to retire due to burnout, health reasons, age, whatever, that you can fetch a high amount when you sell your business. In order to sell your business, it must be solid financially. And by becoming knowledgeable in these basic areas of finance, which are embellished by other finance professionals that maybe you hire, you are helping your legacy, you are helping your exit. So that's about all I can say on the subject is that if you want to be a rainmaker and you want your customers' money and profit continually falling from the sky in the form of rain, then you have to be knowledgeable in finance. Not an expert, but knowledgeable because you are responsible for everything. And if I could pick one department that you needed to be really good at, it would be finance. Because cash is the oxygen of your business. If you don't have cash, you can't scale your business. And when you do obtain the cash, you need to manage it meticulously so you don't waste it. And you use all of your financial statements to help you manage your business by the numbers. So with that, that's a wrap. And I will see you next month. And start learning finance as fast as you can. Thank you very much. See you folks. I'm out.