Scaling With People
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Scaling With People
The Entrepreneur's Guide to Financial KPIs and Business Growth with Kyle Smith
What's the real difference between profit and cash flow? For many founders without finance backgrounds, this distinction remains frustratingly opaque—yet understanding it could mean the difference between securing crucial funding or watching growth opportunities slip away.
Kyle Smith, a former professional poker player who pivoted to become a CPA and co-founder of Strata Cloud Accountants, breaks down this financial conundrum with remarkable clarity on our latest episode. His journey from poker tables to spreadsheets taught him a profound lesson: unlike the zero-sum nature of gambling, business finance offers the opportunity to create genuine value for others.
When Kyle and his co-founders launched their company three months into the pandemic, they faced extraordinary uncertainty. Yet this crisis presented a rare opportunity they knew wouldn't come around again. Their leap of faith offers powerful lessons about recognizing pivotal moments amid chaos and having the courage to act despite imperfect conditions.
The heart of our conversation explores the most critical financial metrics business owners should track. Kyle shares a fascinating case study of a client repeatedly denied bank loans despite having consistent cash in their accounts. The culprit? A ballooning accounts payable balance that created a dangerous disconnect between their profit statements and cash position. This real-world example illustrates why founders must regularly compare net income against net cash flow and investigate any significant discrepancies.
We also dive into practical KPIs that directly impact profitability—from revenue tracking that revealed a $40K monthly shortfall for one service-based business to the delicate balance between operational expenses and revenue growth during scaling phases. Kyle offers actionable advice on auditing recurring expenses (those sneaky subscription services add up fast!) and emphasizes that financial literacy isn't just for "numbers people"—it's an essential language every entrepreneur can and should learn.
The episode concludes with Kyle's powerful reminder that resonates regardless of your business stage: "Don't let perfection be the enemy of progress." Ready to gain financial clarity and make more confident scaling decisions? Listen now and transform how you view your business numbers.
Welcome to Scaling with People, your weekly playbook for turning chaos into compounding growth. Each week, we go under the hood with battle-tested experts in all areas of business, from marketing to sales, operation, finance and people, plus product and leadership, to unpack the plays, numbers and systems that turn chaos into compounding growth. Learn straight from founders and experts who've done it and continue to do it successfully. There's zero fluff, just moves that you can still immediately. This podcast is brought to you by Guide to HR. Human expertise AI-powered impact. Welcome everyone to today's Scaling with People podcast. I'm Gwendolyn Vercuri, your host and founder and CEO to Guide to HR. Today, we're going to be hearing a lesson learned from Kyle Smith. Plus, we're going to be diving into some finance and KPIs. So get ready to buckle up on talking numbers. I'm super excited. My math geek is already ready to come out. Welcome, kyle, to Scaling with People. Tell the audience a little bit about yourself.
Speaker 2:Hey, ginevere, excited to be here. Well, I'm here in Austin, texas, and so went to school at UT, hook them horns and got out of school and did something that was completely different from my major I became a professional poker player which is usually pretty surprising because I'm now CPA when I tell people that, but I learned a valuable lesson.
Speaker 2:I didn't succeed as a professional poker player in the sense that I do it now, but I realized when I was playing that it's a zero-sum game where one person has to win, one person has to lose, and I realized I wanted to help people. If I was going to do that for a living or whatever I did for a living, I wanted to help people. If I was going to do that for a living or whatever I did for a living, I wanted to help people. So I went to work as an accountant and realized that's what I wanted to do and I went back and got my CPA and got to work for some really cool companies here in Austin, texas, as finance director and controller, learned a ton and then went to work for a company called Scale Factor here in Austin where we saw 30 new clients every week.
Speaker 2:I was head of the implementation team, so I got to see every type, every walk of life, worked with a lot of amazing business owners of small and medium sized businesses and got to see what works across different industries of small and medium-sized businesses and got to see what works across different industries and my two co-founders and I, who worked at Scale Factor we were of our company now, which is Strata Cloud Accountants. We were servant leaders and we wanted to build a services organization that had the top-notch service. So we pitched that to Scale Factor. They loved it. Unfortunately, that company didn't survive, but there was a lot of folks that needed help from that company, so we were able to jump in and help them and that was side note three months into COVID. So it was a crazy time, but we all decided to take the leap my two co-founders and I and we've grown the business helping clients ever since.
Speaker 1:Now I've got to imagine during that time, first of all, you probably weren't planning on that right Taking that leap and taking that much customers on so quickly and, as you mentioned, two, three months into the pandemic when everyone's still like what is happening right now. But then you take this on. That wasn't your plan and you're marching forward. So I bet there's got to be some good lesson learned in there, or maybe in your past life before that, Would you?
Speaker 2:mind being vulnerable to the audience and maybe share one or two with us. Sure, I can tell you what led up to that. So I was also when I was playing poker. I was also. I was moonlighting as a poker player. But I was also when I was playing poker. I was also. I was moonlighting as a poker player. But I was also working for my dad's company.
Speaker 2:We had a franchise restaurant chain here in Austin and learned a ton there, but that didn't end up working out and unfortunately had to close that down and learned a lot of tough lessons on what to do and what not to do in that scenario. Went there kind of bounced around and ended up, like I said, at Scale Factor and three months into the pandemic the CEO came on with tears in his eyes saying we were closing, they were pulling all of our funding and that was a shock at the time because then all the security kind of goes out the window and it was an insecure time because of COVID and lockdowns and stuff. But what I learned, the lesson learned is when it didn't work out with the restaurant group, when I was working with my dad, what I realized is opportunities don't come around very often and there's a lot of things out of your control. So I learned a lot of technical things back then, but the overall thing I learned in kind of life is that there's things out of your control that happen and there's certain opportunities that might be stressful, but they're not going to come back. They're not going to come around again. So that's what.
Speaker 2:When we were thinking my two co-partners and I about starting Strata three months into COVID, what I was thinking was we're not going to get this opportunity again, be able to start a business with clients that we enjoy working with and that was a critical factor because we knew there was risk on the finance side. We knew we were starting and we were going to take a pay cut to start running the business personally. But the important thing was were we doing what we wanted to do? Yes, and were we working with clients that we enjoyed working with that we could help? Yes.
Speaker 2:So let's give it a shot now, because that opportunity just having those two things I know how rare. That was based on my prior experience, which could have been looked at as a series of failures, but learning from those failures and saying, hey, we had what we needed this time around, let's jump in and it's worked out thus far. So I think there's fear around money a lot of the time, and that's well founded. But we had the two things that we wanted, which was working with people we wanted to work with and an opportunity that may not have come around again. So we jumped in.
Speaker 1:Yeah, yeah, wow, that's so true. I mean, in times of disconnection and times of uncertainties whether it's markets going down or other things, external factors, sometimes looking at that, be like, okay, this is our opportunity to shine, to be that advocator, to jump in and do something that no one has ever done before. Just take that leap of faith. You know, hopefully works out. And I think those that really take that leap in an educational way and really with eyes wide open, it can work out for them for sure. So thank you so much for taking me back in time to the pre-pandemic days, for sure. So, okay, you're obviously a numbers guy. You love poker. I'm sure there were some counting cards or whatever you're not supposed to be doing right. You're obviously a numbers guy. You love poker. I'm sure there were some counting cards or whatever is you're not supposed to be doing right with that.
Speaker 1:And then you get into math and finance and CPA. So let's talk. Business Finance is not always the expertise area for a lot of founders. They're typically gonna be product or engineer. Maybe marketing is what I've seen. Of course there are all kinds of founders out there in the world, but for those that may not have that finance experience and knowledge. Let's talk something that is very, I think, interesting and can be convoluting, which is navigating the difference between profit and net cash and what those two are and why that's so important to understand the difference in your business.
Speaker 2:Yeah, absolutely, and that's probably my favorite KPI measurement as well, because it's pretty technical and so that causes, if you already don't have the accounting experience and you're looking at that number, it's the most critical. But there's also a lot of technical factors that go into it to where a lot of folks just throw up their hands. But what I preach is look at the difference every month, because it's just one number. So you've got net income at the bottom of your income statement and then you've got this financial statement called cashflow or statement of cashflows. There's a number, there's a bunch of stuff at the top and then all the way at the bottom is your net cash for the business. And if you just look at those two numbers net income and net cashflow, which is on the bottom of each of those reports the income statement and the cashflow statement respectively If you look at those numbers and there's a big difference, that is where you need to ask why and dig in and if you need to get help, I would recommend doing it. But it's just asking that question and I can provide an example.
Speaker 2:So we worked with a client that came in and the bank had rejected them multiple times for a business expansion. And when I was looking at the numbers, their net income number was or their net cashflow, I should say or their cash in bank was pretty consistent. So month to month their cash in their bank account was pretty consistent. So they were confused why the bank kept telling them no, looking at their numbers, their net income was negative, but their net cash flow to the business was much higher. It was break-even or positive. And so to me that's why it's so critical to look at those numbers, because if I dig in, I saw a big increase in their accounts payable number, which means the amount that they owe their vendors was getting bigger and bigger and bigger every month, which means they're keeping the cash in the business, which is good, but the bad news is they're not paying their vendors. So the bank saw that and said we're not going to lend you money because you owe a bunch of money to vendors. They were doing okay before that because their cash in their bank was pretty consistent month to month. But if they would have looked at their net income and looked at their net cash, they would have said oh wait, our net cash is like okay, we're not making operationally, we're not making a profit. So in that case it was really important to say, okay, now we can focus on let's get the vendor balance down, focus on that as job one, and then we can go back to the bank and fix the profitability in the businesses as steps one and two. Then we can go back to the bank and fix the profitability in the business as steps one and two. Then we can go back into the bank and ask for a loan to keep expanding.
Speaker 2:So super, super critical. There's a lot of technical things in there, but if you remember to look at net income, look at net cash flow and if there's a big difference, then ask the question of why. Where is it? Is it in payables or the opposite effect. Are you positive but not getting a lot of cash into the business? That means most likely your receivables balance could be ballooning. You're not getting paid from your customers. So there's a lot of really important things you can learn from just looking at those two lines once a month and then finding out what's going on.
Speaker 1:Yeah, wow, and it's so interesting because, like you said, it's like you got to dive into it, but it's such a great example of not understanding. First of all, you're going to a bank not understanding what the bank's going to look at and how they're going to really measure you. That's really key. So if you're not good, if you are not a finance whiz, then get some help, get some understanding, learn what the bank is going to be looking at before you ever need them, right, because you want to be able to create that history and that story so that you get the yes from the bank guy and get some more money to infuse your business to continue to grow. So that's, that's a.
Speaker 1:I've never heard that story. That's a great story. Thanks, kyle, I appreciate that. And when you, you started off the story as KPIs, you know, and so those are key performance indicators for those that might not be familiar with that acronym, and let's talk about some best use KPIs to help boost profitability. I think you have a couple examples that you want to share with the audience.
Speaker 2:Yeah, and I was going to say you keyed on it 100%. A lot of people underestimate accounting is a language and it tells a story and I feel like that helps a lot If you're coming into it new. Think about finance and the financial statements, like the profit and loss statement. It's a story that's being told about your business and so if you can speak that language a little bit, it makes a huge difference, especially if you're going to get a bank loan because they're speaking that language. Huge difference, especially if you're going to get a bank loan because they're speaking that language. Or if you're going through due diligence for an exit, they're definitely speaking that language and it doesn't take a lot to be able to be dangerous, as they like to say. But if you think about it like that telling the story it's so important because that's what's actually happening. If you have a tendency to get overwhelmed by the numbers, which they can absolutely be overwhelming sometimes. But yeah, kpis is my same philosophy, keeping it simple. So the one that seems really obvious that people may not even consider as a KPI, but it's a really important KPI is revenue. So measuring your revenue month to month and setting a budget against it and finding out why is super important.
Speaker 2:I had an example where we worked with a client that was clinician based and so their revenue driver was the amount of sessions that their employees could deliver every week and every month. At the end of the first month working with them, they were 40K lower than we projected on the budget. With them they were 40K lower than we projected on the budget, and when they just on revenue and we dug into the numbers, they were each person. They expected to average a certain amount of sessions and they were four to five lower than the average and that equaled out to 40 grand over the month. If they weren't looking at that month to month, they couldn't have made the adjustments that they made, which was one, they set some floors for everybody, so everybody had expectations and knew what they were supposed to hit every week, which is really important for driving revenue. And then, at the same time, we were able to go back and see, could we break even at that lower number? And so they got two really big bonuses for that.
Speaker 2:Looking at the revenue. Number one, they could uh make sure they were holding the team accountable, and two, they had peace of mind of knowing what can we do uh each month and still make sure that there's cash in the bank. And they got all that from just looking at the revenue number and then diving in from there. So, uh, that's a huge one, um. And then gross profit, which is basically your direct costs, um, which basically shows how much it takes to deliver your product or service. So that's a key one as well, would that be also potentially margin.
Speaker 1:if you don't have a product you're selling, but you're selling services, would that be the same thing? Okay?
Speaker 2:Yep, a hundred percent. Yeah, thank you for clarifying. Absolutely. So it's either product or service, but it would be your gross margin to deliver and that's a really important apples to apples every month to see why that would be going up or down. So, for instance, it could be going, your gross margin could be going down, which means theoretically you're less profitable per unit or per service hour, whatever you're measuring but you could be making more money. So it just depends on what your goal is. If you were trying to scale, maybe you're sacrificing unit level profitability to scale, so you're making more money but you're slightly less profitable. So it's important to know what your goals are and see if you're aligned there, or your product mix might have changed and it might be an issue. You might be selling a less profitable product, and then you can address it.
Speaker 2:So that's an important one as well. And then, finally, the ones that we just talked on net income and net cashflow, Always looking at how we're doing the bottom line and making sure that the bottom line corresponds to actual cash coming into the business which we just talked about.
Speaker 1:Yeah, and going back to your first one, revenue and OPEX or your spend I find that, like so many times, companies will have a budget hey, we want revenue to grow, let's say 60 percent, and we're going to let our OPEX grow 20 percent, and then all of a sudden, revenue is not meeting that number. But the OPEX, your spend, your people, your systems, all the things that you basically are putting into your OPEX cost operational expenses, you know that's still staying the same, maybe even growing, and all of a sudden you're that profitability and that gap that you have is no longer there. You can't let them grow at the same level. That is not a recipe for scalability and long-term longevity, right?
Speaker 2:That's a great point, and that's another one that I learned with our business personally.
Speaker 2:There's not a perfect roadmap, so you've got to measure those things, because what you want is you want to at least me as an accountant I want a perfect budget, or a CFO, I want a perfect budget. I want to hit that budget and then never have to worry about anything else going forward, and then life hits you in the face. It doesn't work like that. You're going to have issues where, like you just said, where your OPEX will be outpacing your revenue and you need to be able to address that and the way you address it as looking at your financials more often and not less often, not throwing up your hand, so then you can start adjusting. If your OPEX is raising it, let's address the issue and see, figure out ways to fix it, and then you're staying ahead of people that aren't asking those questions and putting their head in the sand, which is key to being like you said. The key to scaling is adjusting to those things and leaning into it instead of instead of being afraid of something that's going wrong.
Speaker 1:Yeah, exactly, and there might be a reason. There might be a business decision that you've made that you know your OPEX is going to go up while the revenue goes down, because maybe you're flipping, like I've been in an environment where the company flipped from selling to small business, mid-sized business to enterprise. Well, that requires a skill set that is more expensive and flipping that it's going to be a longer sell cycle and there's going to be a time where the revenue is going to kind of dip while you make that transition. So, understanding and planning for it, expecting it and planning for it Like I said, don't put your head in the sand right? And what are some of the ways that you might be able to offset it? Maybe there's somewhere else, while you're readjusting the sales team, that you might be able to readjust marketing. Or maybe it's your product or your service side of the house. Maybe there's something you can do to maybe charge a little bit more to your customers, or lots of different ways to think about it, depending on your business model and your goals. Like you said earlier, it's a lot about your goals, but it's all about keeping those numbers in front of you.
Speaker 1:Understanding I always like, because I love numbers myself. I know it's strange for an HR person to say that, but that is me. I always like, kind of like thinking about okay, what do I expect these numbers to be before it's delivered to me? I expect that the revenue is going to go up by 10%, but I know I spent more this month because I did XYZ, so my OPEX is going to go up, but I also know my back of my mind that that was a one-off for that month and I expect my O OpEx to start trending back down while my revenue, hopefully, is trending back up.
Speaker 1:And having that in your mind, so when you see the numbers, then you can be like, wait a minute, why is this not what I expected? And maybe because I had the wrong expectation. Okay, let's talk about that. But maybe it's because something went awry I wasn't aware of or didn't think about or didn't consider or didn't think it was going to be as big of a deal. But when I see, you know, those hard numbers, those pennies, man, they add up quickly, don't they?
Speaker 2:Yeah. Yet when you started the business, did you consider yourself like a finance minded person? No, not at all. Okay, I mean.
Speaker 1:I'm a background. My background is math, but not I would never say I'm a finance person. For sure, I'm still learning some of the lingua and the statements and how to read it, and really own it right.
Speaker 2:Yeah, no, I brought it up because, basically, I can tell that you've learned and you're completely on the ball when it comes to the numbers. And that's the entrepreneurs that I work with. When we start out working together, it's like I'm not a math person, I'm not a numbers person, but they're entrepreneurs and they're smart, and a lot smarter than I am, and they can pick up by the. But you know, once we're working with each other for a year, six months a year, all of a sudden they're realizing the importance and they're just picking it up. And and once you start speaking the language, it's such a powerful tool to have and I see that that's my point is the entrepreneurial mind. Like, if you're an entrepreneur, you have the mind for finance. You just need to open up to it and it can be a really powerful tool.
Speaker 1:Absolutely. I think I'll share a quick lesson learned in just the finance area. Really simple and this actually, anyone can take this to their personal bank account, credit card account, right, you make these decisions. Oh, you know, I'm going to bring on these people. Okay, that's only $7 a month for email. Oh, I'm going to add in Google phone, I'm going to add in over here, maybe I add in the AI.
Speaker 1:And then all of a sudden it's like why is why? Why is my spend on IT to you know? You know what? Three, four, five, $5,000 a month, whatever it might be, however many people you have. And then you're like, oh well, this person really doesn't need a phone, this person really doesn't need that.
Speaker 1:And start like going back and really reevaluate your reoccurring costs, because there's a lot of savings in your reoccurring costs. Maybe you signed up for a tool and you test it, maybe used it for the first month or two and then you didn't use it. Okay, how many of you have signed up for you know, adobe pictures, right? Adobe and all that. And all of a sudden you're like why do I keep getting this $29 recurring monthly charge? Now you spent like $300 for the year. It doesn't sound like a lot of money but at the end of the day it adds up very quickly. So you know, taking time to look at that and look at your recurring expenses and what can you start cutting can actually help that OPEC spend, while your revenue might be adjusting or you might be making those decisions of changing how you are making money.
Speaker 2:Yeah, that's a great point. And not being hard this is me talking to myself. Don't be hard on yourself for decisions that you made. That would have you know. Obviously at the time you thought there was ROI there, but go back and if there's not anymore, like you said, chop it.
Speaker 1:I'm like well, that's at least three coffees a month. I could have given myself on a tool I never used for months on end, right.
Speaker 2:Yeah, absolutely. But they add up, they add up a hundred percent.
Speaker 1:They do they do Well, as you can see, I have passion for numbers and wanting to share lessons learned with each other, and so forth, but as we wrap up, is there any last final thoughts or tips or tricks you want to share with the audience today?
Speaker 2:Yeah, a big one is don't let perfection be the enemy of progress quote.
Speaker 1:That should just be bold. If you're like, you should print that and keep that on your desk. I think that is such a key statement, especially as founders, because we want to do a lot and we want them to come out perfectly before they go to our customers. Right, and you realize that's never going to happen.
Speaker 2:Absolutely Exactly. You have to move every day. Keep moving forward and don't get paralyzed by by the idea of perfection.
Speaker 1:Yeah, I love that. Well, I feel like it's a drop the mic moment with you, kyle, with that one, and I hope that the audience has taken away some things, even if it's just that last comment. Thank you so much for joining us today, kyle. It was great to have you on the call.
Speaker 2:Yeah, I love chatting Guinevere.
Speaker 1:Have a good one, everyone that's listening, and we'll see you on the next Scaling with People podcast. That's a wrap for today's episode of Scaling with People. If you got value from this conversation, do me a favor, share it with someone building something big. And, hey, I'd love to hear your take. Drop a comment, shoot me a message or start a conversation, and don't forget to subscribe so you never miss the bold, unfiltered strategies we drop every week. I'm Gwenda Requery, founder and CEO of Guide to HR, where we help high growth companies scale smart with people, for strategies and AI powered systems that don't just keep up, they lead. If you're building fast and want your HR to move faster, head to guide to hrcom and let's talk and remember scale isn't just about speed, it's about people. Until next time, have a great one.
