In this episode of "Small Business, Big Moves,". Thomas Bennett is joined by guest Patrick Donouhue to explore creative strategies and innovative approaches that have propelled small businesses to new heights. Discover the business lending, tax credits, and more.
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Small Business Big Moves is a podcast where innovation meets entrepreneurship. Join Tom Bennett as he explores all things business growth! From business funding and business tax credits to conversations with leaders who have grown successful and innovative businesses!
In this episode of "Small Business, Big Moves,". Thomas Bennett is joined by guest Patrick Donouhue to explore creative strategies and innovative approaches that have propelled small businesses to new heights. Discover the business lending, tax credits, and more.
Connect with us on social media:
- Facebook: Thomas Bennett
- Instagram: @Thomas.mbennett
-YouTube:@SmallBusinessMoneyConnector
- LinkedIn: Thomas Bennett
Subscribe to "Small Business, Big Moves" on Your Favorite Podcast Platform for more inspiring episodes on innovation and entrepreneurship.
Small Business Big Moves is a podcast where innovation meets entrepreneurship. Join Tom Bennett as he explores all things business growth! From business funding and business tax credits to conversations with leaders who have grown successful and innovative businesses!
Welcome to Small Business Big Moves, the podcast where innovation meets entrepreneurship. I'm your host, Tom Bennett, and we'll explore all things business growth from business funding and business tax credits to conversations with leaders who have grown successful and innovative businesses. Welcome to the show. My guest today is Patrick Donahue. I know Patrick's spent a lot of time in the capital field. Stock advisor done a lot of exciting things. So I wanted to let him give a better introduction and go from there. You can introduce yourself. Hey, Tom. Thanks for allowing me to be here today to share insights with your audience. I appreciate it. Absolutely. go over a few different things today, right from a capital standpoint, fundraising standpoint and a lot of the exciting stuff that you've been through. But before we get into that, if you can just give a background on really where you started, what got you into this and how you ended up where you are today. That sounds good. You know, I've over the last few years, I, I think my answer to that question has changed quite a bit. So I grew up in a family of entrepreneurs and as I've reflected upon that nobody ever used the term entrepreneur when I was a kid and really up until like 10, 15 years ago. But as a, as a young person. I grew up around a family of small business owners. Grandfather owned a drive in theater. My mother owned a women's dress store. My father was a sole practitioner and built his own law firm. And so that was kind of the influences I had as a young person. And so that is what led me to become an entrepreneur and why I founded and launched Hill Capital Corporation a number of years ago. Because I, I understood kind of the, the journey of one kind of owning and controlling their, you know, kind of their destiny and, and being able to not only be an entrepreneur, but in my case, I get to work with and serve entrepreneurs and small business owners. So, you know, that's kind of the thread of my background that that's not just bluntly stated on LinkedIn and elsewhere. Yeah, no exciting stuff. And I'm glad you shared that. Right. Because more times than not. I feel like a lot of people get into entrepreneurship just because whether it was the only option for them, you here, a lot of times people may have dropped out of school to get into entrepreneurship or whatever it took to start a business, but it's exciting to hear the stories where like you were bounded by it. I'm sure that that motivated you. Like you said, to really realize what you can do and go create your own destiny. So yeah, it's exciting. And, and, you know, and so in the early days, I, out of college, out of Creighton University, I went into back then it would be, or today it would be called FinTech. We didn't call it then back then, but I wanted to help start an online brokerage firm and then did traditional investment banking whether it's capital formation, IPOs, M& A, valuation opinions, So I had all that background, but that's what really allowed me to launch into my own thing. And, you know, the punchline, Tom, was I saw firsthand being on Wall Street, how disconnected Wall Street was from Main Street. And really starting to understand how, you know, are the world of finance is really set up to serve the big companies in really falls apart the smaller business gets. And I know that's what you're doing day to day. And so that's why it's really fun to be with you here to kind of talk about that. to discuss that and kind of dive a little deeper. But, you know, for small business owners Wall Street and the financing firms as we know them today are not just not really all that well suited for them. And so that's what was the motivation for me to found Hill Capital Corporation, write the book, Breakout Valuation, and do the things I do day to day in the entrepreneurial community that I serve. It is exciting. I'm glad, glad you mentioned that cause that that's why I'm really excited to have you on. And that's really how we started as well, right? Both both the leaders of our company each spent about 20 years on wall street probably doing similar things to what you were doing. And similar stories too, right? They, they started a company to really give these small, medium sized businesses, the the access to capital or resources is that like you mentioned, it's typically only found for those larger companies. So yeah, it sounds like we're on a, on a similar journey and small and medium sized businesses definitely, definitely need that. Yes, indeed. Yeah. They, they need friends like you and your, your business partners, that's for sure. Yeah. And I also wanted to go back to, I know I I wanted to mention that, too. I know you mentioned, obviously the book that you put together, right? Being a public published author is exciting stuff, right? Not many people can say that, so I wanted to give you a minute, too, to kind of mention that, talk about that book a little bit. I think some of the listeners can get some value out of that as well. Sure, so the book Breakout Valuation it was something that I've thought about for a long, long time. And when when the pandemic happened, it was a good excuse to really start to hone in and start to write down all the things that I had seen and be able to provide that for entrepreneurs. But, you know, really the aha moment for me is when I was walking through a company that we ended up investing in, they make custom handmade tile, but that's absolutely beautiful. When I saw the artisans, you know, producing this tile by hand I had an aha moment you know, my training as a financial analyst, I'm also a chartered financial analyst chartered holder and. We are trained and taught a lot about like valuation is like a multiple. And when I was touring that facility that day at Mercury Mosaics, I had this aha moment that this business is not a multiple. It's not a multiple of cash flow or people talk about EBITDA, which most people don't even know what that is. But multiples are correlations. They're not causation. And that's when I really had the motivation to write the book. And that's really what the book is all about is, is understanding what causes value and what causes value is very different from what we learn about and hear about and read about in, in media. And so really helping through the book, helping refocus the entrepreneur. On what truly builds value things like people and know how and vision and so forth so That that's that's the foundation for the book breakout valuation So yeah, I recommend a lot of people check that out I think like I said, I think they can definitely get value out of that and then, yeah, back to the like small, medium sized business conversation. Right. I know I know we both see the, see the value that we can, can provide to that size, those size businesses. I know, obviously you've done a lot with kind of growing and helping businesses get to the next level. Anything specific that that you think the listeners might get value out of there or how they might be able to get to that next level in business? Sure, there's a lot to that question. There's a lot of things that a business owner can do. But I like to keep things simple. That was probably the hardest part. And the biggest task I took on writing the book was to really write it into plain English and make some of these topics around valuation, finance, accounting, very approachable for entrepreneurs. So to your question is what can an entrepreneur do? You know, one could throw a lot at them, but one of the things that I have found most valuable. for entrepreneurs, including myself, is looking at and joining peer groups. And I liked it in the book. I call it a there's a whole chapter dedicated to community. So the whole, the whole idea is building community around that business owner, that entrepreneur, and around that business. And one of the easiest ways to do that is to join a peer group. Like I'm a member of entrepreneurs organization, commonly referred to as EO. There's also Young Presidents Organization, YPO, there's Vistage. There's a number of CEO round table groups, but that is one of the best things that I've seen entrepreneurs do to build value in their business. And for them personally is to join a peer group and get to know and learn from their peers on what they've seen, and that can really accelerate their growth personally and professionally. Absolutely, no, that's that's great. And then, yeah, I know we talked about to a couple of different a couple of different options out there, right? As far as like, working capital business funding, right? I know you're, you're very familiar with that world as well. Obviously, I'm sure you're seeing to with things have obviously been. Been changing, getting a little harder for some businesses to get access to capital. Anything specific that that you're seeing or that you think may benefit some of those business owners to know about or look out for? Well, you know, I talk a lot with entrepreneurs and outline in the book and one of the chapters around capital formation is, you know, to, to really to look and to be aware of all sources of capital. And so one of the things that is very interesting out there, and I've seen it now, I've been doing this for 25 years, is things and I know in several of your recent podcasts, like you talked to like Paul and Ryan and so forth, a great podcast. for having me. talking about like, you know, sources of capital and what's happening in the markets right now. But what I've seen over the last couple of decades is that the banks will definitely ebb and flow and angel investors will ebb and flow and you know, things are running hot in venture capital, then they're not. And so those trends always continue. But one of the more interesting things I've seen over the years and gotten to know more about And I know you just did a show on tax credits on R& D tax credits, which is wonderful. But that's an example of some where these pools of money can exist. And those pools of capital can actually get bigger and more aggressive when we are in recessionary times or, or when other sources of capital kind of shut down a bit, those can be more readily available. And so in the book, what I talk about is pointing people to things like economic developers or even chambers, but working with some of those, you know, local groups or where their business is located because a lot of times like economic developers can be aware, Programs that are available because like you in your work, you're very familiar with some of the stuff that's happening at a larger federal national scale. But a lot of times for these businesses, they might have something in their local town that is available to them that only kind of day in the local. Economy can really know about. And so they're nice little pools of capital that are out there and available. And I always encourage small business owners to really have those relationships because you never know when the local economic developer could make a, make a program available or aware of a program that might provide local tax credits that could really save the day for, for an entrepreneur, small business owner. That's a great point. Yeah, there's a lot out there right from the like you said the local area or the state level Definitely a lot of opportunities out there that that someone can definitely help you out with for sure even by industry so I think of like, you know I'm based out of minnesota and You know, and of course, in the, in the upper Midwest, we have a lot of ag companies, and so a lot of times like ag companies will get certain tax credits that are only available to their industry. So it all depends on where, where people are playing. Exactly. That's spot on. And then I know, obviously you talked a little bit too about like when we talked about your background as well, right. I know you've talked about like fundraising you know, Private equity, M& A, things like that. Anything along those lines that may be beneficial for a small business to be aware of or know about? Well, I always encourage entrepreneurs to go have the conversations. So a great example is entrepreneurs many times are thinking about like someday they may exit the business. From their business. And there's a whole industry built around that with exit planning and so forth. But I always encourage business owners to go out there and have conversations. So, you know, private equity is a great example. Private equity is really in, is a broad term that actually includes venture capital and so forth. But most people think of private equity as what they call leverage buyouts, which is basically firms that are buying businesses out for a living. And so. I encourage entrepreneurs to go have conversations with the principals that are running these funds that are buying businesses because Those principles and those funds have a vested interest in a fiduciary duty really to know what's happening in their industry and they will take the time to share those insights and part wisdom because their only competitive advantage is to know of entrepreneurs and to be able to have Hopefully someday at first look at that business. And so as a, as a business owner you know, it might be small right now. And so having those conversations sooner rather than later can really help inform them about how to think about building and scaling their business and working with you and thinking about how to utilize a. an asset, you know, an ABL or line of credit or an SBA loan to be able to build and to scale their business. So their business gets to a point where it is attractive to be purchased by a private equity player. And so the vast majority of entrepreneurs in my experience don't take the time to, to do those things. And so when they do take the time to do that that's what can really help build value for them and their family and their businesses. Yeah, that's so accurate, right? I mean, you mentioned it. I see it all the time as well. I think the, a lot of these small business owners and entrepreneurs, they get into business, start a business. That's their baby, right? It's what what provides for their family. And they're just so in it, wearing all the different hats. They're not really always thinking about valuation or what they might be able to sell it for. But at the end of the day, if you can build a business or present it that way I think that's what can really change a businesses or even a family's life. So I think that that's definitely important to think about. Well, exactly. And then that's helpful because when they start thinking about them, when they come to you, Tom saying, Hey, I want to figure out how to get a half a million dollars of tax credits for reasons a, B and C, it just makes everything easier for the entire ecosystem. And so the more I talk about this in the book about a magnetic vision, but when a entrepreneur really has kind of a look towards. What they're building that is very helpful for not only them and their family and creating value, but, you know, people like you and me that can help them get to that vision, but we need them to start with where are they going and how you know, how do they think they're going to get there and then we can help fill in the gaps of how to properly fund it. Absolutely. No, I love it. That's great. And then on top of the, I know we're throwing a lot out and right about funding tax credits growing a business, building it up to like an exit strategy or selling the business. Kind of everything in between another thing that I, that I know you have a lot of experience. And in another area, I think a lot of business owners aren't thinking about is strategies along effective cash management, right? I mean, I see it all the time where, I mean, businesses are making a ton of money, killing it with revenue. But you look at the P and L and it's 150, 000 coming in a month, but 149, 000 going out. Right. So touch on that a little bit. Maybe some give some value there. Yeah. And, and this one strikes a chord with me because I go into some detail in the book about it, but my, what your question basically summarizes my whole career. And I'm guessing yours. Cause at the end of the day, it's all about cash in the business and cash out of the business and how are you managing that to make sure. That the business has the capital to be able to execute. And so and by the way, in the book, and when I talk about quite a bit is, you know, there are differences between cash and capital and so forth, but for, for entrepreneurs, you know, roughly speaking, cash can be capital. These terms can be Use, you know, interchangeably, but at the end of the day, what I talk about in the book for cash management is this concept of a cash management trifecta, and it's really three key numbers. It's the current cash balance, what others owe you, and what you owe others. And what I didn't say, I didn't get into some of the technical terms that can scare entrepreneurs around receivables and payables and all this other accounting jargon. But let's keep it simple. Cash balance today, what others owe you and what you owe others. Cause at the end of the day, that's what matters. And that's the cash management trifecta that I encourage entrepreneurs to like think about and to literally know those numbers as current as possible. Most entrepreneurs are lucky to know that the old one, maybe their accountants or somebody pulls together the numbers, which by the way, is way too late because they're getting, you know, a year end statement, you know, four weeks after the fact, or whatever the case may be, but entrepreneurs that are really on their game. Can know that number real time or fairly real time, because then what really matters is your current cash, what others owe you, and that has to outweigh, be greater than what you owe others. And if an entrepreneur can keep it that simple and be able to speak to, you know, those numbers, It's going to make their life way easier. And so that's what I, what I encourage people to think about in terms of cash management, because when they got that nailed and they can think about it in that simple of terms, then they can get into the details of like the accounting jargon and some of these other things. But for most entrepreneurs, keeping it that simple is going to be a game changer. Absolutely. No, I think that's huge, right? Because we both see it all the time. And like I talked about it, you have, I see businesses every day that are Doing good revenue, but like I said, you look at the profit and loss and it's pretty much just Tying up whatever's coming in is going out and I I hear it all the time right a lot of these small business owners have been programmed that they want to pay as little in taxes or whether it's showing a loss or Showing a middle amount of like income or revenue and then we see it, but now we have some of these SBA programs that businesses are dying for and love to get their hands on. And then we look at it and they're doing, like I said, whether it's 100, 200, 000. Higher, lower than that, whatever that number may be. And they simply can't get these options a lot of times because they didn't show a profit on the business. So it is crazy what you can see out there that they may have that misconception and it ends up hurting them sometimes. Well, exactly right. And it's spot on. And that's why I encourage entrepreneurs to really think about this because there's a lot of a lot of players in the finance industry that get paid a lot of money to convince entrepreneurs and business owners to, you know, kick the can down the road on taxes. At the end of the day, It's deferring taxes. It's not, you know, not paying taxes and so forth. And so it's a huge, huge issue because those decisions come to roost at some point. And what you're seeing, Tom, and talking about is they may come to roost when you go to get an SBA loan, which is one of the cheapest sources of capital that any business owner can get. But if that business owner has been playing games and farting around with their balance sheet and, and not really paying attention to the P& L, that's going to bite them. And it's the worst possible thing a business owner can do because it can really disallow them for periods of time to really tap into some of the most cost effective capital that they're going to ever access. And so I, I, I encourage entrepreneurs to think about the way I think about this personally. And what I always talk about is I love paying taxes because I only pay taxes when I'm making money. And that is a good thing. And so I get really wary of anybody that are pitching, promoting tax strategies, kicking the can down the road and all that type of stuff, because at the end of the day, a lot of times for most players, it has unintended consequences, and that's what gets dangerous for small business owners. It's one thing for, you know, Dell computers in large companies to, you know, play tax advantage games. They can do that all day long because they're optimizing their capital structure. It makes sense. They literally have hundreds of employees that can analyze it and make sure things are done right. And so on and so forth. But for me and for you and for main street companies that have less than 10 employees, we, we really can't play those games and nor should we in large part. So yeah, No, definitely. I mean, I'm glad we were able to cover that. I know it's a it's something that I, you know, I try to wake as many business owners up to it as I can, but obviously it's a habit they get into that a lot of times they need to get out of. I know I know obviously we threw a lot at them. I know you're, you're packed with value as well, but wanted to see if there's anything else you wanted to leave the listeners with or anything else you wanted to share with them today. Yeah, what I like to really share with, with, with entrepreneurs again is to really work on and keeping things simple. And this is what I worked on so hard in the book is to really inform yourself as an entrepreneur, you know, the basics, you know, like we talked about cash in cash out and how to think about these things. And empower yourself because that avoids the pitfalls because there are so many players on in in finance that basically make a living off of entrepreneurs being misinformed or under informed. And that's where I know like with your work and with my work, we want to help entrepreneurs understand that. The landscape because it makes it more fun and more profitable, much more interesting for everybody involved. But the only thing I, I know one of your, your, I think it was Paul was talking about cabbage loans and when they pulled their line of credits and so forth on one of your past podcasts, but those are the things that I want entrepreneurs to really know and understand. So they've got some baseline understanding of how things work so that they're not caught in a lurch in a bad place someday that is lights out risk. Because that's really avoidable. And that's what we work hard to really help entrepreneurs think about is like, how do you make sure that if you've got a line of credit, you know, to properly use that, but to make sure the rug doesn't get pulled from, from underneath you someday and so forth. And so that's the thing is I encourage entrepreneurs is. You know, don't try to boil the ocean, you don't have to go be a finance expert or accounting expert, but learn the basics so you're not taken advantage someday. That's what I encourage entrepreneurs to do and want to really leave them with. That's huge. No, I appreciate that. And like you said, it is just, just trying to keep it simple. And I don't know, a lot of times people overcomplicate things, but like you said, just kind of understand the basics. And That'll get you a long way, but no Patrick, I appreciate you joining us today. That's going to be a wrap for this episode of small business, big moves. If you enjoyed this episode, it would really help us as if you shared the podcast with someone you think could get value out of it and like, and review the podcast. You can also hit me up on all social media platforms at Thomas Bennett, and I look forward to seeing you all on the next episode.