Cashflow, P&L, and Pricing: What Every Leader Needs to Know with Rich Brett

Most leaders in professional services are making decisions every day that come back to the finance – but no one ever actually taught them the numbers. 

In this episode, we're pulling back the curtain on the financial foundations that every leader needs to get a handle on, whether you're running a team, managing projects, or sitting in the hot seat at the top.

Rich Brett is a FinOps consultant with 15 years in finance, working with professional services businesses to close the gap between finance and operations – and answer that nagging question: why is everyone busy, but we're not making any money?

This episode is pulled directly from The Missing Finance Course – a free FinOps course Rich and Harv built to level up everyone from founders to individual contributors at agencies and consultancies. 

Here's what they get into:

• Why cashflow forecasting isn't an advanced topic – it's a survival skill
• What the P&L is really for, and why most senior leaders struggle to explain it to their own teams
• How a knowledge gap becomes a credibility gap – and why that erodes trust across the whole business
• Why so many businesses are pricing based on what they think something costs – not what it actually costs
• Why comparing your rates to competitors is a trap, and what to do instead

If you've ever sat in a finance presentation and felt a bit lost, or if you've been winging parts of your pricing strategy, this one's for you.

The Missing Finance Course is free, self-paced, and built for three audiences: leadership, delivery teams, and individual contributors. Head to https://learn.scoro.com to get started.

Additional Resources:
👉🏽 Follow Rich Brett on LinkedIn: https://www.linkedin.com/in/rich-brett-36903590/
👨🏽 Follow Harv on LinkedIn: https://www.linkedin.com/in/harvnagra/ 

➡️ This podcast is brought to you by Scoro, where you can manage your projects, resources and finances in a single system. Sign up for a free trial or a demo at https://scoro.com/demo – and for the VIP treatment, tell them Harv sent you.

Transcript

Harv Nagra (2) 0:00

Hi everyone. Welcome back to the Handbook, the Operations podcast. I'm Harv Nagra. We're back talking finops. That's the coming together of finance and operations in this episode, and you're about to hear more of the conversations pulled directly from the Missing Finance course. The Free finops course, Rich Brett and I built to level up everyone from top management to individual contributors at professional services firms, including agencies and consultancies. The course is hosted at learn.scoro.com. For those of you that don't know, Rich Brett is a finops consultant who's spent 15 years in finance and he now works with professional services businesses to bridge the gap between finance and operations, helping them answer the question, why is everyone busy, but we're not making any money? In this episode, we get into the fundamentals. Rich starts by making the case for why the numbers are everyone's business, not just the finance teams, not just the founders or managing directors. Then we get into cash flow and why's the foundation everything else sits on. From there, we move into the P&L, who it's really for and what it shows. And we close out with pricing, which sounds simple until you realise it isn't. Rich kicks things off solo, so over to him, and then we get into the discussion.

Rich Brett 1:19

All businesses need to make money. It doesn't matter if you run a charity, a lifestyle business, or if you want to grow and sell your business for millions. The fundamental reason is to make money. What you then do there is up to you. But to make money, you need to know how to make money. The levers you have to make more of it, how to protect what you've got, and also how to make better decisions along the way. That is why it's really important that business leaders have a good understanding of finance or finops (more on that later). As a leader, you need to be able to look at the numbers, know what they mean, what they're telling you, and what you need to do to change them going forward. Whether you like it or not, pretty much every decision you make will come back to the numbers. Being a leader, your employees will look to you to be in control and to be able to communicate the numbers, but also this shows an understanding that will build trust that you are the right person to make decisions and lead the business through problems or growth. Smaller companies may think they don't need to have as good an understanding of finance or FinOps, but my advice is that the best time to upskill on numbers is as soon as possible because that allows you to build a business that has financial rigour at its core, it builds better commercial understanding within the business, it's also easy to change when you are small than when you're a bigger company with more people, systems and processes that may need to be changed. Back to finops. It's the joining of two worlds finance and operations. Often in professional services. These two people, department, systems will exist, but they don't always talk to each other or align. Finops is about closing that gap between the two and making sure that the numbers drive and support the operations and the operations provide better data and processes for finance. Having these two joined allows leaders to make better decisions quicker as there's less need to export the data, put a report together and analyse it, because the framework to do this is already in place. It could be as simple as defining the right categories for timesheets, all the way up to modelling out capacity in the forecast for the next six months. It's especially important in a growing business where decisions get harder and bigger, and the need to make them quickly is of huge importance.

Harv Nagra (2) 3:30

So Rich, the course starts with cashflow and invoicing. For somebody that doesn't know, why would we start with these topics?

Rich Brett 3:37

I guess because cashflow and invoicing is the foundation of every single business no matter size.

Harv Nagra (2) 3:43

Mm-hmm.

Rich Brett 3:43

You need to know how much cash is coming in, how much cash is going out, and to get that cash to come in, you need to be able to raise an invoice.

Harv Nagra (2) 3:50

Mm-hmm.

Rich Brett 3:51

It's fundamental to every decision you make is, how much money am I gonna have at the end of this week? How much money am I gonna have at the end of the month? And eventually it becomes, how can I pay myself or make payroll?

Harv Nagra (2) 4:03

Fair enough. Um, we're also gonna be talking about cash flow forecasting. I, I think as soon as you hear, hear the word forecasting, some of us might think that's quite an advanced topic. Mm-hmm. So why is that being talked about so upfront?

Rich Brett 4:15

Again, I think it's one of those things that knowing how much money you've got in the bank now is kind of helpful, but if you've gotta spend 10,000 pounds next month or next week and you don't know about it and you haven't planned for it, what are you gonna do about it? So I think forecasting is really important just to get a sense for where am I gonna end the month, like, throughout the month, are there gonna be points where it's gonna be really tight and I have to figure out how am I gonna get through it? Or am I gonna be in a really good position? But if you can figure out that sort of method of forecasting, then actually it makes a lot of the other stuff a lot simpler because ultimately cashflow forecasting is, I started with this much, I received this much, I've gotta pay that much, therefore, at the end of the week, I've gotta have this much left.

Harv Nagra (2) 4:58

Excellent. Alright, Rich, we then move into P&L and operational reporting; and the levers that actually influence your margin. Who is this content important for and what should they expect to get out of it?

Rich Brett 5:10

It's important for senior leaders in the business. If you're founder led, then definitely the founders need to know about it. But people below in the department below you, your senior leadership team should know about this stuff. It's kind of basic stuff, but there's a lot of detail behind it. Mm-hmm. If you're running a team, you need to understand how busy they are. If you are running a project, you need to know how over-servicing happens. You just need to know about the basic levers that you've got to run a people based business. Mm-hmm. So not knowing about it, you could get away with to a point, but knowing about it will really help your business, but also help you grow in your career as well.

Harv Nagra (2) 5:48

Mm-hmm. On the P&L, I've sat in rooms where like this has been presented on screen by the finance director, and people's eyes go a bit crossed. Mm-hmm. Because they don't know what they're looking at and the assumption from the person presenting it, and that's super familiar with what they're showing is everyone's following along. But the fact is. They're not. So that's why I think it's quite important that we take people through this.

Rich Brett 6:11

Yeah. I also think that I would have a go at finance directors presenting that sort of thing. Yeah. Like you've got to, the skill of a good finance person, especially in professional services and agencies and consultancies is, the people you're talking to have different levels of understanding. Mm-hmm. You've got to tailor it to the right people.

Harv Nagra (2) 6:27

Yeah.

Rich Brett 6:27

I've seen meetings where a whole P&L is put up that's got hundreds of lines in it. No one needs to see that. You need to be able to understand the basics. You know, what's our revenue? What are our staff costs? What are our overheads? What's our profit? Yeah. Keep it super simple. And really most senior leaders should be able to understand what that means, what it looks like, so that if someone in their team comes up to 'em and says, but what does that mean for me? They're able to talk about it. Right. And I think that's often the challenge is if your senior leaders don't understand it and then someone in their team asks a question, it kind of starts limiting and reducing trust in that business of, well, if that person doesn't understand what that means, but it's being presented as if we do.

Harv Nagra (2) 7:06

Mm.

Rich Brett 7:06

Can I trust this person actually knows what's going on in the business?

Harv Nagra (2) 7:09

Mm-hmm. we then get into talking about pricing. Mm-hmm. Pricing is easy for anybody to understand, at least what it means, uh, on a surface level. So just the fact that it's easy to understand, is it actually easy to implement?

Rich Brett 7:24

I think, the answer is yes and no. That's probably my advisory um, caveat there is pricing is somewhat easy. You can pick a price. You times it by days or hours, and that can get you to a place where you can make money.

Harv Nagra (2) 7:35

Sure.

Rich Brett 7:35

When you're smaller, that's easier. You know the costs, you're probably working in the business, you are in control of things.

Harv Nagra (2) 7:40

Mm-hmm.

Rich Brett 7:41

So I think pricing generally. If you know how much time it takes to deliver something or you know how much a client might pay for it, then it's easy. But the actual broad principles of how you get to a rate card and create that price is a lot more complicated. I think it often is over complicated, but the reason why we have pricing towards the end of the course in theory is because. You can only really price accurately if you know stuff about your business. Mm-hmm. What are the costs? What are the staff costs? What margin do you want to achieve? Mm. What utilisation do we expect from our roles?

Harv Nagra (2) 8:12

Right.

Rich Brett 8:12

What recovery are we gonna get? If you can build that into your rate card? Get rates that actually mean something that you can control and you can give that to your team and say, it's okay for you to use these rates. We know that there's risk in them, but there's also a mitigated risk when they sell them and do their bit where they go, well, I know this takes 10 days. They're using a rate that they know they're comfortable with. Mm-hmm. But the thing about pricing is it's easy to just pick a number out. Of thin air and say this is how much it costs. Yeah. But you really need to then use your data to go but actually did it. And I think what I've seen over the last few years is professional service business owners, just choosing a number that they believe is how much it costs to do something

Harv Nagra (2) 8:53

Right.

Rich Brett 8:54

Not actually what it actually costs. Mm-hmm. And if you only think about that every three years, you could sometimes be pricing something up based on how much it costs five years ago.

Harv Nagra (2) 9:01

Right.

Rich Brett 9:01

And a lot's changed in five years in terms of how much people cost, but also general cost of running a business. Mm-hmm. So I think pricing can be simple if you get it right.

Harv Nagra (2) 9:10

Yeah.

Rich Brett 9:10

It shouldn't be complicated. You want to have a number that makes sense. But at the same point, you do need to have bit of an understanding of how the numbers work Sure. To make it more accurate.

Harv Nagra (2) 9:19

Well, I was, uh, quite surprised in, in, in the sense that I've been part of kind of some pricing conversations, maybe not at the depth of kind of a, FD or, or finops person would be, or even a ops person that's like really clued up in finance which I wasn't at the time. So there was a lot more complexity or layers to this than I realised. And one thing that I thought was quite interesting is that part of the pricing process that you recommend is actually looking at your recovery or overservicing mm-hmm and building that in.

Rich Brett 9:51

Yep.

Harv Nagra (2) 9:52

And anticipating that you will likely over service. And if you don't, that's fantastic, but I just thought it was so great to to think about that.

Rich Brett 10:00

Thanks. And I think the thing is, is that you, when you build a price, you need to mitigate risk. And I think that's, if that's recovery, it's like saying, are we really gonna get paid for every hour that we spend on clients? I mean, in the last five years is that been the case? If it has, and by all means, go for it. But even then I'd still build in that risk. 'cause that's probably just gonna be, if you do that, you're gonna make additional margin.

Harv Nagra (2) 10:21

Yeah.

Rich Brett 10:22

On a utilisation perspective, if you set something that every person has to be a hundred percent build, it's not gonna work. So I think it's a lot of these concepts are with a rate card, you're trying to build in buffer and risk that if we do not do what we expected to do, we are still gonna be okay. Yeah. But the big overriding factor of any pricing is. But can we sell it?

Harv Nagra (2) 10:44

Mm.

Rich Brett 10:44

Because I can easily just go into a business and say, this is what your rate card should be. Mm-hmm. If they then say, well, that'll be two times as expensive as on our competitor, it means nothing. And that's when you then have to really look at, well then there's something wrong with this business.

Harv Nagra (2) 10:56

Mm.

Rich Brett 10:56

If this is the price that we should be paying to cover costs, make the profit that you want and pay the dividends you want. And that's gonna be two times the cost of the price for every, against every other agency or business. You're probably not running the right business.

Harv Nagra (2) 11:09

Yeah.

Rich Brett 11:10

So I think that is why it is really important to understand where it's going. Mm-hmm. And how you're gonna do it.

Harv Nagra (2) 11:13

Yeah. I mean, it's interesting sometimes when the, the idea of pricing comes in, maybe it's kind of bleeding into scoping as well, business owners sometimes try to compare what their competitors are charging for stuff. Is that wise?

Rich Brett 11:27

No.

Harv Nagra (2) 11:28

Tell us why.

Rich Brett 11:29

Because you could have two agencies that live right next door to each other, but one of them could be paying an average salary of 50,000 pounds. Another one could be paying an average salary of 35,000 pounds. Mm-hmm. One of them could have got a really good discount on the rent. The other one didn't. One of them might wanna make 30% profit. The other one might make, wanna make 10% profit.

Harv Nagra (2) 11:46

Yeah.

Rich Brett 11:46

You can't compare rates and say, well, they're charging this much. We need to do it. I think the only reason to compare that is to go, well, if they're charging that much. Then that means we could charge that much. Why aren't we? Mm-hmm. So I think there is, there's an element of understanding what that is. Mm-hmm. But just because someone else is able to charge at 500 pounds a day and you're at 800, you can't then go, well then we need to charge at 500. Because you need to cover your costs for your business. Yeah. And professional service businesses, they're all completely different. That is why there is no template of how to do this properly in terms of if you do this and this and this and this, you will make this. Well, it depends really on all the variables within that business. Right? So I think it's a case of it's useful information, but I definitely wouldn't say, well, if they're doing that, we need to do it because you have no idea what's going on behind the scenes as to why they're able to afford that. It could be that the owner's not even paying themselves any money. Right. You've, you've gotta just, you've gotta run your own race.

Harv Nagra (2) 12:41

Yeah.

Rich Brett 12:42

That means setting your own rates, costing it, and pricing it the way that you believe that your team can deliver it.

Harv Nagra (2) 12:47

Mm-hmm.

Rich Brett 12:47

Because that's what you have to pay for. You're not paying for your rate for their team. You're paying, that rate is being paid for your team.

Harv Nagra (2) 12:55

Mm-hmm. And it's not a race to the bottom. That's a good way to go out business. And really, hopefully you can charge a premium for what you do as well 'cause you can justify the value you bring.

Rich Brett 13:05

I think it's worth saying that what I've found with more smaller businesses is that confidence is a big part of it. And actually you've gotta move from saying, we believe this is how much it'll cost to this is how much it's gonna cost. Yeah. Or we think the solution is this to, this is the solution. I think if you start being more confident with how you sell your services and have a price reflected alongside that, I think that's really important. I also think that if you're charging premium, everything has to be premium. Mm-hmm. You can't have spelling mistakes in proposals. Mm-hmm. You can't have design that looks rubbish. You know, if you are selling copywriting and you've got spelling mistakes in your proposal, it won't look great. Even things like your invoice, if that goes across with things that aren't right, it just immediately discredits your business as, "well, we're paying premium prices, but they can't even invoice correctly." Yeah. So I think that's another part of it as well, is if you're gonna charge premium, everything has to be premium

Harv Nagra (2) 13:56

that

Rich Brett 13:57

comes outta that business. Yeah.

Harv Nagra (2) 13:58

Well. You know, like I said a few minutes ago, I learned some surprising new things about pricing through this module So hopefully other people, um, will get a lot of value out of this as well. And hopefully there is something that is kind of surprising. Yep. 'cause it means, um, that there's some something new for you perhaps too. Let's hope so. Yeah. So that's episode two of this mini series from Inside the Missing Finance Course. A few things stood out for me when listening back to these conversations. I like the moment in the P&L discussion where Rich points out that if your senior leaders can't explain the numbers to their own teams, it erodes trust. It's not just a knowledge gap for yourself. It becomes a credibility gap. On the cashflow framing, that forecasting isn't an advanced topic, it's a survival skill. When we were developing the course, I was the first to say, shouldn't anything with the word forecasting be much further into the course material until Rich insisted on keeping this there. And finally, Rich's warnings about pricing really stuck with me that a lot of business owners are pricing based on what they think something costs or what their competitors are charging, not what it actually costs them. Sometimes they're working off numbers that are five years out of date. That's a scary thought. If you like what you've heard, then you should be subscribing to the course yourself and sharing the relevant paths with your whole team. There's a path for leadership, a path for delivery folks, and a path for your individual contributors as well. It's free. You can track your progress. There's quizzes to reinforce learning. And you get a Rich Brett certified certificate at the end. Get started at learn.scoro.com. We've literally had hundreds of people sign up for this already, and some teams are starting to rule this out as part of their team training. Let me read you a quote from someone that's just completed the leadership path. It says, "I wish I had this course in year one as a co-founder and COO. Though some of the content was a refresher, there were lots of tactical takeaways that I can apply now that my team is growing and our communications and reporting needs are evolving. I appreciated the format. The modules were digestible and thoughtfully explained. Huge props on putting together such a valuable resource. Looking forward to sharing this with my team." Now, if hearing this episode, you've recognised that you're not totally in control of this stuff in your business, and you need some one-on-one attention to sort it out, Rich is the person to speak to. He's seen every version of these problems and he knows how to fix it. Find him on LinkedIn or @agencyfinops.co.uk. And if the operational side is where the gap is, the tooling, the systems, the platform that ties it all together, drop me a note. Scoro is what allowed my last business to get properly in control of our quoting, resourcing, project, budget tracking, reporting, invoicing, and so on. It was a huge part of our maturity journey and it changed how we ran the business. I'm happy to tell you more about that. Find me on LinkedIn, i'm Harv Nagra. That's it for me this week. I'll be back with the next episode soon. Thanks so much for being here.