What Your Financials Reveal About Readiness (#279)

On this week’s episode of the Maximize Business Value Podcast, new host Kim Bentson is joined by special guest Dave Casey to pull back the curtain on your finances: "What Your Financials Reveal About Readiness." Are your financial statements telling a story of growth, or are they hiding red flags that could tank a deal? This episode focuses on the key question: “What do buyers see in financials that I don’t?" Tune in to learn how to spot the "financial leaks" that devalue your business, what buyers are actually looking for in your numbers, and how to ensure your financials prove you are truly ready to sell!

Listen to our podcast weekly to hear more from Mastery Partners and to receive relevant key content on your journey to maximizing your business value!

Podcast Chapters:
00:00 — Introduction
02:24 — What Buyers Seek That Owners Miss
05:42 — Due Diligence Spotlight on Inventory and Tech Assets
08:57 — Managing for Taxes vs. Managing for Valuation
13:31 — Customer & Vendor Concentration
18:07 — Recasting Financials and the Power of Add-Backs
22:18 — Cash vs. Accrual Accounting
26:32 — Monthly Recurring Revenue
29:34 — The Danger of Waiting
35:48 — The #1 Tip for Building Business Value
38:37 — Transition Readiness Assessment
41:14 — Outro

#MasteryPartners #MaximizeBusinessValuePodcast #BusinessOwnerHotline #BusinessExit #FinancialReadiness #Entrepreneurship #ExitStrategy

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Learn More about Kim Bentson
Kim Bentson is an accomplished Strategic Manager with a proven track record of delivering results. Kim is a natural problem-solver who is passionate about helping businesses achieve their full potential and is committed to delivering her clients the highest level of service.

Learn More about Dave Casey
Engaged business leader with an eye for cyber security, non-profits, and business transformation. Dave previously founded and led an IT managed services company, brought it through a successful exit, and today helps companies craft cybersecurity strategies.

Mastery Partners

Elevating Businesses to Achieve The Business Owner’s Dream Exit 
The unfortunate reality is that for every business that comes on the market (for whatever reason), only 17% of them achieve a successful exit. You read that right. 83% of attempted business transitions never reach the closing table. Mastery Partners is on a mission to change that. We ELEVATE businesses to achieve maximum value and reach that dream exit.

Our objectives are simple - understand where the business is today, identify opportunities for dramatic improvement, and offer solutions to enhance the business, making it more marketable and valuable. And that all starts with understanding the business owner’s definition of his or her dream exit.  
Mastery has developed a 4-Step Process to help business owners achieve their dreams.

STEP 1: Transition Readiness Assessment
STEP 2: Roadmap for Value Acceleration
STEP 3: Relentless Execution
STEP 4: Decision: Now that desired results are achieved, the business is ready for the next step in the journey!

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Transcript

Tom Bronson (0s): Welcome to the Maximize Business Value Podcast, brought to you by Mastery Partners, where our mission is to equip business owners like you to maximize your business value and achieve the exit of your dreams, whatever that means to you. With insights gained from over a hundred business transactions, we share real world strategies, lessons, and expert advice to help you build long term sustainable value in your business.

Each episode is hosted by one of our Mastery certified partners, their seasoned experts who've helped countless business owners navigate the complexities of growth, scaling, and building value. They bring firsthand experience, actionable insights, and a passion for helping you build a business that thrives. So, let's dive in.

Kim Bentson (1m 0s): Welcome to the Maximize Business Value Podcast. I'm Kim Bentson, business owner operator, and honestly, still figuring out a lot of this right alongside you. Today's topic hit me right between the eyes because it's one I've personally wondered before, what do your financials actually say about your readiness? And are they telling the story you think they are? So this question came in through our website from a business owner, and I'm gonna be honest, I feel like I could have submitted this myself.

I'm asking real questions from real business owners just like you and me about running and eventually selling a business and bringing those questions to some of our certified partners at Mastery Partners. If you have something you've been wondering about, you can submit your question@masterypartners.com, and it might be featured in an upcoming episode. So let's meet our certified partner today who we're gonna be quizzing. Dave Casey. Welcome.

Dave Casey (1m 60s): Well, thank you. Glad to be here. This is kinda weird for me to be on this side of the microphone, I guess.

Kim Bentson (2m 6s): That's right. That's right. I, I, you know, in our meetings we have, I'm in meetings with Dave off and on, and I'm always blown away by the amount of information and knowledge Dave has. So I'm really excited about diving into today's questions. So let's, let's get to it. Dave, What do buyers see in financials that I don't, if I'm being real, I look at my financials and I think I'm profitable. I'm good. Yep.

I didn't have to pay a ton of taxes, but I don't know if I'm looking at them away the way a buyer would. So I guess I'm really asking this as much for me as for the person who submitted it. But when a buyer looks at financials for the first time, what are they actually looking for that most owners miss?

Dave Casey (2m 55s): Yeah, it's interesting. So I went through this personally when I sold my company, and I was somewhat, I won't say arrogant, but I was pretty confident in our financials. We didn't do anything squirrelly. We didn't have a private chat or anything like that, you know. So I felt like our financials accurately reflected what our, what our company was doing. And it was kind of really kind of taken aback. The, the attorney, the m and a attorney that was helping me sell the company said, we'll need financials.

And here's, here's what the format they need to be in, which was different than I used all the time. Here's the things they're gonna be looking for. And I had no clue that those things were gonna be important. So what really came out is that the financials that you need to run your business day to day differ. They differ, first of all, from what the IRS wants to see. And it also differs from what a buyer of your business wants to see too.

And, and as you just said, when I looked at financials, I just, I had a feel for how well the month went. And so when I looked at the financials, first thing I looked at was the income statement. Okay, yeah. I thought that's about what we sold this month. And yeah, this is about what I thought our EBITDA would be this month. And then I kind of scanned expenses real quick and just said, well, I don't see anything that's way outta line here, so we're good. You know? And, and that's about all I did on a month to month basis.

Right. But it's interesting when we, when a buyer looks at your business, he's looking very much deeper. He's definitely looking at trends and trend analysis. Definitely looking at your balance sheet very closely. What's on the balance sheet? What's not on the balance sheet? What does the balance sheet tell me? What's missing? What seems to be something that I get a feel that there was more money here somewhere? Where did it go?

Or, you know, there must be some stuff off balance sheet. 'cause I'm not seeing what I expect. You know, so these are all the things that really pop up that business owners, I think, you know, you, you really don't think about it day to day. You really don't think about it when somebody's giving you this deep dive exam, you know?

Kim Bentson (5m 22s): Yeah. So if I'm a bit, you know, I, I do the same thing that you just described. Yeah. I'm looking at the p and l and thinking, oh, we're doing good. So how did you learn what to look for and how do you know what you're even missing if you're not a buyer? If you never bought a company before,

Dave Casey (5m 42s): Know. Yeah. Yeah. If you're not, have never been in this position before. Right? Yeah. So there were things, there are some things that are, would seem obvious now. One was we had a business that had inventory. So inventory is an area that buyers look into pretty closely, because typically, and we weren't a manufacturer, we were a distributor and a, and a, we had an IT services company. So we managed people's IT stuff, but we also sold them IT equipment to, you know, to do that.

So we had a certain amount of equipment that was an inventory. We had service spares, you know, 'cause we had service contracts, we're taking care of equipment for people. And we had, you know, work in progress. So we would have a big project, we'd bring in a bunch of equipment, we'd program it, we'd stage it, and then we'd ship it out to the customer sites and then install it. So there's quite a bit of stuff laying around in the, in the business. A buyer looks at that and says, Hmm, I wonder how much of this inventory is on the books versus not on the books.

How much of this inventory is work in progress? Like I just described it, it's coming in, it's being worked on, it's going back, back out. How much of this stuff is on the books, but it's actually been drop shipped from the manufacturer to a customer site, but the customer hasn't paid for it yet. So the company still owns it. And so we're, how do we count for that? Right? So then, then there's the old obsolete inventory. You know, we're in a technology world, stuff changes fast.

You know, a PC that you buy today, 18 months from now is still runs perfectly, but is worth a 10th, you know, of what it was because it's just, you know, time marches on. My technology moves quick. And so how do we, how is that accounted for? Where does that show up? You know, what, how, how have you written down inventory? And, and then how have you added, you know, when you buy something, you put it in inventory, add it to inventory. When you sell it and you take it out of inventory, you relieve it from inventory.

And how's that done? Is it consistent? Is it, you know, last in first out or first in first out, you know, there's all these different methods and, and depreciation methods and all these kind of things. But I really didn't give a care about running the company. But a buyer was all over that, you know, show me, show me, show me. So,

Kim Bentson (8m 10s): Yeah. Well, I, I rely heavily on my CPA, but I think her, her main goal is to keep my taxes in line where I don't have a heart attack. And so when, when she's looking at the p and l or doing, or, or you, you mentioned earlier, a type of financials that the buyer was looking for. Yeah. So how do I know what to even ask a CPA and does it depend on the type of CPAI have?

I know those are two questions together. Yeah. But how I, I'm, I'm, I'm depending on this professional to take care of it. Yep. But that may not always seem the case. 'cause I'm assuming you had a CPA

Dave Casey (8m 57s): For your Yeah. Wonderful. CPA, in fact, yeah, they're a sponsor of the upcoming Business Transition Summit. So it was really good. Oh, wow. You know, just to, just to stick that in there, great. CPA and uniquely A CPA that worked with corporations large and small on a, you know, month to month basis. Obviously most business owners are just, like you said, just help me not pay any more taxes than I need to. And hopefully pay none. Little to none.

Show me how to do that. You know, kind of managing to taxes, not managing to the business itself. I

Kim Bentson (9m 33s): Think, I think my goal was keep me out of IRS jail. That's

Dave Casey (9m 37s): What I, well, there is that. Yeah. Yeah. There is pretty much told told. But yeah, if you're paying zero taxes there and be or profitable, there might be an issue. Right. Right. So, but the other thing is that Jeff had gone through several transactions with clients as well. So he had done several times where people had sold businesses, bought businesses merged, you know, and gone through, you know, through bankruptcy with people. I mean, there's all these different things that happened. So A CPA that, that has knowledge of, in all those areas is very important, I think.

And certainly the, yeah, the, the things that, again, I was trying to do the same thing. I'm trying to reduce my taxes. I, I want to be profitable. I just assume at the end of the year, it shows very little profits. So I pay little, very little taxes. Right. But the, the, that's a school of thought. And certainly if you're an owner led business, that's what most people think that way. That what took me a while to figure out was, buyers look for two big things.

So they look for growth, a business that's growing substantially year to year, and they look for profit. You know, they look for a profitable business. And you really have to prove to them, yes, we are growing and yes, we are profitable. And 'cause they look back, I would say at least three years, sometimes they look back a little further just depending on the type of business and type of transaction it is. So those are the things I think that, that really, you know, we were, we were growing fairly good.

We weren't, you know, spectacular like a hundred percent year over year growth, but we were growing at like 20% a year. And to some extent I was trying to control that. I didn't, if we grow super fast, then a lot of stuff gets dropped and, you know, customer satisfaction goes down and you can't keep people trained and you can't keep people, period. I mean, it is, it's hard. So, and then the profit thing was, I wanted to make sure that yeah, we're profitable, but again, way too much profit. What there's no such thing as way too much profit.

But if I showed too much profit at the end of the year, I felt like I was unnecessarily paying a lot of taxes. What the CPA and the attorney shared with me is, well put yourself in the buyer's shoes. Okay? Yes. Okay. You're growing, you know, it's growing of concern. That's always good. And what mean profit? Well profit's important, in fact, profit's, the thing is that most transactions take place on a multiple of earnings or ebitda.

And So if you don't have ebitda, or if you have low ebitda, artificially low ebitda, let's say you're doing all kinds of unnatural things just to not pay any taxes. So you're showing very, very little profit at the end of the year, a buyer's gonna say, cool. I mean, you made 5% profit. So, and that, you know, what is that? Let's say that's a million dollars. Well, good in your world, it's a five times multiple. So your business is worth $5 million, five times that million. And you go, wait a minute. I, I really had a lot more profit than that.

But, you know, we did a lot of stuff, so we just didn't pay taxes, you know, and they said, well, hey, what's you're showing is a million dollars of profit. You know, so they're gonna start at that point. And then you've gotta do add backs. There's a lot of things you need to do to show that. Maybe you did make more money than that, but that takes a lot of work. So, right. And that's kind of, frankly, that's where mastery comes in. We, we help people start to manage that way and start to think that way. Even if that transaction may be three to five years away, you know, we need to start thinking about profit, thinking, about growth, the two big things that, that, that buyers look for.

Kim Bentson (13m 31s): Well, and you know, the financial statement and the financials is the starting point. And where an owner sees success, I think sometimes just in, in listening, the buy a buyer would see risk. Yeah. And that's a starting point to go down that rabbit trail. So if you had, you know, if your margins dropped over, you know, you're thinking you're being efficient and I'm, you know, becoming more profitable, but they wanna know why that margin is dropping.

Or if your, you know, customer concentration is, is at 40%, most of your business goes to this one customer. That's a flag that your financials are, are giving away that you don't even, you're just looking at, yay, we kept this client and they're growing and we're expanding our services to them. And that's not always a good thing to a buyer.

Dave Casey (14m 29s): Yeah. And, and that's the same on both sides, actually. It's the same on the supplier side. So in our case, I can describe a transaction that didn't happen. So probably six, seven years before we actually sold the company, we, we started down the road with another buyer to buy our company. And we had one of our vendors, suppliers had a fantastic product. And they were fast growing, they were growing very fast, and consequently, we were growing very fast and we became their number one business partner in the southwest region.

And we loved their product. The customers loved it. Our, our team loved it. I mean, we, it was a great symbiotic relationship. We, we really enjoyed everything about it. And we were very profitable with it. It was a, it was one of the more profitable products that we sold at the time. 'cause it had a lot of maintenance attached to it, and a lot of of our costs, you know, or our, our product, our services were attached to that product. And so it got to be around 35% at least of our overall sales, sales every year.

And they were so successful that they were purchased by Nortel, one of the big guys in the industry at the time. And we go, oh, that's not good. Because that was, we were also a Nortel partner, and Nortel had their own way of doing business. It was usually not a profitable or very profitable relationship with us. And we said, oh, this is gonna, this is gonna throw a wrench in the works. And we just thought about that long term.

I mean, long term, yeah. Now they're gonna be a Nortel company and probably our margins will change and things will happen. But immediately what happened was they tried to move all of their distribution and everything to Nashville from California. So literally they could not ship any product for 90 days. Not a single thing. We had orders backed up like you wouldn't believe. And it really hurt us. That 90 day period on our financials looked terrible. Meanwhile, there's a company out there looking at buying us, right?

And they're keeping track of us what's going on. They also already owned a company like us that had the same exact problem. So they knew what the problem was. They knew that the problem was Nortel and it was relatively a short term problem, but we were gonna lose some sales. We were definitely losing cash flow because we had a whole quarter without shipping anything and not installing anything or paying, you know, charging for training and maintenance and everything else. So they immediately came back and started renegotiating on the purchase price, you know?

And we said, well, you know what the situation is, it doesn't matter. We're looking at the hard numbers in front of us. We're looking at your accounting that you told us is correct, which it was, you know? And so we never did that deal. So that was, and that was actually a blessing in disguise. That's a whole nother story that, that, that, that roll up did not work well. And lots of people lost a lot of money, so we were glad we weren't one of them. So,

Kim Bentson (17m 40s): Yeah. So it sounds like the, it's really the buyer looking at a financial statement. If it's not not accurate or it's bloated in a way with personal expenses, or the profitability isn't the real profitability, it's a tax savings, then they don't really know what they're buying and that just reduces the value or kills the deal altogether just like it

Dave Casey (18m 7s): Did. Well definitely adds time because, you know, there is a process that we go through all the time. Certainly our, our brothers over at North Star go through this, where you take a company, you look at their financials, and then you look at, okay, what can we add back? You know, we may have a CEO that's paying themselves double the market rate for a CEO of a $20 million company. Well, we, we realize what he's doing. He is taking some money off the table, and that's fine.

We have to add that back in to their bottom line so that, you know, when we are negotiating with the buyer, we can say that's, that's an expense you're not gonna have, you know, obviously when you, when you buy this company or if there's other discretionary things that owners do, discretionary expenses. And so all those are added back. But it takes time to do that and takes time to, to, and if you can get all that done before you ever talk to a buyer, it's much easier. You know, it's, it's, it's make sure that those things are done ahead of time.

Everything is explainable, everything is in black and white, so there's no surprises. Buyers don't like surprises. For sure. And it's interesting, I've done on previous podcasts, I've, I've interviewed some of the guys at North Star and so I interviewed Tom Bronson, you know, what's the number one thing that you think, you know, will kill value when you go to try to sell your company? And his quick answer is owner dependency. You know, if, if the company's way too dependent on the owner.

In fact, we just have done a, a couple of podcasts regarding that. And I interviewed Jeremy Ick, who is, takes a little bit different approach, and his number one thing was bad financials, financials aren't good. It's gonna kill your value when you go to sell your company. So you've got to have really tight, clean, good, honest financials, you know? And so that's, that's a starting point. Yeah.

Kim Bentson (20m 6s): Yeah. It, the financials really tell a story and it, I guess depends on your point of view at, at what story you're reading there. And I know that you see this show up all the time in the transition readiness assessment.

Dave Casey (20m 23s): Oh, gosh, yeah. It's very rare that when we do a transition readiness assessment, we, we, we look at nine different areas of the company, but it's very rare that financials are not the, the first or second lowest ranked area because we really do get into situations where, and again, it's, it's nothing dishonest or anything like that. It's just the way people run their business to effectively run it. You don't really need to do all those things that are generally accepted accounting principles.

Yeah. But to sell your business, you, you better have that data and have it correct, you know?

Kim Bentson (21m 3s): Right. I i, I see that, I, I hear this all the time from y'all. Like there, the business owners are running a good business, but it's not necessarily a valuable one or a transferable one.

Dave Casey (21m 17s): Right,

Kim Bentson (21m 18s): Right. It can, it can still be that Yeah. A good business, but,

Dave Casey (21m 23s): Or even if it is, they will take a haircut when they do that, you know, that, that they're, they will lose value just, just because there's uncertainty or risk as you'd mentioned in the buyer's eyes, you know?

Kim Bentson (21m 37s): Yeah. So, oof. That's a little daunting, honestly, you know, mastery Partners is all about taking action. So I, and, and through your examples, I can see how easy it is to think things are solid and I'm, we're, you know, I'm thinking it's solid and a buyer is seeing risk. So if I'm a business owner listing right now, which I am, and I've never really thought about my financials from a buyer's perspective perspective, where do I even start?

So what are two to three things that I should go look at immediately or shift to try to get that under control?

Dave Casey (22m 18s): You know, the number one thing I think is what's the quality and the relationship with your professional advice, okay. With your CPA. And it's, it's interesting, almost every business owner, when we start working with 'EM and going through the transition readiness assessment, one of the early questions in the financial side is, tell me about your relationship with your CPA. And it may be like, well, we've, we've dealt with Bob for, gosh, 15 years and he's always done right by us, but I'm kind of getting a feeling that maybe we've starting to outgrow Bob.

You know, it's kind of one of these deals when they were a one $2 million company, Bob was the perfect fit. They're now approaching 20 million in revenue and maybe Bob just isn't quite on the ball, you know, still wants to do things the old way. And, and, and of course, the very first question we ask, are you doing cash or accrual accounting? And many, many businesses, even if they are doing accrual accounting and QuickBooks are running their business like it's a cash business.

And that's, you can do that up to a certain size and, but the, you know, what their CPA tells them is telling sometimes, you know, if the CPA says, yeah, no problem, you can run this as a cash business. You know, why complicate things? Well, it's gonna get complicated when you go to sell it. So, so that would be the number one thing is, you know, what is the relationship with the cpa? Are they, are they the right person, you know, day to day, are they right firm for you to deal with?

Do you have any reservations at all? And it's amazing. They will open up many times and say, you know, I've got a CPA, they've done all right by us, but I just get this uneasy feeling like we, we need to maybe con look, look around a little bit in that area. The second thing I think that, that will be, have they ever had a problem in their financials if they ever had a, a month or a quarter where everything just looked wrong? And how did that come about?

What happened? You know, what brought that on? And, and, and how did the CPA address that? How did they address it? And then it, the very small companies, we've got a few of those that we, we work with, you know, they just don't, they're not savvy at all when it comes to financials. They are just trusting. It's like the old adage of Americans going overseas and you didn't understand the currency. You just kind of hold your hand out. You know, take, take what, what I owe you.

You know, they don't know. Right. And, and they, and they're intimidated by it. And they don't want, they don't wanna admit they don't know, or they don't wanna even want to discuss it. You know, it's just like, as long as we don't run outta money, I feel like we're okay. You know? So, so there's, yeah, there's variations of the theme, but those are the things I see early on. Yeah.

Kim Bentson (25m 27s): Yeah. I luckily did a TRA for my business. I think my business was 18 months old at the time. Wow. And one of the things that I learned from taking that T-R-T-R-A and from my CPA together is don't, is keep those personal expenses separate. Yeah. It really, yeah. Can junk up your financials and get very confusing quickly. So that was one thing I was like, okay, so I'm pretty vi vigilant about doing those things, otherwise I never would've known to even Sure, sure.

Oh, we'll just pay gas. The company will pay for this gas. But anyway, so you, you also mentioned, you know, that consistency of earnings killed that deal. So that, I see that as an action item if you, if your earnings are not consistent and you need to deep dive a little bit to make, to see what the problem is.

Dave Casey (26m 32s): Yeah. There's, there's two things there. And one is the, well, the big, the big official term is quality of earnings is where do your earnings come from? But when you dig into it, if there's any way in your business to transform it from a transactional business to a monthly recurring revenue business, we've got to find a way to do that. And to the point where it's, it makes a huge difference in valuation.

And, and I, I understood that when I had my business, I had started to do it, but I didn't have a hundred percent monthly recurring revenue. When I sold my business, I had about 60% monthly recurring. And the rest of it was big project business that was kinda lumpy, you know, in the way that that business came in. But they, that is a, that's a huge thing, and that also makes it a little bit easier to do your accounting.

One of our, one of my early clients with mastery was interesting 'cause they were a software company that served the equine world. So they served veterinarians, horse breeders, veterinary hospitals, all that type of stuff. 100% of their revenue was monthly recurring revenue. It, they were a software as a service company. They hosted all the software at AWS, they just billed their client by the month and by the module, you know, they had like seven or eight modules, I think in their, in their, in their system.

But there was no accounts receivable. I mean, you know, beginning of every month dinging all the money was in the bank, you know, for that month and every, every month very consistently. And you could actually see, you know, the, the growth happening as they sign more people and, and people bought more modules and things like that. So it's very, very predictable. So an outside buyer looking at something like that can, can really say, this is a fairly low risk deal. You know, this, all of these people are automatically billed every month.

If they don't pay, we just flip the switch and their software doesn't work, so they will pay. You know, so it's, it's, it's the ideal situation really. Now that's harder to do if you're, you know, a manufacturer building big million dollar machines that, you know, get shipped and billed and installed and, you know, takes a month to get 'em online or whatever. So there's, there's variations obviously, but, but that's, that's kind of the, the ideal situation.

Yeah.

Kim Bentson (29m 18s): Yeah. And it sounds like in your experience and, and just the business owners you've helped, by the time they're thinking about selling, it's often too late to fix the story their financials are telling. So Yeah,

Dave Casey (29m 34s): Particularly if they, if they come to us, and we had one of these that ended up not becoming a client. I mean, he came to me and was referred to me, and we, we talked, and he had a nice little home services business actually. He served homes and like strip center, small commercial kind of stuff. And, but he was a part-time owner of the business. I mean, he was, had a full-time job and this was a side gig. He had done it full-time for a few years and then gone back to his original career.

And so he is anxious to sell the company. He said, I, I feel like I wanna monetize this and, you know, put some money away for retirement. And, and, and, but he hadn't, he hadn't invested in the business like he should have. And his accounting was all over the place. And so it really became a challenge. I mean, it was, and had he, and he was ready to sell, like immediately he said, I said, you know, within 24 months this month, maybe as little as 30 months, we can get this thing humming along.

You'll get, you'll get probably more than the what you anticipate you could re, you know, receive for this business, but it's gonna take some time and effort to do that. And he was like, no, I, I, I don't, I have enough full-time job now. I just can't, I can't take that time. So I really felt bad, you know, that, that we couldn't help or we couldn't, you know, that it, it would be difficult to do. It's almost like I wanted to find somebody to help him run the business, you know, something like that.

Kim Bentson (31m 12s): Well, and I know that this has happened too. I've heard you mention this too, about shifting from cash to accrual, and not just how your book, how your financials are, but just how you're also using your financials, like a decision making tool versus a tax thing. Yes. So Oh, definitely

Dave Casey (31m 41s): That. Yeah.

Kim Bentson (31m 42s): And that takes time to be able to fix that. I know the cash changing from cash to accrual, that that's a, that's a a lot to clean up.

Dave Casey (31m 54s): It is. And it's, it's again, a business, sometimes business owners says, I just don't understand why, why do I need to do that? I mean, I know that the insurance bill's coming in November, so I'm saving money for that. And, you know, it's, they're looking at it from a cash in cash out basis. They're really not looking at what accrual accounting does and why. And so that's, but I, it's, again, it's almost like, but, but your buyer is always gonna be on approval accounting, and they're gonna wanna see your numbers that way.

And if you don't run your business that way, you're gonna have to spend a lot of time or pay A-C-P-A-A lot of time to kind of recast all your numbers into accrual mode so that they have something they could look at. You know? And so it just, we also just point out, it makes it easier to run your company when you run approval accounting, it takes a little bit, as you mentioned, to get there, but once you're there, it does make your, your company run better and you make better business decisions. So

Kim Bentson (32m 56s): It's really interesting because these just aren't accounting issues. It's really the decisions being made every day that impact your, your ultimate value of the business, or, you know, whether you're gonna sell that or pass it on or whatever that looks like for you. But it's those little decisions that are made every day that can really improve that value, I guess.

Dave Casey (33m 25s): Yeah. The other thing is, if you think about it, and this is what I try to talk to people about, even if they're nowhere near any kind of transition, you know, they could be, we just started the company two years ago, we got a long runway. I said, that's great. And that's, you know, I'm sure you're gonna be very successful. The things to look at are what can we do so that if we had to sell the company for whatever reason, you know, it could be a health reason, it could be a, a divorce or something like that.

There's, there's always things that happen that you never anticipate or you don't want to anticipate, let's put it that way. And, and so how prepared are you and, and what would happen and, and what would be the best outcome you could hope for. So I think running your company great. It's a great quote. I think David Hammer is who I attribute to that, you know, he is a, a one of the, a great mergers and acquisitions attorney, but you know, it, it's like, you know, treat your business like you're gonna be there forever, but run it like you're gonna leave tomorrow.

And, and that way you're, you're ready if something does happen and, and you're making decisions that are, that are for the best of the company and, and yourself ultimately if you're the owner. So that, those are important. And then I really think that it's a, it's just, it's just good stewardship to really just, you know, do things the right way. Look at the long term and, and you, it will, it will pay off in spades.

It really will, you know, when, when the, either, when the time comes to sell the company, or even just day-to-day running the company, because once you have really, really solid, accurate financials, then you can start to do analysis against those financials. You can start to look at trends, you can look at rates of change. You can be, use the financials as a tool to actually help you improve your business. And if you're, if you're just kind of winging it, you, you don't have that tool. I mean, it's just, just one thing.

You're just, another thing you could have done to, to run better, you know?

Kim Bentson (35m 48s): Yeah. Wow. That makes so much sense. So before we wrap up, I'm sitting here thinking, okay, I probably need to look at my d business a little differently. Like, would someone else even understand this business or even want it? You know, there's a, those are, I, I really need to change that perspective. Just like most business owners, I get bogged down in the day to day, get the money in, limit the money going out.

Yep. So what's the one thing that you would tell me to do first in regards to, you mentioned a lot of great things today to do Yeah. To take action on financials. But what, what, what's the one thing you would tell me to do first, Steve?

Dave Casey (36m 32s): I would, what I would do is just make sure and seek out your, your outside professional that helps you with financials. And just say, I want to understand more about how financials affect my company. What I can do maybe changes, even slight course changes that I can make that are gonna make my financials better and ultimately make my company better. And even though I have no plans to transition outta this company anytime soon, what can you show me that, that will help me if someone were to come along and be interested in my company, that I would get, you know, definitely get the maximum for it.

So that, again, that's, that's a convoluted answer, but it's really like, make sure you have the right outside professionals and that they know kinda what your long-term vision is and that, you know, what, what can we do to, what can I do day to day now that's gonna improve that? And so I think, and, and financials are a tough one. 'cause again, if you didn't, I didn't grow up in that world. I mean, I went, I have a business degree, but I took two semesters of accounting. It was glad to get out of there.

So I mean, it was, it was not, it didn't give me energy, let's put it that way. So, but running your own business, it's hits you pretty as, you know, it hits you pretty hard and you have to understand the basics and then, then you start to look at, but once you get to that point where you can use the financials as a tool to help grow your business, then that's, that's eyeopening. It really is. Even in stuff like taking on debt, which I'm kind of a debt adverse person as my household, but in business world, that's a wonderful thing, or can be a wonderful thing, right?

It can be a great tool for increasing and growing your business. So it's some education like that is, is kind of like along those lines.

Kim Bentson (38m 37s): Yeah. And honestly, I think that's where a lot of us get stuck. We don't always know what we're missing or where to even look like, I don't even know that that's hurting me. I just, you know. So is that where something like the transition readiness comes in that says that

Dave Casey (38m 55s): It does, because when we do that scoring, you know, we, we actually know for every question we ask almost 400 questions. And for every question that we ask, we kind of know what the best practice answer is for that question. So what we're doing is when we're scoring it, we're just saying where, where is this business owner against the best practice? And how far off are they, are they spot on? I mean, they're doing exactly what they should be doing, or are they like six points away?

I mean, we're not, they're not doing anything that needs to be done in that particular area. So that to me is, is one of the most helpful things we do in that they can look at that and, and chew on it, you know, and just say, wow, I didn't realize how bad my marketing was. You know, or, you know, I didn't attach any value to that. And again, at financials, it, it's, it is an area where a lot of us are like, just let me just do the minimum.

I mean, it's, it just, it makes me so scared to do financials, you know, I don't wanna look, or I know we did great, so I wanna see 'em right away. You know, it's, it's like, you know, it's, it's you, you don't use it, you don't think of it as a tool or you think of it as a, as a way to increase your value, but it's, it is much more than a scorecard, let's put it that way. So, and, and yeah, I think the TRA helps that.

Kim Bentson (40m 22s): Yeah, I think it's helpful. And I, I really think that's the shift. It's not about working harder, it's about seeing your business more clearly. And so if you're listening and thinking out there, I don't actually know what my financials are saying to a buyer, it might be worth taking a look at where you really stand and you can learn more about the transition readiness assessment@masterypartners.com. Reach out to Dave here. He would love to talk to you about how to make your business better.

Because the sooner you see that, the more options you have, the more time you have to make those changes. So Dave, anything else you'd like to add before we close out here?

Dave Casey (41m 8s): No, I was gonna say, if, if you need help on your financials, we're, we're ready to help you, Kim.

Kim Bentson (41m 14s): Yes, I know I do need that. Well, I hope today's conversation gave you something to think about. I know I did for me, I, I wrote down a couple of things that you said, Dave, that I'm like, Ugh, I really need to take care of that. So Dave, thank you so much for sharing your perspective and your experience. We always learn so much from you and then, and to the business owner who submitted that question. Thank you. I think that one helped more people than you probably realize.

Yeah. And if you're listening and thinking, yeah, I've had the same question, you're not alone. So thank you for listening and being a part of this. If you are asking these questions, you're already ahead of most of the people out there. So good for you. Definitely. If you found this helpful, make sure you subscribe so you don't miss what's coming next. Until next time, keep maximizing business value and see you then.

Tom Bronson (42m 17s): Thanks for joining us for another episode of the Maximize Business Value Podcast. I hope today's conversation sparked new ideas on how you can continue driving value in your business. But remember, it's not just about listening, it's about taking massive action. Visit our website mastery partners.com for more resources. Grab a copy of any of the books in the Maximize Business Value series on Amazon or via the links below.

And don't hesitate to reach out if you want to know how to apply these concepts to your business. So until next time, I'm Tom Bronson reminding you to relentlessly execute while you Maximize Business Value.