Financial Planning and Business Growth

Welcome to Building Better Developers, the Developer podcast, where we work on getting better step by step professionally and personally. Let's get started. Well, hello and welcome back. We're continuing our season of interviews and we are into a new interview. This episode, we're going to speak with Brent Allen and, spoiler alert, we're going to speak with him next episode as well, be another two parter. This is going to be a little bit different. We're not going to be in the technical realm as much, maybe not even in the entrepreneurial realm as much. We're talking more business. Brent is a CFO kind of person. This is the financial side. This is how we figure out what we're doing with our business. Is it working? Is it successful? Are we able to sell it or get investment and things like that? So it is going to be a little bit more, a little deeper conversation, but I think Brent does a great job of talking about where the value is and some of the mistakes even that we make when we're thinking about what value does our business have. Is this great, particularly if you're starting into a side hustle, particularly if it's one where you're trying to figure out some sort of exit strategy down the road, but he knows this much better than me. So let's dive right into our conversation with Brent Allen. And today we are starting a new conversation. We're going to talk with Brent Allen. He's a CFO and he works with, as I try to remember, amplify the FI being, you know, FIs and finances, financial. And it's a little different from our normal, more technical discussions, but I think it's something we should all pay a little attention to because most of you, if you're doing a You don't have a CFO. You don't have somebody that's back there that's really a, that's going to talk to you about money and particularly things like, how do you finance stuff if you want to? How do you evaluate your business if you want to do something with it? So without further ado, I'm going to let Brent sort of give us a little introduction to him and then we'll get started. So Brent, tell us about yourself. Awesome. Thank you, Rob. So I have a very traditional background. My grandfather and my father were both CPAs and accountants. So I naturally followed in their footsteps when I went to school, got out of school and did a stint in public accounting. And then by the age of 28, I got my first CFO gig, one of my clients hired me out. And very quickly, what I found is I had a love for operations. So quickly I moved from the, from the finance seat into more of a financial operations and I have stayed there the majority of my career. The last business that I worked for before I started Amplify, I was able to move into the CEO seat. And because of that, I got into a group called Vistage. If you guys are familiar, YPO is another really popular group out there for young entrepreneurs, people that are getting started, people that want to learn and get better at business. That's important in my story because that's where I found that so many small growing businesses, whether you're at a million dollars in revenue or 20 million dollars in revenue, I found great operators, people that were excellent at their craft, excellent at managing people. And yet finance was an area that was a big black hole for them. They didn't understand accounting, they didn't understand the numbers, accrual versus cash accounting. When you start talking about going to banks and getting, getting money and how do you structure financing, most of them had just resigned themselves to the fact that they weren't eligible because they were a service based business, because they didn't have hard assets. They would go to some, to a banker that frankly was a low level banker and talk to them and they would say no. And that's where, that's where it would end for them. So through that group, I was able to help a lot of those businesses. You know, one of the ones I'm most proud of, a business that was about a million dollars five years from five years ago, I started consulting with them. They're at 25 million today, they're a recurring revenue business. They do business at $50 a month. You know, so you guys all know, I'm sure how hard it is to grow that type of business. And we were able to help them grow through acquisition by unlocking financing that historically they weren't able to get. And that's, there's a long road to get there. But I have a passion for helping, helping folks that are great at what they do, spend more time doing that, less time doing the books and help them get to their, their goals. Wow, that's great. That's a, that's a perfect start. And actually, I guess to set the stage a little bit for those that don't know, can you give sort of a, I guess in layman's terms, what's the difference between like a CPA versus a CFO? What's the accounting versus the finance side? Sure. So the world of accounting and finance, what I would tell you, there's a lot of ways to cut it up, but the most clear, the way I describe it a lot of times is CFOs are traditionally looking forward. So they're the folks that are listening to you. What are your plans? What do you, what do you want to do? And they're helping you with strategy from the position of strength and finance. How do I help you get that done? CPAs traditionally are really good at looking backwards. So they'll help you understand what has happened. They'll help you understand how to, how to keep you out of trouble, how to make sure you're in compliance. But if you're leaning on your CPA that does your taxes to do real tax strategy or to help you with acquisitions or to help you understand how to grow, you're probably going to be disappointed. Good. That's because again, I think a lot of people confuse the two and especially if you're not in the business, it's easy to get a little confused about which is which or just assume that they're the same. So it's always good to start with a little bit of a lingual definition kind of thing. Now, you talk a lot about acquisitions and growth through acquisition, that kind of a strategy, but also in general, the finance side. So I think we'll start from the financing side of what if I, let's say I've got a business that's sort of like you've talked to, I've got some, maybe it's primarily service or it's very low level, you know, 25 bucks a hit kind of thing. And I guess two things is why would what would I what would be my motivation to go look for financing if I'm just sort of bootstrapping along and things like that would be the benefit of going out and getting some additional funding? There's a lot of directions I could go with that, Rob. But the way I would go as an entrepreneur, as somebody who started a business and grown that business, what I find is you experience a lot of burnout. And the reason for that is that we're not early on, we're not very efficient with our time, we're really our dollars, even though we feel like we are being. So we have a we have a lack of process. And that's that's what it takes in the stage one startup. I mean, you just got to go get it. You got to go sell, you got to go execute, you know, try to hire good talent. You know, that's my experience is that's necessary. But by the time you get two, three years in, maybe get a million, two million dollars in revenue, it's really important that you start thinking about how that business is going to scale past you work in 68 hours past you be in the bottleneck. And that that's really where you you have these now you have competing priorities. You've got a cycle or a system that takes you to run it. But also, you want to put in a system that then can help you scale and grow and maybe doesn't need you at the center doing those two things at once takes additional resources. And again, if you've got somebody that's that's really good on the finance side, they can do I do a lot of modeling. So, you know, we never can predict perfectly. But sitting down with you and you say, hey, I really think my business needs to go from here to here. And I think I need these resources. We can sit down and figure out your payback period. We can figure out your critical numbers so that along the way, even though it may be unprofitable for you to bring those resources on to retool your business, you can have confidence that you're moving in the right direction and that you're going to get to where you want to go. So I guess that's that's number one is you entrepreneurs normally look at the hill and say, I can take that hill. The question is, with that same amount of energy and and money out of your pocket, could you accelerate your growth? Could you put your life in more balance so that you have more longevity in what you're doing? So what if somebody is looking at this and saying, OK, I see that I'm going to need some funding to be able to grow. I've got to get ahead of this a little bit. I've got to go hire somebody, things like that. What would you what would you what would be, I guess, a little bit of your advice or how do you see it? Somebody that says, hey, I'm going to go, I don't like get a second mortgage or I'm going to I'm going to hit some savings or something like that versus spending the time evaluating the organization of the company and then going out and getting external funding. Sure. So the only reason I think you would do that, Rob, is because really, as simplicity, number one, and or you don't want to go through the pain of of what it takes to get funding. So I'm going to I'm going to suggest that the pain is worth it. One of the things I'll tell you, I encourage everybody to get valuations on your business early and often. So I'm talking about after you've been in business for a few years, get a get a valuation once a year. It's a little bit of money. But if you get a good valuation, what it'll tell you is how the market looks at your business. And it'll tell you what the levers are, where you can build a more a more valuable business. Now, you may say to yourself, I have no intent of selling. I'm going to I want to run this business for the next 20 years. I want to pass it on to my kids, whatever that might be. Even if that's the case, what I'll tell you is that the things that banks look for and the things that purchasers look for are the things that make your company more valuable or also the things that are going to help you make more money consistently with a better balance in your life. Right. It's going to free you up. It's going to lower your stress. So I guess the short answer to your question, Rob, is I would encourage you to do it because just the discipline of doing it, the things that you're going to learn are going to help your business, whether you take that financing or not, whether you sell your business or not. That's a that's good. That actually got ahead to my next question and already answer it because there there are certain exercises that we go through. We're just going through the exercise itself can be very valuable. And it sounds like that's again one of those is that you like how you brought it up. It's not just valuating your company for you to go sell it somewhere along the way, but it also gives you sort of a scorecard essentially to say, hey, here's where I'm at and here are some things that I can do to make this more valuable to grow. And in itself gives you a little bit of a path to say, hey, here's where I'm at. And now I've got some ideas of where I where I want to go because nobody wants to stay or nobody's just going to I don't think you're not an entrepreneur if you're out there and you like plateau when you're done. Everybody always wants like that next hill. They're like, OK, I got to this one. And usually they're looking for the next hill, but even before they've conquered this one. So it makes sense to have something that gives you a little bit of something to reach for. Yeah. And and Rob, I can't say the number of companies that I helped sell their business where they've really just hit the wall. So they've they've been running, running, running, whether it's three years or they've been doing it for 15 years, they end up with too much of their personal net worth tied up in an asset that's too heavily relying on them to execute a day and day out basis in their burnout. And at that point, you know, there's not a lot we can do to help them increase the value of their business in an extremely short amount of time. But we also have folks that will come to us three, three, five years before they sell and we can tell them, hey, you know, you've got a customer diversification issue, you've got a geographic diversification issue, you've got an issue with the scalability of your platform and X, Y, Z. We bring in experts in the industry that, you know, true buyers to help us look at the business and say, you know, what is it that if we were to change, it would get you an extra turn on your multiple. So whether you're talking about, again, a six multiple or a ten multiple, can I get seven or can I get 12? And that all that becomes really meaningful. The other side of it, obviously, is tax planning. You can believe the amount of people that get to the table to sell their business and find out they're just going to get slaughtered in taxes and all those things can be prevented if we have enough time. So that you mentioned the idea, which is of somebody that's just they get to the two intertwined in their their business, they're they're caught up too much in the day to So as part of what you do, do you sort of help them look for ways to essentially extract themselves out of that as well? Because obviously, I mean, I'm assuming you can't sell a business if you are critical to it. You know, it's one thing if it's if you're Oprah and that's your name, that's one thing. But if you're, you know, Bob and it is you're doing everything about the company, then it seems like that'd be very difficult to sell. So do you help sort of provide a path to get away from that? 100 percent. So you can sell it if you're critical to the business. But what you're going to expect is a large earn out and you're going to expect to be tied into that business for the next three to five years as they transition you out. And most of the folks, by the time they look to sell their business, that doesn't make any sense. It doesn't make any sense for for folks to know they got to work for another three to five years. They look at the amount of money they're going to get. It's going to be a lower multiple because of the structure you just you just mentioned. And if they were to just stay in their business for that same time frame, they would pull down that much money most. So it is a huge deterrent, not that you can't do it. But yeah, again, Rob, it is it's all about we specialize in back office services. It's really my passion. It's my more than anything. My passion is putting people doing what they love to do for 80, 90 percent of their of their day and their job. Most entrepreneurs start off with, you know, they're great or they're passionate about the thing that they do. And somewhere along the way, they end up being an accountant, an HR journalist, you know, an IT, you know, fixing hardware. And, you know, all of a sudden they're spending 40 percent of their time doing what they love. I enjoy coming in, helping them restore that balance. So a lot of it is understanding, you know, really understanding the landscape, what needs to be done, what disciplines do you need? And then you got to figure out how to fund it. So, you know, I've bootstrapped companies and I understand what it is to know that, you know, I just don't have an extra five thousand dollars a month to come in and bring these resources in. So somebody's got to come in and tell me how I can get that money to do it and then how it's going to be paid back to me. But so the answer is yes. That makes sense. So what that actually leads to. Part of the idea of just, I guess, the simplified idea of cash flow is particularly with businesses that are either seasonal or some sort of service based where it's not something where it's like somebody's coming to buy a cup of coffee every day. We've got stuff that does have that. You know, it has those ebbs and flows. What are some what are some things that you maybe recommend or how do you look advise with relation to cash flow to sort of like, you know, to level that out so somebody can say, hey, I want to grow. I think I've got, you know, generally I have the funds available, but it's just I've got to find a way to do that regularly enough that I can go hire somebody or sign a contract or something of that nature. Yeah, I mean, obviously with a finance background, what I love to see are detailed 1326 week cash flow forecasting, understand and understanding the bounds of my highs and lows. That's not practical for most folks that are entrepreneurs or that that are an early stage. So what I would say the best tool that I've seen is set a zero. And what I mean by that is, you know, really looking at the you could go, you could have your outside CPA or somebody do this this exercise very quickly. And you need to look at the range your cash goes through in one cycle. So you take a year generally and just say my low cash position was one hundred thousand dollars, my high cash position was four hundred thousand dollars. That means I'm likely to swing about three hundred thousand dollars at any given time. And so in that instance, all other factors, you know, hold and stable. I would put my zero at three hundred thousand dollars. And what that means is, as if I get to three hundred thousand dollars, I treat it just like I ran out of cash. And that takes some discipline. It takes shifting your mindset a little bit, but that alleviates the need for doing a lot of detailed cash flow planning. You've got time to react. So, you know, all of a sudden, if you go down to two hundred fifty thousand in that scenario, you're you're scrambling as if you're at zero, you're able to have time to make the adjustments you need to make. And you don't so much. Rob is about lowering the stress of the entrepreneur for me. I've had too many sleepless nights. I talked to too many folks that don't sleep, that don't eat, that aren't enjoying time with their kids on the playground because they're worried about what the business is doing. A lot of that comes from either, you know, worried about sales or worrying about cash. So to the extent that we can take that stress out of the system, it restores your creativity, restores your joy in life. I think it's worth it. Now, how much of when you go and talk to somebody like this and you say you offer a solution like that, how much of your time is or how much and this is, I guess, on a typical scale, how much the effort is educating your customer on, hey, here's some things that you don't see because, you know, I first said I'm not a CFO. I don't finance is not my thing. And so your set of eyes are going to be very different than mine on my business and my activities. So how much of the of the conversation, the consultation is is almost like it is an educational kind of thing that you're you're saying, hey, this is some stuff that first I've got to give you like a baseline. I've got to help you understand a little bit about the financial side. Yeah, that's critical. It's a critical first step. If I'm honest, Rob, when we started this business, we dove in headfirst with a lot of companies and started trying to change their systems and their processes. And what we found over the years is we have to stop. The first thing we have to do is an assessment. We've we've got something called the health score. We'll come in and do an assessment of your entire finances from top to bottom of your business. And that gives us a roadmap of basically cost benefit. How do how do we put the pieces in place that are going to benefit you, the the greatest with with the lowest either monetary cost or time and effort on your part? So we do a lot of consultation up front. We we do a lot of orientation, a lot of education. You know, finance is a is a very complex, very deep area of business that most folks only understand the top layer, the top two layers. And frankly, we like for them to understand as much as they need to, but not any more than they have to. They don't they don't need to be passionate about it the way that we are. So I think I think the education part is critical. So if you go to somebody and you say, hey, we need some help. And one of the things they say is that, hey, we're, you know, we're not going to sell right away, but we want to sort of get ourselves on track so that we can sell. And we want to do it in a way that, as you mentioned, like to hit that extra multiplier. What are some things that maybe some general kinds of things that you look at people and say, hey, here's some A, B and C, sort of some things you can do to get your house in order to start getting moving towards that, whatever that goal is. So whether we're talking about banking and finance or we're talking about selling your company, so much of the finance side is a confidence game. So what you need to do is you need to know your numbers, you need to know the things that drive success and the things that signal issues in your business. So you can talk about that confidently with with the people that whatever stakeholders are you're courting at that time. So I would encourage you, you got to know, I don't know if any of your viewers have seen Shark Tank, but you see what it looks like when people come up and they can't tell, they can't tell you what their product costs, they can't tell you what their break evens are, they can't tell you, you know, what they, what they made revenue wise or bottom line over the last, you know, 12 months. So you need to know where you are year to date, you know, you're, you're what I call a TTM or trailing 12 numbers. You need to understand what the drivers are. You need to be able to not be overly optimistic, but it demonstrate to the bank or the financing partners that you understand the risks that are coming in the future. You weigh those risks, you understand how you're going to mitigate them. And that's why you feel confident in getting aggressive through growth. You know, it's it's today's a perfect example. We go back to 2020 is another perfect example. When COVID hit, I spent all my time with our clients running scenarios. What if we go down 80 percent to 80 percent revenue, 60 percent, 40 percent? We built all the models. We got really comfortable with what our downsides scenarios are and where our triggers were. Then we were able to go out and get really aggressive very quickly. So our clients were being aggressive in their growth plans and their marketing. Some of them in acquisitions is as early as one to three months after COVID hit. And, you know, frankly, those are the companies who have doubled and tripled, you know, because of that event. So I would encourage you, we're looking at a recession for 2023. You'll see a lot of people get on their heels. You're going to see a lot of people slow down, slow their decision making down because they don't know what's going on. If you if you have a good plan in place, that's the time for you to to attack and grow and really smoke your competition. So that that having having the downside scenario covered and the confidence that gives you is one of the number one things that I would that would encourage business owners to do. Try to reduce the the reliance of your business on on you. That that's another big one. Try to diversify your client base so as much as you can. Don't have one client that represents, you know, more than 30 percent of your revenue. Never never turn away business from a client if you can, but try to focus on getting other client work so that you're not holding to that to the ebbs and flows of that one business. Can make sure you're in a good cash position. Try to think of what else, Rob, that I would say right off the bat. I see over and over. Those are probably the broadest stroke ones. Yeah, it's good. It's funny you brought up Shark Tank because I hadn't thought about that in a while, but it's been amazing. It's it's interesting to me when I see that, how the differences in in the entrepreneurial people that come on to it, because some of them are most of them are have some level of success. They they're there because they've they've sold some products and things like that. And some haven't even gotten that far. They're they're very early in the in the game and looking for funding. And it's interesting that some of them don't. You come in and you're you're asking for something. And then when they say, OK, well, why are you asking for that? And they they really can't defend it. They're just like, well, it sounds like, you know, a million sounds like a good number or whatever it is. And you know, when the it's a it's a it is very educational. I think it's a very good business education show to watch. As you'll see these, you know, the the sharks will will pick some of those things apart and they'll say, well, how would you know this? How do you know that? Oh, they'll even tell them you, you know, you claim that you're going to get here, but you have these three things that you're not even thinking about that could be a problem. And it's it's most of it. It doesn't really matter what the business is. It's the same kinds of things that you see. You brought up a diversification of your customers. I don't know how many and particularly in service and things like that, where you're you're doing more big ticket kind of things. And as an entrepreneur, where you're heavily involved in it, it's very easy to have a customer that's 80 plus percent of your revenue is that that one customer. So if something goes on with them, you're going to go. You're stuck to their ship. You're going the exact same direction they're going. Although, you know, funny enough, if they just skyrocket, you usually don't go up quite as fast. But if they take you, you're going to take a little faster. Well, Rob, one of the things I've seen a number of times is when you get that much concentration in a business, they've got too much leverage over you. So they come in, they want to take your terms from net 30 to net 90, or they want a price reduction. And I mean, you know, I've seen a lot of business owners, a lot of entrepreneurs really get screwed because because they didn't diversify more. That's a good point. Yeah, I didn't even thought of it. But I've seen that as well, where it's like take it or leave it. We, you know, we're we're going to move on and we know, especially if they know you're there, you're one customer or so big that that you have no choice, but to sort of just go the direction that they go. Now, switching gears a little bit, if you're somebody that's in a situation or say, hey, you know, I think I see some other I see some competition I could maybe, you know, snap up or I want to get into this area, but I'd like to get a better start than what I've got right now. And I want to actually I'm thinking about going out and purchasing a bill, not a building, a business. What what are some things to look for in valuation? And I guess this sort of reflects a little bit of things that you're going to want, you know, to have for other people look for if they're evaluating years. But if you're looking to buy a business in particular, what are some things that you would recommend that are some some green and red flags, essentially, what are some things to look for and some some measures or metrics that are going to be useful? Sure. So you got I mean, this sounds really basic. But you got to know what you're buying. So the same we were earlier, we were talking about diversification of all the things that would make your company more valuable. You need to make sure that you look at any potential acquisition very realistically, don't get caught up in it and understand what it are you buying talent, you know, and if you're buying talent, you need to make sure you structure your deals so that you have the best chance of retaining that talent. Are you buying a customer base? And same thing, if you're buying a customer base, you really need to make sure that you have a good sense of what are the contracts look like and what's the transition post acquisition to make sure that you retain those clients. You know, in this instance, you're probably not buying assets. All right. And with developers. So those are those are probably the number one, number two things. And so I would always, you know, even today, we've done a lot of acquisitions today. If we are going to look at an acquisition, we still do a an analysis to look at in a specific area. Do we do a de novo? Do we bring it from the ground up and we add up all of our costs and in the time and look at the time value of money versus any acquisition we we look into. So I would encourage everybody to do that calculation. So let's just say you go out there and you find a business that's doing, you know, half a million dollars a year and they've got a 20 percent bottom line. So they're bringing bringing one hundred thousand dollars, bring one hundred thousand dollars in. If there's no real talent, you go you look and you say, OK, they've got some relationships with some Fortune 500 companies that generally take 18 to 24 months to get in the door, get qualified, get to the right people. And so I would I would think that you now say I could come out and I could really own a shoestring budget. I could probably only spend fifty thousand dollars a year and I could get there. But that, you know, right there is going to cost me one hundred fifty thousand, one hundred and fifty thousand dollars to get those those clients in. And I can develop my systems. So, you know, if. You start to you start this math is hard to talk through because you have to look at multiple scenarios. But I know that in three years on a business that makes, you know, one hundred thousand dollars a year, I'll at least bring in three hundred thousand dollars as long as I can maintain the customer base and the current current run rates. So you start to look at you start to look at that and you start to look at, what do you what does a couple of years mean to you? And you you make the decision. Do I do I build it or do I buy it? And I see, frankly, once once companies get good integrations, I see they it's not either or, but it's an end. So they have an organic growth strategy and they go out and accelerate that through acquisition. I don't know that was as clear as I would like for it to have been been robbed. But what I would really want to articulate there is look, you know, try to get somebody get a consulting. This is something your CPA could do or hire a fractional CFO to come in and say, give me an analysis on what it would take for me to build this. The time it takes for me to build this. Give me analysis on what it's going to cost me to buy this business and then make that decision. And that leads to another one. When you're when you're doing that analysis, how do you pencils down? Yes, you can stop taking notes. We are going to pause there. We will come back next episode and we are going to dive right back into the middle of it. So go ahead and get your coffee beforehand. Be ready to go, because this is like I said, this is a little meatier discussion, maybe than sometimes we have, probably, maybe mostly because this is not, I think, for most of us, our strength. It's not something that we have as much comfort with. You probably noticed that as I was discussing these things with Brent is that, you know, we did go back to basics a couple of times just to make sure that we understand the same language and that we set the, you know, the pacing and the foundation properly, which on a side note is a really good thing for you to think about when you are talking to, you know, the non technical people in your life, you know, your manager and your customers and other people that you work with. And actually, even I guess those people at home, you know, your family and friends and things don't be afraid to step back sometime and talk about like defining simple things like what is a CPA and things like that. Obviously, you don't care as much about a CPA as you may understand. And want to explain what is agile? What is a sprint? What is a developer? What's a database and things like that? I think he did. He's that's one of the things that I think we will be able to get out of this conversation is somebody that is very good at what they do in a realm that we are not in. And yet he's doing a great job explaining it to us and laying it out. At least, I think so. Obviously, if you have different opinions, shoot me comments. And I'm sure he would like to know because he wants to get better as well. We're getting to be, you know, building better developers through this. He's building better financial services people. That being said, we will come back. We will continue with Brent. And then there is going to be even more down the road. Don't worry, we are still bringing a lot of just incredibly cool people to the to the podcast. And as always, let me know your feedback. Feel free to subscribe, put your reviews out there, put some comments about it. And we'll do our best to just, you know, keep finding the best path for all of us forward. That being said, time to get out to your day. So go out there and have yourself a great day, a great week. And we will talk to you next time. Please check out school.development.com. That is where we are starting to pour a lot of our content. We've taken the lessons, the things that we've learned, all of the things that make you a better developer. And we're putting it there. We have a range of courses from free short courses up to full paid boot camps. All of these include a number of things to help you get better, including templates, quick references and other things that make us all better. Thank you for listening to Building Better Developers, the Develop-a-Nor podcast. You can subscribe on Apple Podcasts, Stitcher, Amazon, anywhere that you can find podcasts. We are there. And remember, just a little bit of effort every day ends up adding into great momentum and great success.