Business Finance Management - Building Better Businesses for Success

Welcome to Building Better Developers, the Develop-a-Nor podcast, where we work on getting better step by step, professionally and personally. Let's get started. Well, hello and welcome back. We are continuing our season of Building Better Businesses. The podcast is actually Building Better Developers, the Develop-a-Nor podcast, where we have a lot of different ways that we develop you. We help you become better as a developer, as an entrepreneur, as a business owner, as a side hustler, as a main hustler, as a day job, or whatever it happens to be. We help you out with that. I am Rob Brodhead. I can't even speak. I'm so excited for this season. I am Rob Brodhead. I am one of the founders of Develop-a-Nor, Building Better Developers, also founder of RB Consulting, where we help you with technology. We walk with you through what your business is, what is your secret sauce, what is it that makes you special. Then we craft a unique recipe for you to leverage technology, whether it's stuff you already have, whether it's stuff that needs to be built, whether it's something that's out there somewhere that you need to purchase, whether it's a team that you need to build. We help you with that through integration, innovation, simplification, automation. We probably help you with that so that you can really leverage your technology investment. It's like buying a house. This is a big investment. There are very few businesses that their technology investment is some small percentage, negligible percentage of their budget. A lot of times it is right up there. Probably other than people, I'm going to guess usually it's going to be your second biggest expenditure. Let's be smart in how we do it. As far as good thing and bad thing. I guess I'm in a season of my good things and my bad things are sort of the same thing. The good thing is that we got to a milestone recently of being ready to go to a real estate agent and get ready to put our house on the market. It took a lot to get there because we're effectively downsizing. Actually we're effectively zero sizing. There's a lot of crap that we've had to move around, get rid of and stuff like that. Then cleaning up the mess afterwards. It was great to get there, but now there's a few things left that we have. I no longer have a kitchen table because we're like, no, that's going to go because that's going to get moved into, they're going to stage the house. That can be a little bit challenging. The big one is if you hear me screaming and wailing and gnashing of teeth, it's because my office that I have spent the last few years really honing it down to what it is, is now going to also be part of the big sucking sound of getting all that stuff out of the house and moving it. It's going to simplify greatly and I will probably have a physical burden and an emotional burden of doing all of this. There's good things and bad things in that. Back to the good side is Michael's on the other side and he's going to introduce himself. Hey everyone. My name is Michael Walsh. I'm one of the co-founders of DeveloperNura, Building Better Developers. I'm also the founder of Envision QA, where we are a small software shop that is customized to helping small to mid-sized businesses basically build software or find software solutions to meet the business needs and let the software work for the business, not the business work for the software. We help you simplify your processes and basically, hopefully streamline your business so that you're more productive, making more money, making the customers happy and having a better user experience all around. Good and bad. Good. This week, I have made some headway on some projects I've been working on. We had some good feedback from some customers and kind of riding that high a little bit. It's like, you know, you kind of get that pat on the back for a job well done for getting things across the line, getting things solved. Bad, kind of the bad with that. Now we're getting into some other areas and trying to figure out the next step in some of these pieces. And unfortunately, I kind of hit some roadblocks, mental blocks of my own where it's like, oh, that really doesn't make sense. And it's like, you know, it should. It was something simple, but yet it's a blocker. It's like, ah, sometimes you run into those and you just sometimes you can't work through it. Sometimes you just have to literally step away for a little bit and eventually it'll get through your head at some point, hopefully. And hopefully it's not with a hammer or my wife's frying pan that she comes at me sometimes. Kidding. But anyway, that's my good and bad. So the good and bad we have for this episode is probably there's some good and some bad. So we're going to talk about accounting, essentially. We're going to talk about keeping track of stuff. Now, this is interesting to me because most of us as developers, we like numbers, we like math. And so maybe accounting is not that bad, but it seems like when I talk to people, the accounting, which is basically adding and subtracting, people are like, no, it's like, it's a pain in the butt. I don't want to do it. I think part of actually the problem is that we think we can, we know it, that we can do it because it's just math. And then we sort of just dive into a very simple, we oversimplify it and the next thing we know, we realize we've oversimplified it. Now I think for where I want to go with this one is a little bit more on the startup side, but actually it's something that's even good if you've been running your business for a while. And it does come down to it's like, it's really, it's a budget and it's if you're, you know, if you're building a business, then it is budgeting and it's looking at like, what is it going to cost to build the product and what do I, you know, what is it going to cost to sell the product, to deliver the product and then therefore like, where does the pricing need to be? And now some of that is you're going to do, you know, you would hopefully do some market research and see what the typical pricing is because what you want to do is be in a situation where the market price, the typical expectation of value and what they're going to pay is more than what it costs you to produce it because if it's not, then you're in trouble. You know, that's what I'm saying. It's like, well, you know, it's the business can only last so long if you're operating in the red all the time. If you know, every time you sell a product, you lose a dollar, then sooner or later you're going to run out of money. You've got to find a way to flip that up. And we'll talk in other times about ways to like, you know, reduce costs and things like that. But first, it really is, it's like figuring out where the heck am I? What is, what is a, you know, hopefully a monthly budget look like? How much money is going out? Where is it going out? And then what's coming back in? Now for an existing business, I think this is very important for us to do periodically and this is honestly every year when you do taxes, that should be part of it. You should be going through, if it's, even if your business is one that it files taxes, if it's a corporation of some sort or even an LLC, then you're going to be doing things like you're going to have your summary at the end of the year. You're going to get to the end of year and you're going to build out everything and you're going to know what your balance sheet effectively is. Like where did my money go? And it may be in large buckets or buckets that don't really resonate with you normally, they are things that you get to the end of year and you're like, okay, well, all this money went out, all this money came in and here's the bottom line. And that bottom line is where you're probably going to have your concerns is, is my bottom line positive or is my bottom line a negative? Now starting out, it is not uncommon for it to be negative because you're probably investing in your business. You may be loaning money to your business. You're, you know, you're going out and you're winning projects and doing stuff, but you're doing extra work and you're putting extra into these things so that you can really make sure that you knock these things out of the park. Now that's something that we'll also talk about further down the road is that it has to be sustainable. You can't just like, you can't have a loss leader forever and have nothing else that eventually makes up for those losses. Well, I want to focus on, like I said here is just the budget side of it. So what we're going to talk about is what are your expenses and what is your income? What is, what is going out and what is coming in? And we'll get a little deeper into this, but first I'm going to throw over to Michael and we'll then we'll come back around. We'll talk a little bit more about this. So it's interesting that you started out with budgeting because budgeting, one of the things we constantly leave out of budgeting is our time because we don't, we're the business owners, right? So for us, we're always thinking about things. We're always trying to get the next customer. We're trying to do the next thing. And a lot of times we lose the idea that, Hey, we're our own employee. We're working for the company. So our time has value and we forget to include that within our budget. So while at the end of the year, you may show that, Hey, I made a hundred thousand dollars this year, but if you worked a hundred hour weeks and you start tracking that in, you were better off getting a job at the gas station than working on your business. So you need to be careful with budgeting that you also include your time, the time factor into the budget, because if you leave that out, you're not going to get a real accurate value for what it is that you're making within your company. So that's one thing that just kind of stuck to me. I want to follow up on that one real quick. I think that's like a, that's a key challenge that we run into as soulpreneurs in that is that we will put crazy amounts of time into our business. The first time we try to scale out and hire somebody, they're not necessarily going to do that. They most likely are not going to like throw a lot of free hours into our company. Some of us are, you know, came back to the days, go back to days where you were salaried and salary meant you worked all hours. You worked all the time, but that is not necessarily the case. And it's not something that it's really fair for you to put on somebody else. So I think that's something that's really important to think about is that you may be willing to pour that blood, sweat and tears in, but for somebody else, they need to get paid for that. And so it's not scalable. So you had another point. Yeah. I was just going to kind of carry that in because you want to think about that when you're budgeting your business, not just money, but your time, how much time are you able to put into this and put a value on it, or if anything, at least keep track of the time. So at the end of the year, you can take your income and divide that by your hours to kind of get an hourly rate. Now the reason I started with that was because you also mentioned we're going to talk about like, you know, what is your expenses and what is your income? But time is a big factor in all of that. You need to make sure that you account for that when you budget your time for your expenses and for your income, because if you are spending too much time, your income is going to diminish and your expenses might actually go up exponentially because you're not paying attention to how much you're putting into your business. So that was just one kind of thing that really stood out to me because you and I both, we worked lots of hours to keep our business going because we're passionate about what we do. We like this, which is why we do it. But the problem is we do run into situations where we're spending time on things that don't necessarily make us money, but they're things that we have to work on to work on the business, not work in the business. So that is one thing you got to think about as we start building businesses. I want to follow up on that one too a little bit, is that the idea that sometimes when we're pouring hours in, our actual expenses go up, our living expenses, because it could be things like now, and I don't think we realize it usually until a little further down the road, but it's things like, hey, I'm working all the time, so maybe I eat out more, or maybe I take clothes to the dry cleaners instead of do my own laundry, or I pay somebody to do yard work, or whatever. There's all these little things that maybe we did ourselves, but now we're paying somebody else to do it or paying a service to do that. And so our expenses are going up because the time that we were using to address those has been reduced, and now we've got to, but the job still has to be done. So carry on. Yeah, exactly. And I'm glad you touched on that, because those are other things you need to account for within your budgeting. So the last thing I'll touch on before I throw this back to you is when you typically do a budget, when you think about budgeting, you may think QuickBooks, you may think Excel, you may think some accounting software program. But what a lot of those tools don't do for budgeting is you can put down, OK, I need this much money to run the business for the year. Great. Do you need all that money upfront, or do you need that money spread out throughout the year? Sometimes our accounting, what we have to pay for for our business, has to be paid at different points throughout the year. So sometimes a budget might require money sooner than later. So one of the things I would throw out that from a budgeting perspective is figure out what you need, but then plan out your quarter. Or if you know that you're going to have expenses in December, go ahead and do a full calendar and put at least like at a high level what it is you need to pay out each month and have a running tally. Now, you can just do that in a simple spreadsheet, but kind of think forward. Don't just think month by month or week by week, because you're going to run into situations where, oh crap, I have to pay a year in taxes in a month or at the end of the year, oh, at the end of the year, if I make X amount of money, I have to pay out X amount of money to the government. So there are some hidden expenses that you might not think about, but you need to make sure you budget those in kind of at the beginning and kind of keep them in your mind as you're going through so that you're not hitting that benchmark and be like, crap, I don't have it. How am I going to get it? You need to think about things that you don't necessarily need to be stressing about if you had a little bit of forward planning. And I think that's important when you look at particularly as you start to grow a business. That's one of the things that if you get to a point that you're going to hire a contractor or an employee or something like that, there's usually costs involved in that. There's things like, and just growing in general, even adding a customer sometimes, because now maybe your CRM, it's going to cost you more because you've got more customers, there's more things you're attracting, there's more projects maybe that you're working on or products that you are generating. That there is whatever your tool is that it's going to grow in cost. And there are going to be things like employee. Like for me, every time there's employee that comes on, there's like a large amount of expenses that go on because there's a computer and there's email and they're setting them up with all of the different services that we have. And so there is, and everything almost incrementalizes up. So there is a hard cost in that. And I have to be able to take that on at the front end and then eventually it'll come back in. And so you do need to make sure that you are fluid enough essentially with cash so that you can do those kinds of things. Now there are other options and that's why there's, people go through funding and business loans and stuff like that. And we'll talk about that another time, but you do need to think about such things because you don't want to be in a situation where you're like ready to go. You've got a customer and everything's there and you don't have the funds to be able to actually start the project. So you need to think those and you want to do that beforehand because you don't want to go through all this, get a customer to accept it and then come back and say, hey, I need to get paid upfront, maybe more than I was, or maybe you didn't ask for any pay So maybe you need to, but you need to be able to cover those kinds of expenses. That made me think of one other thing. I'll interject that now so I don't forget about it because it kind of flows with that. The other thing is if you are just starting your business, we tend to bootstrap a lot of our business with our own money or finding the cheapest or the least expensive way of doing something now. The problem we run into is a year from now. A lot of those free services or those cheap services expire and we suddenly have a balloon of expenses at the beginning of the next year because we didn't think to follow up on that or, oh, we did it a year ago and it's off our radar. So when you do things like that, make sure you include that in the budget that, hey, in 12 months, I'm going to see an uptick of this or I need to make sure I schedule, hey, let's revisit this a month before this happens so that I don't get blindsided by like if you're AWS, you have a free tier for a year, you get to the end of the year and all of a sudden you're paying $50, $100 a month in server fees that you weren't paying prior. So just kind of be a little forward thinking with the budgeting. Sorry. I think that actually follows up well with it. We do a lot of our own bootstrapping and stuff like that and we need to, I refer to them in my head really as like split expenses. There are things where it's like because we are maybe working out of our home that we have an office. We have a phone. We have a computer and printer and some of these things. If we go, if we grow beyond that or we may get to a point where the company needs to own some of those things, then the stuff, the expenses that we were essentially sharing or we were essentially loaning the company, our facilities and products and all that kind of stuff, now suddenly we're going to flip it over to the company is bearing that cost. Then that's only going to change your expenses structure. Plus things like if you go from, it may be that you use your own personal cell phone all the time, but you get to a point that there needs to be a company cell phone or a company cell plan and now you're going to have a personal plus the company and now that expense it's going to be an additional expense. So even while there are free services and trial periods and stuff like that, there's sort of stuff that we do as well. We essentially give our business a free period or a free tier or a trial period because we'll allow our business to sort of piggyback on top of some of the things that we do. Now back to the accounting itself, a lot of times that's what gets companies and particularly startups into trouble is they just use their own bank account. They use their own software and all that and they're just like, well, that's just business expenses. But then when you get to the end of the year and you need to actually categorize them, those haven't been split out or if somebody wants to, it's like, well, did you buy that printer for the company? Did you buy that for yourself? You have to figure all that stuff out. You have to calculate things and all that that is consent really be a pain in the butt and sometimes it's even the data gets sort of lost and just because it's being shared by too many people. So one of the things early on is set up your business accounting. So it is your business. You're not doing personal stuff out of that. It's not in a person. It has its own bank account. It is not your personal account that you're using for that. And in a way, even if you don't want to go through setting up a bank account, at the very least, set aside money that is very much like a register that is like, I put a thousand dollars into the business and this is where that money went or this is where it came and then this is how it went back out. So you're tracking all of the ins and outs for the business so that you don't get further down the line and realize that, oh crap, I don't have that information. So in the challenge side of this, I think to start out is actually because it goes back to the first couple of things we talked on is take a look at your budget. If you've got one, awesome. Just take a look and make sure that it's up to speed, that it's current because things change. If not, then build a budget and it doesn't have to be really that complex. I have for a long time had a spreadsheet that is lined out for every month. I've got my monthly budget and every year I create a new one and I plan out what is it going to look like this year? What are my expenses? And it covers some of the stuff Michael said because it's things like I know that I'm going to get hit with an extra expense in July or December or February or whatever it is and then every year those things will change a little bit so I'll make the updates. But then I know that's like I need to have this amount of money coming in because this month I've got this amount to go through. And it also allows me to do things like which is crucial I think when you're in a small business is it allows you to understand where you can pay yourself, where you can pay a bonus or if you can afford to give your employees a raise and things like that is looking at all right I may have a pool of money but that money maybe is going to disappear next month because I have an extra pool of expenses that I'm going to have to match up against it. So step into the budgetary side like put your little accounting hat on and just look at like what is the ins and outs and do your best to like walk through what makes a business run to make sure that you have those. So it's things like you know do I include somewhere that my business is consuming electricity and it has phones and it has maybe printing and it has web stuff, it has server fees, it has you know even things like coffee or something like that you know the simplest things like that making sure that you put those into your budget so that now you have a very clear and hopefully precise and exact budget of this is what the this is what I expect to you know go out and then as it comes in you know making sure that you match that budget and if not make your adjustments accordingly. Thoughts on that challenge? Yeah I like that now one thing I'll throw out though because you know granted we are a developer podcast for those of you that may not have like a full laptop you may be watching us on your phone or on your tablet you know if you don't necessarily have software spreadsheet software you know you could use Google Docs has a free sheets application there's open office you know you have Microsoft Office even then go old school one of the best things I like doing is taking post-it notes and just writing an idea on a post-it note putting it on the side writing another one down putting it on the side sometimes that's a great way to brain dump your ideas or your expenses on paper put them out and then you can kind of categorize them and it makes it very easy to take it from that and putting it like into an organized sheet or at least in a on a piece of paper in a way that makes sense so you can track it. Yep that's a that is a great recommendation that's bonus material for those of you that are still listening to the podcast this late into the episode. That being said we get to wrap this one up so as always if you have any ideas suggestions recommendations or feedback on any of the challenges let us know at info at developernor.com. 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