097 | Forecasting, Cash Flow, and Clean Books: The Entrepreneurs Financial Playbook with Natalia Zacharin

Patrick: [00:00:00] Have you ever looked at your business bank account and thought, I’m doing great, only to get hit with a surprise tax bill or wonder where all the profit went? You’re not alone. The truth is running a business without clear, accurate financials. It’s like driving blindfolded. You might make progress, but sooner or later you’re going to hit something you didn’t see coming.
Welcome back to another episode of the Vital Wealth Strategies Podcast. I’m your host, Patrick Lonergan, and today I’m joined by Natalia Zachary, founder of Zachary Consulting and a leader in financial strategy for growing businesses. Natalia has an incredible story. She went from starting a bookkeeping side hustle in 2019 to building a multimillion dollar company that’s now on the Inc 5,000 list.
What she’s learned along the way could be the difference between your business thriving or just surviving. In this episode, we’re diving into the essentials. Every entrepreneur needs to know from why your first hire should be a bookkeeper, to how to use your forecasting and your business crystal ball to building the right [00:01:00] financial team at the right stage of growth.
Natalia also shares her favorite tools and tech stack that can save you hours of frustration. And we get into the psychology of cash flow, how to set up your account so you can keep more money, make smarter decisions, and position your business for long-term success. By the end of this conversation, you’ll walk away with practical strategies.
You can apply right now to gain clarity, reduce stress, and unlock the growth potential of your business. And if you’re serious about taking the next steps, I wanna invite you to vital strategies.com/tax. That’s where you can begin to build out your own tax and financial strategy so you’re not leaving money on the table.
So get ready because this episode is packed with insights. That can help you transform the way you think about money, growth, and the future of your business. Natalia Zachary, I am excited about having you on the show today. We’re gonna have a great conversation about all things. I’ll say finance you.
You’ve got deep background doing everything from helping people just get organized to fractional [00:02:00] CFO and financial coaching. And so I think this is going to be a. Fantastic conversation. Thank you so much for joining us here today.
Natalia: Thank you for having me. I’m very excited to have this conversation with you tonight.
It’s gonna be a lot of fun.
Patrick: Yeah, so I, I think about our wealthiest clients and one of the things that they have, they all seem to have in common is they’ve got their financials figured out, but I think about what it takes to get there and it can be overwhelming. Like we have so much going on in our, our business in general to like spend more time and energy on the financials.
It’s like, man, I don’t wanna. I don’t wanna do that. And then there’s also a level of, like, after I punt that down the road a little bit, I’m, I’ve got this almost internal shame like, man, I can’t bring this mess to somebody and have ’em clean it up because it’s just, uh, I’m embarrassed by this. And then philosophically it’s like, it shouldn’t be this hard to have good financials, uh, with everything else that comes with a business.
And so I’m looking forward to helping, uh, our listeners unpack some of that. Can you give us just a little bit of your background and how you got involved?
Natalia: Sure. So I don’t [00:03:00] have an orthodox background with I. It’s not like I wanted to be an entrepreneur and dreamed about it since I was a little girl. I actually wanted to be a ballerina very far off.
I found myself in a position in my late forties where I was working for the corporate world. I had just been recently divorced. I went back to working after being a stay-at-home mom for a couple of years. Was doing not well at first, then doing okay for a while, and then it was starting to turn in the direction where I wanted to grow and develop my career, and they didn’t seem interested.
So I was looking for other jobs and I couldn’t find anything. I was at that point, I almost 50 years old, so I’m now, I’m a middle aged single all, and the corporate world is not always that helpful to someone in my position. So I met the guy that I’m engaged to now and he said, why don’t you start your own business?
So I had no accounting background at all. I was an invoicing clerk and I thought, oh, that sounds interesting. I could start learning bookkeeping and get a couple clients on the [00:04:00] side. And that was January, 2019. And fast forward after a lot of trials, tribulations, challenges, and all the such, we are now, uh, it’s six years in.
We have 13 employees who’re a multimillion dollar company, and we’re on the ink nose and, and who would’ve known? Yeah,
Patrick: yeah, yeah, I saw that. Fantastic. Good for you. And easy thresholds to get across. That’s something to be proud of. And also to think about sort of reinventing yourself, you know, in a, in a point in life where it’s like, yeah, I can do this.
I can go out. So good for you. I’m very impressed with that. So I like to think through the. Maybe let’s start at the, I’ll say the bottom right. Let’s start with somebody that is just getting their business started. Mm-hmm. And they’re, I personally think the first hire should be a bookkeeper, right? It doesn’t need to be somebody in your business.
Probably shouldn’t be. It should be somebody from a fractional point of view that can just make sure you have solid financial information from the get go. Can you talk us through like what is. What should be that, that first next [00:05:00] step with somebody that’s getting started in their business and bringing somebody in that can help them just get their financials in good order?
Sure.
Natalia: I think having their financials in good order. It’s never too early to start. The sooner you can do that, the, it’s extremely important. And to get someone. Who is knowledgeable, it makes sense. So it doesn’t make sense for someone as the owner who is not in the financial industry to teach themselves how to use QuickBooks, how to do accounting.
It’s probably gonna be wrong. It’s about 90% chance that it won’t be correct. And also, why are you taking that time when your business is to build your business and to build revenue. Mm-hmm. So you’re not building revenue if you’re, if, if that’s not what you’re doing for the person that you choose. I would also now go with the cheapest person.
I’d be very careful. Interview several people. You get what you pay for. Anybody with a computer is a bookkeeper these days, right? So make sure they ask you a lot of questions. Ask them a lot of questions, and you can kind of tell if something’s wrong, if there’s like, if something doesn’t make sense. There are a lot of [00:06:00] negative balances where they’re not supposed to be.
The balance sheet is a really good place where people really mess up. So you can kind of tell, but it’s really important to get that financial foundation from the very beginning. It should be one of, like you said, one of your first, uh, outsourced hires. One of the first things you should spend money on, because that’s gonna give you all of the information you need to keep moving forward and make sure you’re moving forward in the right direct.
Patrick: Yeah, I love that. And you know, one of the things that we see is there’s just really source of truth with our financials, right? Like, I can look at my bank account and that’s, that’s a data point, but it may not gimme a clear picture as to how my business is actually performing. And so I, I think when I can see a profit and loss statement, see data on the bottom line, I can start to notice trends taking place inside of my business.
And so if I don’t have that clarity, man, it is really challenging too. To run an effective business.
Natalia: Yes. So challenging. I just wanted to say, and actually a lot of people look at their bank account [00:07:00] and that’s their engage, and that’s a very dangerous way because what’s in your bank is not the same number as what’s in your profit.
So pro cash, so profit does not equal cash. Cash does not equal profit. Those are two different metrics and they’re both very important.
Patrick: Yeah, no, that is so true. And we’ve also seen business over owners like have a fair amount of cash and then they go invest in. I don’t know, some capital project, they’d not buy a new piece of real estate.
Something along those lines. And then, then they forget like all of those expenses may not be tax deductible and they’ve got things like a tax bill that comes due and they’re like, oh, I should have like been a little more thoughtful on where I allocated my resources before I did that. Just ’cause I had a bunch of money in the bank, I thought I could go do this.
So yes. Great. I think you’re absolutely right on cash and. Profit. I think those are two very, very different things. And you know, there’s also, I think there’s a lot of value in, I think almost any mature [00:08:00] business should probably be on accrual accounting. And you know, part of the issue we see with some businesses is they’re taking in cash and they might be six months before they have to deliver the product.
And so if they’re not careful, it, it can be easy to sort of spend some of that money that I needed for down the road for delivering on that, that project. And it can almost put me in a. I wanna be very careful. I’m robbing Peter to pay Paul, right? Like, I have to know go now. Go sell the next thing to be able to fulfill that project that I did earlier, and now I’m in a, I’m an upside down situation.
And so that’s. Again, something we can avoid with great financials. So yeah, I dunno if you have anything to add to that, but I think that’s important.
Natalia: I think that’s a really good point and a lot of folks will need to be on it. So the great thing is if you’re using some of my QuickBooks or a lot of the other accounting software, you can toggle between accrual and cash.
So it could be a hybrid. So even if you’re filing taxes on cash basis, you do wanna see. If you are accrual basis, so when you’re invoicing and all of your [00:09:00] costs, if they line up and you’re making a profit, because that’s really important. Mm-hmm. And then, like you said, not spend the money be in advance.
’cause you’re gonna need it later when you’re gonna have to pay for the deliverables. So it’s very hard to catch up when you do that.
Patrick: Very. Yeah. Yeah. And uh, another nice thing about, you know, the accruals is, you know, I might have some. Right. Some outstanding payables, they need to go out and my bank account looks flush.
But you know, if I’ve got some materials that I’ve ordered and I need to like pay that bill, it could be tempting to wanna spend the money. And that’s like, it’s already allocated. So, yes. Yeah, I think that’s great. So one of the things that, so we, we’ve talked a little bit about having clear financials today.
One of the things that I think is also important is starting build out forecasts. You know, let’s look into the future a little bit and get an idea of. Of where the business is going and what happens if we, you know, grow at this pace and make this higher at this point in time, it puts us in a pretty healthy spot.
How do businesses go around, go about getting good, [00:10:00] clear forecast? Because that, that sounds a little overwhelming to me if I’ve gotta take my, you know, my profit and loss and start to like, you know, build this thing out in a way that is going to do that is, yeah. Yeah. Can you talk about that?
Natalia: So I, um. I love forecasting because as you know, and as your audience should know, is finance is a trend.
It’s not where you are now, it’s where you’re headed that matters. So where if you’re in a really good position now, you might not be in three months. If you’re in a bad position now, you might be in a great position in three months. So you really want to understand where you’re headed so that you have time it, it buys you time.
To correct if you’re going in the wrong direction and then you can just, like you said, scenario planning, you can, I afford to hire this person. I have a big bill coming up and, and you know, like all those other things. I personally love creating forecasts in Excel. There’s a live of software out there, live plan and found M hq and I think Dana Rail is another one that can connect your Excel to your JQBO or [00:11:00] so there’s like a lot of different options.
I particularly like Excel because it’s so malleable. It doesn’t take that long really to build a forecast. You really need to take your financials for the last several months. So like right now we’re recording, it’s September. So you can look at January, month to month to September and see like what has the trend been?
Mm-hmm. And like, what are you spending? And then build that out to at least the end of the year and then follow up with the following year. So you have like a a 12 month forecast at a minimum. It’s not that hard to do in an Excel, and that way you can change things, you can do scenario planning. Um, you don’t have to worry about any kind of mapping of integrations.
And even though it’s manual it, once you have it built and just updating and it doesn’t take very long. And it really answers all of your questions of what can you afford? What’s gonna happen in the future? What if your big deposit that you were expecting from a big client is delayed by 90 days? What is that gonna look like?
How much cash do you need? So it answers [00:12:00] every single question. And like that, you mentioned most businesses have trouble and they go out of business because they run outta cash. And so having this crystal ball. It’s magical of seeing what is going to happen gives you time to make sure you don’t run outta cash.
Patrick: Yeah, I love that. So there’s two things I want to talk about. I want talk about cash ’cause I think that’s super important. But you also brought up some technology and I think the, we’ll call it the tech stack that entrepreneurs have or need to have, I think is is awfully important. So can you walk through, because I think this needs to evolve, like our county needs to evolve.
Right. I can probably start off with. With QuickBooks. And then we’ve got clients that have moved to Fathom and NetSuite and some of those different options as their mm-hmm. You know, business has gotten more, more complex. But can you, where should I start? Maybe walk through some of the different tools.
’cause there’s like payroll options and there’s, you know, the accounting software. So Yes. If you could give us some, that’d be wonderful. I’m
Natalia: getting you my, all of my favorites. Are we ready?
Patrick: Okay. [00:13:00] Yeah. Ready.
Natalia: And we know a lot of them because if our client is using something else, we have a lot of experience in a lot of different services, so.
QuickBooks Online is what we typically use. If you’re using desktop, if you have a ton of inventory or your manufacturing, you should probably stay on desktop if you’re not, especially if you’re a service-based business or e-commerce or anything like that, and your accountant has you on desktop and you should migrate to online because then you have the opportunity to connect that.
Brooks software does something else, which could be life changing for your business. So we’re very high tech, and being high tech means that we can do a lot more and in a lot in a, in a faster way with more value, and that’s what you should be looking for. So QuickBooks Online is fantastic. It’s extremely robust.
It’s not that expensive. It solves problems. And we have companies up to 35 million in gross revenue that are still using it. Once you go out of it, NetSuite isn’t as, as a great other option. Um, there’s Sage, I think has a product. There’s QuickBooks just came out with an [00:14:00] enterprise option, which is really cool, especially if you have multiple businesses, because then you can have, um, consolidated financials also, which is pretty cool.
So that’s a, a favorite of mine for the bookkeeping piece. A lot of our clients will have something else besides QuickBooks. Sometimes to do the invoicing and the ar, so that depends on your industry. Mm-hmm. So if you’re, like in the spa industry, you might be using something like vagaro to take payment and schedule.
If you are in the car industry, you might be using something like, uh, shop Monkey or something like that. So there’s different ones for different industries. So a lot of bigger for clients, a lot of bigger companies start using something industry specific for their ar. Mm-hmm. Because it works with project management, it works with invoicing, collecting money, and scheduling.
Patrick: I love it.
Natalia: So QuickBooks is not gonna be an all in one solution. Then for payroll, I actually don’t like QuickBooks for payroll.
Patrick: Mm-hmm. They
Natalia: bought that software from [00:15:00] another company and it’s different customer service and actually you can run payroll incorrectly and have payroll tax issues by using QuickBooks.
They’re, I think they’re getting better at it, but it’s still, we, we get a ton of, of folks with payroll tax issues because of that, and I don’t really like. Some of the bigger options too, like a DP and Paychex. We actually are doing payroll resolution services for clients that have used those other big ones.
What I love, and especially for starting out, and you can use this up until we have clients that are now like at 20 million, still using, this is Gusto payroll software. Mm-hmm. It actually integrates with QuickBooks. It’s very user friendly. You can, uh, I do recommend you have an accountant set up for you even if you decide to run it yourself or hire someone that does the bookkeeping and the payroll piece.
But Gusto is an amazing software. And then bill.com if you have a tremendous amount, or not even a tremendous amount, but if you have bills that you’re paying, I love bill.com because it also [00:16:00] integrates seamlessly with QuickBooks. People will email their bills to you. You just have to make sure to, you know, fill out all the fields and then it, it sends the bill information into your QuickBooks.
You always have like what we’re talking about, your hybrid ar. You can look at what’s coming due, and then it has a system of checks and balances and, and approvals in bill.com, which is great. And all of those softwares together create a really, really nice package.
Patrick: Yeah. Yeah. And you’re so right. I, there’s so many efficiencies that come with having a great tech stack.
I think about the bill pay, both sending and receiving money. Like I, I like doing lots of that through bill.com and sending out money to folks directly to their bank account through QuickBooks. I’m just like. I got an invoice from somebody the other day in the mail. There’s no way to pay it online. I’m like, I don’t even know what to do with this thing.
You know, like they need to get like into this century, like please email it to me so I can just put it in the system and like send you the money digitally versus have to mail you a check. Yeah, that’s
Natalia: actually [00:17:00] a really good point. I’m lost if someone says, can you write me a check? I’m like, I don’t even know where my checkbook is half the time because everything is on the cloud for me.
That’s a really good point though. If you were deciding on how to invoice clients, the easier you make it for them to pay, the faster they’re gonna pay you.
Patrick: Yeah, absolutely. Absolutely. And we found that, and you know, we’re a service-based business. We set all of our engagements up to just draw on the first of the month.
So we don’t, we’re not collecting any, we don’t have any ar ’cause it all just bills and if it doesn’t run, we don’t perform the service. So it’s like, it’s okay. Yeah. Um. But yeah, we’ve also got clients that are, uh, manufacturing businesses that, you know, they’ve put together a 13 week cash flow and every week they’re managing their ar AP just to make sure that they know what, uh, dollars are coming and going and, and they’re still using that QuickBooks desktop.
And I’m like, wow, okay. We see that. But they’ve got so many things that they’ve built that, that run on top of that, that they’re like. We dunno how to change [00:18:00] it. Yeah, it’s kind of scary to go a different direction.
Natalia: Yeah. And maybe enterprise would be a solution. I’m not really sure. Enterprise just came out a couple of weeks ago, or maybe two months ago or so, but we still have very few, but we do have clients that are on desktop and that we remote in or we use something called Q Box to sync that into the cloud.
But yeah, it’s, it’s kind of, most people should be able to use QuickBooks online, but the ones that have been around for a while have built out a lot of. Functions and features and desktop. It’s kind it, you’re kind of stuck for now.
Patrick: Yeah. Yeah. And it is a big lift to change, and once you do change, it never goes as smoothly as the No.
The salespeople say it will go when they, when they sold you on making the change. So I’m sympathetic to that. Yes. Great.
One of the big takeaways from today’s episode is that having a clear strategy around your finances and taxes isn’t optional. It’s essential if you want to grow and scale with confidence, and that’s exactly why we created vital [00:19:00] strategies.com/tax. When you go there, you’ll find resources to help you start building your own tax strategy.
So you can stop leaving money on the table and start putting more back into your business, your family, and your future. We’ve helped entrepreneurs at every stage get clarity on their numbers and uncover opportunities they didn’t even know were there, and we can do the same for you. So after you finish this episode, take a minute and head over to vital strategies.com/tax.
It can be one of the most valuable steps you take this year.
Well, we also were talking about cashflow and cashflow management and we’ll call it cash on hand. ’cause I think that’s a critical piece. The number one reason businesses go outta business is they run outta cash. And so I’d like to talk a little bit more about, we’ll call it cashflow management and if you have some, some best practices there that we should be be thinking about because we’ve got a few thoughts on that and I think it’ll be fun to marry some of these ideas together, so, sure,
Natalia: sure.
So I think anything with cash profit. Money, it’s all very psych. Uh, it’s all about [00:20:00] psychology, the psychology of money. And so you have to kind of realize what works for you as the owner. So I know that if I position my finances in a way where I have to think about it before I touch it, I won’t touch it.
So I’ve got like my accounts where I’ve got an operating account and like all the little things go through there and in my personal life too. And then if I need to save money or I need to build up cash that’s in a different account that I don’t touch regularly because I know if it’s in the one that I touch all the time, it’ll be gone.
Patrick: Yep.
Natalia: So you have to understand your own psychology, but for most people, what we like to do is set up. Um, either a second checking account so you can have an operating account and then have another checking account, or a savings account, or maybe even a, you know, two or three accounts. I like having the multiple account system, not as many as profit first.
I think that becomes very confusing for some people. It depends on the business, it depends on how much cash, but I’ve [00:21:00] seen people set up five accounts and then constantly have to move around money ’cause they’re running out of money in one of the accounts. So it’s too complicated for some businesses.
But I have three or four accounts that I use and I like to say that let’s make it a goal to save 30% of gross revenue if it’s possible. And if it’s not. Even if it’s just 1% or 10% and then build up from there. And so what I did was when I first started and I didn’t have a lot of cash and we, a single time someone paid me, I put $10 into that savings account.
That’s it.
Patrick: Yep, yep.
Natalia: But it was, it’s the practice and the habit that’s more important than the amount. And then as it grew, now we do actually move over 30% and that 30% covers. Taxes. It covers a reinvestment back into the business. It covers tax planning and tax strategy, which also takes cash. Yeah, and it builds up cash of three to six months.
Worth of cash reserve. So [00:22:00] the goal is to build three to six months worth of cash. I like to have six months for most of the year.
Patrick: Mm-hmm. So
Natalia: like you’re building up, building up, building up, and then when you have to pay your tax bill, it’ll maybe dip down to three months worth of cash, but you never wanna be below that just in case.
Patrick: Yeah. I love it. And you, you brought up so many points there that I think are critical and so I, I think one of the things that you highlighted is the psychology around it. Yeah. That is so important. And we have a number of clients that use this, and we also build this into some of their planning. We will open up a money market account mm-hmm.
At Schwab, and we’ll just move money there. And there’s just a little bit of friction for them to get the money back. And so they just sort of let it go. They just leave the dollars there instead of. Pulling it back and spending it. Right. And so we think you, you highlighted that. But I think that’s an important point that that friction piece, we’ve also seen businesses intentionally keep the operating account low.
They’ll move the money to a place that, you know, is sort of outta sight, outta mind, but it just creates this urgency. Everybody can get really comfortable [00:23:00] if there’s a few million bucks sitting in the bank. Right? Yeah. And I don’t have to, I don’t have to watch what I’m spending, I don’t have to go hustle to get the.
The next bit of revenue. And so they like to keep that low and creates emergency in the organization to be like, okay, we need to run a lean mean operation. We gotta go find all the revenue. So I think those are, are, are, are critical pieces. And then, you know, one of the things that we really like to do is, uh, I, I, I don’t really care what the system is.
I don’t care if it’s profit first. I don’t care if it’s a few bank accounts. You just need to have a system. Yeah. And if you don’t have a system, that’s where the problem shows up. And so I, I think that’s a, a critical piece. And one thing that we do to help our clients is, uh, we build out a cashflow calendar.
Mm-hmm. And we have a minimum and maximum threshold of cash that we’re gonna have on hand. You know, sometimes we’ll look at payroll cycles for that. You know, it might be depending on the business, depending on the comfort level. You know, I saw Bill Gates. Say that he wanted 12 months of payroll on hand. I think that’s a crazy [00:24:00] number.
Yeah. Probably too much for my book. I think, you know, a minimum number of two or three payroll cycles and a maximum of maybe five is probably a good number. But then we start looking at, okay, once we’re, we’re gonna protect as much as we can to never go below that. We’re gonna use lines of credit and what have you to make sure that we’re staying, you know, in a, with a margin of safety.
And then if we get above that number. Now that’s inefficient. We should get those dollars to work and let’s start putting that to work in tax strategy or reinvesting in the business. Yeah. And so we think those are all critical pieces, but the nice thing about the cashflow calendar is it’s showing us those thresholds.
With our forecast, and then everything from our tax strategy to tax payments that are going out to home remodel or business acquisition, all of that’s ending up on the cashflow calendar to make sure that I’m gonna just maintain a healthy cash balance.
Natalia: Yeah, I love that. Over the
Patrick: next 12 months,
Natalia: I love having a cashflow calendar.
Actually also have a 13 week forecast that I’m building out right now, but I think it’s [00:25:00] really important and I don’t like having too much money in the business, and I do move it to another Schwab account because I figure. If the business needs it again, if something really goes awry, I can pull it back in.
But I don’t like having a ton of money in there because I want the money to work for me and I want it. I wanna invest some of it, or at least have a high yield savings account or a sweep account or something, and then I wanna slowly pull money out and invest in other things too. Um, just, and I can’t give advice as a lawyer because I don’t, I’m not a lawyer, but I don’t like having too, too much cash also because that is accessible if someone sues you
Patrick: right.
That’s another
Natalia: reason to kind of pull it out and, and not make it as accessible to the business as well.
Patrick: Yep. No, I would agree with that. I think it’s a fair statement to just say any assets inside of the business if a lawsuit arises, are available to creditors. And so if you move those outta the business, that is good.
So. Wonderful. This is great. So I think going back, we started talking about the, the entrepreneur that’s getting started and getting set up. Now let’s, let’s talk through, [00:26:00] ’cause here’s a, here’s where I wanna go with this. I think there’s a, a finance team that evolves as the business evolves, right? Like, at first I need some bookkeeping just to make sure that my, my data’s good.
And then I might need a staff accountant, and then I might need a controller, and then I might need a CFO. And most of those start off as fractional and I may or may not grow to the point where I need those as full-time. Can you maybe walk us through when it makes sense to start looking at these different roles and when I should be considering bringing some of these into the equation?
Natalia: Sure. Absolutely. So I think Fractional Bookkeeper that you’re hiring outside of your organization right away, as soon as you can. That’s really important. I believe also that hiring a tax strategist starts to make sense after you’re about in a million in revenue, and it depends on the strategist and on the strategy.
So if they’re just doing like mini strategies. You probably don’t need to be much more than like a hundred or 200,000 in profit, but most [00:27:00] strategic like it when you’re like, at least add about 400,000 and more in profit because there’s a lot more you can do. So that’s when to really consider your CPA Oh and also going backwards.
As soon as you start your business, have a tax professional file your taxes. I don’t recommend anybody ever file their business taxes or when they have a business, even if it’s flowing through them as a sole proprietor, that’s not a good idea. So hire someone, uh, on the offset. So the tax strategic comes once you’re making quite a bit of profit because they’re a little bit more expensive, but they pay for themselves because it’s a return on investment.
Patrick: So that’s,
Natalia: that’s a tax che. Next is also, it doesn’t make sense to probably do this before, half a million to a million in revenue. The profit doesn’t matter as much, but hiring a fractional CFO is a really good idea. If you’re scaling and growing, if you’re planning on having a lifestyle business where you’re just kind of coasting, you’re not really gonna build and scale doesn’t make sense to have someone that is more of a visionary to help [00:28:00] you unless you’re having cashflow problems.
But probably at half a million or a million is better because you have enough cash to be able to support that role, and then working with someone to understand what’s going on with your profit. What KPIs should you be looking at? What metrics and what does it look like? Who to hire next? And a lot of times, for instance, what we do is we have a hybrid controller end for end CFO.
So we are always looking at the financials E, even if, if we’re not doing the bookkeeping, if someone else is doing it, we’re overseeing that to make sure it’s accurate. ’cause that’s the first step before you can do anything else. So you can be in a fractional level and outsourcing all that for quite a long time.
And what I’m seeing that’s interesting in the marketplace is that bigger and bigger companies are still going the fractional route because it’s hard to hire someone and know that they’re a good fit. And it’s very expensive. Those are very expensive roles. We still have clients that are over, you know, 20 million that are at the fractional level.
But [00:29:00] technically I’d say that once you get to about 10 million, you should start really hiring more in-house. That’s when you can afford, when you should have a staff account and a controller. And then when you’re really growing, having a CFO, that’s about a $250,000 position. That salary is pretty high with benefits.
They might want equity. Possibly, yeah. So that’s gonna be at a little higher level, but at 10 million you can still work with a fractional CFO as well. Yeah. So it kind of starts getting. I even, we even had clients that were over 12 million that were still using us for bookkeeping because we know how we perfected the challenge of hiring people in finance and then we oversee that with an in-house controller that makes sure that it’s technically accurate.
And that’s kind of hard to find. And a lot of business owners, they don’t know if there are financials. Correct or not. ’cause they don’t know how to mm-hmm. Them, especially the balance sheet. So I think the fractional positions are actually getting elongated and extended over time, whereas in the past they were hiring more often.
Patrick: Yeah. [00:30:00] Natalia, this is fantastic. If it’s okay, can we go back and just define, I think controller and fractional CFO are maybe tossed around a lot and I think people confuse. What those roles actually should mean. Can you just define what a, a controller is and then what a fractional CFO is or controller and CFO?
We, they don’t need to be fractional, I assume. I agree with you. I think most businesses are just need fractional help until they’re at a, either a size or complexity where it makes sense to bring in that quarter million dollar a year person to really, uh, manage everything from new financing to, we’ll call it.
M and a transactions and all those other fun things that are, are going on. You might not need a full-time person until then. Yeah. But I think we should define what a controller and a CFO. What their roles actually are.
Natalia: Sure. So a controller and I look at it actually as how is someone wired? So bookkeeper, controller, tax preparer, those are all working in the present and past A [00:31:00] CFO is working in the present and future.
And that’s kind of like how I break that down. So a controller will look at the entire financial picture. Make sure that everything is accurate, that streamlined, you’re using the right technology, everybody, you’re hiring the right people, especially if it’s complicated. So if you have intercompany things going on, you have multiple companies, you need consolidated financials.
So anything that’s a little bit more complicated, they should be able to handle. Your staff accountant or your bookkeeper might not be able to, ’cause they won’t have the technical knowledge necessarily. So the controller’s really someone who has a higher level of knowledge and will oversee all of the accounting functions.
And not just bookkeeping, but your ar, your ap, your payroll. And they’ll, they’re gonna make sure that everybody that’s in those positions is doing the right thing and everything is being recorded properly. And then give advice on like if you, you know, when to pay things or when not to pay things sometimes so that the same, the controller can kind of cross over to the CFO.
CFI [00:32:00] was really the financial visionary. So they’re looking at KPIs, ratios, your, uh, you know, can your, does your revenue support your payroll? Your payroll to revenue Ratios are a really big thing. Your cost to goods sold and gross profit percentages, your net profit percentages, how much cash do you need?
A bank scenario planning. So they’re projecting out and looking at. Where are you now and where are you headed? And you know, six to 12 months down the line and do you need to micro correct before you’re in the wrong direction? Mm-hmm. They’ll also oversee the systems of the controller and the entire financial department as well.
I’ve even seen some CFOs do some HR stuff. Mm-hmm. But although I don’t recommend, those are completely different positions, but I have seen that crossover, which I think is interesting. I do recommend hiring someone because it’s really the way someone’s wired and the way they are trained. And hiring people for those positions.
So you, I could, A CFO is really forward looking. They’re gonna be like, should we [00:33:00] invest this money? Should we do this with the money? Should we hire this next person? What does that look like? Mm-hmm. Then how will that impact the business in the long term?
Patrick: Yeah, I love it. That’s fantastic. Thank you for that clarity.
’cause I think oftentimes people. They’re like, oh, I’ve hired a fractional CFO, and I’m like, that’s a bookkeeper. I don’t know why we’re referring to that person as a fractional CFO, but I think that clarity is fantastic.
Natalia: So the challenges of having a business that’s much larger is when the revenue is growing.
Expenses are also growing and usually not in line with the revenue. A lot of times expenses tend to to be over exaggerated, and then the pulpit is it takes a hit. So it’s really being careful about what is happening to your profit and really being in control of all of your expenses. Just because you have a lot of revenue coming in doesn’t mean that you should be, have hazarded in your decisions on what you’re spending money on, including who you’re hiring.
So I see that a lot of companies that are making a lot more [00:34:00] revenue, some of them become a lot more lax in their hiring also, and they may not have the most efficient people in all the positions. When we’re really small and profit is everything, we’re extremely hypervigilant with efficiency and predictivity with our employees, making sure we have the right fit and the right culture that should stay on the lifetime of the length of the business.
Patrick: Yeah, that’s
Natalia: where a lot of things start to drop off. It’s really making sure we have the right people and they’re being extremely efficient and productive and not spending too much money. The other thing is cash. So when you have a lot of money coming in. Businesses start making a lot of big money decisions on, sometimes it’s outside investments like real estate.
Maybe it’s more equipment, trucks, more, um. Loans and liabilities on the balance sheet. Maybe they’re taking bigger draws and they’re not taking draws systematically and with [00:35:00] purpose. They’re just taking draws that have more haphazardly to all. Yeah, those things can lead to issues with cash. As an example, I had a logistics company that we were working with.
They were about 30 million or so in gross revenue. Three brothers, great company. Tremendous amount of cash coming through. Very, very smart. Nice. They started working with us and they had no idea where their cash was.
Patrick: Mm-hmm.
Natalia: And they were, what was happening was a lot of it was going right, right back out, and their constituted sold for the carriers, but also they were spending a lot of money on buying real estate on the side.
And they weren’t paying any attention to all that cash that they were constantly pulling out. And these are really smart people, but that’s what’s starting to happen. Mm-hmm. Because you’re getting pulled in a million different directions and you start losing control and not paying as much attention and not being as.
Specific in your decisions and careful you start just spending more.
Patrick: Yeah. Yeah. No, that’s so interesting. And we’ve seen clients actually over distribute. They’ve distributed more money than [00:36:00] they have profit and it’s like, uh, okay, this is a problem. You know, we end up with basis issues. You were talking about balance sheet and how important it is to have that, that structured properly.
And I also think one thing that you, you highlighted that is important is, you know. Paying attention to your financials, but I think there’s probably ratios that we can start to pay attention to. Like what is our gross margin, you know? Yeah. We think about how to define gross margin. We have our revenue come in and we have our cost of goods sold, right?
The man hours and the materials to deliver that. And then we have a gross margin, and then the operating expense, what it takes to just keep HR and lights on. It’s more of a fixed cost. You know, generally like that gross margin piece is really. Important to look at. I think, you know, yes. Paying attention to that.
And then also, you know, what does it take to operate my business? Is there a bunch of bloat in there? Can I clean that out to, to drive more money to the bottom line? Because at the end of the day, our businesses are generally valued based on the ebitda, the net income [00:37:00] falling to the bottom line. And if the higher that number is, I generally get a multiple of that number when I go to sell my business.
Yeah. And even if I don’t want to sell it, just sort of keeping my eyes on that and going, Hey, if I run a business in a way that. I could position it to sell and get a top valuation, that means I’m running it well. I’ve got good clean financials. All of that information is just, I think, super critical in making sure that we’re running the business well and we aren’t gonna get blindsided by a downturn.
And we didn’t have our eye on the ball when it came to our financials. ’cause we’ve unfortunately seen some of that. Some owners that have. Gotten a little bit lax in paying attention and then all of a sudden they’re like, how did I get here? Yeah. You know, and it wasn’t necessarily, it wasn’t clients of ours, they came to us in a mess going, Hey, how do we fix this?
And it’s like, well, we gotta stay dialed into, you know, keeping our eye on what’s happening in the business. So. I dunno if you have anything to add to there, but I think that’s just to add to the, all the important things you said. Yeah,
Natalia: no, I think it’s really important. We definitely, it’s just psychological also as human beings, we tend to spend more when we [00:38:00] see a lot more cash coming in.
And if we just act a little bit like we did in the beginning when we’re, when it things were a little bit tighter, like I don’t want anybody to be in a scarcity mindset. I want them to be inspired. And to, you know, spend money where it makes sense, either because it’s improving their lives or improving their business, or it brings them joy, but also there’s a balance there.
And you just have to make sure that you’re just, um, uh, you’re very, you’re not doing it haphazardly. Mm-hmm. And I think that’s the most important thing.
Patrick: Yeah.
Natalia: Yeah.
Patrick: I love this. This has been great. We’ve talked about a number of things. Is there anything else we should touch on? I’m, I’m sure we could talk for hours on, you know, finances and how important it’s for business to, to have great financials.
But is there anything else we should touch on before we move on to the next phase of our discussion?
Natalia: Sure. I so just to reiterate, reiterate. Accurate financials that are timely. So I did have someone recently that I was talking to and they said, oh yeah, my financials that, you know, like my accounting is all up to date.
They, you know, they did [00:39:00] it through May and we were in July. That’s not up to date.
Patrick: No. No.
Natalia: So really forcing the issue that you want financials that are up to date, they should be reconciled and ready for, you know, like by the second week of the month is really the, is an appropriate timeframe, is really, really important.
So I think that as a foundation and then the importance of having enough cash. So just a really quick story. You should never stop taking calculated risks in your business. And we do slow down with those risks sometimes the bigger than our businesses get. And so knowing this and knowing and building a business that is sellable, because like you had mentioned before, that makes a healthier business model if you build it to sell.
Mm-hmm. We built this business mostly on referrals, and so I knew last year I started really working on the fact that we need to get prospects going through ads and through other. Sources rather than just referrals because it’s not sellable to have just referrals. Right? [00:40:00]
Patrick: Yeah. So
Natalia: I started investing heavily in marketing and in advertising through Facebook ads, and I hired an agency, well that was a fail, and then I hired another agency and that was a fail and.
Thank goodness I had a good profit margin and a good basis of cash because the economy was also a little bit slower. We had a slower beginning of the year than we normally had anticipated. So it was like the perfect storm of excuse language being screwed possibly. Yeah. So spending more, I anticipated that we were gonna have more, uh, you know, like I’m like we need a fantastic website and SEO and like all these things that we hadn’t done in the past that we need to like really grow up and to be a big business.
And I took a risk. Then the economy wasn’t as good. So here I am, close to $200,000 in spend with no new prospects.
Patrick: Yeah.
Natalia: And if I didn’t have the cash, it would’ve been extremely painful. So profit and then constantly building up the cash is really, really important because it could [00:41:00] have been a huge fail, whereas it was a little bit painful and we learned the lessons and now things are working.
But it took us nine months to figure that piece out.
Patrick: Yep. Yep. I love that. And I love that. That’s what we do as entrepreneurs, right? We go take a risk, we push our chips in the middle of the table and sometimes we win and sometimes we learn. So that’s wonderful. Natalia, this has been fantastic and I wanna highlight, um, zachary consulting.com and we’ll have a link to that in the show notes slash vital.
You’ve created some free resources for our listeners, which we think are amazing. So there’s the ultimate accounting checklist. We think everybody should download that. We also think you should download the seven ways to find money in your business Now. Uh, also key pieces. And then if you’re ready to like have this conversation like, Hey, I need help with my finances.
There’s a link to schedule there as well so they can get plugged in and to get going. ’cause there’s nothing, I don’t think there’s a better dollar invested than having good clean financials. You know, it’s just so important [00:42:00] to be able to look at. Our numbers and see the direction that our business is growing and going and where, you know, it’s gonna show us little landmines that we need to avoid.
And if we don’t, it can be problematic. But if we do pay attention to our financials, it’s just the, it is the path to success. That’s how we. Grow and scale successful businesses is really understanding the financial data. So yeah, I appreciate all of the good work you’re doing and I don’t want anybody out there to not have access to what you’re doing because if they do, it’s a problem.
Yes. You know, if they’re not dialed into their financials, it’s, it’s going to be an issue with, you know, it’s just gonna be a struggle. Business is hard enough the way it is. Let’s not make it any harder. So this has been wonderful. Any last comments before we, before we wrap up?
Natalia: No, I think that’s it.
Download the PDFs. Even if you are established business there, you know, it’s always a good reminder. Have a good checklist or a good reminder on what to look out for and take the time to really look at your financials at least once a month. You’re getting pulled in a million different directions, but sit down [00:43:00] with your accountant or, or at least with yourself, and look, take the time to really look, because that’s the best times, you know, it’s time well spent.
For you and your business,
Patrick: wonderful. Natalia, thank you so much for all of your time and expertise. And again, go to zachary consulting.com/vital and that’ll get you those free resources. You can find out how to schedule time and even find all of Natalia’s socials so you can connect and follow along with all the good work they’re doing.
So thank you for all of your time and wisdom. We appreciate you.
Natalia: Thank you so much for having.
Patrick: Thank you so much for tuning into this week’s episode of the Vital Wealth Strategies Podcast. I hope you found real value in today’s conversation with Natalia, and that you take what you’ve learned and put it into action in your own business.
If you know someone who could benefit from this episode. Another entrepreneur, a colleague, or even a friend, share it with them. You never know how much of a difference it can make. And before we wrap, I wanna remind you to head over to vital strategies.com/tax. That’s where you can begin building [00:44:00] your own tax strategy and start keeping more of what you’ve worked so hard to earn.
And remember, you’re a vital entrepreneur. You’re vital because you’re the backbone of our economy, creating opportunities, driving growth, making an impact, and you’re vital to your family creating abundance in every aspect of life. You’re vital to me because you’re committed to growing your wealth, leading with purpose, and creating something truly great.
Thank you for being a part of this incredible community of vital entrepreneurs. I appreciate you and I look forward to having you back here next time on the Vital Wealth Strategies Podcast, where we help entrepreneurs minimize their taxes, master wealth, and optimize their lives.