In this fun and financial episode, Alex Little, Founder of Little CFO Services, shares how he clearly presents his clients’ financials to help them make data-based decisions to scale their businesses.
You will discover:
– The most significant cost that you can’t see in your P&L
– The difference between a CFO and a bookkeeper and who to hire first
– The difference between accounting and finance
Episode Transcript
Scott Ritzheimer
Hello, hello and welcome. Welcome once again to the secrets of the high demand coach podcast and I am here with yet another high demand coach and advisor. And that is Alex Little. Now, Alex is not your stereotypical finance and accounting nerd. And that’s a wonderful thing. He brings an entrepreneurial mindset and can look at the big picture and then get all the way down into the weeds of a problem. He can pull you in with a smile and a joke. And he’s pair well with his talent for simplifying financial situations to make you comfortable in overcoming the obstacles in front of you now, being taught from a young age that business ownership and real estate were the keys to building wealth, Alex has invested his time and energy into gaining wisdom and in various business topics and ventures. Now, this led Alex to founding little CFO services, which we’ll talk about here in just a moment, where he provides his clients with a proactive approach to strategic financial planning through database decisions, and fractional CFO advisory, which are tremendous, tremendous needs in the entrepreneurial community. Alex, so excited to have you here. I wonder if you could just add a little color to the story for us. What were you doing before starting little CFO services? And how’d you ultimately decide to make the leap?
Alex Little
Yeah, um, I actually tell people, I was a recovering accountant. And with my career, I was an accountant. Really good at it. But I felt like it wasn’t super, super exciting for me, more of like the Finance and Operations type of deal. So I switched into that, no, several years ago in my career, was doing pretty well. And I happened I’d said, over my career, I’ve done like side businesses here and there. Because the whole, you know, entrepreneur mindset. And moving back to Florida, I actually got laid off two weeks before I moved back here. Yeah, long story. But it was a reminder to bet. You’re never too important to be let go. And the whole, like, you know what, you really won’t be wealthy, you have to build a business for yourself. I was doing a business. While I was trying to figure out what I wanted to do basically my next step, doing the fashion modeling for businesses. And I found a lot of small business owners that they knew they needed a bachelor model or a cashflow model was something like, for instance, it was one company that was doing on Shark Tank that needed a financial model. But they didn’t really know how to use it or utilize it. In their business. They nearly like, yeah, I need to be using this. And that’s important. They didn’t know really how to like, what, what tools to use along with it, and how to utilize it in their business to actually make decisions Aqua. And you know, that wasn’t really my role, I was just there to build the model and not really teach them in depth how we use it by just about finding that problem. So I was reaching out to a bunch of the fractional CFOs and acting eight people on LinkedIn, I knew. And now I’ll just push me to start my own rational suepo plan. And here I am.
Scott Ritzheimer
Well, so it’s actually where I want to start is this idea of a financial model? So just back to basics for us. What is a financial model? And how should you use it for your business?
Alex Little
Yeah, so I mean, there’s different types. But I think the one and most basic one, or the one that I start most clients on is the cash flow forecasting model. And you know, all those, the spreadsheets, they look intimidating. But in reality, the top section, you just have, like the dates that you want to track into weekly, or monthly, or what or alias, or cash is building that strict. And then the bank balance. And below that you have all the cash inflows, like, when do you expect to get paid by your clients where each deal or each invoice and whatnot, and then below that, you know, all the cash going out your business? Not really, and makes you think about all the expenses that you have? Like, oh, there’s payroll, and, you know, do you have a couple of main bills you may think of, but when you really get in depth, this all looking through your financials, you might see like, Oh, I’m paying for seven zoom subscriptions, but I only have five employees, like I forgot to the canceled team, you know, so it’s, it’s a good exercise just to go through it. Because you’ll find a lot of money that’s going out of your business that you didn’t really realize, but also it helps you get a better peace of mind and understanding that I know exactly where theoretically, you know, my cash is going to be at and you know, 13 weeks or four days, you know, then that’s really what keeps most business owners up at night. is am I gonna run out of cash in one month or two months or can I afford to bring on a new employee? We can use that model to build that in and see okay, if you have an additional five grands here your payroll every two weeks, like Do you run out of money into two months or not? So I think that’s really the main basic model that I would start off on and most clients come to me really needing.
Scott Ritzheimer
Yeah. And one of the things that I want to love to hear your thoughts on actually is, what does that even if the news is bad, right? What does that do for the entrepreneur in terms of confidence or clarity? Because I know some folks are reticent to do it, because they’re just worried about what the numbers are actually going to say. So what would you say to someone in that situation?
Alex Little
The fear of the unknown is always going to be worse than just knowing what your problem is, you can’t really make good decisions without good data. And knowing where you’re at, you know exactly how much expense you have to cut, or know how much revenue you have to go out and get. And it really gives you clarity of, this is what my goals are. Like, you can’t really build good KPIs, if you don’t know, like, what your goal is, or what you’re trying to attain. Cuz, you know, I’d be like, oh, we’ll just go get more cells, we’ll, how many more cells, like quarter be like, Why are we going for what you don’t know where your financial position is? And who knows, you know, just do more, you know, that’s not really helpful advice, or, you know, a good way to look at where your, your path should be to get there.
Scott Ritzheimer
Yeah, one of the patterns of notices folks, especially when they have success early in the process, right, they get a couple big wins right out of the gate, they get some wind behind their back, and, and they’re just good at selling, that they they tend to cruise through the first kind of period, we won’t actually name a specific time range, but they don’t build the discipline of watching their cash flows, because they don’t necessarily have to early on, they’re able to sell enough. And it seems like it works its way out. Until it doesn’t. So know when when someone is, you know, kind of, if they see this as a numbers game, right? How the bank accounts Hello, I’m just gonna go sell something, is that a right mentality? Or, or is it a wrong one?
Alex Little
Both, I would say because, you know, the tide lifts all boats, like, more revenue, more money can usually fix most problems in reality. However, if you want to be efficient, and when times are bad, like the big recession that we’re in and going into work more, when that tide goes out, you see the holes in everyone’s boats, that’s where like know, things get really more stingy. And you’re going to like ramped down on D, a good business momentum fundamentals and your business, and you know, getting more revenue and just go jogging ourselves, that’s great, you can usually throw money at problems to solve them. But if you really want to maximize your return on an investment, and make the most out of it, and, like be able to scale the most, you need to build those good fundamentals and like, just how to processes up because you know, just making more money and figuring out as it goes, you know, don’t have any processes or no SOPs or anything set up for your your business, you’re gonna get aways but you can’t scale. That way. You can’t bring on 10 team members, and tell them how this process is should go. Or really sell your business for a lot when, you know, you have a good top line, but like you have tons of expenses, and you’re just wasting money here and there. Like you could do so much just clean things up efficiencies in order to.
Scott Ritzheimer
So one of the challenges that I know entrepreneurs have when it gets hard, right. So whether it’s in the beginning, or whether it’s a couple years down the road, when they start feeling the pinch and profitability. They serve directly. I don’t have all the answers here, I need to go and find someone who can help. And one of the most common acquisitions if you else to go out and find someone who understands the numbers. And and you and I both know that not all financial professionals are created equal. Not all of them speak entrepreneurs. So what are some of the maybe the what are some of the frustrations that you see that clients of yours have had with other financial professionals? And how should go on how should someone go about looking to make sure that they’re finding the right person?
Alex Little
Yeah, I think a lot of it comes down to just misaligned expectations. People think often that their CPA or bookkeeper can also do you know, forecasting and tax work and all that stuff like that. A lot of people come to me saying, Oh, you’re a fractional CFO. That means you can do my taxes and my accounting to those are three different roles. Accounting and Finance are two sides of the same coin. account is everything that’s already happening, and we’re just trying to figure out how to Uh, you know, categorize it correctly, and make sure it’s taxed appropriately and whatnot, finances, you know, it’s going towards your goals in the future your goals are in the future. And basically, my, my role as a fractional CFO, is to help illuminate the path of how we get there. That’s all the forecasting and strategic, how should we actually deploy the revenue that we have? Whereas accounting is all like, once it’s already in the door? How, how do we, you know, categorize that stuff? That’s kind of first thing. I find that when it comes to finance and accounting, bookkeepers, usually like your first and most important hire, you have to know exactly what you’re doing where you’re at financially, like you can’t, I can’t do my fractional CFO work if the bookstores that don’t require because I can’t give you good advice if I have no idea where you’re actually at or how you’re performing. So it’s always starts with a good bookkeeper. And then the next role often is a fractional CFO before that controller role. That’s usually where I see kind of the the hiring, you know, sequence, bookkeeper first, and then a fractional CFO that basically, just to kind of do explanation real quick, fractional CFO, is that high level strategy in finance, but, you know, for multiple small businesses for a fraction of the cost, because most businesses in the realm I play in, you know, they’re making money, they’re getting to be like big boys and girls, as far as their business is concerned. But they’re not making so much money and they can afford a $300,000 a year didn’t see it Bo, see you all the fractions are great to where you get that level of experience understanding. But for a fraction of the cost for a full time one day always out that answer your question?
Scott Ritzheimer
Yeah, that’s fantastic. And one of the things that you even mentioned earlier in this call, and that I saw as I was doing some research is this idea of like, How can I afford it, and he spoke to it a little bit more on the cash flow side of things, but particularly around employees, they tend to be one of our largest expenses early on per lot, lots of businesses, especially service based businesses, and they’re not kind of one time purchases, you bring an employee on and and you have to afford them for a really long time. What are some questions that folks should be asking before they they set out on trying to hire somebody?
Alex Little
Yeah, well, one is can I afford them? Like, you know, it the big like, most people do their cash flow forecasting on the back of napkin? It’s, what is my bank account right now? How much expenses do I think I’m gonna have next month or so? Okay, that’s why I think my bank’s gonna be and that’s as far as it goes. So first off, is looking at, like, if I add in a payroll employee, how far do I go before I run out of money if they don’t produce anything extra. And then you also have to remember that there is a ramp up period, you know, there’s, they’re not going to be making x amount of revenue. You know, right out the gate, there’s sort of break, really four, sometimes six month ramp up period before they’re actually performing as like a normal full time employee. So I’m just doing a math and financial perspective, just the expectations again, it’s just knowing that, like, can you afford them? And if they form well, because you never know if they’re gonna be a good employee or not, it’s a gamble. And now it’s going to take a little while before you start seeing the new returns. And can you afford that scale up before they’re fully utilized?
Scott Ritzheimer
Yeah, yeah. I love that. I love that. Now, that kind of sets the stage. So let’s say we’ve got an entrepreneur that committed to understanding and managing their cash flows, they’ve got the right help coming in, and, and they’re growing, right, things are going well. And then at some point, they start bumping up against what feel like there’s kind of invisible barriers, right? They can’t put their finger on it. They don’t know what it is. They’re trying to make their first million or their first 10 million. What have you found are some of the primary barriers that entrepreneurs are facing in that that window?
Alex Little
Usually it comes down to processes, like how are they actually performing the services or things in their business? There was one client I had that was a Romanian construction company. And one day a week, the entire day, on Fridays, his service manager was doing inventory, because they didn’t have like an automated system or anything like that, to track it. An entire day of that person’s a week that was just on like, figuring out what inventory they had, what they used on on clients and stuff like that. And that’s like she knew this waste that person’s time. You know, it’s a little bit of technology, and then a lot of just thinking through how are you doing business and is that the best As a way to actually utilize the resources that you have, most of the time, the scaling problems are around that, you know, sometimes it’s funding like, we just need the item to grow, do having the funds unless we can get an influx of capital through debt or equity to expand. And most of the time, there’s some type of process that’s holding you back, like you have capacity that you just don’t know about. Because your processes are too manual, or you’re relying on some specific thing that they could go out at any moment. There’s no redundancy or anything. So that’s usually why I want to have my clients look guys like, Okay, let’s look at each section your business, obviously, that you started with financial side, like a rip stuff like that. Yeah, you have a automated system to let on the invoices, are you sending out invoices automatically, stuff like that, where people usually wants to set up a process delts think about it again, like they will, if that was the best decision at the time, but they never revisit, is that still the best way to go about doing things? Same thing like credit cards, for instance, I don’t get off topic, but credit cards, people usually say like, Finally click our processor. And they just accept like 1000s of credit card processing fees is just the cost of doing business. In years, they haven’t looked at is there a better car credit card processor that I could use that’s cheaper, or one that I can pass off? You know, surcharge the customers those fees? There’s one of my clients, while actually most of my clients, I usually find, like 25 grand plus in cost savings, just in the credit card, you know, fees line within the first month of working together just because have you taken a look at what other processes there aren’t like other things you could do there. slob easy wins that people just need to take a step back in. Is this process, they’ll be out? Is that the best way of doing things?
Scott Ritzheimer
Yeah. And I’ve found that a lot of again, going back to the revenue question a lot of kind of visionary entrepreneurs, will, will find it easier to focus on going out and selling the next thing or creating the next thing. They don’t get as jazzed about, you know, savings, but $1 of revenue and $1 of savings are not the same thing. What’s the difference between the two?
Alex Little
Well, I mean, like usually, like $1 of revenue still has, you know, 60% or so, you know, in cost of goods sold, or you know, the expenses to go towards it, like your profit margin, most businesses is anywhere from 15 to 25%. You know, 20 to 25%, like really where most businesses shoot for every dollar of savings is really just giving you a lot more back that you didn’t have to go out and get more, you know, more revenue to be able to explain it very badly, basically, but it’s harder to go get one more dollar revenue and find $1 cost savings. It’s something you’re already spending, you could figure out, you know, how to spend better with what how you’re utilizing your funds, or spending less and still maintain the same?
Scott Ritzheimer
Yeah, that’s fantastic. So what are this question I’d like to ask well, my guess and it’s this what is the biggest secret you wish wasn’t a secret at all? What’s that one thing you wish everybody watching or listening today knew?
Alex Little
Yeah, that’s actually why I did my LinkedIn post launch. Okay, opportunity costs. I find way too many people that they look at a problem and well if I did this or someone on my team did this themselves, how much money I saved like I could just, for instance, a client he was doing all the admin and accounting work himself and he was saving a few 1000 over the world wants or something like that. But then we had a conversation with them. He was like, Well, if I had all that up my plate, I could go out there and probably get you know another million dollars in new revenue. If I just had the time to go do that. People don’t take a step back and think about that with most decisions that they make. They just see wall. If I were to pay someone else to do this, it costs a few $1,000 Don’t think of well if I paid someone to do that not only am I getting a more professional and better expert you know service but also now that frees me up my my time to do something that only I can do. Like you know Kane going well your business for you. That’s what it you know your business better than anyone else. Do. Your time is way more valuable than that accountants time. And people don’t really think about the actual dollar figure that they put on their time. They just think of like what the cost savings is the opportunity cost, what you could be doing that you’re not doing because you’re doing something else that needs to be thought of way more in business.
Scott Ritzheimer
It is so true. I just got off a call with a A client earlier today a coaching call. And I was talking about a strategy that they had implemented that he had known to do for about a year and had just been putting up putting off putting off, and they start doing it. It’s just like the taps open, you know, and I asked him, I was like, You got one we celebrate? Because it’s like, we’ve got it going now. But the second question was like, how much did you lose by not doing this six months ago, when you knew that you could do it? And he just shook his head a lot.
Alex Little
If I would have just been outsourcing this and then doing sales instead, you know, just think of how much further I would be, instead of trying to do all myself.
Scott Ritzheimer
Absolutely. Absolutely. One more question before you and then I want to make sure folks know how they can get in touch with you. So before we get there, though, I’m gonna have you take off your CFO hat, put on your CEO hat and Douglas, what’s the next stage of growth look like for you and your business? And what challenge will you have to overcome to get there?
Alex Little
Yeah, so the next stage is I’m looking to acquire an accounting firm. I’m trying to build out that sideline business. I know that I thought I gave like walked away from the accounting world a long time ago. But the technology has come out in the last two years, especially with AI has made it possible to give a better high reward and more high value product when it comes to an accountant gives their client and for authorities 50% more efficient and cheaper costs for me. So going out there acquiring a firm, and most of the firms that are out there to acquire are like 60 year old CPAs been doing stuff like on paper for the past 40 years. So like the next problem off to deal with is most of those great deals are going to be old school way of thinking and no technology, it’s in an office and taking out virtual, inputting all my firm’s technology to really bring it into the 21st century was gonna be the next. Fun, fun, stress.
Scott Ritzheimer
Challenging, but exciting. I love it. Now, folks are listening to this now like finally someone who understands me and understands numbers, and they want to know more about the work that you do potentially even be able to hire you how can they find more out and where can they find you?
Alex Little
Yeah, you can go to a littlecfoservices.com or find me on LinkedIn, which is where I’m most active, Alex Little on LinkedIn. And that’s where I post content Monday through Friday. I try to you know, actually teach stuff on LinkedIn that people can actually use not just trying to sell my services every post, you know, so I try to be giving something valuable away every day.
Scott Ritzheimer
Fantastic. Well, Alex, thank you so much for being here. Just an honor having you and for those watching, you’re listening you know your time and attention means the world to us. I hope you got as much out of this conversation as I know I did, and I cannot wait to see you next time. Take care.
Contact Alex Little
Alex is not your stereotypical finance and accounting nerd. He brings an entrepreneurial mindset and can look at the big picture and get into the weeds of a problem. He can pull you in with a smile and a joke. These pair well with his talent for simplifying financial situations to make you comfortable overcoming obstacles. Being taught from a young age that business ownership and real estate were the keys to building wealth, Alex has invested his time and energy into gaining wisdom in various business topics and ventures. This led Alex to founding Little CFO Services. It provides its clients with a proactive approach to Strategic Financial Planning through data-based decisions through Fractional CFO Advisory.
Want to learn more about Alex Little ‘s work at Little CFO Services? Check out his website at https://www.littlecfoservices.com/
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