Show Information
Episode Number: 56
Date: October 14, 2024
Duration: 26:36
Host Contact Information
Host: Justin Deese
Website: JustinDeese.com
Contact: Justin@JustinDeese.com
Guest Contact Information
Guest: Kristen Deese
Guest Company:Virtual CFO for the Trades
Guest Contact: Kristen@KristenDeese.com
Guest Website: www.KristenDeese.com
Summary
In this episode of the Freedom Blueprint podcast, Justin Deese and his co-host Kristen discuss the role of a Virtual CFO in small businesses. They explore the importance of financial management, the common challenges faced by business owners, and how a Virtual CFO can help identify operational and sales issues through financial analysis. The conversation also delves into pricing strategies, budgeting for profit, and the significance of awareness in managing finances effectively. Kristen shares insights on how to improve gross profit margins and manage overhead expenses, emphasizing the need for business owners to understand their numbers to drive profitability.
Takeaways
- A Virtual CFO provides high-level financial strategic management without the cost of a full-time CFO.
- Many business owners lack accounting training, which can hinder their financial management.
- Understanding key financial concepts early can significantly impact business growth and profitability.
- Business owners often rely on bank balances, which provides a limited view of their financial health.
- Identifying gross profit margins can reveal areas for improvement in operations and sales.
- Pricing strategies are crucial; many businesses underprice their services, affecting profitability.
- Budgeting for expected profit can shift the mindset of business owners towards better financial management.
- Controlling overhead expenses is essential for maintaining profitability.
- Awareness of financial metrics helps business owners make informed decisions.
- It’s important to prepare financials for tax time well in advance.
Chapters
00:00 Introduction to Virtual CFO Services
04:10 The Importance of Financial Management for Small Businesses
07:44 Identifying Operational and Sales Issues through Financial Analysis
12:57 Pricing Strategies and Gross Profit Margins
16:22 Budgeting for Profit and Managing Overhead Expenses
20:23 The Role of Awareness in Financial Management
Keywords
Virtual CFO, financial management, small business, accounting, budgeting, profit margins, operational issues, sales strategies, pricing strategies, overhead expenses, Kristen Deese, Justin Deese, When Your Business Partner Is Your Spouse, Virtual CFO for the Trades
Tanscript
Welcome to Freedom Blueprint podcast. I am your host Justin Deese and today I have my favorite co -host joining me today, my wife, Kristen. Happy Friday of the time of recording.
Kristen (00:19.512)
Happy Friday.
Justin Deese (00:22.808)
So I wanted you to come on. We’re getting kind of into that fourth quarter. Actually, when this launches, it’ll be right at the beginning of the fourth quarter, which means, you know, it’s hard to imagine, but 2025 is literally right around the corner, which is crazy how fast time is moving. don’t know what, maybe that’s because I’m getting old. I don’t know. I don’t know. Don’t answer that though. But.
Appreciate you coming and hanging out and sharing a little bit with us. So, Virtual CFO, give us a, and I know we’ve had episodes before where we’ve kind of talked about this, but give us the high level version of what is it that a virtual, like what is it that you, how do you help clients?
Kristen (01:10.828)
think the most common term that people are using in the industry and really in business in general these days is probably the fractional CFO. So it’s that very, it’s the high level financial strategic management without having the full time salary of an in -house CFO. So it makes having that level of,
experience and education and ability in the company without and it makes it possible for smaller businesses to be able to have that have that service available to them.
Justin Deese (01:52.899)
So what are some, so I’m a, I’ve got a, let’s say three trucks, I’m plugging along. What are some advantages to having a, to having you help me in my business? Obviously I know the answer to that because I’ve had that, but if I didn’t have that advantage, what would be an advantage to having you be a part of my team?
Kristen (02:17.72)
I mean, the majority of business owners don’t have very much accounting training. Really a lot of business owners don’t have a whole lot of business training either. A lot of times they’re just really good at what they do in their trade. And so they start a business around that. And they learn how to do so many of the other pieces of the business like selling and working with their employees. And a lot of times the accounting side of things is the thing that kind of gets.
push to the bottom of the priority list because they might not, it might feel like it’s too much of a stretch to try to learn it or it’s too far out of their wheelhouse. Maybe they think that they’re not a numbers person. so being able to start early in your business when you’re small and starting to understand those key concepts, the financials that you’re supposed to be looking at.
can make a huge difference in the way that you’re able to grow, in your profitability, in the way that you’re able to manage your funds and your business. I know a lot of times as business owners, we run everything by our bank balance. And if there’s enough money in the bank to make payroll, then we’re good. But that is a really close -sided view of the business. And we need to be able to look much further out into the future so that we can prepare for things that are coming down the pipeline. Having a virtual CFO,
on your team can help you kind of clear out all of the clutter, clear out all of the confusion, simplify everything so that you’re able to have, we’re able to have conversations about your numbers and the performance of your business in a way that isn’t intimidating, we’re not using big vocabulary and all kinds of accounting terms, we’re talking like business owners and talking about possible strategies and different things that you can do in your business to be more profitable.
Justin Deese (04:10.171)
Okay, awesome. if I’m looking for some help, well, let me back up a little bit. So tell me some things that you help, obviously when people come to you.
I’m guessing, I don’t know this, but I’m guessing they’re kind of in a rough spot, like they’re behind the eight ball and they’re trying to scramble and get out of a, I don’t want to say financial hole, but they’re trying to figure it out and that kind of stuff. So what is getting started with you? Like, what does that journey even look like?
Kristen (04:41.196)
Yeah, it kind of depends on where they are when they get to me. There’s times where I have taught internal employees how to do a lot of the bookkeeping tasks within the business so that it either takes it off the owner’s plate or it allows the business to bring those tasks in -house so that they can be done by an internal employee. But a lot of times business owners hesitate to do that if they don’t know how to do those tasks themselves.
because how do you train somebody to do something if you don’t know how to do it yourself? And so there’s a lot of training that goes on, not only with the business owner, but with any of the internal employees that might be doing some accounting tasks. So there’s that as a service. There’s also, we spend a lot of time looking at the accounting systems, the ways in which the business is currently tracking their cash, or how do they know when a check was, when it was received from a customer and it was
brought in by the technician to the office, how can they follow it through on that process? Making sure that they have enough checks and balances set up that they’re protecting themselves. Unfortunately, we’ve seen a lot of instances and examples where business owners had been taken advantage of. And so we like to try to teach a business owner what to look for and how to put in some checks and balances in place to prevent that from happening. So that’s kind of like the tactical side of things. And then once all of that is in a great spot,
then we can really start digging into the strategic side of things of now that we know the financials are accurate and timely, what can we do with the information that it’s telling us? Are there changes in operations, sales, pricing, payroll structures that need to be made in order to improve that net income or the famous EBITDA line that everybody is attaining? So.
So then we get to kind of roll up our sleeves and dig in and have pretty cool conversations of, let’s see what you did last month, last quarter, last year. Let’s identify the things that went really well and had positive impact on your financials. And let’s identify some of the things that didn’t and make sure we don’t do that again. And then get you prepped for the next year. Get some projections and some budgeting kind of things in place for the next year.
Justin Deese (07:03.652)
So it’s interesting, you said something about looking over your numbers and figuring out if you had an operations issue or a sales issue, which I don’t think, when people think about accounting, and especially the accounting and the numbers side of the business, I think a lot of times people miss that it tells you what’s wrong in the business as a whole, not just the accounting side. But do you have an example of…
either sales, operation, or both, where you’ve been able to help a client solve a big problem that they didn’t even know, and it was in their sales or operations side of the business.
Kristen (07:44.236)
It almost always comes down to gross profit margin. And when we start looking at the materials and labor cost of, so your tech labor and your materials cost, we almost always find areas of pretty decent improvement that we can highlight. Sometimes it’s over buying a product or not having a really good handle on how many, like,
what all pieces of inventory or pieces of supplies and materials are in the trucks at any given time, or what’s sitting in the corner of the warehouse that got ordered that never got used and that kind of stuff. there’s a lot of times that we can identify some of that. then definitely tech labor is a place that we can usually identify some areas for opportunity. And honestly, there’s a lot of times that the business owner isn’t charging enough.
to be able to get to their net profit just past their gross profit margin, right? So if business owner comes to me and says, I wanna have a 20 % net income, well, the first place we’re gonna look is what is your gross profit margin? Because if your gross profit margin isn’t high enough to cover your overhead, you’re not ever gonna get there.
Justin Deese (08:58.83)
Yeah, think there’s a lot of businesses that don’t price their products and services correctly. And it is kind of a shame, but at the same time, I get it. even for them, without them understanding their own numbers, they don’t even know what it costs them to run the business on a day -to -day basis. over the years, we’ve definitely seen a lot of that where people just, and even now, like you talk to businesses and there’s some that are
a third of probably what they should be and basically they’re scraping by because they just don’t have good solid pricing in place. Like their close rate’s good, all those other areas they’re doing well but then they get down to pricing and they’re so under pricing what they should be for their services.
Kristen (09:49.184)
Or they’re finding that there’s a department that they have that is like horribly underperforming that other departments were covering that up because they were overperforming. And we’ve experienced this. actually have two clients right now who are kind of starting to identify arms of their business that they might have to come to grips with letting go because they’re barely scraping by on that particular arm and the other
parts of the business are making up for it. We had that when we were early, not early on, but when we were several years into the appliance installation, we had to basically cut our business in half from a revenue standpoint because we were finally realizing that busy wasn’t profitable. And that’s what these other business owners are experiencing too, is they’re like, but it creates so much to the top line. And I’m like, yes, but if it’s not giving you anything in the gross profit margin, there is zero point in doing it.
Justin Deese (10:47.091)
Top line is vanity, bottom line is sanity for sure. And you know, so as you say that too, in my head I’m thinking about from an HVAC company standpoint, you know, we’ve seen that a lot when it comes to the service versus the install side. Like a lot of times their service side is underperforming and their install side is kind of making up for those sins. And obviously that’s a tricky cause you can’t cut, I mean,
Kristen (10:49.964)
Right, right.
Justin Deese (11:15.197)
I I wish you could, you could be like, know what, I only install systems now. I’m not working on them. But you they have to, you have to still, like you can’t not service for the most part. You can’t not service people and only do installs. So at that point, yeah, you got to figure out the pricing and maybe the close raid and what you’re spending on your marketing and customer acquisition side.
Kristen (11:36.322)
Mm
Kristen (11:41.628)
And it could be options, maybe on the, especially on the HVAC service side, I think a lot of times the option is either bare minimum fix or new system. And I think that there’s a lot of times that we miss the opportunity to grab the higher average ticket service. And the companies who are killing it on their HVAC service gross profit margin, they’re offering those options.
they’re offering a customer the opportunity to spend $1 ,500, $2 ,000 on an aging system to replace some major components on it. But I think a lot of that has to do with the technician and the leadership being okay with understanding that they are not their customer. They don’t have the same buying habits as their customer might. And so I think a lot of times technicians and leadership doesn’t…
want to or like to or feel like they should offer a higher average ticket on their services because in their brain they’re like, if we’re gonna spend $2 ,000 on a unit, I might as well just get a new one. But we aren’t always our customer and so our customer might be okay with spending $2 ,000 now to get their system back up and running and in good shape and stretched out for another couple years. Maybe they can’t get a new system right now. Those are the kind of things that I think help increase your gross profit margin on your service side.
Justin Deese (12:57.172)
Yeah.
Justin Deese (13:02.761)
So I’m gonna make this point on the selling side and the option side for anybody listening, if your techs are not giving customers options, you’re doing that customer a disservice, period. Your job as the expert is to, like think about how many people buy, they buy things.
They didn’t even know they needed. They didn’t know they wanted. They didn’t know would make their business, their life better. They had no idea. and in my head, I’m thinking right now, we just got done with the bathroom remodel. Actually, we’re still not done with it, but we’re getting close. We’re, we’re, we’re almost around that hump, but we have a research pump in the house and it’s been disconnected for a couple of weeks. And immediately we were like, this is terrible.
We got to get this research pump. Like that became the priority is like, got to get, we got to get this research pump back to work. And honestly, a lot of times from, as a customer, if we, as a plumber and you can put research pump and dehumidifier or whatever, but a lot of times customers have no idea the impact that will make on their lives. And it is our job and our duty as the professional in order to let the customer know about this product or service so that their life can be better.
Kristen (14:19.03)
Right, and think about it. It is, it really and truly is. it takes forever. So our master bathroom is on the complete opposite side of the water heater in this house. so it straight up takes like three to five minutes for the water to get hot right now. But you got to think about like how much is a research pump? Like what is the cost on that for a plumbing company? Dollars probably, I don’t know. Is it really?
Justin Deese (14:19.207)
Our life is better with a research pump.
Justin Deese (14:41.633)
300 bucks. It might be 250 depending on how you buy and that kind of stuff,
Kristen (14:48.383)
Okay, well it looks like a much simpler product than that, but point is is that that’s an upsell. That’s an opportunity to increase that average ticket and it really does make a significant difference in our morning routine to be able to have hot water more on demand than it is currently.
Justin Deese (14:58.761)
Mm -hmm.
Justin Deese (15:10.431)
Well, and we save money because we’re not burning water. So anyway, so I just wanted to say that for anybody listening.
I think a lot of times when you think accounting, you just think numbers. You’re not thinking about that’s really the foundation of the business. Like if you don’t have money, you don’t have anything and you can’t pay anybody and you can’t run your business. And it does tie into things like how to sell a product or service or how to give options. All that stuff is such a big, because at the end of the day, it costs you the same thing to get in that home. If you do a…
Kristen (15:29.112)
Great.
Kristen (15:42.072)
Mm -hmm.
Justin Deese (15:44.033)
whatever your trip charge, dispatch fee, whatever you call it, or you sell them a $1 add -on service to get in the home costs the same thing.
Kristen (15:53.58)
Yep. Yeah, there’s so one of the things that has come up recently that was kind of a little bit of a revelation to the business owner was gross profit margin isn’t really where it needs to be, which means that net profit isn’t really where it needs to be. And the knee jerk reaction when net profit, when we’re not making enough money at the bottom, the knee jerk reaction is just just just sell more, just add more at the top.
But if your gross profit margin is out of line, all you’re doing when you sell more is just compounding the problem that you already have. So take a little bit of time and go through and solve those problems first, because then when you do go out and sell more, when you do go out and start generating more revenue, then one, you’re gonna notice the net profit faster. But two, you have already solved the problems that would have gotten compounded had you not put attention to them first. That was kind of a big thing and we’ve
I know you and I have talked about that for years and years that sales is a wonderful thing, but you have to make sure that you’re not covering up or compounding issues that are kind of lying under the surface there by doing that.
Justin Deese (17:04.442)
Yeah, I mean if you’re not yeah, if you’re not priced correctly and you’re not Efficient with it and you’re selling it you could sell all day and not make any money Which by the way, it’s a terrible business model. We’ve been in that model before
Kristen (17:19.321)
Yeah, the other thing that has come up a lot recently too is that idea of budgeting in your expected profit. So I think a lot of times what happens with business owners is they go out there, they sell the thing, they’re like, okay, this is my gross profit margin and this is how much I had to pay in overhead expenses and my profit is what’s left over.
I think a shift in the mindset of my budget or my profit budget is 20%. And so based on what my gross profit margin is, the difference is what I have in overhead allowance. So thinking about it from a, have an overhead allowance instead of my profit is what’s leftover after I pay my overhead, I think is a good mindset shift to really ask on the overhead.
Is it something you actually need? Is it something that’s actually benefiting the company, helping you move and drive forward? Because at the end of the day, if we’re spending all of the money that we have on overhead and there isn’t anything left over from that profit, meh. That doesn’t make it as fun. But we go out there, we start generating a whole lot of revenue and the knee -jerk reaction is that we start piling on the overhead expenses at the same time.
And I think there’s a lot of times that we can be far more efficient on less overhead and just bake in, like budget in, expect. My expectation is whatever your net income expectation is. And then you’re having to control your gross profit margin and your overhead in order to get there.
Justin Deese (19:01.913)
Yeah, and I think that probably one of the biggest challenges that, especially in home services, that businesses can see a giant gaping hole is the direct expenses, right? Your labor and your material are the things that could literally eat you up the fastest, but you can underestimate…
the indirect expenses and if you’re not watching them on a daily basis or at least a weekly basis, can sneak up on you. You can blink and all of a sudden you’re overstaffed or blink and whatever. You got too many trucks or there’s a lot of that kind of stuff that can sneak up on you.
Kristen (19:29.676)
Yes.
Kristen (19:38.892)
That’s right. So we watch those, we look at those reports every single month that we go over. That’s part of the part of the financial review is looking at the reports. And I think that there’s a lot of times that the monthly appointment that I have scheduled with my clients is that like that’s their accountability to look at the reports. I have a feeling that there’s some of them that might not look at all if we didn’t have an appointment on the books.
Justin Deese (20:05.166)
Well, that’s okay. At least they’re doing it while you’re while they’re at least they’re doing it like whatever the motivation is, whatever, even if it’s the accountability partner side of it, who cares? At least they’re doing it. And when you start looking at that and you’re paying attention to what it is, naturally your business is going to get better because you’re going to have to shift if it’s not good.
Kristen (20:07.042)
Mm
Kristen (20:14.935)
Right.
Kristen (20:23.532)
that awareness makes, right, yep, making that awareness, that awareness is huge. And just, I think you start looking at everything a little bit differently when you’re really starting to see every, everything that comes through the business, you can start to picture where you’re gonna see that show up on either the profit loss or the balance sheet or the cash flow statement or whatever. After a while, you start.
kind of connecting this action, that action, this amount of downtime or wasted time or whatever, where do you see that show up? You can almost kind of imagine where it’s gonna go and just the awareness, you’re able to start putting a little bit more value on the things that are very hard to put a dollar amount to, like downtime. Downtime is really difficult to put a dollar amount to, but then when you can see what overall labor in general.
looks like on the profit and loss statement and where it should be, where it’s been trending, it starts to become more apparent.
Justin Deese (21:27.344)
Very cool. So I don’t want to take up too much more of your time. know you got a lot of stuff to do, and I appreciate you coming and hanging out with me. Any final thoughts before we jump off?
Kristen (21:38.616)
We are very, very quickly approaching the end of 2024 at the time of this recording. And I know you mentioned at the beginning, but for sure, I feel like this year has just absolutely flown by and the next one is probably going to go even faster. Even though our year is not closed out, we can be taking some steps to prep what the end of the year looks like and start thinking about what next year looks like in terms of goals and…
things that you want to implement and numbers that you want to hit and it’s never too early to start prepping your books for your CPA for text time.
Justin Deese (22:16.804)
I like it. So, Kristen, how does, if somebody’s listening, they’re like, I need her in my life, I need her to help me. How would they get in touch with you?
Kristen (22:26.114)
They could go to my website, which is www .Kristindice .com. It’s gonna be in the show notes, I’m sure. They can go there. There’s a contact me form through there that they can reach out to me. I’m also on Facebook, just as me. And you can always reach me through YouTube, so.
Justin Deese (22:36.74)
Look at that doing my job for me.
Justin Deese (22:54.631)
Very cool. Well, awesome. I appreciate you coming and hanging out. to all the listeners, make sure, if you got any questions about accounting, just reach out. I mean, you can ask questions. if she’s a good fit to help you, great. And if she’s not, she’ll still answer some questions for you. So I appreciate it.
Kristen (23:10.776)
That’s right. Thank you.