The problem most businesses face

Newsletter #23

Back in the Netherlands for the rest of the month.

Been noticing how important it is to switch up your environment more often, lot’s of new things to think about!

Makes me itch to rebrand this newsletter as well… let’s see what happens 👀

I’ve now worked with nearly 10 businesses and spoken with dozens more since I launched my fractional CFO service. 

And some clear patterns are starting to emerge.

One of these patterns is best described with the concept of the circle of competence.

For example, my own circle of competence got tested VERY quickly after launching my business. In my case, I found that sales and marketing sat clearly in the ‘what you think you know’ area… and it took me a few weeks to realise this.

When you discover that there is something you thought you knew how to do, but actually don’t, there are three options:

1. Invest the time to learn this skill

2. Hire somebody else to do it for you

3. Accept it and take your loss

I would never go for 3 unless it’s a useless skill to begin with. If that’s not the case, it simply comes down to how much time vs money you have.

In my case, as I was just starting out, I went for option 1 and learned whatever I could about lead generation, offer creation, objection handling, voice tonation, copywriting and you name it.

This is now (slowly) bringing sales and marketing into my circle of competence, and the results are starting to reflect that.

But you’re not reading this to see my diary.

So, let’s bring it back to the pattern I see in most of the businesses I work with:

They often start out with “financial management” in the “what you think you know” area.

The businesses I work with realised this and chose option 2- to hire someone to help them with it.

But if you want to fix this yourself, this is what I recommend you do…

First, identify the problem.

For most businesses, I noticed that this comes down to the following.

They're making money, but never keep as much as they expect.

In other words: they're leaking cash. Not good.

And it turns out, this boils down to how the finances are being tracked:

1) They keep track of all income and expenses in their head

or

2) They keep a basic spreadsheet with expected income & expenses

Problem with both: "one-off" expenses that aren't included...

These one-off expenses are real business expenses.

• Investments in coaches or training

• Putting some money into ads or freelancers

• Expenses for travel and entertainment

I have seen cases where real profit is off by more than 50%.

How to solve this:

1) Get the right tools: Quickbooks/Xero (c$20 p/m)

Connect your bank account or credit card and load in ALL transactions.

2) Categorise this yourself or hire a bookkeeper (c$500 p/m)

Believe me, the clarity alone is worth it.

3) Set target margins

Calculate your Gross, Operating and Net profit margin.

Find a benchmark or set the margins you aim to operate at.

4) Dig in

• Gross margin too low? Dig into product cost.

• Operating margin too low? Dig into labour efficiency and overhead.

• Net margin too low? Dig into tax efficiency or interest rates.

Use your margins to pinpoint where the inefficiency sits.

5) Weekly review

Consistency beats cleverness.

Categorise all expenses weekly (or monthly) and calculate margins.

Did they increase? Decrease? Where are the bottlenecks?

Side benefit: this is a must if you ever want to sell your business.

If you already don't know the numbers, no buyer or investor will either.

And it doesn't have to take much time.

This is the first step to bringing finance into your circle of competence! You got this : ).

Best of the week

Wiz is legit. And this post described perfectly why I’m so big on personal branding.

Worth a read!

I’m working on creating some case studies and lead magnets as well now. Hopefully able to share this in 1 or 2 weeks.

In the meantime, if you’re in the market for a fractional CFO or have any finance questions- you know where to find me ; ).

Till next week,

Joey