Today’s podcast features Joe Worth, a partner in B2B CFO. I’m a huge fan of this concept. Most private businesses don’t need a full time $200,000 per year CFO. In most cases you’ll be able to get by just fine using someone with the skills of a big CFO but for just a few hours a month.
Not only is this more cost effective than hiring a full time CFO, it’ll allow you to get advice from someone who is seeing several businesses and can bring you best practices from other companies they work with. If you’ve not ever thought about this possibility you will want to listen to this episode of The Sustainable Business.
Some of the main points we’ll discuss today are:
- Why a rent a C is a good idea in the first place.
- The reasons you want to pay a retainer fee versus an hourly fee.
- If you’re rent a CFO isn’t focusing on cash it’s time to move on.
- Why building a budget and dashboard is crucial to build sustainability into your business.
- Some things you might want to do before you hire a rent a CFO for your company.
Narrator: Welcome to the Sustainable Business Radio Show on podcast where you’ll learn not only how to create a sustainable business but you’ll also learn the secrets of creating extraordinary value within your business and your life. The Sustainable Business is all about creating great outcomes.
Here’s your host, certified financial planner, student, entrepreneur and private business expert, Josh Patrick.
Josh: Hello, today’s guest is Joe Worth, a partner in B2BCFO. This is an organization that allows you to hire part-time, high-level help that will bring you a CFO into your office that you would never consider mostly because you couldn’t afford to hire him on a full-time basis. But a part-time basis, now that’s a different story. I’m big fan of the rent-a-C industry which could be Chief Investment Officer, Chief Operating Officer, Chief Executive Officer. In this case, we’re going to be talking with a Chief Financial Officer. This is where you can hire a high-level talent on a part-time basis that is often beyond the reach of small businesses like you folks.
Today, we’re going to talk about how you can find talent like Joe and what you can expect from the rent-a-C industry. We’ll also spend some time talking about how to make sure the person you’re bringing in is competent and can add value to your company. Let’s bring Joe in and start the conversation.
Hey, Joe. How are you today?
Joe: Great, Josh. Very nice of you to have me today.
Josh: Well, it’s my pleasure. I’ve had several conversations with you over the years about what you folks do and, as you know, I’m a big fan. In fact, some would consider me a rent-a-C for some of the work that I do also so we can maybe have a little conversation about that.
Joe: We’re in the same boat.
Josh: More or less. Why don’t we talk about the rent-a-C business in general? How would you describe it and why do you think it’s a good idea?
Joe: Well basically, to use your term, the rent-a-C business, is a way for smaller to mid-sized businesses to get very senior experience-level management help without the cost and the commitment of a full-time person. Different people, different firms, different individuals do it on different bases. People have been actually renting legal and accounting talent by the hour for centuries. This just takes it a little further than that in terms of what professions and what areas of expertise. Most of the people that do the kind of work that I do, we tend not to charge on an hourly basis, we tend to charge more on a daily, weekly, monthly, or sometimes—I was just with a guy yesterday that only works on an annual basis. That’s the basics.
Josh: Let’s talk about that for a second because I find that really interesting. Why wouldn’t you charge by the hour? Why do you charge on a retainer basis?
Joe: At least two reasons come to mind instantly, Josh. The first is that – especially CFOs, we don’t want to be confused with and looked upon as CPAs. CPAs are great people. CPA firms perform a great function. I work closely with lots of CPAs. But CPAs have an image and reputation out there as people that come into your office. They gather a bunch of information, they go away, and they send you a report and a giant bill. Since we don’t work that way, we don’t like to be thought of that way.
The second thing is, especially in our company, we very much want to be business owners’ long-term trusted advisors. We really don’t do project work, so to speak, which would be maybe more amenable to the hour by hour thing but we’re really about providing value over time. And we would much rather say, “You know, let’s just get together one day a week, one day a month or whatever it happens to be and it’ll cost this much and you’re going to get a lot more value out of that.
Josh: That certainly makes sense for me. So, when you walk into somebody’s office, and you spend one day a month, or one day a week, or whatever your timeframe is, what does a rent-a-CFO actually do?
Joe: Well, we’re doing everything that a CFO does. We’re not the actual CFO titled and legally as the company but we provide CFO services. We do the things that CFOs do. Those really center around, more than anything else, cash. “Where is the cash coming from? Where is it going to? What’s the cashflow projection going to be?” If they need more cash, we look at the capital structure. “Where should the cash come from? Should it be equity? Should it be loans?” If it’s debt, where should it come from? Help get it. All these sort of things – cash is huge.
Every company has an accounting infrastructure, with people and systems. A typical smaller business, as it grows up, they’ll start out with a bookkeeper. As they grow, they will eventually get to the level where they have a controller. Those people are all focused on getting the transactions into the system and spinning out reports of history. A CFO, on the other hand, while they supervise those activities, are more about using that historical information to say, “What do we need to do in the future? What will strategies should we be following to meet the goals of the owner?” – whatever those might be. CFOs are very much future-focused rather than the controllers and below which are very much history-focused.
The other thing that CFOs typically do and that we do in our firm is we help the business owners deal with the outsiders that they need to deal with in the financial world – the lawyers, the accountants – the CPAs we talked about earlier, investment banks, insurance companies. All of these people, CFOs are – we’re all really expert at dealing with these people. We’ve done it before. We’ve seen all their contracts and all of their rules and regulations and we can help business owners that typically don’t have a lot of experience with that.
Josh: Let’s talk about future-focused for a second. My experience with CPAs is that they’re great historians but they’re lousy at helping me make my business better. My experience is, unless you’re future-focused, it’s almost impossible to make a business better. What might you typically be doing with a business owner that’s future-focused?
Joe: Well, the first thing we do very, very basic but which most businesses don’t have is building a budget every year – a very detailed budget. What I call an integrated budget that has income statements, balance sheets and cash flow statements built-in. And then, of course, you use that budget on a monthly basis to see how you’re doing. And by seeing how you’re doing against that budget, you can make decisions on how to change what you’re doing to better achieve it.
On a shorter-term basis, we often get involved in a detailed cashflow forecast. Of course, there’s a cashflow forecast built into the budget but for businesses where cash is a particular issue, we’ll build a 13-week, very detailed cashflow forecast, and then we’ll update it every week. “How did we do last week? How did that compare to what we forecast? Why was it different?” And you can, especially by doing that comparison, really avoid cash surprises. That’s the basics – the first two basic things.
But other than that, it’s just CFOs are used to being the right hand man, so to speak, the right hand person of their CEOs. The best and most fun I’ve had as a CFO, in my career, both as a full-time W2-basis CFO and with my clients, with B2BCFO is when we’re working as a team. The two of us are really running the company and we’re a partnership. There’s no holds barred between us and we’re making it happen. And that always involves looking towards, “What are we going to do to make it better?”
Josh: So, for someone to get a good rent-a-CFO, what can they expect to pay?
Joe: Well, that really depends on what they need. Typically, a CFO of our kind of level of experience and expertise, you’re talking about people that have an absolute minimum of 20 years of experience, an average of over 25 years of experience, and have been the CFO, at least once in their careers – most of us, multiple times. I was a full-time CFO for five different companies before I joined B2BCFO, for instance and I’m not unusual. Although we don’t charge on an hourly basis, typically high-level CFOs like ourselves are going to be about in the price range – and this is sometimes surprising, of a senior manager level in a CPA firm. So, it’s in that kind of area but it’s a fraction of what you would with a full‑time CFO cost. A full-time CFO, these days, for a person of our level of experience and expertise, is a quarter-of-a-million-dollar-a-year deal with full up, with salary and benefits and stock options and everything else. Even for an intense level of service, you’re talking about a fraction of that for somebody that you bring in on a less than full-time basis.
Josh: What would you say to somebody who says, “You know I need a full-time CFO. I do $10 million a year. Frankly, I’m not very good at doing finances. My bookkeeper is okay.” So, how you make this person feel comfortable that they really don’t need that full-time position?
Joe: That’s a great question, Josh. The process of that person becoming comfortable with the concept happens through a very detailed interview – a very detailed conversation about what’s going on in their business, what they need to run their business and then looking at the resources required to do that, and looking at their current team. Once we get agreement on the needs, it’s a lot simpler to say, “Okay, this is what you need and you’ve told us what you need. Let’s look around and see where we can fulfill those needs.” And often, that’s us and we can do that. Does that make sense?
Josh: That does make sense. When you’re doing your needs analysis, what kind of things would a business owner be thinking about before they should or would hire you?
Joe: Should they be thinking about or are they thinking about?
Josh: Well, what are they thinking about – first of all. And then, what should they be thinking about, secondly.
Joe: They’re both valid and important questions. Typically, a business owner that we get involved with, has one or two very important needs. A lot of salespeople would call them pain points. There’s something, there’s a problem. Often, it’s cash. Either they don’t have enough cash to grow as fast as they want. They’ve grown too fast and now they’re running out of cash. There’s a cash problem. That’s by far and away why we hear from people the most.
But other times, there are things like every month, they’re supposed to be sending their financial statements to their banker and it’s late. And when it gets to the banker, the banker throws up on it and identifies all kinds of mistakes and business owners losing confidence in his controller or his accounting staff. Accounting operational problems – invoices aren’t going out on time. They’re not going out right. Double paying invoices to suppliers. Things like these that tend to get notices and those are often the things that will generate a call to us. And those are operational – ongoing things. Often, the business owner will be thinking about exiting his business or actively trying to do that. And so, we get involved there also.
What they should be thinking about is, “What kind of financial infrastructure?” What kind of information do they need for that infrastructure to make really good decisions to drive the business where they want to drive it- where they need to.
Josh: When you say financial infrastructure, Joe, what does that mean?
Joe: Financial infrastructure is the combination of systems, policies and procedures. How those systems are to be used and the people that are using them, both in terms of their experience, their qualifications, their ongoing training and the internal controls to keep them on track, to keep everybody honest. Quite frankly, we’re going to keep insiders or outsiders stealing from you. The combination of those three things – the systems, how to use the systems, and the people using the systems.
Josh: You said something a little while ago which I want to just take a turn back to, which is growing too fast. How can growing too fast use up your cash?
Joe: Oh, this is the classic difference between profit and cashflow, never mind growing sales and cashflow. Cash is part of the balance sheet and it’s an asset. Income is part of the income statement and it’s what’s left over after your transactions and they’re different.
Just to give you a classic example would be a distributor that’s growing. The distributor knows that, “Boy, if I’m going to keep this growth going, I’ve got to get some inventory on board.” So, they buy a bunch of inventory. Well, it takes cash to buy that inventory. So, they buy all this inventory, they haven’t turned it yet or it’s turning too slowly and they run out of money.
Manufacturing – the same way. “Okay, we’re going to build a bunch of inventory. We’re going to invest in capital equipment because we need to put out more. So, maybe we’re going to spend $1 million this year on capital equipment.” Well, where’s that $1 million going to come from? You have to pay it now but you either have to borrow it or you have to make it up in positive cashflow over time.
Josh: I’m guessing that you guys would come in and you would help do a cash forecast saying, “Well, if you buy this much inventory, and you don’t find a way to finance it, you’re going to run out of cash in X weeks, months, years or whatever the timeframe is.”
Joe: Yup, absolutely. In fact, one of my very first clients, when I joined B2BCFO, was a distributor of computer system stuff – PCs and related stuff. They were doing well. They were growing fast. They hit a bump and they got in trouble with their main supplier. They made a deal with that supplier. And then they called me in and I spent my first couple of weeks there, two days over two weeks, doing a very detailed cashflow forecast. I found a bunch of problems with the accounting system while I was rooting around to make the forecast. It turned out that, at the end of the second day, I sat down with the business owner and I said, “You’re going to run out of money in nine weeks unless we do something and we talked about what could be done. The main thing he needed to do was to put some of his own money back into the company and he didn’t want to do that. Unfortunately, he didn’t like the messenger as well as the message so I went away. And then three months later, the company was bankrupt.
Josh: Oh, so there isn’t a happy ending here?
Joe: No. Unfortunately, there is not. It’s a lesson but not a happy lesson.
Josh: Okay. I was going to ask you, “Well, how did you solve that problem?” I guess, you didn’t, so—
Joe: I would have loved the opportunity to work with him but he wasn’t willing to make the investment.
Josh: You have a statement here that you sent me, it says, “Allow the owner to concentrate on finding rather than minding and/or grinding.” What does that mean?
Joe: That is an interesting thing. Every company has an organization chart and it shows who the people are and what departments they’re divided into and sort of what they do. But every company has an unofficial organization chart which divides them up into finders, minders and grinders. Now, finders – business owners are pretty much universally finders. Finders are the people that come up with the ideas. They come up with the products. They build relationships. Sometimes they do the actual selling – although many salespeople are actually grinders which we will get to in a minute. Finders live in the future. I’m sure that when you look in the mirror, you recognize this, Josh.
Then the finders hire minders. The minders are managers, middle managers, accounting staff – people that keep track of things. Minders live in the past – mentally. And, you know, we all need good minders.
And then grinders are the people that grind away, doing the day-to-day operations of the business. They make the product. They deliver it. They answer the phones. They do everything. Grinders live in the present and they often distrust the minders and the finders.
What happens when a company grows – as I call it, a company grows up; as they build infrastructure, the owners – the finders, find themselves dealing with the stuff that the minders and the grinders. For instance, “How are we going to make payroll this month? Which bills do I need to pay first?” Or renting more space, so I need to go out and run around with a realtor and then look at leases and do all this stuff. These are not finding activities and when finders stop finding, then sales plateau at best and can actually fall off and the future of the company is compromised. So, finders really, really need to stay finding – do everything they can to not mind and grind. And by doing the rent-a-C’s, as you aptly call them, these are people that can really help release the owner-finders to get them back to doing finding.
Josh: One more question. How do you go about doing that? I mean, what would you call yourself as a rent-a-CFO?
Joe: Oh, we are minders. There’s no doubt about it, in that structure. All of those examples I just gave. “What bills do we pay this week? Okay, let’s go out and find some more space. Let’s deal with the bank reports.” All these things that have to do with the financial operations and the analysis of what’s going on, that’s’ what we do so that the owner can spend his/her time getting out there, being in the field and finding new relationships, inventing new products.
One of my favorite clients was the CEO of a very rapidly growing, very high-level security business. They made integrated security systems for multi-location manufacturers. One example was, they tied together a security system for every lab manufacturing operation and warehouse and sales office for a major pharmaceutical company – first, in New Jersey and then all over the country. And when I sat down with that business owner, the first time I met him, he knew this already and he says, “I need to stop spending my time in QuickBooks and I need you to do that so I don’t have to do it anymore.”
Josh: Well, cool. Joe, we are unfortunately out of time. So, I’m sure that some of our listeners would love to be able to find you and have a conversation about what B2BCFO does and specifically what you do. So how would they go about that?
Joe: The easiest thing to do is to our website, www.b2bcfo.com, and they can click on my professionals and dig down through and find me in New Jersey, if they want to talk to me. I’d be happy to talk to anybody in the country, no matter where they are and refer them to my partners who are in 46 states. There’s a lot of really good information, some really interesting videos on the website.
Josh: If you think you need high-level help, I can tell you for a fact you don’t need to hire full time So, if you’re interested particularly in rent-a-CFO, talk to Joe or send me an e-mail at email@example.com and I can help you with some other rent-a-C issues that may come up for you.
Thanks so much for your time today, Joe. I really appreciate it.
Joe: Thank you, Josh. It was a pleasure.
Josh: You’ve been listening to the Sustainable Business Podcast where we talk about what you need to do with your business if it was to be here 100 years from now. If you like what you heard and want more information, please contact me at 802‑846‑1264 ext 2 or visit us on our website at www.stage2solution.com or you can send me an e-mail at firstname.lastname@example.org.
This is Josh Patrick and thanks for listening. I hope to see you soon for another edition of The Sustainable Business.