Jeremy Weisz 16:27
I’m sure you get that question a lot, which is, can I afford to hire? When should I hire? And then it sounds like you really explore that labor efficiency ratio to see, is there any other considerations when you’re answering that question? For a business?
Hannah Smolinski 16:46
Yeah, like when to hire? Is that what you mean? Yeah, I mean, a lot of times, what we’re looking at is, usually it’s the business owner who wants to take something off of their plate. That’s like, usually the first steps is just how do I get myself out of working in the business and starting working on the business? So we start to think about, like, well, what skill sets are really the things that we need to bring in right away. I had a conversation yesterday with a client who is really realized that the creative work of her business was still 100% on her. And that was the stuff that was really weighing her down the most. And she wasn’t able to stay in her visionary role as the CEO, because still, so many creative questions were flowing to her. And so what we’ve kind of landed on is that the next best hire is actually a creative director for her to pull more away from her as being that person. And obviously, you’d have to be somebody she works really well with. And they have the same creative vision, but she wants to work on bigger projects, growing the business in different directions. And then it comes to the question of, okay, well, how do we afford it? And what do we do? So, I mean, we try to identify the best next hires first, based on the gaps of the skill sets, and really what’s going to free up the business owner or the other team members to be more productive.
Jeremy Weisz 18:18
Yeah, I mean, you’re not just supporting that with numbers, but you’re giving a lot of strategic advice around the business as well, right? Because in that scenario, it’s not just a dollars and cents answer, you’re really helping with the strategy of what do you hire next and when?
Hannah Smolinski 18:36
Yeah, and I think that’s a little bit. There’s a wide range of what like CFO services can cover, there’s a lot of people providing CFO services that will just kind of help you analyze your P&L, and they’ll kind of answer some questions, and they’re really more still historical looking. And they can answer the what, like, what happened to make software expenses twice as much as the budget or what happened here with labor that it’s up 10%. But what we’re trying to do is be that strategic advisor, the trusted business advisor, that understands all the financials and can help make that good next decision on the financial side. And so I mean, we have to get into operations, we have to talk about what else is happening, we have to talk about marketing, pipeline software, like really everything is kind of on the table to talk about in our CFO meetings.
Jeremy Weisz 19:30
Is everything’s tied to something in the financials? That’s important.
Hannah Smolinski 19:35
Yeah, I mean, it all ties back there’s going to be anything that you’re doing is going to have some sort of tie into the P&L or the balance sheet.
Jeremy Weisz 19:47
What scenarios, Hannah do people come to you? There’s certain flexion points or what are the times where they’re like, okay, we need to contact Hannah and Clara CFO.
Hannah Smolinski 20:02
There’s two camps. There’s everything feels like it’s burning, we need financial help. And those are, we still take on those clients and we will do the best that we can to help them turn out around the situation, we always say that this is not like a light switch, you can’t flip a financial situation around really quickly, it’s kind of that slow turn of it takes a while. But if you start making good decisions, you can get there. And so there’s the everything’s burning, we need help. And then there’s the people who are growing their companies. And they are in that situation where they have been making decisions, usually based on their gut, and looking at their bank account for a really long time. But they’re starting to scale to the point where they’re like, at some point, this is not going to serve me well, because I can’t juggle all of that information just in my head anymore. And bringing on salaried employees that six figures over and over again, it starts to get concerning, is the pipeline coming in, as it needs to, to cover all these people. So it’s usually the people who are scaling their businesses, and they start to just realize that like, that forward-looking piece of the financials is missing, and their bookkeepers aren’t helping them. And their CPA doesn’t answer their calls. And their CPA doesn’t even know what’s happening in the future, because they’re usually focused on what’s happening in the past. And they’re like, okay, I need somebody to do that. And that’s the CFO looks forward, most of the time we look back to see what happened, but a lot of our discussions are around looking forward and what’s next.
Jeremy Weisz 21:44
It’s forecasting, it’s projections, it’s growth, it’s what do we do in the future? Is there a certain size that you see a comp that’s common trend of when someone hits this size and beyond, that’s when they start contacting you? I don’t know if it’s a revenue size, or a staff number size?
Hannah Smolinski 22:07
Yeah, I mean, complexity or sophistication is another way that we like to call it, definitely is a factor. So sometimes, I mean, you can have a $15 million business, it’s actually quite simple. And then you can have a $500,000 business that is extremely complex. So what we look at is kind of a mix of how many employees do they have? What’s the revenue, we wouldn’t usually recommend CFO services to start until somebody’s around 500,000 in annual revenue. And that’s just mostly because they might need the help a little bit earlier. But our fees are certain amount, and we wouldn’t even recommend them spending a certain percentage of their total P&L on CFO services until they reach to a certain level, we have like Clarity Calls we can do with people one-off here and there. But for that ongoing service, kind of say, like 500 is kind of the minimum of when we do that.
Jeremy Weisz 23:05
Let’s talk about cash flow. For a second, what are common questions that you get around cash flow from business owners?
Hannah Smolinski 23:13
You mean, besides how to increase it? How do I get more of that? That’s the number one question. Yeah, it’s like it, a lot of it, it becomes that thing where, people are making decisions. And then they’re not necessarily thinking about, like, the timing of when things happen. And so you might make a decision to make a big inventory purchase, for example, but then the next day payroll comes out, and then the next day your rent is due, and then all of a sudden, you’re in a situation where all your money is gone. And you don’t know what to do, and you’d certainly don’t want to get into that situation again. So a lot of people will just be at that place where they’re like, I need to improve it, they might not even use the word cash flow. They’re just like, I’m always like, on a hawk, I’m looking at the bank account, like I wake up, I roll over every morning, and I check the bank account on my phone, because they just don’t have enough clarity to know exactly what to expect. So then they’re just kind of obsessively thinking about their bank account. So it usually is just like, how do I relieve some of that anxiety and stress about cash? And is there going to be enough.
Jeremy Weisz 24:29
Yeah, I like you said that is a timing issue. And people should be aware, even if they have the expenses, to pay attention to when the timing is when things are coming out, because that can make a big difference. Even credit card stuff, too.
Hannah Smolinski 24:44
Yeah, you’ve got payroll coming out. It’s 50,000. And then an American Express charge that comes through and it’s another 50. And then if they align, this wrong and you had 100,000 in your bank, you’re out just pretty quickly, so.
Jeremy Weisz 25:00
I love to hear your thoughts on how much it may vary, you may have different opinions on it. I’m sure it depends, but rules around how much cash flow that you recommend business have in the bank like that actually, they have in the bank and I’m sure depends if someone’s conservative if they’re not conservative, but is there a some kind of general range that you’d say, hey, I’d like for you to have X amount of cash flow in the bank, like for the services over or whatever it is, over the next few months, all the expenses, I want you to work to get this in the bank.
Hannah Smolinski 25:48
Yeah, we like internally, we use three to six months of operating expenses in our annual bank account. Now, that might be split between a savings account and a checking account. And this, we’ve also noticed that sometimes we’ll modify this down depending on the business model. So we might be in a situation like if you’re a B2C service-based business, for example. And maybe if you don’t get paid employees don’t get paid, you might be able to get by with a little bit less, because basically, if all of your work dried up, you also wouldn’t have the expense of payroll, which is probably your biggest expense. So like in those situations, you could kind of pull it back or save a little bit less, or be able to take out a little bit more of the earnings or whatever it is that they’re going to do with their money. But then there’s some other businesses that maybe have higher expense burdens, maybe you have a really talented, expensive workforce that like, you don’t want to lose people, because they’re so hard to bring on. We work with an engineering company. And when these engineers are so specialized, a lot of them have gone through even immigration stuff, we’ve sponsored green cards, we’ve done H1B processes and stuff. And we’ve invested a lot into getting these engineers on and two to three years of training to get to where they are, you don’t want to lose those people. And you don’t want to have to let them go if you’re low on cash flow for a couple of months. So you have to think about like your workforce, you need to think about what your revenue model is like, what if everything turned off? How much money would you really need and kind of go through that exercise of thinking like, if no more money came in, what could I do? And what are our contingency plans, and then that will help determine really how much cash you need.
Jeremy Weisz 27:48
Love it. Thanks for walking through that. I want to talk about a few scenarios. Okay. And I know you work with a lot of people in various industries, whether it’s manufacturing, engineering, e-commerce, food and beverage. Let’s talk about e-commerce for a second. There was one person that had e-commerce business that started out in their house. What happened with that?
Hannah Smolinski 28:10
Yeah, so this was one of my first CFO clients, and she’s still with us today. I think we’re coming up on almost five years. But she is one of my favorites. Because she started her business but totally out of a passion, which I think is a lot of small business owners, they have a passion for something and they realize there’s like a little bit of opportunity there. So I’m sure she never would have imagined where it is now. But started it out of a passion was had held inventory in her garage. She was working out of her house for a really long time, or not, not even that long. I think it was like two or three years, maybe she met me, we started working on the business. There was a lot of things that needed to be worked on like profit margins, she had no idea how to track if her products were profitable when she was selling them. She started a small e-commerce store. And she didn’t have the data come in to see if like her things were priced appropriately. We realized pretty quickly once we got that data that they weren’t priced appropriately so we changed that gave her new models to every time a new product came in, she knew what she needed to price that in order for it to be profitable. And if she couldn’t, she didn’t buy it. So we kind of like started that process and then started to hire an employee start to hire another employee moved her first office space. Max that out within like less than a year had to move to another office space. Max that out I think after like 18 months, and I think she’s in either her third or fourth office space or warehouse space now with all the inventory that she has and her team I think is like 15 to 18 people now employing people from pickers and packers that we call them or marketing. She has full-time marketing help, she has full times operations. And she’s also just thinking about how to expand product lines, even outside of just the physical products that she was selling. So she’s got a great social media presence. She’s on YouTube, just really doing all of it. And it’s really just so awesome to be partnering with her.
Jeremy Weisz 30:19
That’s cool. You get to see the evolution.
Hannah Smolinski 30:21
Yeah. And she’s multi seven figure business now, when we came on, I think she had like 250,000, maybe of annual revenue, which I thought was very impressive at the time. And then she’s more than two next to it at this point.
Jeremy Weisz 30:33
There was also a consulting company that you worked with.
Hannah Smolinski 30:43
Yeah. We love working with consulting companies, too. And I think like, with consultants, you get those people who are really good at that thing, that they’re really good, because they’re consulting for other people, right? So they’re very intelligent, very driven people, typically. And they’re looking at how do I do this at a different scale. And so we had a partnership come in. And these two female founders were very passionate about the type of consulting that they were doing. But they were also like, burnt out, because they were the ones doing and fulfilling all the projects. So their big thing was okay, how do we actually get some additional help? How do we offload some of these things. And so we just started hiring, and they were really scared to bring on salaried employees. But when we did the financial modeling of everything, and we proved it out. I think a lot of times people think that if you hire somebody for 50,050 $5,000 a year, you need to have $55,000 in the bank. But like, that spread actually across the whole year. So you need to have a little bit of cash. But with good financial projections, we have been able to grow their team, I think they’re, I think they’re at like seven or eight professionals now. And they’re also taking on multimillion-dollar projects. So they were kind of scraping by with 15,000 here, 20,000. There, and now they’re at this place where they can really fulfill these larger, longer-term contracts, and they’re over seven figures in annual revenue every year now. So it’s pretty exciting.
Jeremy Weisz 32:19
It sounds like things became less scary when you just model it out financially.
Hannah Smolinski 32:25
Yeah, sometimes it’s just proving to people in the numbers that they can do it. And also helping with them, it was really important to show them how important tracking their pipeline was, and the activities way before the revenue hit, the activities that they were doing, were so integral to their success. So we were able to kind of help them focus on the business development side, and make sure they had room to do business development in order to grow the business because they never would have been able to if they were just fulfilling, fulfilling, fulfilling all the time.
Jeremy Weisz 33:05
One of the conversations around finding and keeping talent, I mean, in this situation, a lot of times you could be roadmapping out when someone should hire, how should they hire? So I love to hear your thoughts on that. And I know, obviously, you bring on clients, but you also hire amazing people who are fractional CFOs. Who’s a fit to work with you?
Hannah Smolinski 33:31
From an employee side? Yeah. Well, we look for now is first, well, we do our first scan based on skill set. Like I’ve just like, what their experience is, I really love somebody who has public accounting experience. Because of that, what I mentioned earlier about being able to have those difficult conversations about money, it’s not a requirement, but I like to see it. And then we look to make sure that they’ve had some kind of like financial leadership, specifically in financial planning and analysis. So if they haven’t been a CFO before, if they’ve been in some type of FPN a group, if they’ve done that, like in a larger corporate company, or things like that, really, I’m looking for the skill set of like, have, they had to look forward, because that’s not all accountants have done that. And so that’s like, really important thing for us. And then we really scrutinize on values, we make sure that like our interview questions are value driven. Most of our interviews are value-driven, actually, we let the resume kind of speak to itself. And then most of our interviews are really spent talking about like, why they want to help small businesses and what is it about it that drives that? How do they show like integrity in their everyday life? And just, how do they continue educating themselves because continual education is one of our core values. So, we ask questions based on that and fine alignment. And then we do like a skills like practical step in our interview process where we actually give them a set of financials and basically say, talk to me, like, I’m the client and explain what’s going on and what you would improve. And so we have like a multi-step process of trying to find the right people and making sure that we’ve got the skills covered, but also that it’s just a good fit overall.
Jeremy Weisz 35:30
A lot of comp service-based companies are people-centered people-based businesses, what have you find what’s been your experience with how you found to best support in keep great talent?
Hannah Smolinski 35:47
I think one of the things is to make people because we’re hiring people who are further along in their careers. And I think it’s really important to make sure that they feel valued, or like where they are in their career, both with compensation and with just respect, making sure that their opinions are respected, making sure that we give them opportunities to do things besides just client service. Maybe it’s like a passion project, or maybe it’s working on something that they like heard about, and they’re like, hey, I think we could implement this into our CFO processes. Like we have one employee who was listening to a continuing education. And she was like, I think this would be really great for helping develop our framework overall, for how we do this service. And we’ve taken that and we’re starting to implement it across our team. So like, she feels like she’s involved in that her opinion matters. And I think at this level, when you’re hiring talent that has had this longer-term career, that they need to feel a part of the team in a different way. So I think that’s been really helpful. And then, yeah, I mean, you need to pay people for what their market value is. And I know that means that there’s some big steps that have to be taken in the finances. And you have to be ready for that. So that was a big thing. When I went from just me doing all the services to starting to pay other people was a really big step and really scary, but it’s something that I’m so glad that I did.
Jeremy Weisz 37:23
Hannah, one last question. Before I ask it, I want to point people to claracfo.com to learn more check, check out more episodes of the podcast. My last question is around tech. I love to hear what you love to use what you’ve seen some of your clients use. I know you mentioned pipeline, you’re sure people have different CRMs that they use, marketing financials, what some of the tech stack that you use, or you’ve seen your clients use?
Hannah Smolinski 37:58
Jeremy, what I see most is the accounting stack. So we love QuickBooks Online. That’s our favorite. We prefer that when clients come in using QuickBooks Online, if they’re on desktop, we usually try to switch them over to QuickBooks Online, we use a financial planning and analysis tool called Jirav. And that’s been kind of transforming our client service deliverable. And it also allows us like really great reporting, we’ve been able to standardize our deliverables to our clients. But then also we can do really great forecasting. So we can do something called driver-based forecasting, which we can just get a lot more accuracy, which has been so helpful for clients. And then it gets us out of Excel. A lot of clients don’t want to look at Excel spreadsheets for some reason. I like looking at Excel spreadsheets, but not everybody does. So it gets us out of Excel gets us into a different platform. And then it also allows us to visualize certain metrics that we think are important, like the labor efficiency, those ratios that I mentioned earlier, we can kind of put all of that there. Payroll providers are kind of across the board. I mean, I’d say like, a lot of them are on gusto, ADP, some are using QuickBooks payroll, but we are a little bit more agnostic on our payroll providers, we’re just trying to find the right fit for the client and when they need it, some need like full PEO services, and some just need like as basic of a payroll platform as it can possibly get. So we try to like, and we do a lot of software recommendations, actually for clients. And then CRMs are kind of all across the board as well. Really, what we just want to see is that they’re actually using it if they’re paying for it. We’ve been guilty of that. Yeah, I think everybody has, right yeah, I mean, you’re like I want to do a CRM and then don’t update it or whatever. So, but in any way we ask those questions, we go through deep dive center, they’re expensive. And we’re like, are you using this? Are you using this? And if they’re not, we say either start using it or we cut it, save some money.
Jeremy Weisz 40:07
Are there any ones that stick out that people are actually using CRMs that people like?
Hannah Smolinski 40:15
Actually a couple of my clients are using Less Annoying CRM, which I think is a hilarious, it’s called Less Annoying CRM. And then some people are just tracking things like some of our clients just track things on Google Sheets or Excel, because there’s not a large volume. But they can keep track of it like that.
Jeremy Weisz 40:43
We’ve used Pipedrive before. And that was, I think, more robust than we needed. So we switched to Active Campaign. So we use Active Campaign, I had the actually the founder on the podcast below to check that episode out. They’re interested in learning more. But that one we use pretty religiously.
Hannah Smolinski 41:01
Yeah. I didn’t know Active Campaign has CRM.
Jeremy Weisz 41:03
Yeah. They like a deal thing where you could just obviously use it for email, but also CRM. Yeah, that’s great. Any other things that you use for communication with your team internally, because I imagine they’re remote. They’re not all coming into the same office?
Hannah Smolinski 41:21
Yeah, we’ve got two employees here locally, where I am just north of Seattle, Washington. But then we’ve got other employees in other states. So we do Slack. So that’s kind of the main communication point throughout the day. We have good questions, we can just put them there. And try to keep most of our communication there. We moved to that a couple months ago, and it’s been a good shift
Jeremy Weisz 41:43
Awesome. Hannah, I want to be the first one to thank you. Everyone should check out claracfo.com to learn more and more episodes of the show and thanks Hannah. Thanks, everyone. I almost called you Clara.
Hannah Smolinski 41:56
Thank you. It happens all the time. Happens all the time. Thank you so much.
