6 Steps for Recession-Proofing Your Company

Forecasting a recession in the near future is not an easy task. The easiest method a business owner can use to prepare for any potential recession is simply proof your company to withstand it! Leo and Claudine dive into exactly how you can recession-proof your business using 6 steps.
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Speaker 0 00:09 . Good morning everybody. Welcome
Speaker 1 00:17 another show business and legal talk with Leon. Claudine, I am your host Leo Landa birdie and I am Claudine Sharon, we are here to rock your world today. Today. Are you ready? I am always ready. I don’t know about you, but I am ready. I have no choice. We have no choice but to be ready. Let’s rock and roll. How was the week? Very good. Very good. Very good. Very busy. We are just Stretton our way into the fourth quarter. Yes, aren’t we? Yes, we are standing proud. Chin up. Shoulders up tall, taking it on. You know, I am excited. I think, you know, it’s funny thing I had this visual right now of chin up there was in his kind of circulating in the internet as a meme now. Right? But this, it was two college ballplayers, one taller than the other and um, something happened. And what you see in this shot is the guy is orange, you know, at the, at the beginning of the, of the shot is walking with the head down, right.
Speaker 1 01:15 And the other Chi comes from behind. I mean, you know, lifts up to his chin, right to, you know, it’s outlook. Absolutely. Absolutely. So it’s a mindset thing, right? Well, wake up and face that day. So I find myself thinking that when, uh, particularly over the weekends, because Mondays are usually pretty pretty hot and heavy things have been, you know, brewing over the weekend and we’re ready to rock. And there is times that I actually have anxiety, you know, Sunday thinking, okay, we got to do this and tomorrow this is going to happen and that’s going to happen. I have to get this stuff done. And, um, I find that really mentally posturing yourself and saying, okay, we’re, we’re gonna knock this out of the park. We’ve got a lot to do, can’t wait to get to it. And really for me, strategizing how I’m going to work efficiently through all of what I know is coming through the day and I, okay, I’ve got a client meeting here, we’ve got to, you know, something to draft there.
Speaker 1 02:13 We’ve got to deal with some employee issues. We’ve got to deal with, um, you know, this, that and the third working on the business. And really taking that time to kind of posture yourself, uh, I think really helps. I know it helps me, it helps me change my mindset instead of thinking, Oh, you know, kind of fretting and I don’t know, you know, it’s going to be a big day, this, that and a third. Um, instead I really tried to change the mindset and get, get to looking forward to taking it on. Chin up. So chin up to, so we have a great show for you today. I’ve been really excited about this, uh, show and been working on it. So your favorite subject is my favorite subject, almost David. A second favorite. I have a few favorite topics, but this is really what I’m trying to distill
Speaker 2 03:01 everything that I do that, you know, I do in that we work together in some cases as we share clients. But, um, really what is the formula, right? How do you scale a business? How do you scale? So today show it’s about scaling your business. Okay. Now we had other shows about selling your business and getting the highest valuation and blah, blah, blah, yada, yada, yada. Today is really about how do you grow?
Speaker 1 03:29 Don’t you think? Scaling also can be synonymous with, um, really streamlining and an efficient sizing, if that’s even a word I might’ve just coined a phrase, but creating the most, there we go. Create the most efficient processes within your business.
Speaker 2 03:45 And we’re going to talk about that. So it’s really five steps or five buckets that we’re going to be talking about in today’s show. So number one, mindset, okay? Number two, metrics. Number three systems, right? What is the word that you just made up? Freedom. What’s something efficient, efficient, as high as the site? So systems, which is efficiency, right? And it’s a key ingredient to scaling a business, marketing and recurring revenue. Okay? So, uh, it never fails. And whenever I speak, mindset always comes up and I’m in and it’s no ma, you, I can give you all the techniques on the world to grow your business. And I’m talking to you, um, in general. And I’m not just saying, Claudine, I can’t give you as a listener, all the techniques, all the tactics, all the strategies that those who are killing it are using it.
Speaker 2 04:50 Okay. But if your mind is not right, it’ll go one ear and out the other, right. Or you won’t take the steps and do him doing the right way. If your mind, if your mindset is not right, no amount of tactics will do. Okay. Why, what do you say? I think you’re just self-defeating. It’s self prophesizing it, right. Whatever the mind conceive it will achieve. Right? Because you will continue to sabotage yourself. This I know too well. So number one, it’s mindset and um, you know, you know, we’re going to talk about the rest of the stuff and it’s exciting, but the mindset is just something that is really got me scratching. It’s almost, you know, not to get, um, whimsical or, or, or, um, um, you know, esoteric call or anything like that or, or, or new agey. But mindset is a powerful thing.
Speaker 1 05:46 Yeah. No, I totally agree with you. And I, what brings to mind is I have a number of clients who I have watched over the years really have amazing growth, just growth in their business. And part of that is they have this mindset and they have this kind of personality that makes you want to give them business spires people, you know, so when they’re out meeting with a new client, and perhaps a one that comes to mind is in the construction industry, I’m watching them have amazing, amazing growth over the last probably five or six years. And when he goes out to meet a client, he just has such a fantastic mindset that people want to give him business. And I think you bring that to to yourself when you take advantage of mindset.
Speaker 2 06:33 Well, you know what, you didn’t look at my notes, but you know, that’s something that is weird. Um, say thank you a lot in my notes today. So it was meant to be interesting you said, so here, let’s drive deeper, right? People always ask me how, give me some actionable things that I can do to change my minds. Gotcha. And I’m going to give you one that really has saved me a great deal. And that is practicing gratitude. Yes. I don’t know about you, but every morning it’s is something that I’ve learned and I have learned it in the lean times when things are, well, you want to hit the door, you want to go and you want to conquer the world, you want to do all these great things, but when things are not going well, you need to pause and reflect. And it is during those tough times that I have found myself having to learn to be grateful.
Speaker 2 07:27 Right? You know, I, you know, I love to travel, right? I love to visit different, different places and I love to travel internationally. I was born in a, out of the U S and uh, I know what is like outside of the U S and this is a beautiful country of plenty. No matter what we think, no matter what you think, how bad things are, perspective is seeing your life through the eyes of someone who has less than you. Right? And one thing that I noticed in the people as I travel in different countries and I’ve been to all the countries in South central and South America, people are grateful and it has nothing to do with money. Really interesting. And, and, and I notice that people that have less are grateful. And this is something that whatever you bring attention to will multiply it right. If you are a unnatural.
Speaker 2 08:19 So this, here’s the thing about gratitude that I found. You can’t be grateful and gripe fall at the same time. The same time. You couldn’t coined a phrase too well. I just thought I was thinking about this actually in the dictionary, but I like it. It’s grateful and gripe full. Right? I love it. I’m going, I’m going to just play with that man. That’s, that means it needs to be a sign and grateful as bumper sticker something. Yeah, great fall. Not gripe. Fall. That’s right. And here’s the thing. Um, have you, I’m going to, I want to scientifically, I’m going to prove it to you. So there’s the, this thing in brain, uh, eh, this called the reticular activating system. I actually studied. Have you heard of this? No, I have not. So have you ever gone to a dealership? Do you know it, it works with cars, right? So if you’re looking for a car, right? You start doing research and I don’t give me, I know you love trucks, right? And he was this, you know, you have a what, two 50 or three? Two 50 you have a two 50 prior to getting your truck. Do you do a little research on it?
Speaker 1 09:18 Yeah, I, I actually, yes, I, I and so much so that I literally just texted the, the, the dealership, the salesman that I was working with and told them what color, what interior I wanted and let me know when it’s on the lot and I’ll come by.
Speaker 2 09:31 So here’s the thing, how have you, if you ever test driven a car, you know, and for me, my kids were like, dad, you gotta you got to get a Tesla. And we went to San Francisco. Yes, that’s my kids. They’re conspiring behind my back. For me to get a Tesla, I read model S I think the latest and greatest. Well, I actually went when I was in Seattle when I went to a dealership and actually sat on a red beautiful test. Was it, was it any different than any, it was a great experience. I didn’t take it out for a spin, but here’s what happened after that. As I sat and I felt in his beautiful computer, and this is not a, an advertisement for Tesla, but just to prove the point, I walked away and then I noticed every Tesla on the road.
Speaker 1 10:20 Ah, I agree that that happens when you start shopping. So for me, when, um, I was making the decision to buy the vehicle that I bought last year, I started doing that and then pretty soon I started recognizing every single one of them and I thought, Oh, there’s a lot of them that are exactly the same color. How remarkable.
Speaker 2 10:40 So the radicular activities. Okay. All right. My producer says we got to go to a break. Stay tuned. We have a right back business, illegal talk with Claudine
Speaker 3 10:48
Speaker 0 10:59
Speaker 4 11:15 listen it to business and legal talk with Leon and Claudine, we’re talking about how to scale your business. And number one is mindset. So where we left before we went to the show, we’re talking about how important it is that whatever you focus, focus
Speaker 2 11:28 on, we’ll multiply. Okay? So here’s a, here’s a quick act. Uh, a real takeaway is every morning write the list a list of 10 things you’re grateful for. Okay? Right? And I do that and I have done it a lot actually. I actually journal, I envy people who journal, I journal, I have a journal in my, in my briefcase, and I use it as a sort of a repository of everything that I’m thinking about. Sometimes I even journal about how, what my thoughts are because it’s interesting as I’m, what I’m thinking about, you don’t have fif you have, you have 50,000 thoughts a day. Easy, eight negative, Oh, ouch. Are inherently negative. Ouch. And self-destructive, self-destructive, negative about you and about others. so when you write something down and it’s like you’re watching, like had an autobody experience, I have written things that I’m feeling in a day later, I ride that it scares me.
Speaker 2 12:24 I, so you gotta be aware of what your thoughts are. Right, right. So our gratitude list every day, 10 things you’re grateful for and you what you were saying earlier about saying thank you. Yes, people are attracted to those who are grateful. Absolutely. You want to grow your business, be grateful. Say thank you a lot. Right? You know when you go into a meeting, I was at a conference call and it was really interesting and in fact all my way to the recording right after the show, I was in a conference call. Yes, on a Saturday morning. I know that’s a whole nother conversation for another day, but it needed to happen and I delivered bad news to the president of the company. I needed to have a tough spot and it was a tough spot and I had to say it and he was nowhere around it.
Speaker 2 13:10 Didn’t know what he said. And that’s the, that’s the, that’s the proof of a great leader said, Leo, thank you for letting me become aware of that. He was amazing. Right? He didn’t know I was going to talk about it. Right. And I’m going to make sure to tell him no, that’s leadership now. And in terms of being grateful, I don’t know. I, I would imagine you’ve had the same experience. There’s times that I am really grateful just to be meeting with my clients and I think to myself, I’m, I’m really glad you’re my client. I love what you’re doing. I’m excited about your mission. Um, you know, I’m part of glad to be part of the team. I had a client, uh, this past week who emailed me and he and I worked together and did some work, um, last year and he was waiting for an SBA loan to come in and, and building a business in, in.
Speaker 2 13:55 He was moving into a location and then the location fell apart. Anyway, everything kinda got put on hold for, for basically a year. And I got an email from him and he said, we got it. We’re ready to roll. Let’s get started. Um, pick up where we left off last year and, you know, then I asked him a couple of questions back and forth and I just said, man, I’m so thrilled for you. I’m so thrilled. Your dream is coming true and I’m glad to be part of the team. Let’s do this. Just so excited. So that that is for me how I feel so grateful that I get an opportunity to watch people’s dreams come true and be a part of it. But I’ll tell you what, your clients notice that. Well, I hope it’s just part, it comes with the package. I mean it does.
Speaker 2 14:36 Maya. Angela said people don’t care how much you know until they know how much you care. Oh, absolutely. You care. And it shows. Absolutely. And it goes back to this mindset. I just, I love it. Right? Yeah. So number one is just to recap, no amount of tactic or strategy will change the wrong mindset. Absolutely. To expand. Now there is this whole thing about a lot of my clients and your clients come from being very good at one thing and they make a business out of it. Whether it is produce a widget or provide a service, they’re good at that. But the problem is that, that, that excitement of starting something will only get you to, you know, half a million or $1 million in revenue or whatever that is, and then you can’t get out of it because what got you here will get you out of it.
Speaker 2 15:26 Right? So you need to expand your mind. Um, number two is metrics. Now this is a, I say this is, it’s, it’s, it’s an, I tell my clients and my clients know to say, I know what you’re going to say. I need to run a business by the numbers. Right. And it sounds a little detached, right? But the truth is, I, we talked about it in the last show we know and the last show we’re talking about deconstructing what happened to a dead business. Yes. Right? And it’s basically like elect performing an op topsy. Right? And I just dissected and when did I know, but I didn’t acknowledge when did the horse stop, you know? Right. You know, like the, the coroner’s office Avenue, it just is a crazy gesture. Figured out what happened to the person. Right, right. Well, it kind of segue into the next thing.
Speaker 2 16:13 So I know nobody likes going to the doctor. I sure don’t. Right? But guess what happens when you walk into your doctor’s office for your annual checkup? What some of the things that happened. Can you, you know the DKU you think, Oh, what are the different things that you go through before you actually see the doctor? Oh, I know what you’re getting at. Blood pressure. So they go, right, so you come in, right? So okay. Temperature. So there’s a, there’s like a people, right? So there is the nurse assistant there, the nurse practitioner that you haven’t seen the doctor, your six people come in, you know, in contact with you, right? They want to make sure that you still have your insurance, right? You don’t have to pay out of pocket and they want to make sure that you still live where you say you do.
Speaker 2 16:57 And then pretty soon as is as like a beautiful dance. You walk into the scale and they don’t say anything. They ask you to stand and any, they take your numbers and you notice that they’re punching into this tablet and you’re like, please don’t tell me. They’ll tell me. And then you sit down and they don’t tell you your weight and then you buy before, then you sit down and they just take your blood pressure and then they put something under you. They want to have your temperature in all this key indicators of what’s going on in your body. Right? Um, and that gets fed into a computer and then the doctor finally sees you. So you don’t just see the doctor right away. The doctor sits down and studies not just your, your whatever readings they, they take on a half a dozen tests that they did on you, right?
Speaker 2 17:40 The minute you got there, but also how they relate to other numbers from prior visits. Right. And maybe you were there three months ago, six months ago, a ago, whatever there was in a pattern begins to emerge, right? Right. And if the doctor is not happy with what he sees and starts with those leading questions, right. Hey, why have you been eating a lot of desserts? You know, your sugar is a little high and then they go into, what I don’t like is we’re going to have to do some more tests, right? And we need you to fast the pint of blood right into, they want to look at those lipids and they want to look at all these things and they don’t like this and they don’t like that. And I am hypertensive. Okay. And I said, I think I said this before and I’ve been dealing with this for 18 years, but you know, have come to embrace knowing I need to know where my blood pressure is.
Speaker 2 18:29 Oh, okay. More so than most people. Right. Because if I don’t have it under control, it’s not good. Right. Right. Right. So what does that matter? What, what are, how does this correlate with my business? Your business has numbers that you must know, right, right. And, uh, and if you don’t have those numbers, it’s like checking the pulse. A lot of companies go from never seeing the doctor to the funeral home, right. And there’s no break in between there. Your body could be, your business, could be like a living organism that you got to feed and you gotta nurture. You got to care for, right? You gotta watch, you gotta grow, you got to exercise and you got to monitor. Right, right. Somebody has to do that. And we actually pay a lot of money for people to make sure that we’re going to be around, not just for ourselves, but for our families. Met numbers and the metrics for your business are key. And I love this, you know, this, this, this quotes from, um, you know, Ronald Reagan saying, you know, inspect what you expect. Once you know what that is, you need to inspect it. And that’s a, that’s a, that’s a really interesting thing. If you can’t measure it, you can’t improve it. You know who said that?
Speaker 1 19:49 I’ll tell you. Okay. Butyl Drucker, the godfather of management. Okay. City, if you can’t measure it, you can’t improve it. Well, and, and, and if you did improvement, you wouldn’t know. That’s the whole point of the measurement, right? So it’s not that you can improve. I would, I would probably beg to differ but far be it for me. I’m an attorney for to argue about something. But I would honestly say I beg your pardon. Um, but I, I told you I get the message, I get the message. You’re not, you’re not able to put yourself in a position to improve things when you don’t know that that’s an improvement. Or maybe it’s the opposite is true. You don’t know that it’s a deficiency. It’s you, you’re losing, you know, clients every, every month because you’re not paying attention.
Speaker 2 20:37 We use another analogy that I think and I used to either the body health analogy or the other one. Can you imagine going down the freeway, right? And then, you know, you have a beautiful car, you have this truck and has this beautiful dashboard and a lot of levers and, and lights and things and you’re driving. How often did you just pay attention to it? The, you know, the color of the lights in your dashboard and your truck?
Speaker 1 21:00 I do, but I’m from an, I’m from a generation that we didn’t have all these fancy things on cars. And, you know, we had to keep an eye on the temperature gauge and we had to drive a vehicle. So, you know, my husband and I kind of laugh about it because you know, when we were young and driving and just getting licenses and having cards, you manage those gauges all the time. Kids, my kids, they’re young fringe generation. Yeah. They’re this generation that not so much because the bell goes off and somebody actually tells you, says hello, your tire pressure’s low. And you know, in previous decades, um, you had to keep an eye on your temperature gauge and you had to keep an eye on your gas gauge and you had to keep an eye on, you know, whether or not your battery was putting out or your alternator was putting out enough electric, you know, the fourth gauge over there. So, no, it’s
Speaker 2 21:50 absolutely. So why do numbers matter? Why is, because over time, so metrics have been built around certain numbers and data and that you have numbers that are specific to your industry now because you’re in a professional services industry, you have different indicators, different numbers. Then Miladin construction. Right, right. And um, cause has his own language and you know, just to, just to give an an example of some of the things that we measure, right? We measure working capital. We want to know what working capital is any time every month, I need to know what the working capital is. Okay. Got it. So, but we also want to know that revenue, that revenue month over month, quarter over quarter, year over year, we want to know the net margin. You know, we live in the margin world. Um, go ahead. So let me ask you, how does a person know what working capital is?
Speaker 2 22:40 Correct? That’s a great question. Well it depends. For instance, let’s talk about the, the working capital outside of the construction industry. Is it measured a little different? It’s working capital as your current assets over your current liabilities. Okay. Right? And I, as I said before, banks cared deeply about your current ratio. That’s how we measured it. Right? And he better be one and a half or higher. Now some clients are two, three, four. It doesn’t matter. Once you’re over one and a half, it means that you have 50% more current assets or cash and readily available cash and accounts receivable and anything that can be turned into cash within 12 months. But in construction, your working capital is the difference between your current assets minus not over minus your current liabilities. And that gives you a dollar amount.
Speaker 1 23:25 Any, any, any needs to be a healthy amount. So as a project underway, a liability. So I’m a, I’m a contractor, I’ve got a project underway. Um, it’s a contract. So we have a contract for X amount of dollars that that’s gonna take to complete this project. Is that a liability or is that an asset? Is that contract and asset? Well, it, it depends,
Speaker 2 23:46 right? So you have a schedule of values, right? You assuming that we’re looking at a percentage of completion and accounting. So you have a million, just make a simple, so you have, um, one point $2 million contract that is supposed to be done in 12 months. Every month you’re recognizing 100,000. Right? So that is backlog. So if you, if you, if you have, so you have $1 million and you put on the books, you don’t put on the books, the whole million dollars, 1000001.2 in the first month you put whatever you earned, right? So there is it a liability then? So the on earned, so when you over bill in construction more so than what you’re entitled to bill, that’s a liability, right? But does the average, I’m talking about, and maybe we can touch this after the break, the average person who’s listening, who is saying to themselves, I had this contract, I’m just going to, you know, this is a project.
Speaker 2 24:37 In fact, I had sat with somebody today says, I’ve got these fantastic contracts. I’m getting the exclusive. Um, and I am that client’s looking at those contracts as an asset. Yeah, they are an asset, right? The ad, the ad or an acid, it’s called backlog, right? So you’re contracted to perform a service that has a profit, right? Right. So say that you are, you know, if you get to about 20% margin is a pretty good margin in construction. So, so you’re banking that you’re gonna make 20 cents for every dollar and as you’re earning that revenue, hopefully those numbers line up and you’re up. You know your variable costs line up to about 80% of the revenue that you build. But the key thing in construction is, is you got build, you gotta let the customer pay for the work, but not too much. If a customer, if you’re billing way ahead, you may run out of money to complete the project. Now if you’re doing the work, but you’re not billing fast enough, that’s an asset. It’s funny thing, it’s an asset, but it’s also hurting your cash. You should be billing for something you’re not, so you get punished for that, right? So anyway, so all of this, we don’t want to get too much into this, but right now stay tuned. We’ll be right back. We’re talking about metrics and how to scale your business business illegal talk with Leon, Claudine
Speaker 3 25:53 .
Speaker 4 26:23 Are you ready to scale your business? Hi, I’m high and super excited. I am high on coffee right now. Nothing, nothing else, nothing else. Even though I am here with Claudine and we’re talking about scaling your business and we were talking about metrics. Yes. And you were asking a question question because I,
Speaker 2 26:41 I’m a feminist from a, you know, simplistic
Speaker 1 26:44 standpoint when a simple, right, so the, the person who’s listening in and you’re saying you, you know, you want to know these numbers, but how does one know that the numbers are out of line? So for example, you know, I think that’s why I, I regularly kind of asked you, okay, well what, what percentages is in line, what percentage is not in line? So when you’re setting up metrics, how do you know that that is a good range to be in? So for example, um, when you’re setting up, what we were talking about prior to going onto the break is, um, you know, profitability and cashflow and those types of things. How do you know, and is it just one of those things that perhaps there is not one number? It’s really, that’s where you really need to go sit down with somebody and work on the individual because the businesses are individuals. So yes, we do have some kind of systematic and some commonality being in a particular industry. So for example, you’re talking about the construction industry. So as I’m listening, I’m thinking, okay, how do I go back to my office and do this?
Speaker 2 27:49 Okay, great question and I’m going to try to keep it very simple, okay? Forget about the industry. Let’s just talk about cash, right? If you have a business, the first thing that I look at, remember when you’re coming into my office and you’re going to be seen by my nurse, right? You’re going to see my nurse practitioner and the friendly, a receptionist at the front end, all want to make sure that everything is okay. They’re going to extract some numbers, and those, the numbers that I want to see is I want to see what your current expenditures are, how much cash you’re bleeding out, you’re burning, we call it burned rates, right? So whatever your businesses ask yourself this question, how much cash does it take to feed the beast every month? Simple enough. Gusto say, okay, so we got that. So say that number for you is ten thousand ten thousand a month.
Speaker 2 28:39 So you have $10,000 worth of cash you have to spend to keep your business afloat. That includes your payroll, your rent, etc. Then the other thing is how much cash is expected to come, right? So for you to be able to break even, you must bring $10,000 a month every month to meet that debt. And the result is you break even. You make no money but you pay or, and this is on a cash basis, right? And we’re going to keep a simple on a cash basis, cash, I spent 10,000 I bring 10,000 that could be receipts, that could be accounts receivable that you collect from the prior month. Regardless, you must bring 10,000 so, and then you tell me I have a contract worth 60,000 that is going to bring $60,000 worth of cash over the next six months. So we figure you have enough cash to last you six months. Okay. So the things that I look at is the burn rate.
Speaker 1 29:38 I liked that. I like that. What it, what’s it take to, to stay above water?
Speaker 2 29:42 Breakeven is first I want to know what is the breakeven or your business on their optimal conditions. Okay? And then in reality, so I have for every, for most industries, a blueprint. I know how things should look like. So imagine as an X Ray, right? So you come in and your body looks a certain way and I look at your x-ray and I’m like, wait a minute. His spine is like 25% to the left. And I look at what the perfect spine should look like. And you’re gonna there’s going to be a variance, right? Right. Same for a business. I know what’s, I know what professional services should look like. Um, the blueprint for success. You know what should be humming, you know, how much percentage of profits you, you have. Do you have variable costs? Do you not have variable costs? Then you start asking those questions, right?
Speaker 2 30:27 But for simplicity, 10,000 out the door, 10,000 must come in. Otherwise you have to kick in money. You have to get alone. Somebody has to invest in or have somebody has to invest in your business or you have somebody has to kick in some equity. And those are really simple areas to be able to understand. If you do nothing else, if you just don’t, if you know your burn rate and what you need to have is income, that that right there is a great place to start. It’s a great distance for any business. It doesn’t matter if you’re a micro business, if you are, you know, you know, approaching the million dollar revenue business, now let’s have some fun with it. Now I did this whole exercise and I thought, well, you know, I deal a lot with the gross profit and most asking about the gross margin or gross profit, and I’m always talking about the NIC profit or the net margin.
Speaker 2 31:12 So I think you or I, so I did this, um, a talk one time to, at to a bunch of our, a realtor group and I said, well, how do I make it so that is relatable, right? So I said, for the average person, Hey, what is your gross margin of unit margin going to be like, what are you talking about? Right? Right. I said, look, who knows? Raise your hand if you know what you know your blood, you know a systolic versus diastolic is, right, right? So it’s your high in your low of your blood pressure. So your heart at rest and your heart popping, right? So what is ideal one 20 over 80. That’s what the doctors would say, but some people have it a little higher, right? You remember, I am keenly aware of hypertension. So for me, my normal, it’s over like one 35.
Speaker 2 31:53 So one 30 Solano is no more than one 40 over 80. I’m good. And the most important is the heart arrest, which is 80. Right? Okay. So if it is less than 80, it’s good. If it is over 80, that’s not good. Right? Okay. So you have a uh, a guiding post, right? Marker. A marker. So, so for your business, think of your gross profit as the number on top and for your net profit as a number on the bottom. So I read your business and I read your blood pressure for your business and I go, gosh, it’s 40 over 20 good. I don’t know. It depends on the industry. So 40 is your gross profits. So say you sold $100,000 worth of anything and you, in order for you to produce $100,000 worth of anything, you had to spend $60,000 to get those raw goods or whatever.
Speaker 2 32:45 You don’t have to worry about that because your business has none of that manufacturing, construction, anybody has to deal with inventory vendors, vendors or anything that or even a staffing companies, whether it is materials or people that are conducive to producing that revenue. Any producer’s 40% gross profit in your, and you have 20% operating expense in this 20% at the bottom and you are in the staffing industry and I take my blueprint and I go, you need to be a 30 over 15 and then you come a 40 over 20 what do you think? I’m going to think about your business. I’m going to be high fiving your rate. What are you doing? 40% over 20% that’s fantastic. It’s fantastic. But beauty’s in the eye of the beholder unless you know the backstory isn’t gonna make sense to you, right? I know what businesses should be looking like, right?
Speaker 2 33:36 So if somebody comes to me now, let’s say that’s the answer to the question though. For the person who’s listening, who says is this good? Is that, isn’t it not good? It depends on your industry, right? So if you’re in a professional services, if, okay, let’s talk about restaurants. There’s a probably a lot of restaurants you want to have your cost of your, your food costs not to exceed 27 and a half percent. So people will say 28 I’ll say 27 and a half. Right? So your gross profit is 62.5 right? So you, so you got that right? So 62.5 or 15 is that good? Yes, because that will be what I would expect. That’s right. A profitable business, right? Most restaurants are losing money and it’s a, it’s a notoriously hard business to get into. Buddy can be very profitable if you understand the numbers. And if you understand nothing other than what should my gross profit be?
Speaker 2 34:27 Right? So if your gross profit should be 70% that’s very, very high. Most industries will have lower if you’re going to logistics and men have construction at 20% so if a construction company comes to me and says 2010 20 over 10 would I be happy or sad? What do you think? I think you’d be happy. I’d be very happy. 20% so a company that is generating $10 million worth of business, I expect it to have $2 million worth of gross profit. Now your business begins at the gross profit. By the way, everything else doesn’t belong to you, right? Because that’s the profit of your business, right? So, so if we establish, so, so you start, you have a $2 million business and you have $1 million worth of operating expense. How much would I expect at the bottom? 1 million. Does that always happen? No, because what I expect is about 10% or more. Right now you can argue, well, a hundred million dollar business could afford to have a little less. It’s, it’s hard to just answer in a national, but numbers are good. If you take about anything, numbers, you need to know what the numbers are, the ideal numbers against the numbers of your business and they should be a various, are you looking at that? How often w you know, I advise my clients, you’ve got to be looking at your numbers every month and if you don’t
Speaker 1 35:38 know what the ideal numbers are and then definitely reach out and ask. But I think if you’re in your industry for long enough, you probably have a good feel. You probably know. And plus you can look at it and do a rough estimate and say, this is what I would be more comfortable with. I know how I am right now. I know the numbers are, say, you know, 40 over 20 and right now I feel like we’re barely getting by or we’re, you know, we’re just not, you know, we’re not in that position that we really want to be in. So then just by knowing that you can increase the numbers that are going to be your target numbers. Correct. So I mean, start somewhere. If you, if you haven’t got an opportunity to, if you aren’t in a position right now to reach out to somebody and get somebody on your team, start somewhere, then you’ll, you’ll get yourself down the road to a place where you can.
Speaker 2 36:27 So we have a very simple, I call it the method, right? The Greenland method of doing things. It’s, I, I think simple is better. But of course we take every business through a three step process. We want you to get to profit if you don’t have any, right? So we say profit value, freedom preposition. So we want to get you to higher profit regardless of whatever profit you have, maybe being higher profit on the same revenue or more revenue and keep the profits static but more profit. It’s gonna lead to higher value. And that means enterprise value. And isn’t that what we want to have value in our business? Because if you don’t have a valuable business, what you have is a hobby. Who wants that, right? We cannot afford to have hobbies that are very expensive that are costing you $100,000 a month, right?
Speaker 2 37:18 You can, you can be generating $100,000 in revenue, but if something is not coming to the bottom line, do you have a hobby? Right? Can we agree? Which eventually is going to lead to financial freedom. So number three is systems. Now there’s three. There’s actually three types of businesses. You got this startup, right? And that you want to make sure that I have something that is going to do, I have a valuable idea, you know, you know, um, I’m going to go out to the marketplace and I want to try to create, you know, something, right? And first of all, is the market gonna want it. They may not want it, right? Right. You know how many people come up with a product that nobody wants
Speaker 1 37:58 a lot? And I’ll tell ya, there’s a lot of patents out there that nobody’s using,
Speaker 2 38:02 right? So you have the startup, right? When people get excited and I know us. The funny thing is as we’re talking about private equity and raising capital, when we’re on a break and the every time that that I’ve been privy to to look at a bunch of investors and they are looking at the CEO paint a beautiful dream of the hockey stick, right? And we’re going to be in two to three years from now, you wouldn’t be at $100 million valuation, right. You know what the, you know what the VCs typically do a yeah, they go really? Oh no. They turned their eyes to the CFO and they go, really? Right. Can you, that sounds like a pipe dream, right? Look, can you read me the reality mr CFO, because they think the CFO is stopped with the marketing optimistic to their detriment, right? That’s what CEOs are known for.
Speaker 2 38:43 And you need the kind of raw energy as a CEO to get anything off the ground because 90% of your rocket fuel will be at takeoff. Right? And then if you just managed to get off the ground for one inch and you actually have a viable product, then you’re going to have to figure out what are you going to the next step. The next stage is an owner related business in which you are the owner. You stop working, Claudine, there’s no business right now. A lot of us are in that, but we’re going to get out of that and we want to go to an owner, whether it’s owner, independent business. That’s the freedom, so it might keep an a simple enough start up owner, dependent on their independent. Stay tuned. We’ll be right back.
Speaker 0 39:21
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Speaker 6 39:52 all right. Welcome back. Hey listen, I got accused on the break that I was a little bit too excited. I’m not going to say
Speaker 2 40:03 no. I know. I get excited. I love it profusely. That’s what we love about you, but, but you know, this isn’t one topic that is hard for me to just be on the sidelines. I believe in this so much that you should be in business to be profitable, right? Your country. The bet depends on you. For that. Right, right. Your family depends on you for that in, I believe that business owners are heroes and our community. Right, right. And I want him so much to do. Well,
Speaker 1 40:35 I’ll tell you, there’s so much that goes on on the day to day for a business owner. And you know this, I mean, I’m totally preaching the choir on this, but there’s so many things and your brain goes from, you know, trying to deal with the client in trying to, you know, produce the product and trying to get, get where you need to go and do this and do that. And then you, meanwhile, you have to maintain your focus on your business. These numbers, exactly what you’re talking about. Yeah. And it’s so hard and it, we can be become very complacent with it if it wasn’t for you having this kind of high energy and this kind of message. Um, you know, you’re the cheerleader that keeps us going and keeps us looking at, at what we need to be looking at because, um, it is difficult. It is
Speaker 2 41:18 hard. So I’m systems, I’m going to give you some actionable things. Um, the only way you’re going to be able to scale your business is to figure out a way to get what’s in your head, out of your head, right? How to do anything. And that really the biggest challenges for companies that are one to 5 million and they want to get to the next level, they realize that whatever got you here won’t get you there. Totally deaf about the need you need to empty. So for instance, there should be a system in the process for everything in your company, right? And I’m going to give you some, you know, ideas in what? Checklists, right? Um, when a client calls, you know, a, what are the things that you need to be asking you? So you’re talking to your paralegal, right? Ask for this. Ask for that as what is in it.
Speaker 2 42:06 If you go through that checklist, you know, it’s, you know, you, you fly, right? You’ve been in an airplane and you and I fly quite a bit, but it doesn’t even make you feel better when you walk into your plane and you see your two pilots actually checking off their list, right? Yeah, no, seriously. Right. Okay, good. But, but that’s kind of silly because you go, they probably flight three times a day, this professional pilots, you know, and they fly three times a day. How many times? A couple of hundred times a year. Right? Right. But why do you think they look at their checklist? You don’t forget it, right guys? It’s a habit. Right? Right. And any gifts me, so much reassurance and so much peace when I see my pilot checking checking it off the list, you know, and that just recently was on the news, right about, um, I’ve flied the hat to couldn’t get off the ground because some light was coming up in the pilot goes, this author’s seemed right and somebody was tampering.
Speaker 2 43:01 Remember, this is a whole thing about this, this, hearing this. Yeah, it was tampering and dinner in one of the sensors was blocking of skewed and covered a sensor so he wouldn’t come up. So to cause an accident. Right? And that’s the crime, right? Right. But then, goodness, four pilots checking their checklist. So you should have checklists on your business scripts, right? If you have a sales force right in, don’t leave things to chance. Everything can be coached. Um, scripts. How do you know if a customer calls how to deescalate a angry customer? You know, if you’re there, if you’re the president of the company, you only own the person who can deescalate anybody. You’re in trouble, right? You won’t be able to grow past you. And this is so critical when employees come and go. I mean, have you ever been in the position when you had somebody who was a real key employee, um, decided to leave for whatever reasons?
Speaker 2 43:55 Maybe it’s a good one, maybe it’s a bad one, but you know, and then you’re scrambling trying to figure out where are they with everything. And even when I’ve, I’ve asked employees, okay, what I need you to do is go through each task that you’re working on and make a note and you know, so that we have a list of everything and knowledge train, I call it knowledge drain. It’s so difficult. You have a key employee that leaves your company, whatever is in their head goes with them. Goes. And you know, and this, you know, we haven’t spoken about the legalities of intellectual property, not protecting all of that and you having somebody who knows a component of your intellectual property goes away. You don’t how to piece a whole day together. Right? How so? The, the house of cards crumbles. Right? Right. But um, templates and samples, a FAQ S and your website, written warnings, spreadsheets.
Speaker 2 44:41 You know, I love spreadsheets were built in formulas, deliverable timetables, job description, instructional videos. You get it, right? Systems are everything. And this sooner but, but again, it goes back to the mindset is do you believe in your heart of hearts that you can take your company to the next level? And it starts with you. Yeah, no amount of technique, no amount of scripts, no amount of formulas, no amount of ratios will do, will change you unless you change from within because you are your best friend or your worst enemy. And I think part of mindset also is knowing how to fight off the anxiety. Um, knowing how to deal with it. There. There are times, and I know we’ve all done this, you wake up in the middle of night and you think, ah, did I do, did I this? Oh my gosh, what about this? What about that?
Speaker 2 45:27 Sometimes that becomes a pattern and when you allow that to become a pattern, it really is destructive. So how do you fight that? You have to learn to wake up and say, I’m not going to think of that. I’m going to think of this. I’m going to think about how efficient I’m going to be tomorrow morning when I get to the office. I’m going to start on this task, force that test second. And I’m not going to stop until all the tasks are done. And I think putting into real, um, into real play, actual physical, um, to dues and putting those things into play and making those part of your system as well as that, um, you know, managing the, the time from the time you walk into the door to the time you walk out of the door. And are we managing it efficiently?
Speaker 2 46:09 Are we doing the most efficient things we can be doing? Are we functioning with our tasks as efficiently as possible? Great point. So, you know, managing anxiety, you got to manage anxiety. But one of the things that I’ve learned is smart people learn how to leverage and they started with systems, right? Um, systems is the key to scaling, right? It’s not, it’s also the key to bringing down anxiety. Correct. I will tell you, I absolutely believe that. So you gotta have systems to leverage and um, and we already went over number four and with the time that we have is marketing, you know, and lead generation. I feed the beast. Yeah, right? You was new clients, new customers all the time. I can never tell you how many times I’m in a conference call or a meeting with a client. And then immediately, once we go after the numbers, I want to know, like I get excited about, Hey, tell me what we have in the pipeline.
Speaker 2 47:04 Because the pipeline where you call a backlog in construction or whatever is already booked as booked. So you want to go get something else, right? But never take your eyes off the revenue. Revenue always fixed a great majority of problems. And you know what? People say, well, I want to cut some more expenses, but you can never cut your, you can never cut your way into profitability. You can, you can only cut so much expenses before you cut to the bone, right? Right. And your people are your assets. You got to take care of them, but you won’t take care of it by cutting, right? You’ve got to grow, grow in lead generation. It’s a key thing to grow your business. Do you have the systems in place for marketing and lead generation? If you don’t, but you really don’t expect what, remember what we said about whatever you focus on happens, whatever you put your mind to and use the reticular activating system to your advantage is really, I as a CFO, I am this proportional, intentional about thinking about growth because I don’t want my clients to do something I’m not doing. I absolutely love to sell. I love revenue and there’s nothing wrong with that. So fall in love with revenue and a lot of it will cure a thousand problems in your company. Um, and, but you know what the whole thing we were talking about 20% and one of your clients. Well, if you’re constantly looking for new clients and that is habit by the way, profit, it’s a habit, right? It’s not an occurrence.
Speaker 1 48:35 No, no. And I’ll tell you what a really great habit and kind of goes back to what you were saying earlier about the grateful, um, the gratefulness and being grateful. Um, I find that it’s a really good practice to be mindful of referrals and be mindful of, um, clients who are helping you put that name out there. And that’s part of the grateful piece. Um, don’t forget if you get a referral from somebody, you know, reach out, say thank you, let them know. And I think that getting referrals is something that really makes me feel grateful. When I met with a client today, that’s why it’s on the top of my mind. But met with a client today who was referred by another client and just thought, wow, I’m so excited to be part of this. I really dig this. I mean, and somebody who’s, you know, has a business going, but we’re going to be, you know, we’re growing, we’re structuring it. We’re, we’re maybe going to bring in another partner and, you know, just some gross stuff there and just having that opportunity. Um, so I want to just mention that on the referral thing. Um, if you, if you get clients who are out there referring, remember the grateful piece.
Speaker 2 49:42 Mm, great. Razor your way, best, best, best clients. You know, um, I was reading, uh, um, I was actually not reading, I was listening to a podcast and it talking about business development in the, in the hose was talking about the biggest lesson that he’s learned that he T passes on to other people about generating business is that there is nothing better, uh, than becoming a promoter for other people. Helping other people get what they want will get you what you want. Absolutely. Right? It is because of the concept of reciprocity.
Speaker 1 50:17 Right. But you, you, what you find if you become, um, that if you become that person who is mindful of, of referring other that you work with or, or suppliers or, or people and you become mindful what it’s just like you were saying earlier, when you start shopping for a vehicle and all of a sudden you start looking around and you start noticing all the vehicles that the re reciprocity, the referral thing is happens the same way. As soon as you start really being mindful of being able to connect people and trying to connect people, um, you start to see how it’s that begins to happen more and more.
Speaker 2 50:54 There absolutely is a long way around. Very simple concepts. No, I th I think you’re S you know, uh, explain it quite nicely. There is a book called go givers. There’s somebody who I follow, he’s a shout out to Bob a. Burg, B. U. R. G. he wrote a book called givers. And uh, really the, the, the, the premise is, you know this from the, some of the networking groups givers gain, right? Right. So it’s this inherent nature that we have to rest to reciprocate. Right? If you do good, others will reciprocate with good. If you do bad, people will want to reciprocate in kind. Right? So I hope this was helpful to you. I know we packed a lot of information in today’s show, but you know, it’s going to be a podcast and you can come back to it. There’s a lot there, but we are here to help you. We care. And if we come across passion is because we really are, we’re really jumping off the walls when we’re in front of our clients because we care. Yeah. You know, and people can tell. So thank you so much for being a great audience, and we hope that you have a wonderful weekend and stay tuned for next Saturday. We have another great show back. Bye everybody. Thank you.
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