Business Forecasting

Leo and Claudine talk about why business forecasting is not just a good idea, but critical to the success of your business, especially in today's day and age. There are 3 areas of forecasting that are very important when running a business: financial, resources, and industry forecasting.
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Speaker 0 00:13 Good morning everybody. Welcome to another show. You are
Speaker 1 00:20 listening to business and legal talk with Leah and Claudine. I’m your host Leo Llandovery with Greenland.
Speaker 2 00:27 And I am Claudine Sharon with the Sharon law firm. Good morning.
Speaker 1 00:30 Good morning. You’re so full of fire.
Speaker 2 00:32 Oh yeah, that’s me. Just full of fire.
Speaker 1 00:34 It, just happy, jolly Claudine. Happy, jolly, lovable, alive. So, Hey, uh, gosh, you know, I, thanks for the feedback. And last show, uh, we talked about and just w we’re building, we’re building momentum. We’re excited about helping business owners be profitable and sustainable. And that’s our theme with Claudine. We’re all about profit and sustainability.
Speaker 2 00:56 Yes. And remember we, um, we see things on a daily basis that are things that most people see once or twice in their career. Um, and it’s, it’s interesting cause when we talk to people, um, there’s things like we’ll be in our office, you know, something will happen, we’ll be way up in arms about it and just, you know, Oh my goodness, this is happening. And people, um, don’t necessarily understand our excitement or our, um, level of, um, enthusiasm about something. But it’s largely because what we go through on a daily basis is, um, you know, what, what oddball things that people see once or twice in their career. And I know that you deal with that a lot as well, is you’re, you’re seeing things when you’re looking at, you know, the financial side of people’s businesses that you’re looking at stuff and you’re predicting enforcing things that are coming down the road. Um, because you have seen it over and over again that it’s to some level predictable what kind of falls into .
Speaker 1 01:55 Oh, other topic. Yes. Thank you so much. Were saw how fortuitous that you mentioned that right now. Well, you know, I’m here for, that’s what you do. I stand and deliver. So today show, uh, it’s going to be a fun show. Y. So two, let me read to you today’s, uh, basically the subject of today’s show is why business forecasting is not just a good idea, but critical to the success of your business. Now we’re going to be dive in deeper into that and you’re going to see that the world is changing in an in an S changing in many ways, right? Literally and figuratively. But it’s definitely changing how technology and automation are changing. Artificial intelligence is changing how we do business and what the, you know, and, and the world of technology say that, you know, uh, Japan is one of those countries that is so far ahead in that products are coming in Japan.
Speaker 1 03:01 They are absolutely like two weeks later, I’m in the U S it’s almost there. Uh, there’s so much technology coming out and those disruptive, uh, type of technologies that as a business owner can’t be just mining your business anymore. You, you know, the days in which, you know, if you build it, they will come. Right? Are gone. Yes. So while my, I live in two worlds, as, as an, as an accountant, one is depressant. Are we hitting our ? Are we doing what we’re supposed to be profitable? While we’re doing that, my other half of the brain is thinking about what does the future hold for this industry? In this business two, three years from now down the road. I see. I’m paid to be a scout, right? You know, scout like as you know, with, with, with the, we know with the, um, what do you call this thing? They’re binoculars, right?
Speaker 1 03:58 Looking into from a top of the Hill looking into what’s coming on down the horizon. Um, and we do a fair amount of business forecasting and it’s not just a good idea to give something, you give something to the bank, um, if you need to because you are covenants. They want to see your performer work, right? It’s more like business forecasting is not just a fancy word anymore. It’s a matter of survival. So today, so I’m going to read to you some quotes as I was preparing for this show. Um, you know, what people’s perception of of forecasting is and um, so re listen to this. So those who have knowledge don’t predict, I have seen the future and it’s very much like depressed and only longer prediction is very difficult, especially when it’s all about the future. The best qualification of a prophet is to have good memory.
Speaker 1 04:51 That when I liked the best, I really, I think that that one shouldn’t be put on, put on the wall, the wall worthy. Yes, there’s Woolworths. If you don’t have a target, any target will do. So there are, and there are literally thousands of memes out there as far as, you know, people laugh and think it’s funny as a joke for the most part, um, it’s a joke, but you know what it comes to mind right now. Uh, do you remember? Did you ever ha, okay. I, so I spend most of my professional life in LA, right? When we had an every corner back in the nineties and eighties, you would see in every corner this Conroy flower flowers, right? Remember those is, I’d be like a quarter. Those corny quarter, uh, locations where you just flowers. You bought flowers, you buy flowers for Valentine’s for mother’s day. Special occasion want to brighten up the house. Where are they gone? Gone. I haven’t seen him. I haven’t seen him. He, I just thought about it right now. I have all that examples that we’re going to talk about right now, but was replaced by what, 1-800-FLOWERS, right? I think they’re around
Speaker 2 05:58
Speaker 1 05:59 who do you call when you want to send a, you know, it’s it a website, like there’s a one 800 mattress and there’s 100 flowers. Um, there is, um, there’s a bunch of other, so this is one example before we go get too, too far down is what technology can mean for your business no matter what industry you’re in. Um, so we’re going to talk about three things today. Financial forecasting, which is something that I do every day. Resources, forecasting what you’re gonna be able to help me with, right? And industry forecasting. Yeah. So, um,
Speaker 2 06:33 the most difficult, I think the most obtuse industry for forecasting because within the industry there are sub industries and there are industries that haven’t even been created yet that are right around the corner that are coming that somebody is going to create a, some niche so that that has gotta be the most difficult. It’s not the way it used to be
Speaker 1 06:53 is things are not the way that they should be. Can you imagine? Um, gosh, you know, hindsight is always 2020, right? When things happened that you realized, of course, that’s kind of how we’re supposed to be, but then you’ll see it at the time
Speaker 2 07:07 I call it the post it note thought. It’s like the post note. How did I not think of that? I mean it’s such a simple project or product. It’s like how did, how did I not think of the, the posting? I mean for years we have probably tapes, stapled paper, clipped notes to file covers to you know, everything. And then how did you not think? And so I, when I see ideas then you, that that seems so obvious, but they had not been thought of yet. And I think God, that’s a posted note idea right there. That was that, that idea that is so obvious and so straightforward and simple and yet it had never,
Speaker 1 07:50 they, you think that you didn’t know you needed until you saw it. Right? But then of course, when you’re below my life, yes. Has this been all my life, all my life when I was in high school and I knew to write notes. So that’s as an immigrant, that’s why I love the U S there are, this is a country that allows you to come with nothing but a great idea. Right? And you execute. This is the country of innovation and we have haters all over the world. Right? But one thing is clear, the U S and a beautiful, you know, the U S have a loves innovation
Speaker 2 08:26 and it’s in every industry, every industry. I mean there are people who, who have been in, you know, the industry of, of using manual tools and you know, not a glamorous industry, but they have thought of some way to make that tool a little better.
Speaker 1 08:41 Just a little, you know, innovation is just things making things a little better. You know, one thing is to create something out of thin air and, but the next best thing is to, it makes something a little bit better. Yeah.
Speaker 2 08:51 And you think, boy, if this handle was a little longer, you know, I could, I could use
Speaker 1 08:56 the shovel. And it wouldn’t hurt my back so much. You know, really just little things, straightforward, simple stuff like that. So, um, so you know what, what I want you to think about as we go into break is a river blockbuster video. Yes. I remember, Oh man. They know have an account of ours and now he’s really, yeah. So used to show up and now it shows up in movies. It’s kind of a Relic. Yeah. And you know that those movies that are like, uh, uh, my, my, um, my kids got into this, a stranger things right at the show. Um, I watched it, I liked it now, but, but in the show, that is actually the, the show happens in the 80s. Okay. So they have to recreate those up. Makes very expensive shows when you have to go up, period. We have to go back to the seventies or a certain time of, Oh, in the past. So you have to recreate everything that you would no longer have pay phones. Then you have the Starbucks cup sitting in the, in, in the bag because we had no place. Right. It’s true. Anyway, so we’re gonna have a great show for you today. We’re going to talk about business forecasting and why it matters to you as a business owner. Stay tuned. We’ll be right back.
Speaker 0 10:04 Hey, what’s up everybody ready?
Speaker 1 10:31 We’ll come back. We are here. Power talk, having a power talk today are here. Thank you. iHeart media in a heartbeat. I heart radio. We love being here. Um, really preaching the gospel of profitability and sustainability. So today, today, if you just stood in to this show, we’re talking about business forecasting and why is not just a good idea anymore. It’s critical. It’s vital. I like to say to the success of your business. So, um, financial forecasting number one. So it comes down to this, do I have enough cash to make it down the road? Is my Neff baby never. No. Never enough. Right? But at a more tech practical level is what is, how am I ensuring that whether 13 weeks from now, which is one quarter, two quarters or three quarters from now, I’m going to be in the black, not in the red, right?
Speaker 1 11:30 And the sooner, you know, six months down the road, you’re going to be negative. The quicker you can make adjustments. Um, so you can never be negative. That is the goal, right? So I’ve said it before, I say it again. I, Oh, my job is very simple. I worry about two things. Only cash and risk for the risk I team up with you. And that’s all I want. And that me all alone on the cash that does. So for the cash is in a simple terms as one of the things that we do in, um, we, when we run an accounting department, we want to make sure that we have adequate cash supply in a cash comes from three different places, comes from generate the sales that are being generated that turns into an AR that turns into deposits in the bank, right? Or comes from injection on, uh, of, of the owners, you know, friends and family.
Speaker 1 12:17 If you raise capital, you’re the founders or private equity, uh, VCs, angels, you name it. So that’s equity type, uh, money. And the third one is, comes from by bank financing or asset lending. Right? So there’s three types of cash, no matter which in my world, no matter which way they come from, they have to be able, you have to be able to have enough cash to pay your accounts payable, your payroll and everything else that comes in. So what we measure is it’s very simple. So we start with a bank balances. Then when we need to know how much cash has been deposited this week. So you go to, you know, your account or your AR clerks and you know your controller, you Hey controller, tell me how we’re doing with our cap. How, what, how much money do we expect to collect this week, next week, the following weeks as far as into the future as you can. And I want to know exactly where is that coming from, what invoices are being paid. So that’s the one part. So cash in the bank plus, right? Expected accounts receivable being paid minus accounts payable that we have to pay. Minus checks that you’ve written that haven’t cleared the back. All of that spits out into a 13 week or 26 week forked rolling cash forecast. At the end of every week, I want to make sure that we are way ahead in the black. So my, does that make sense?
Speaker 2 13:37 It totally makes sense. So the first thing that comes to mind is, um, the variables. So cause I’m always looking at variables, variables. So what are the unknowns? Um, you know, what if, what if a business, it just slows down. Now what, how does, how do we bank against
Speaker 1 13:52 that soap? So what asks what financial particularly cash modeling is all about. So you played with variables, right? So you just remembered, I was asking, so how much AR do we expect? And then you run out of AR. So in week four, right? And if you, one of the things, one of th one of the businesses that I love is recurring revenue, right? When you have recurrent revenue, you in it. If you know, if for those of you assigned software licensing agreements of where you expect the payment every month, that you can actually predict that into the future. When I pass, if you just sell widgets, what happens if you know, if you don’t have, like even in your world, right? We sell hours, you sell hours, but you don’t know how many hours you’re going to have a month from now. That’s right. Unless there is a system in place to create those meetings that turn into billable events. Right? So but what are the variables? So yes, let’s say you forecast that you’re going to have $40,000 worth of, you need to raise $40,000 worth of cash to meet your expectations for this month. What if the money doesn’t come from sales? What do you do?
Speaker 2 14:50 Well then then you start looking
Speaker 1 14:52 at borrowing, which is looking to borrow it, which is when, when, when the sales aren’t there and you’re going to borrow, please be aware that is danger zone. Yeah, but so, so, or what is the alternative you sell part of your company equity. Equity. That’s even more dangerous depending on the situation. Yes. More so. The best way to get your cash is to generate more sales. Right? We live on the Delta as business owners. I am a business owner. You’re a business owner and who is our audience? If our audience is those who own a business, when a grow a business, those does our audience. They’re business owners, the entrepreneurs and even those who are thinking about starting a business. Cause you can go eyes wide open, but we live in the Delta of sales minus expenses equals net net profit, net profit, whichever way you see it, whether you have costs of goods sold or not, you have sales minus expenses equals net income.
Speaker 1 15:48 There is many things that can happen in a business. You may have thought, you know, one of the things though that I don’t, number two in our agendas, resource forecasting, say your banking, you’re going to have all of this business coming down the road six months from now and you have all this, you know you have this pie, we call it the sales pipeline. You have all this leads that you’re following up on and it could be jobs from ten thousand three thousand four hundred thousand whatever it is you’re backing or this stuff to come to fruition. But what if it doesn’t? And then you hire all these people. So those are variables that are being exercised on. You can not just do this exercise once a month. You’ve gotta be looking at your cash every week, right? I tell business owners, you’ve got to look at your cash forecast in every week.
Speaker 1 16:29 I don’t care who does it. Somebody has to do it. Either you do it or somebody else will do it. If you don’t feel comfortable doing yourself, outsource it. Right. But they cannot, you know, I was, um, it was interesting. Um, I was listening to a podcast on the way here. Uh, you know, the recording of the show, uh, this is a business consultant say, you know, everything has been commoditized, uh, in the world. Uh, today. whole thing about the everything automation at the beginning of the show. Even my world in accounting, it’s being faced with this, you know, remember, I, I, I take my own prescription prescribed, I take my own cooler. Basically I drink my own Kool-Aid. If I what I prescribed to clients. You’ve gotta be looking into your industry. What does, what does it look like in the future? I do the same process.
Speaker 1 17:11 I’m in accounting and finance and one of the things that we do is bookkeeping. You know, there is dozens of companies that are coming up that are funded by VCs, venture capital or angel investors, these revolutionary disruptive companies who promise that they can actually do your books and minutes because of our robotic machine learning, really I have not heard of this. Bookkeeping is being revolutionized. It’s turning into a commodity where used to be a, uh, you know, you’ve got to have somebody with, you know, with the education and, and, and you know, the trainee in the foresight and the knowledge and the software, this and that going away rhythms into our algorithms so he fun, not careful as a business owner a fee. If, if you, if all you did is bookkeeping and you offer nothing else, what do you think it’s going to happen? Well, okay, if this machine whole learning comes through and that say we can be said about other industries as well, but we just scratched in the survey. What were you going to say?
Speaker 2 18:11 Well, I w I was just, I was just thinking that there is, I suppose from my mind, of course I don’t do bookkeeping, so you know, take that and take that with a grain of salt. I M
Speaker 1 18:25 all by the way, zero, zero.
Speaker 2 18:28 Um, but I suppose that there’s the, on some extent there’s a level of bookkeeping that can be automated. Okay. So,
Speaker 1 18:35 well, I will agree with that.
Speaker 2 18:36 Track receipts. Okay, great. You track the spending track that the money coming in and at the end of the day there’s, you know, each column has a number at the bottom of it, but the bookkeeping from my perspective is so much of, um, the strategy foundation. And so there’s a lot more that happens with bookkeeping that, that it surprises me that this is going towards an automation. It would make me panic.
Speaker 1 19:02 I did have a, so let me, yes, you’re right. But at the AO saw this coming years ago. Really even before I because I come from the wall of consulting and advisory. We had just added the bookkeeping portion of it, you know, a few years ago. But I’d hard, I always been in the advisory side. So what is not going away is the brain, the thinking is strategy. You cannot outsource your brain.
Speaker 2 19:28 You can, then there is strategy and the book, the book keeping is, is the fuel the engine for that.
Speaker 1 19:35 Now we need the set of books. We’ll be able to do the things that we do. But the point is this, you gotta be thinking about, so we’re getting into this, you know, the industry forecasting, solving. Remember, I, I, um, I was always listening to this guy and the podcast and he said that there was this guy who, uh, he says a is also know that accountant who coaches accountants. So I’m listening to him. He says that he had somebody that called them. He says, how do you combat this? So this is this, um, this relationship with this accountant and a business owner who’s been going on apparently for five years and the business owner. So whatever happened between the accountant and the business owner, it’s not clear, but the accountant says, Hey, I have a question. So my, my, I’ve been working with my um, uh, my client for five years and doing exactly the same thing every year and they kind of say, well, you know, by now you should know my books and my, what I do very well. So because he should take less time, you should charge me less.
Speaker 1 20:36 So as a thank you for all the work apparently that accountant’s doing now the client wants a discount. So there’s a law, a lot of things, bells and whistles that go with that for me. Right, right. So he said, at which point our industry has become commoditized that you trade hours for dollars. So this has been this movement in our accountant, this has become more of a value add, right? What I started out as a value add and then added odor components because as if you know me from working, we know from working together and seeing the for clients is I always tell any prospective client, so tell me where you are today. Good, bad and ugly and tell me where you want to be five years from now in pain, as vivid of a picture as you can and think about the Island of here and now and the Island of the future where dreams may come and there is a vast ocean in the middle and you don’t have a boat.
Speaker 1 21:33 So you would have to swim across the channel to get to the Island of desire, where you want to think all the things that you want for your business, the double digit profitability, enough cash in the banks and you can sell your business 4 million and I can get you there and our firm can get you. We are the boat, we put you in the boat and we take you to the Island of desire. And in it, that meant that you can sell your company for 10 times what it is today and as a sales for 10 million, what is that worth to you? There’s no value. I mean there’s no incalculable can’t put a number on it, but if you’re selling your time and that be weird, you know it’s it. There is a whole this the whole different thing. You get penalized for being efficient.
Speaker 1 22:14 That’s true. That’s true. How if so, what happens in, in, in whenever you do any work, that is a lot of companies that do work hourly, right? And he applies to the, you know, the people that work on the street, anybody. So because you’re going to get paid hourly mass will take as long as I need to take to achieve the same results. So back to, so let’s, I digress. So financial forecasting is you got to know if you have enough money to make it, not just to make it, but to thrive. I don’t get jealous. I get excited when I see customers that have money just falling off their accounts because we’re doing something right. I get paid to produce results. You know, one of the things I love about Tony Robbins, whether you love it on him, right? He says, I have no degrees.
Speaker 1 22:59 I have a PhD in results, right? And it’s all about results. If you’re producing those results and if you’re making money for those you work with, you are a value add. You’re not a commodity. So that’s financial forecasting. Being able to look into the future in and see that you have enough cash, but that presupposes that you’re staying on top of your, all the bills that come in, even put them into the system so they turn into accounts payable and you are recognizing all the revenue that you need to recognize and you’re not leaving any money on the table. True story. Couple of years ago, I started working with a client and after doing some forensic work, I realized that they were missing about $20,000 worth of billing every month. You would think how that’s crazy, but once you get to about three, $400,000 a month, then you have all paperwork laying around and you didn’t put it into the system and you had this progress billing save a $100,000 that was to build and then year five months later you have half a million dollars you haven’t built, so you’re grossly underbilled.
Speaker 1 23:56 You just left money on the table. Now it’s going to have to backtrack to collect it. But if you’re saying you’re doing all of that right, you still need to know what is your burn rate, your burn, your burn rate, you’re some burning, you know? Right. So money is made in the Delta of how much you’re bringing in, how much you’re spending. So if you’re, if you’re, you know, if you’re burning $100,000 a month, but you’re bringing in one 20 consistently, every, you know, every month you have $20,000 left. So everybody should get paid and you shot plenty of money in the bank,
Speaker 2 24:31 right? Except for that’s not quite how it works for everybody who’s listening right now going, yeah, that’s not quite okay.
Speaker 1 24:37 Welcome to the real world. Right? So there’s a reason why you and me are in business because we help customers, because you could have half a million dollars in the bank and you get sued and you lock in your, and you have to settlement. It’s gone. Right? And a lot of those loss was, by the way, it can be prevented simply by being practical. Like this stuff that you do.
Speaker 2 24:52 That’s correct. That’s correct. A lot of things can be, um, can be prevented. We can definitely use proactive measures to avoid those. And, you know, going back to the original, uh, what we were talking about originally is the variables. It’s and for us on our side of things, that’s what we look at is how can I, um, I cannot predict if I have too many variables functioning. So we either have to close the variable or move it all together.
Speaker 1 25:19 Okay. So we’re going to stop right there. We need to go to break. You’re listening to business and legal talk with Lee and Claudia and helping you be very, very, very profitable and sustainable. We’ll be right back
Speaker 0 25:28
Speaker 5 25:39 way. You
Speaker 0 25:44
Speaker 5 25:49 all right, everybody, welcome back. This is illegal talk with Leo and Claudine.
Speaker 1 25:55 Oh about profit today. We are on fire. Welcome to the show. If you’re listening, a drive into a fro, this show can actually make you money.
Speaker 2 26:06 You know, I, I on, I really, no, I mean honestly there are, there are times they think this is what is so important about, um, being in business and, and, and connecting with other business owners and connecting with other people who are driven in business. Whether, you know, for example, you’re obviously on the accounting side, I’m obviously on the legal side and I obviously, but w my, my point is is that we, um, w it’s important to interact and, and, and have conversation with other people because they will say things that spark ideas in your head. And if there’s anything people are out there hearing that is sparking something and you want to know further or you want to talk about it further or you, maybe it sparks something in you and it just, it’s simply a question or it leads you to think, well, Hey, is this possible? Um, you know, definitely give us a call. Definitely give us a call. Because I learned so much from my clients. I have clients who have been in business 70 plus years. I have clients who have been and that day let me tell you, it takes something to stay in business that long.
Speaker 1 27:11 That alone is an achievement. Third generation. That’s an achievement. Yeah,
Speaker 2 27:14 it’s a it and, and I’ll tell you, you, when those folks talk about business and they talk about how they’ve done things or when, you know, maybe I make a suggestions that was a suggestion. We do something a little different. Um, you have to stop and take their, their words. Um, you have to, you have to pause a moment and give credit where credit’s due because you know, people who have been in business and survived that long, they’re, it’s not for no reason at all. And I know that was a double negative but if you are out there and you are hearing anything that we’re discussing that is, it may be you’re feeling like, wow, it’s a little overwhelming or it’s a little over my head. Don’t hesitate to call. We both do consultations. We will do consultations with clients.
Speaker 1 27:56 Absolutely follow up re complimentary consultations to get you started just mentioned the radio show. Okay man should their radio show. And you know, I don’t mind having a great conversation because even if it’s, it can turn into a coaching session and even if we don’t work together, I’m going to, we’re going to give you actionable things that you can do today to make your business better. Because what we want is when we’re bored, you can, you, you and I can agree that we both want relationships. We’re not transactional type people. We just want relationships. We want to have a company of clients. If fraternity of clients that we work with, we make each other better profitable and it spread the wealth around.
Speaker 2 28:34 But we’re in this together. Um, you know, really honestly I have, I don’t think I’ve ever met a business owner that, um, was really super, um, made me be pro proprietary about their thoughts on business. Um, most of the business owners I come across and we do a lot with score. We mentor business owners and, and we work with, yeah, we work with a lot of people, so we have an opportunity to interact and it’s not just on the client. Um, you know, attorney relationship. A lot of times it’s just business owner to business owner. We get ideas from other people and things that we all see things so differently and so somebody sees a scenario or they do something a little bit differently. And I think the best and most well rounded business owners are those who keep their eyes open it and are poised and postured as a student all the time. Always looking, always listening. So again, if there’s anything that is talked about on the show, um, you know, don’t hesitate to give us a call. We learned from our, our business clients as as well
Speaker 1 29:33 and there is an incredible amount of synergy, um, just in the clients that you and me work with together we become ah, added value advisors to the clients that we work with because we both think think alike and resists the reason why the show works so well. It’s because we think alike. We are, we happen to be business owners first that have different areas of expertise and practice, right? Not the other way around. As I said before, you are a business person who happens to be in attorney, which is a great, um, it, it doesn’t come easy because you’re able to relate to the entrepreneur, you’re able to relate and we’re both able to relate because we know the aches, we know what it’s like to sweat up payroll. We know what is light to, you know, trying to pay the liability insurance. We know what it’s like not to have collect an AR or, or being able to delay a P or what contract to sign when to Lee’s door or three years,
Speaker 2 30:28 sign the contract and then you don’t realize that there’s that, that two sentences buried deep in there that you overload and you get an attorney to look up. Yeah. Because you trust, you trusted the person who was putting the contract in front of you and you just, Oh yeah. This is really good. One of the things I see all the time and it’s happened to me multiple times over the years, been so excited about a new venture I’m getting involved with and um, everything is, yeah, yeah, yeah. Let’s do it. Let’s do it. Let’s do it. And we go too fast and we don’t slow down. Um, and we, um, you know, oftentimes trust when we shouldn’t trust. So, um, been there, done that, been there and done that.
Speaker 1 31:07 So, okay, so number one, financial forecasting. We already spoke about that. Okay. Um, resources, forecasting staff and technology is what I had. Um, you know, here’s one way to look at this. At w w we, we all business owners should pause and reflect. You have this unique situation in which most of us, our biggest expense is going to be payroll. That’s correct. Staffing. And though, so either they’re going to be a human asset or they’re going to be a human liability. Kay. And a lot of it has to do with how the business owner treats their employees in how they sh, you know, I have been an employee and I am an employer, right? So I’ve been on, I know what is like when I am being listened to, nourished, empowered, and allowed to grow. Right? And you want to have those people around. And I think I’ve seen it when I felt disengaged in this empower and disenfranchised what I felt like I was just a number.
Speaker 1 32:12 Um, and I know what it’s like to be an employee. So I have heard, uh, business owners, uh, you know, talk about their employees. Oh gosh, just to tell you this loser in, in demeaning terms. And it just, it’s almost like there’s just a number, right? You know, do the job or else, right. And I’ve seen it the other way when they’re like, when the, the employer is so generous that the employee takes advantage of that. And is how do you strike a balance? The point is that resource forecasting, one of the, if you’re thinking about a absolutely the show is about business forecast. You got to have a budget. You eye knowing engagement. I get involved in without a looking forward idea where we’re going into the future, what is that going to look like and how are we gonna manage air? You know, remember, if you don’t have a goal and you go, we’ll do, if you don’t have a target in a target way to do, you’ve got to come up with a target to hit, right?
Speaker 1 33:05 Right. So inevitably hiring staffing, it’s a key thing and you gotta be able to look at it, how are you going to be able to model them? So because you gotta be fiscally responsible, adding people for the sake of adding people is no different in throwing people at the problem. And what I’ve seen that our business owners do with that, they get into a panic mode and you know, um, let’s just hire, hire all these people and then there’s just let go. Let go of this. Jojo, you don’t want to, I had, I mean, you don’t want to add an intake, take away at a whim because you get this reputation in the market place. How do you do it?
Speaker 2 33:39 Well, not only that, I’ll tell you, particularly for our industry, we work closely together. Um, we, we work in an office environment where all in the office environment and we have to be very careful. I know in my group when we add somebody, remove somebody because it does change the dynamic that’s going on in the office. And so we, we are so cautious when we bring a new person in. Um, largely because we have such a great, um, dynamic already. Uh, we’re all very much a type a personality and that’s it. We’re like a big group of type a people, very, very driven. Um, and we all recognize that we’re type a and we’re driven and so we are able to give each other the grace of being tight, type a and driven. But so it does, it does matter when you bring somebody and if we brought somebody into our staff that was not as driven, um, and that that’s kind of a personal thing.
Speaker 2 34:33 You’re, you either are or you aren’t, you can’t really fake it. Um, if we were to bring somebody in that was not as driven, it would upset the Apple cart tremendously. Um, because then other people are picking up, um, you know, are picking up the Slack. So if we have somebody who’s a little less driven, so not only from a financial perspective, if you have your, just say for example your, your employees, you know, your staff. If one minute you’re high, one minute you’re low and we’re not leveling out. I think that you really bring along a lot. And then you have somebody disgruntled. And who’s the most, what’s the most risky employee is the disgruntled employee,
Speaker 1 35:14 the unhappy for whatever reason. There’s your variable. That’s your variable. Very, very, very true. So resource planning and this is all the industry built around enterprise resource planning, where we call ERP and which we’re looking at all this. You know, you can use technology to be able to look into, you know, your resource forecasting and figure out whether you get, when you’re going to need to purchase cap. You know, if you’re in an industry that is heavy on capital expenditures, now you, you buy assets and you know what we’ve talked about this conceptually. They know, we, we love certain industries, you know, um, the, the, the equipment rental industry and you know, you know, w we both have, I just love them. So you, you buy this piece of equipment, get this British did that, that gets depreciated over time and say you spend $10,000 but every year you’re gonna make $5,000 and this piece of equipment, if you do a jar, right, it’s, it’s a very, very profitable business if, especially if the life cycle of the, of the, of the life of the asset can, you know, exceed far exceed what you actually pay for it.
Speaker 1 36:11 So those, but that takes some careful planning on being able to bet on that whatever you’re going to purchase, if it is a capital expenditures is gonna make a return investment. It’s all about not just a repair with being able to pay whatever you borrow, if you actually financed it, you know, if you, if did the usable life and the potential income far exceeds what you pay for an depression, you know, and not withstanding the depreciation, then you have that takes some careful thought. Right. And I wouldn’t go at it without the additional help. Whether you get somebody who works with you, hire people that know what they do, or if you don’t have them in house, outsource it. You can really beat to, you get what you pay for. Let’s just say. Okay. And um, so last but not least in, you know, there’s this industry forecasting, it’s, you know, I have here Kat, can you get gas? Can you imagine, uh, what it was like to be in the CEO of bug Buster video back in the day and you had an opportunity to buy Netflix. Yeah. And you didn’t, and you didn’t. And you said, no way. Gosh, I don’t know. You know, we do so well with our rentals and you know, the profit is so double double digit and uh, gosh, this little a fledgling company coming. I know. You know, they saw potential. I don’t see this happening. We’re going to pass.
Speaker 1 37:30 Yeah. Is this guy alive? I mean, yeah. So, so, but, but then you look at that and that is the, to me why back to the, the, the, you know, the line, you know, the, the title of the show, why business forecasting is not just a good idea anymore. It’s critical. And now that industry is gone, right. Um, I have the, you see this thing that I prefer, you know, the, I, so I end up my show notes. I have this picture of a, if you’re listening, if you’re, you know, I’m going to date you if you’re proudly, you know, we’re raced in the, you know, teenager in the 80s and you remember the Maxo, uh, MTV, you know, those, uh, the, the, the ad and the guy sitting in front of the TV and then the music so loud that it blows your hair back. Right? A Maxell guy, right? Well, I have max cell. It’s the name of the company. how tapes, right. That’s, yeah, that’s how I looked it up as Maxwell, but it’s actually max cell. Anyway, it’s gone now. Their company had to reinvent dents themselves. And then, and um, I don’t know whether it went out of business, but do you have any tapes around? Do we have any cassette tapes? No, I don’t. And then neither do you. What do you I do not.
Speaker 2 38:36 Anyway. Hey listen, we’ve got to go to break.
Speaker 5 38:38 Stay tuned. We’ll be right back. We’re going to finish the show business. Illegal talk. Leah, Claudine, stay tuned.
Speaker 0 38:43
Speaker 5 39:10 right. We are back with the legal and business types with Leo and Claudine. Thank you very much. Aw, Leo’s throwing me out there on front street. Love it last minute. Hey, we can tap down. That’s how I knew I could bring in tap dance.
Speaker 1 39:24 So, Hey, uh, you did a great job. You know, you’re, you’re, you know, we all have different skills. I mean I’m loud enough. Noxious, and you’re the smart one.
Speaker 2 39:34 Oh yeah, you’re hilarious. You’re hilarious.
Speaker 1 39:37 So, Hey, w you know what a fun show and we always ran out of time, but um, so why business forecasting is not just a good idea but critical to the success of your business. Why? Because the world is changing.
Speaker 2 39:53 Well, the rest of the you can keep up with. Oh yeah. The world’s changing. Your community’s changing. You’re, I mean, on the macro and the micro, there’s no way around it. It is changing and it’s, a lot of it I think is internet and technology driven, but it is changing. And you know, if you can keep up with it on an 80% trajectory, you’re doing very, very well. I think 40% you’re probably hanging in there. Yeah. So, um, what are the things in the business that you know, you can predict, okay, there’s certain things we cannot predict. And it is also obviously also industry specific. So there’s certain industries. So for example, if you own an amusement park in California, you can, you know, you can predict that June, July, August are going to be busy months and you know, December and January probably going to be slow. So to some extent you, you can predict that. Um, but so I think every, every business has things that it can predict. How do you identify those things? And, and, and what things are things that you must predict overhead? I think you know. Okay, so you bring up this interesting thing in I am kind of the how to person. Like I want, I want to be able to, to take what you’re saying and then actually implement.
Speaker 1 41:14 Okay. So, um, I’m looking at up in my mind I’m looking at a profit and loss. So that’s really what the document that you look at for profitability every month. So you do, you have two types of costs in your business. You have a few dealing with anything that you have to expense out that you actually inventory, inventory management, anything that is you would require to produce a job or sell a service. And that is variable. It’s variable in the, in the key thing about something being variable versus fixes, it goes up with revenue or comes down with revenue. So he will goes up with revenue. You need it for revenue production. That is a variable cost. So the things that you can predict is your operating expense is fairly fixed, right? So your rent will not change very much. If you have to sign a three year lease, I can tell you what your rent is going to be three years from now, right? All the way up to the next 36 months. Right? You can predict that expense. Um, you can predict, Aimee, if you hire nobody and nobody leaves you and you have a fixed amount of dollars that you have to spend per payroll, that won’t change unless you change it on that somebody leaves you or hire somebody for the most part, your up your general general, you know, scold GNA, your general and administrative expense stays fairly flat year over year and you profit from, you know, this, there’s this, I’m gonna put it right.
Speaker 2 42:37 So I think that’s an important that you, when you say general and administrative expense, because virtually every business has it. And you know, last week we talked about construction industry, um, and, and I think that’s an expense that particularly that industry forgets to calculate into. Um, you know, what we need to survive in terms of, of cashflow. Um, my business is obviously a little bit easier to keep that on top of top of mind because you know, we’re obviously an office business, but, um, that is an area that I, I think you’re correct that it does stay relatively flat, um, until you add staff.
Speaker 1 43:13 So the good thing about, so as you’re asking me, and as I’m thinking through this, you cannot predict what the industry is going to do. You can only stay ahead of it enough to react long before things happen or short term reaction. If you’re on top of the ball
Speaker 2 43:30 and it rolls left and you can tab down there. Okay, true.
Speaker 1 43:34 The bigger that you are, the harder it is to change. Right? So the, the, the, the, the great thing about when you have, um, industries that are rapidly changing, the bigger businesses are the last ones to change. Usually the ones that fall by the wayside is the nimble, the startups, the ones that are able to switch on a dime. Those are the ones that are able to actually capitalize on industry changes. But, um, so from a financial forecasting, you know, if I had every business my way, I would want to figure out what is the revenue that I can predict for the next 12 months. Um, regardless of whatever industry you’re in. Then even if you’re in an industry like say you are a chiropractor, right? Who you don’t really don’t, you can only look up two, three weeks worth of appointments, but then you look at your history, right?
Speaker 1 44:18 Um, is your business seasonal is a go up and down throughout the year, right? And no matter if you’re selling flowers, if you’re a chiropractor, you already, we already spent quite a bit of time talking about the, the construction industry that goes through cycles, um, in, but you let me know if you’re a, if you’re a dentist, if you have any law, white collar attorneys did, there’s, there’s gotta be some trending that you can discern from prior, prior performance history, right? Unless you’re a startup. Uh, if you’re in the restaurant business, you know that there is some seasonality to it. You know, that are there peaks and valleys. You want to be able to anticipate those in Palm paper into a budget and then you manage to the variance of the budget so that, that, that is an ex exercise as a financial exercise that I have my clients do.
Speaker 1 45:04 So that takes care of that. So number one and number two can be taken care of once you go through that exercise. So at the beginning of the fourth quarter, you start looking at assuming that your fiscal year is your calendar year. We should be looking at next year now, uh, around September, October. So to see what is going to look like. And then you can manage every month. It started in January. Um, and see how we did is basically looking into your crystal ball. This is, if I hit all my estimates, if I convert all my estimates to actual jobs and we start progressive, you know, doing the billing and whatever we’re going to do, are we going to be able to have enough revenue over the expenses that we expect to generate? Right? Those resource forecasting and financial forecasting are relatively together. Industry forecasting. I, I recommend that you do a SWOT analysis, strengths, weaknesses, opportunities, and threats.
Speaker 1 45:58 Okay, go through that really slow as SWOT. S w O T, right? So S stands for, this is a, this is an exercise that, uh, it’s, it’s a management. It’s a, it’s an opportunity exercises that is a management company. You know, anybody in management would have to go through this. Extensive strengths, strengths, weaknesses, opportunities and threats. Strengths. What are something is going on, you know, like for instance, your business. What are the strengths of your business? If I came in for the first time and I analyze your company, I look at what is good about your law firm? What are the strengths? What are we known for? What is our core, uh, expertise? What are we good at? Core competencies. What are you known for in the market? What are people come to you for? Where do they find you? Strengths. Maybe your finance. Uh, you might have fun, strong finances.
Speaker 1 46:45 You might have strong marketing, you may have strong people. You may have this great human assets, you know, your paralegals, your attorneys. Um, what are the strengths? Right? And go through all of them, but then you inevitably will have weaknesses. What are you weak at? Right? Um, uh, you’re the delivery, uh, you’re tracking your ex, you know, they may have accounting witnesses. Um, uh, for any business, what are the areas of concern, risk and risk mitigation? Do you have enough insurance? Uh, are you, or if you’re, uh, if you deal with injuries, you know, in Madres and workers’ comp, if you’re in a tres industry, it can be a, are a business. Well, yeah, and I mean, in different, again, different industries are going to have on to have different things. If you’re a contractor
Speaker 2 47:30 and you have employees driving up and down the highway to go to different job sites, that right there is its own unique risk.
Speaker 1 47:36 So, you know, if you’re looking at, put it this great as w O T, right? So then you gotta your opportunities. So your opportunity says
Speaker 1 47:45 innovation happens as a result of upcoming threats, right? Correct. So you’re looking at, if you’re shrewd enough, you’re going to say, Hey, um, that’s what back to what, why I love this country so much. The United States of America that allows you to actually create something out of nothing. So, um, something happened. Um, and you know, dealing with this whole immigration matter that, um, you know, it was in the news a few months ago and just this whole thing about having, um, kids basically in this overcrowded facilities and then everybody was overwhelmed and, and you know, it was the whole, the whole system was overwhelmed. So somebody came up with the opportunity, Hey, you know, I got is all this extra space, let me negotiate with the government so we can actually take care of these people. Right? And that was an opportunity. Somebody saw this threat, right? Turn it into an opportunity. It’s, it’s, it’s the heart of entrepreneurship.
Speaker 2 48:41 It truly is. I think the heart of entrepreneurship is the necessity is the mother of inventions. As soon as you have a need and predict the need,
Speaker 1 48:52 correct. So, but now you’ve got the threats, right? And you got to be really taken a sobber look at your industry, right? Look at with even internally what threats and remember what we talked about employees could be your greatest asset or your greatest liability. Do you have anyone internal who doesn’t believe what you believe the goals and visions and the dreams that you have sometimes may come off alignment and somebody no longer shares your values and the core values, you know, there are companies that are wildly known for their core values. Patagonia as an example, right? Um, um, Subaru, uh, automobiles that they have this clear mantra either, you know, either you’re going to be all for them or against them.
Speaker 2 49:44 No. And that there is quite a bit, um, I’m noticing of discussion on the, the, the large corporate level that um, you know, we have been so focused on quarterly earnings on the, on the big corporate level that we have kind of walked away from doing and making decisions that are good for the company, the employees and so forth. And we’ve had this very, very short term, um, vision. Yeah. What, what is good for the quarterly reports and we are starting to see some trends moving away from that where people are accepting the quarterlies may not be as fantastic as they could be. But because we are saving that for the longevity and the long run of the company,
Speaker 1 50:25 I think, you know, I think has been known for a while. The living quartered recorded as dangerous rise. My OPIC is shortsighted, right? Especially if you have a really grand vision for where things go by, you gotta be able to stick to your guns. So those threats internally or externally, they have to be assessed. So back to, you know, you got your, your SWAT analysis, your strengths, your weaknesses, your opportunities and your threats and you gotta. So just to recap, so you’ve got to do, the forecasting has three components as you financial, you know, he has your resource and you have your industry, all of them, you have to, it’s a good, you know, there are plenty of groups out there that I think somebody needs to tell you the truth outside of your company as a business owner because chances are you’re not going to hear from your employees, right? And if you’re a discerning CEO and you’re looking for outside, it behooves you to be in a network and groups of people that think like you, right? So that just that you’re not to going to throw that out there because I think iron sharpens iron and those who think like you can help
Speaker 2 51:25 right back to, you know, networking with other business owners and people because it, it does it. Um, iron sharpens iron. That’s a really great,
Speaker 1 51:35 really great. Um, and you need to have people who think alike. So, all right. So just to recap, has this been helpful to you? You’re a business owner. You need perspective. You need to be able to look into the crystal ball. And figure out where you’re going to be, not just you, your peers, your competition, your industry, the economy. You can just really bare your head in the sand. As a business owner think, well I’m doing very, very well in my industry and I’m making double digit profit. You look at I’m going to make 30 cents for every dollar this year and then forget that something is about to happen. That is going to fall. You’re going to fall off a cliff next year. You can, you got to be looking at everything.
Speaker 2 52:11 Well it really is a challenge and I, and I would throw this challenge out there too to the business owners that are listening is to take time this upcoming week and take the 40,000 foot elevation view. We are oftentimes because we are so busy and we’re so caught up in meeting the day to day, moment by moment needs of our businesses that we oftentimes um, go four or five, six, eight months before we stop and look at the 40,000 foot elevation and, and try to see the business from a higher level. That gives you a wider view, a view of the industry, of you, of, you know, your overall staff of you have your overhead of you, of, you know, your accounts receivable and, and see the whole picture. And I think that that is a great challenge to leave folks with coming into this next week.
Speaker 1 52:58 Well, I hope this was actionable. Hope this was helpful. Please look us up. Give us some feedback. We’d love to hear your thoughts out there. Um, and it’s been a great week. I’m wishing you all a great rest of your weekend. We’ll talk to you next week. This has been li business illegal talk with Leon, Claudia and talk to you next week. Have a great week. Bye.
Speaker 0 53:22 The legend of the thing.