Cashflow And “Good” vs “Bad” Accounting For Small Business With Guest Expert Patrick Dichter

Lauren: Welcome to The Biz Doctor Podcast, my love letter to business owners the world over. I’m your host, Lauren Goldstein, award-winning business consultant and advisor who’s fondly nicknamed The Business Doctor by my clients. My clients call me The Business Doctor because I help business owners who are burning  the candle at both ends, diagnose what is actually keeping them stuck in and buried under the day-to-day of their business, and then formulate a business treatment plan to help them adjust their business and team to fit them, and most importantly, support them in having what I call true entrepreneurial freedom.

If you’re ready to look at your business in a different lens and elevate yourself out of the business operator in the trenches 24 7 to visionary business owner and leader who can  take a breath vacation and have more fun making an impact with your business. Then grab your favorite beverage and your earbuds, and let’s dive into our latest episode.

We’ve all been there trying to figure out how to get our businesses to have a consistently healthy cashflow instead of running on the razor edge, but still falling into some common cashflow traps  for service businesses. Luckily for you. Today’s episode is going to illuminate the world of unlocking cashflow in your business.

Demystifying good bookkeeping versus bad bookkeeping. And I think the juiciest part is the case for not doing Profit First Accounting in your business. Welcome back to the Biz Dr Podcast. I’m your host, Lauren Goldstein, and joining me in the studio today is Patrick Dichter. If you’ve ever asked yourself how to increase or better understand your cashflow, or if you should shift to Profit first accounting in your business, this is going to be an episode that quite literally pays dividends.

Now before we get to the real juice of the episode, let me properly introduce my guest here in the studio. Patrick is a self-proclaimed business geek and love small business. He owns AppleTree business services and accounting and tax firm specializing in serving small businesses year-round. He spent 10 years in marketing and advertising and always found himself referring out bookkeeping.

So he decided to purchase AppleTree in late 2021 and solve that problem for other business owners too. He’s married with three boys and loves to fly fish. Welcome to the show, Patrick. 

Patrick: Lauren, it’s great to see you. Thanks for having me on.

Lauren:  Yeah, great to see you too. I am so beyond excited to have you on the show because I see cashflow challenges impacting a lot of small businesses, especially now.

And it seems like the debate between to Profit First or not to Profit First has been going on for years. So I cannot wait to dive in and get your take on all of these hot button topics. All right. Start with hot dates. Yeah. Right. So to kick us off, why don’t you share a bit more about your path and how it led you here to AppleTree and the work you are now doing with business owners?

Yes. 

Patrick: So my, my. Background is, um, I, you know, went to University of Denver, we went there together. Mm-hmm. Uh, this is wild to be on this together. It’s so wild. So, um, you know, International business and finance minor. Um, did my MBA there as well. And I’m not an accountant by trade. For seven years I went down this path of sales leadership and working for a digital marketing startup and working with small businesses and I really love that.

And then I spent three years doing small business, um, coaching and consulting and a lot of these clients would come in and have terrible bookkeeping and I was always referring it out and I just saw how transformational that was. Um, and I’d always kind of been into numbers and. Finance, and I was like, why do I keep referring out this bookkeeping?

Like, why don’t I go buy an accounting firm? And like, you know, I think it could be a great business, you know? Mm-hmm. Um, the more I explore that, the more excited I got. So, um, at the end of 2021, I bought Apple Tree Business Services. Um, I bought us all business and we’ve grown it steadily. And, um, that’s kind of my path.

So I, I came. Through this like wandering, winding path to end up owning an accounting firm. Mm-hmm. And, um, I love serving small businesses and I just see the need every single day of like, how much they need quality accounting and somebody to help them. And, um, not to pick on accounts, but like most accounting firm owners are not, not very good business owners.

Mm-hmm. So, you know, there’s, there’s poor service going on and there’s just a lot less people. Entering the industry. So it’s, it’s hard for a small business to get good service nowadays. So that’s, that’s kinda my story and 

Lauren: why I’m here. Oh, I love that. And honestly, I feel like. People like yourself who had this pain point and then decided to solve it are are the ones that are actually so much more effective because they’ve seen both sides.

So I love that. I love that story. So now the place that I wanna start though is help our listeners understand what we mean by cash flows and what the hallmarks of a healthy cash flow are. Yeah. 

Patrick: So you could look at it a few different ways. You could look at healthy cash flows like. Can I survive a storm?

Can I survive? You know, a downturn? Can I survive if,  um, we lose our biggest customer, right? So you could look at like healthy cash flow in terms of savings. Like, do I have two to three months worth of, you know, cash in the bank in case something goes wrong? Um, you could look at healthy cash flow on a margin basis, right?

So if you’re. If you’re a, um, a marketing agency, right? You, you should be making like 60% gross margin on everything that goes at your door. Mm-hmm. So, um, you know, you could look at a cashflow on like, how quickly do I get paid, right? So if I finish that website, did I get paid like 60 days after they caught it or did I get paid along the way?

And then there was just a little bit left at the end. Or better yet, like. They’re on a subscription for a website, right? So there’s a lot of different ways that you could look at like healthy cashflow, whether it’s like, how much do we have on hand, or how quickly do we get paid or like, what’s our, what’s our, you know, gross profit margin or net profit margin on the business as a whole.

So those are, those are probably the biggest areas that I think of. 

Lauren: Got it. Got it. So is there a common thread between all of those that like is really, even though there’s different ways to look at cashflow, if you could kind of distill it down into one common thread. Is there a common thread? 

Patrick: I think, uh, in a roundabout way, it’s knowing, knowing what it takes, like knowing the levers, right?

Mm-hmm. So a trap that I feel a lot of service-based businesses get into is, you know, you could take design, you could take remodeling, you could take, um, legal consulting, right? Somebody’s really good at their craft and you know, they get a bunch of business. They get word of mouth. Seems like they have a lot of cash, and then they start to hire a couple team members or employees, and then they grow.

And service businesses just eat cash. They just, mm-hmm. They require a lot of it. And then your team  grows and your clients pays slower, and you have more overhead. Right. So I think if I were to say like a business owner who has healthy cashflow, they know what it takes to improve it or to get more cash, right?

Mm-hmm. So if I were to ask, you know, this. You know, marketing agency, like what would it take to improve your cashflow? They’ll know like, okay, on average we, you know, make this per month, or it takes this long, we get paid, or, you know, I have this much in savings, like, this is what I can do. Or worst case scenario, like, I’ve got a line of credit that I can lean on.

Or, you know, they, they know what their options are, if you will. Mm-hmm. To be able to improve it or, you know, Heaven forbid if like something bad comes up that they can weather it or you know, they could be opportunistic too, right? Like if you know somebody wants to sell to them or an amazing project manager comes along that wants Ad K, like being able to have the cash to hire that person and take their business to the next level.

So to me, I think a business owner who has healthy cash flow, like knows how to understand it and like move those things around. 

Lauren: Gotcha. And I think that’s, that’s a really interesting point because at the end of the day, it’s a very simple thing, but so many business owners to your point, are, are head down doing their craft and don’t have those people to pull them out and say, Hey, danger ahead.

Your cashflow isn’t. Adding up for the expenses. And something we talk a lot about with my clients is step costs. Because it’s one thing to grow your business or scale your business, and those are two separate things, but it’s quite a different thing to actually step it out, no pun intended, and say If I add this team member, what other auxiliary costs come with that higher?

And so that’s something that I think is really important for them to think about as well. Do you see that a lot with, with your clients? Yeah. Just to 

Patrick: clarify, you mean step cost in terms of like the overhead steps up a lot? 

Lauren: Is I, or, yeah, so a step cost, at least in, in my definition, is when you step up your business to the next level, whatever that level looks like, what are the costs?

Because a lot of times it might be hiring somebody or it’s a change in technology, it’s a change in seats. It’s a, you know, there’s a lot of different, to your point, levers that come with when you’re. Getting to the next level.

Patrick:  I, I totally agree. And a step is a great way to think about it. Like, you know, if you’re a cabinetry company and you’re like making cabinets and you decide to expand your space, your rent just went up a lot, right?

Mm-hmm. There you have a lot more capacity, you know, to be able to be more efficient or take on more work, right? Or if like, you know, you were the one doing installs and like running the project and then you have so much work, you hire a project manager, like yeah. The business could go from like, 700 K a year to 2 million a year, but you just, you stepped up your cost a lot by hiring, you know, a high level employee.

Um. Mm-hmm. So, yeah. I think another trend that I see is like, if, when you first take that step, it sucks. Like, you’re like, mm-hmm. Where’s all my money? It’s like, well, yeah. Lean before. Yep. You have, you have to push through the next level. Or if you straddle it, it really sucks cuz you’re like, God, I have more headaches and I’m making less money.

Mm-hmm. And I see so many people, it’s usually between like one to 2 million in revenue with a lot of service-based businesses where like you made a couple of those more expensive hires or payroll grew, or you invested in like, Software, a big tool and you’re just like, oh my gosh, like why is my bank account look different?

Yeah, it’s, you have to like push through to the next level. Uh, And then like, boom, a lot more falls to the bottom line and then you decide, do I want to take the next step, you know? Mm-hmm. 

[00:11:30] Lauren: Yeah. Yeah. Yeah, that’s, that’s a really great point, and it’s something that I really enjoy going through with my clients is, you know, that.

If, if we could call it purgatory place of, of how can you make the right key hires and find that almost Goldilocks timing of, of growth and scaling so that your time and purgatory is less and the time and money that you know is going out is, is shorter than, than [00:12:00] hopefully anticipated. Yeah. 

Patrick: Yeah. Should we talk about profit first? Um. What segue should we talk about Profit First? 

Lauren: Sure. I was gonna, I was gonna save that juiciness for later, but yeah, let’s dive in. 

Patrick: So I, I do think Profit First is a really good framework of like mm-hmm. Trying to help people understand that. So if you haven’t read it a book that basically says, um, you should have like buckets or bank accounts where you say like, okay, 20% goes here for payroll and like, you know, 25% goes here for  taxes and like mm-hmm.

Um, This percent goes to overhead, and then like you’re always trying to pay yourself first, or like allocating that for profit rather than like, the inverse is most people, you know, they just operate and then whatever’s left, they pay themselves really good. Theory and framework, where I see it just suck all the time in practice is people read the book, they get inspired.

Mm-hmm. They go open freaking eight bank accounts and they do it for like 40 days. And they’re entrepreneurs. Right. So they’re busy, they’re disorganized. Mm-hmm. And then they don’t keep up with it, and they end up like having so many overdraft fees and they don’t maintain it. And it creates a total nightmare for mm-hmm.

Bookkeeping and accounting. Right. And the framework works, like the theory makes sense. I think it’s a good thing to wrap your head around, but like I’d say 90% of the time I see people not stick with it and it just creates this like, total shit show. Excuse me. Mm-hmm. Because it’s not, it’s not implemented.

And if you have solid bookkeeping, you should be able to see those trends as is. Right? Like you should see like, okay, historically our payroll is like 40% of revenue. And if we’re standing on top of our quarterly tax estimates, we push that aside and normally, you know, I’m able to pay myself like 10 grand a month or 20 grand a month, or you know, that’s historically X percent that’s left.

Like if you have solid bookkeeping and you [00:14:00] set up your reporting that way, or even if you, you know, whether it’s QuickBooks or if you use a tool like Fathom, you can start to see like where those levers are and allocate versus like, You know, just leaving a train wreck of like overdraft fees and bank accounts and like not knowing where all your money is at the end of the day, so.

Lauren: Got it. Got it. 

Patrick: That’s my TikTok on like why Profit First is a disaster in 

Lauren: practice, I feel like. So you and I are definitely on the same page. I personally tried to, well I read the book, I gave it a good shot. I didn’t open eight bank accounts. I tried to kind of do it within the bank accounts I already had, cuz I.

I d I don’t, I don’t need all that complication. My whole philosophy is simplify. Um, and it just, to your point, it, it just added another thing that I had to do every month. And like we have good accounting, we have a very simple business model, so, It, it was adding a level  of complexity that I don’t think we need.

And it’s a little bit, kind of the reason I feel the same way about, um, the EOS framework. In theory 

Patrick: you can say that, can you take shots at eos? And like I, I know, I know like have some healthy skepticism. I I’m a fan. Yeah. But I do think like you can’t just blindly like. Accept every framework.

Lauren: Right? Totally. And I’m a fan of e os too. There’s, there are tenants of it, just like profit first that I think are super helpful. Where I see it let businesses down is, is like profit first. It’s adding levels of complexity that perhaps a business is not ready for. Yes. And so that’s where I’m like, Hmm, nope. Not gonna do that.

So I wanna circle back. Um, that was not like, I, I was really prepared for the record that it was gonna be much more like a searing reason not to use profit first. But it sounds like the tenants are good. Just the execution Yeah. Mean is where you have a problem. 

Patrick: I don’t know if I could be more like, honestly, we’ve had a couple clients that do it after the fact, and I’m just like, Ugh.

Like, not like this, but I almost just wanna like let them go as a client cause Mm. When, when we try to explain like how we can help them do it or why it doesn’t go, it’s like they drink the Kool-Aid and like you almost have to just let them mess it up for like six months. Yep. We’re like, Hey, you bounced payroll three times cuz you forgot to like transfer the money from that account to your payroll account.

Like, is this for you? You know, you almost have to like let him like. Mess it up for a bit and then you, you have a big cleanup project on your hands. But anyways, yeah, 

Lauren: yeah, yeah, yeah. Well that doesn’t sound fun for anybody. Um, actually real quick before we go, before we circle back to some comment, cashflow traps.

You mentioned a tool just now that I’ve not heard of Fathom. Yeah. What is Fathom? 

Patrick: It’s beautiful if, if you’ve worked in like QuickBooks or Zero, like they’re very good tools. Fathom is like a KPI reporting dashboard. Mm. It just has like amazing ui. So you, you’d pull your, your bookkeeping into it and you could set up some KPIs.

So we have a lot of, um, uh, one of the industries we have a lot of is online coaches and course creators. Mm-hmm. And so we can set up KPIs to say like, okay. Most people in this industry, we know spend, you know, 12% of revenue in advertising and their gross margin is X and their payroll percent is X. And so we can set up monthly KPIs that it’ll compare to.

Oh wow. And we can drill in and it gives like really awesome graphs. Um, and it’ll show historicals. Um, it’s, I dunno if that helps, but it’s, it’s. A lot of, uh, like fractional CFOs use it, but it’s just a really good tool to visually show your financials. Um, again, I dig it against like, uh, a KPI that you’ve set up or what we do, because we have a lot of the same industry.

We can actually set up a benchmark because we have like 20 of these clients. We can say like, the rest of this cohort or the rest of this group spend X percent on advertising. Their average profit margin is x. Right. So in theory, like if, not that we have this, but if we had like, you know, 20 SEO agencies, like we could do the same thing where we compare their, their benchmarks against their peers.

Lauren: Wow, that’s really interesting. And actually a great segue. I know when we were chatting before you said that there are some certain KPIs for small businesses that they should be paying attention to. So what are those KPIs? 

Patrick: Yeah. Depends on the industry, but I, I think, um, This, this may be as a plug for us, but I think like you need, you need forward looking indicators, right?

Like mm-hmm. Your financials, if you have a good bookkeeper, they’ll tell you if you’re doing a good job like 30 or 45 days later, but you need like small business that are fragile and you need something like quicker, right? So like you might have some sales ones like, how many proposals did we send per week?

We’re like, what’s our closing ratio? Um, you might have cash on hand as like a good kpi, like just how much cash do we have available? Your gross margin, that’s a huge one. Like, you know, for us to go, you know, finish one customer or serve one customer, how much do we typically make on one job? That’s a big one.

Um, Google reviews, like, are you tracking your Google reviews, um, capacity percentage, right? So if you’re. Um, you know, in the people business, like just a rough estimate of like, we have 20% available capacity, or we’re overbooked. Right? And that’ll, that’ll, you know, make you think about hiring. Um, those are some of the, I guess, KPIs that I’d pay attention to.

And then some of those are, you know, accounting related, right? Like gross margin, cash on hand, you know, net profit margin. Um, Yeah. The rest are kind of like, it depends on the industry. 

Lauren: Got it. Got it. I mean, I will go to my grave saying revenue is a lagging metric and if you’re judging your business on revenue, you’re in trouble.

Yeah. Because there’s like very few things you can control in revenue, but you can control how many clients you’re talking to every week. You know what your margins are, what your price point is. Yeah. Um, so I actually.  And maybe, maybe we’re gonna talk about this in, you know, good bookkeeping versus bad bookkeeping.

But something that I talk about with my clients, I’m not A C F O, but something I talk about when we diagnose their financials and look at their profitability is, you know, because rev revenue is a lagging metric. Like really having somebody, because I think bookkeepers and I might get a lot of heat for this, but bookkeepers to me just record the past.

Like that’s  all they’re doing is they’re just telling you what has happened and you need somebody in your corner that can read the tea leaves and be like, Okay, this metric, to your point, this KPI is down, which means this is probably going to be the result and we need to adjust cuz so many business owners adjust based on revenue.

They’re like, oh, we had a bad month. Let’s go make more sales. Versus actually looking at why did you have a bad month and how many months ago was that actually going to be foretold that you  missed it. 

Patrick: Yeah. Yeah. I don’t, I’d agree with you. You know, I work with a bunch of accounts and that’s just the way they’re wired.

They’re like, They look at the numbers and they look back historical. Right. But mm-hmm. In terms of like digging in, figuring out why looking forwards, like their brains more often than not, are just not programmed to do that. Mm-hmm. They’re just not. So it’s usually, you know, uh, person that maybe has a finance background or marketing or sales or somebody that like, Was the, the oddball in accounting and like decided to go down a different path that has those sort of wirings and skillset.

Lauren: Yeah. Well, what I think I like about AppleTree is, correct me if I’m wrong, but you guys actually bridge that where you have the people who are recording historical data, but you also have the people who are looking out forward thinking and helping you be more strategic with your finances and making sure that.

You know, everything is, is pointing where you wanna go. True. Yeah. 

Patrick: Yes. I do think we do a good job of that. Um, you know, we could get better. Um, yeah. 

Lauren: So, okay, so in your opinion, what’s the difference between good B bookkeeping and bad bookkeeping? 

Patrick: Yeah, bad bookkeeping is, it’s not, your books aren’t closed on time, right?

So, Here we’re April 5th. Uh, as we record this,  you know, you should get your March financials like by the end of the month, ideally by like the 20th, 25th. If it’s like really good, you get it by like the 10th. Um, so your books are closed out every single month and you get financial statements that include a profit and loss, a balance sheet, and esteem and cash flows.

A lot of people just look at their profit and loss, but that doesn’t tell the whole story. The balance sheet really shows like the health of the business. And if you’re, if you’re like a SaaS company or if you’re, if you do like project based work, um, and you’re taking deposits, do you really need to look at the balance sheet?

Um, so tho those would be the things that you need to get monthly. And then like, can you understand it? Does it make sense the way things are like categorized and shown to you? Um,

yeah. I mean, those are, those are the big things that go into. Quality bookkeeping. Um, and, you know,  closing things out at the end of the year if taxes are done, sometimes some adjustments are made or tax planning is made, or you know, like owner distributions are taken. You have to go back and adjust the financials there.

We see that all the time where just like, it’s just like they’re kicking the can down the road and not really closing everything out and tying it down. Mm-hmm. That it’s accurate. Um, and then you get to the end of the year and it’s just, It’s a mess. So hopefully that helps give an idea of like, good.  Yeah.

Lauren: So what I, what I’m hearing is, let me, let me add some other things.

Patrick: This isn’t coming up. I think, I think the other thing that I see is like a new small business owner can just use their business banking account like a, like a checkbook, right? They’re just like, okay, today I have 8,000. That’s okay. I got some money.

Like now I have 15,000. Cool. I’ve got like a lot of gas in the tank, like, All right. Like I paid a couple times, like, and they’re just looking at the balance. Mm-hmm. Without really looking at like a true picture of like, what’s going on in the business or like, how did my month do, or why, why is the balance changing month to month?

Right. Likehmm, I see that all the time where people literally like, and their emotions just soar up and down with like how much is in the bank account versus like knowing like, How to, how to change it and why that happened.

Lauren:  Yeah, I think, I think you just hit on something that’s really important for us to dive a little bit deeper into is, in my opinion, that’s why cashflow projections are so important.

Cuz if you see bill, pay bill, which is pretty much what you just described, then you have, you run the risk of of paying something. Or spending on something that, and forgetting that you already have that money earmarked, quote unquote, and it’s not actually free cash. Yeah. So I, I think that’s important.

Patrick: Yeah. We, we say that a lot where, um, if finances are tight, like an owner who’s like, oh, I’m being a good adult. I’m gonna pay my bills on time, or pay ’em really fast. Or they have an office manager who’s just like a, they’re just hammering out his checklist and they pay every vendor as fast as they can.

That can like, really hurt your cashflow if you need it, right? So like mm-hmm. I’m not saying, you know, uh, hurt your vendor, but if they give you 45 day terms, like, and you need to take those 45 days or take 40 days, like do it, right? Mm-hmm. If it’s like a huge company that you buy supplies from right now, if you’re a, a remodeler and like you have one tile guy that you lean on, you might not be able to like, String along your tile guy, you might have to pay quickly to maintain the relationship.

But that’s another mistake we see is just like being thoughtful about the timing of like, when you pay vendors and um, trying to buy yourself time on the cash that’s going out, and then trying to accelerate like what’s coming in, right? Like mm-hmm. When we do  something with our invoicing or our payment terms, or the way we remind customers to just get paid faster, you know, so.

Mm-hmm. All those things make a huge difference. 

Lauren: Yeah, definitely. I mean, I’ve seen, I’ve seen many cases, especially with service-based businesses, cuz unless you have something that creates that monthly recurring revenue, it, it can be high peaks and valleys depending on how you bill, what you bill, et cetera.

And so having the flexibility and the foresight to say, okay, on the 14th of this month, we’re gonna have $20,000 come out in our bank account. Will not be $20,000. So how can we stretch out that 20,000 maybe just a day till that $30,000 contract comes in? Yeah. Is definitely the difference between having a very stressful day and not Yes.

Patrick: Yeah. And all this might sound like you’re not a numbers person. It’s like, Ugh, I’m stressed out. Or like, I,  I wanna go to sleep. But if you just start to look at it a little bit, like you can really shorten your learning curve and, and. I think the difference is like if you weren’t into like numbers or mouth before, but when it’s your business, like you’ll be more interested and like, you’d be surprised how quickly you can pick it up.

And if you have somebody just identify like, okay, these are the three or four things to really pay attention to, like you’re, you’re, you know, you’re gonna be set. Um, yeah. I’ll, I’ll just tell one story there. We had a home service business, right? So like,

Flooring. I’ll just say it. He was a, he’s a flooring company. Yeah. And I was meeting with him and he was like struggling to hire and um, you know, uh, cash was kind of a crunch and I’m like digging in and I’m looking at his financials and his gross profit margin had just steadily declined for like four years.

Mm-hmm. And he was bragging to me about like their reputation and how long they’ve been in this niche and, um, how long his waiting list was. And like how, how fast those guys were and his pricing. Like he hadn’t changed his pricing in like eight years. I’m just hearing all this and I’m like letting him get it out.

I was like, alright, hear me out. And um, he, he was bragging about his wait list and all these deposits that he took and he’s like, you know, back at our office we’ve got $130,000 of deposits. We’re just waiting to cash. I’m like, sorry, what? What? Um, and he’s like, yeah, you know, I don’t, I don’t cash that deposit check until I kick off a job.

So if my wait list is eight weeks, I just hold your check for eight weeks. And I’m like, what do you mean? Oh my God. Then like, the homeowner expects you to cash that when you, when they write you that check. And he’s like, yeah, the lady called last week, like wondering what was going on. And she was kind of upset.

I’m like, yeah, because. They expect you to catch it, but I was like, it’s, it is a domino effect, right? So, mm-hmm. I’m like, a, you’re underpriced. Like if your wait list is that long and you’re that good,  and look at your financials, I can see you’ve made less money on every job for the past four years. Like, raise your practice.

So that’s thing one. Thing. Two, deposit those checks as soon as you get ’em because people are expecting you to, and it’s gonna help your cash flow. And guess what? Now you can go higher for this second crew. Like you told me, I used to have two crews and now I don’t run two crews anymore. So now you have the cash and you can pay, you know, people are demanding more wages now.

Like you can go pay market rate to go install more [00:30:30] flooring jobs and it’s, it’s all like a domino effect, right? But sometimes if you’ve just been used to things for so long, like you don’t change, so. Mm-hmm. I mean, it’s just, it’s things like that that, you know, I just like. I just wanna help people like shake ’em and like, it’s amazing when they do turn the corner and they feel the breathing room and they see their financials and you know, they have an understanding it and they have the cash to be able to like take their business to the next level or take a vacation or like, Get it into a position where somebody can buy it, you know?

Mm-hmm. 

Lauren: Yeah. Trust me. I sometimes want to shake my clients too when it comes to teams and operations. Um, speaking of acquiring a small business, it, you have acquired several, so are there certain things to look for, look out for when you acquire a small business? 

Patrick: Yes. I mean, this could be a few podcasts.

Um, Give me top five. Top five. Um, you want to acquire something that has at least 200 k a year in profit. Mm-hmm. Because it shows you it’s a healthy enough business. And if you’re, in all likelihood, you’re probably gonna use debt. I won’t get into like all the numbers, but like if it’s smaller than that, there’s just not enough breathing room for like paying yourself and paying off the debt and growing the business.

So. Over Turner K year net profit. There’s some people that won’t even touch something that’s like under 750 K, but that’s like, that’s a big business and like a big mm-hmm. Turk profit year. Um, it has like a track record, so mm-hmm. They’ve been consistent for a few years. Um, it’s ideally something that’s like recession resistant or sticky, right.

So like mm-hmm. You know, if you were to buy like a. Trading card business in 2021. It’s like, well, everyone was home with Covid, like trading cards were hot. Like, are they still gonna be hot? I don’t know. Right? Mm-hmm. First there’s like, you go buy a plumbing company like Plumbing’s always needed. Mm-hmm. Um, what else should you look for?

Um, you know, ideally there’s some team in place, right? So are there, mm-hmm. 4, 5, 6, 7 key employees, or employees in general that will stick around versus like, if, if the business is just in the owner’s head and like on a piece of paper and they walk out after 60 days, like, do you really hope a have a business?

Mm-hmm. Those are, those would be the things like, you know, uh, it’s profitable historical performance, you know, it’s gonna be a business that stays around for a while and you’re, you’re really buying a business. You’re not just like buying a job from somebody that is a one man show. 

 Lauren: Mm. I did a podcast on do you have a business or do you have a job?

So I totally, totally get that. Um, are there any, you know, I’m,  I’m gonna start wrapping us up here in a second, but are there any more cashflow traps that you see service-based businesses fall into? 

Patrick: Yeah. When an owner is in production, right? Mm-hmm. So when they’re a graphic designer or they’re an attorney, or they’re a.

Like, they’re the, they’re the person, like doing a lot of the work. Mm-hmm. A lot of times when they step out of doing some of that, or they hire other people, they, they don’t reassess their pricing or they’re like, where did all my cash go? And it’s like, well, yeah, you’re hyper efficient and you are doing the work now.

Like you’ve got this other, you know, let’s say you’re cranking out WordPress websites like. Yeah, you can do an excellent $6,000 website and it was just you, now you’ve got this person where like you’re gonna pay them half of that. Mm-hmm. As good as you are they efficient as you? So like that’s a slippery slope that I see a lot of service-based businesses where the owner is stepping out of  production or they’re stepping back and they don’t, they don’t price it properly or they assume the next person is as efficient and as good as they are.

Um, Using a little bit of credit, right? Like, can you put some expenses on a credit card or can you use a line of credit as you’re growing to like, you know, have something to give you some breathing room or give you 30 days? Mm-hmm. Um, you know, inflation’s crazy right now. Not raising prices as, you know, your materials costs or labor costs go up.

That’s another. Mm-hmm. Another one that I, I see fairly often. Um, Those are the big ones that jump out at me. Perfect. 

Lauren: All right, so as much as I could talk to you about cashflow forever, probably, uh, I do wanna start wrapping this up, but before I do, tell us a bit more about AppleTree and how our listeners can further connect with you and this great firm.

Patrick: Yeah, so we, we do quality bookkeeping and tax for small businesses. So we work with them year round. Um, so. If you’re used to like just talking to your accountant once a year and like getting bad tax surprises or like emailing them five times and calling them six and not getting an answer, like, that’s not us.

Mm-hmm. We work with you throughout the year. We talk to you every month. We give you the financials every month, and because we have your bookkeeping, we can be more proactive with tax planning for you. So, um, that’s our model. And we do like a, you know, fixed fee, monthly pricing model. Mm-hmm. Um, and we work with businesses anywhere from, you know, 200 k in revenue up to like.

20 million. I know that’s a huge range, but, um, a lot of service-based businesses. Um, and we can work all over the country. So, um, we’re happy to, you know, chat, take a look at what you have going on, see if we can help you. Um, you can check us out, AppleTree Business Services, go to AppleTree business.com and um, holler at us over there if we can help.

Lauren: Perfect. So I know we covered a lot. We covered the gamut. But are there any last nuggets or pieces of advice that you wanna make sure we share with our listeners that we didn’t cover as we wrap up, 

Patrick: be kind to your tax preparer this tax season? I don’t know. You know, the past few years have been brutal for them with P P P and like E I D L.

Mm-hmm. And like e r C and like all these like, you know, tax credits. It was just like the tax season that never ended. And then a lot of people. Are retiring or left the profession. So a lot of ’em are just overworked. So try to get your information in quickly. Be organized, like, you know, know that you’re not the only person that they’re trying to help.

So, yeah, and don’t be surprised if they raise your fee because like we have the same challenge of like trying to hire people. It’s. 

Lauren: Yeah. I think the other nugget that I wanna leave everybody with is it’s really easy to get caught in this reactive process of looking at your business revenue and not prioritizing looking at your cashflow.

But if you take the time to proactively understand, look at and plan your cashflow, it will help your business. Grow, it’s gonna help your financial people do things better. And I think the biggest benefit is it’s gonna reduce the stress that you feel day to day around your business. 

Patrick: Totally great. Yeah.

When when it stops me like a black  box and you understand it, you realize that like you can control and influence it and yeah, it’s a beautiful place 

Lauren: to be. Do you guys have a cashflow tool or anything that you have on your website? I know we have a, a really fancy spreadsheet, um, that we use with our clients, but do you have anything like that?

Patrick: Not, no, not on our website. Um, there’s a, there’s a YouTube video that I use from time to time that helps build a, like we cashflow forecast. That’s really good. Um, but no, I don’t have like a Okay. One. That’s 

Lauren: okay. Well, unfortunately, We’ll link that video in the show notes and I’ll link my cashflow spreadsheet as well.

Cuz who knows, they might pair perfectly together. Yep. All right. Last question. What is a book that you think every entrepreneur or business owner should read and why? Emith. 

Patrick: Does everyone say that? 

 Lauren: No, not everybody says that, but I think maybe one other person said that. But tell, tell me more. 

Patrick: Emith is excellent.

So it’s, it’s like a oldie, but a goody was written maybe 25 years ago. The e-myth is basically not every owner person who owns a small business is an entrepreneur. Mm-hmm. Right? Like he gives us example of like somebody who’s good at baking pies and then they have an open up pie shop, but like, they don’t really know how to run a business or lead people.

Mm-hmm. And to really, to really do it well, you have to, you have to kind of wear three different hats. You have like, You know, the, the operator, you have the manager who’s leading people, and you have, I think he calls it the visionary maybe. Mm-hmm. Uh, who can like, you know, stretch and like look at goals and look at a big picture, and you have to bounce between all three.

Um, and I, I think if, you know, EOS is a great framework, but if you have less than, like, if you don’t have a leadership team or like, at least like seven to 10 employees, That framework won’t work like you, you should start with eith and like read that book mm-hmm. About that before you try to drink the E os Kool-Aid.

Lauren: Totally. I, you know, we all, I think we all know where I stand on EEO s but for me, you nailed it. Where E e O S is great if you have leaders of leaders. If you are the leader, leading the leaders, that’s where I think it’s just, it’s too much and too complicated. So I love that E-myth. Got it. Great book. Well, thank you so much for being on the show.

This has been a really great conversation about cashflow and all the things, so I appreciate you being on the show. 

Patrick: Thank you for having me. It’s great to be here and um, of course, this is fun to geek out. So. 

Lauren: Yes. Yes. Check ’em out. Apple Tree Business. All right everyone, that is it for this week’s episode.

Thank you so much for listening in. If anything we shared sparks something in you, we’d love for you to share this episode with your friends. I’d also love to hear from you, so let’s connect, tag or DM me on Instagram at it’s Lauren Goldstein or LinkedIn or wherever you hang out on the interwebs. Also don’t forget to subscribe, so you’re the first to get notified when our next episode is live and ready for your ears.

Thanks so much for listening. Until next time.

Thank you for listening to The Biz Doctor Podcast. Now, I like to say that friends, don’t let friends WebMD your business. So if you’re wondering what your next steps could be, here are some options for you no matter what. Head to the show notes or to my website, goldenkeypartnership.com for some impactful resources to support you getting out from under your business.

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