How to Take Control of Your Business’s Financial Health

How to Take Control of Your Business’s Financial Health with Zacharia Waxler

Zacharia, thank you so much for joining me on the show.

It’s a pleasure being here.

We’ve known each other for quite some years now. I remember the early years when we started off and even the last couple of years where we partnered together on a lot of Let’s Talk Business events that we hosted together. We basically share the same passion which is providing business education and helping a growing business flourish. For those who might not know about yourself and about your Roth & Co, let’s start by sharing a little bit about how you get started and the way you are now.

Going back to day one of accounting—I’m assuming that’s what you want to know—I went to school and became an accountant. I started off at a small firm. I spent a year over there and then moved over to Roth & Co. Besides the initial experience that I had somewhere else, Roth & Co was my first solid public accounting firm job that I had. We started out like everybody else. I started as a junior accountant and over the years worked our way up to different levels. Several years now and several years later, we’re in a good spot. I’m Co-Managing Partner with Abe Roth. We’re managing the practice together. We’re making sure that we continue to grow and continue to provide the amazing service to the clients, the additional services and everything else. I must say that the feedback has been amazing.

Our audience knows that I like to bring guests that could speak on no-nonsense advice. The reason why I brought you on the podcast is I want to split up our conversation in two parts. One, people that know about Roth & Co, and know about your culture and follow you on social media in different places, know that you put a huge emphasis on culture. We’ll speak a couple of questions on that side of the aisle. I want to move into accounting which sometimes people look for the next shiny object in marketing and branding. Everything starts and stops with accounting and understanding where you are in your business. I have some questions that I would love to ask you.

[bctt tweet=”There’s no firm versus people. The people are the firm.  ” username=””]

Let’s start with culture. The reason why I start with culture, people are hearing me speak about this because at the end of the day, in my opinion, I would love to know your take on that as well. When you grow a company, you’re relying on people. When you’re relying on people, you have to make sure those people come to work happily and leave happily and are able to be successful while they’re doing their work. From a leadership perspective, that’s why I’m excited when I speak to like-minded individuals like yourself where they pay attention to culture because that’s the job of a leader. Let the people do their work but as a leader, let’s make sure that the environment is a healthy and serious culture. Talk to me about what culture means to you.

The culture evolved for me. Overall, what I’ve seen and I’m clear about that is probably, like every other business but no one wants to say that, our people are the most valuable and most important asset we have in the firm. When I say “our people,” it means everybody. There’s no firm versus people. The people are our firm. When we recognize that, when we know that, then we want to make sure that there are a few things happening when they’re here. Number one, that their experience working here is the best experience they can be at. If and when somebody moves on, they’ll always remember their time and there could be various reasons they have to move on but not because they didn’t like it here, not because they didn’t accomplish and they didn’t grow. That’s our goal. Overall, culture is broadly defined. For us, it’s where are we at this firm, where are we heading, what are our values and how do we make a decision. By doing a lot of the side things that people do not necessarily tie-in specifically to that but that’s what’s built on culture.

I remember I spoke to in one of the earlier episodes, it was with Brian Scudamore from 1-800-GOT-JUNK? When I spoke about culture in general, he said, “Once upon a time, there was a service business and product business and so on and so forth. Now we live in a world where everything is a people’s business and if you take care of your people, that’s what the business is all about.”

I said the same thing. Every business is a service business. You’ve got to look at them in both ways. It’s the people’s business and the service business at the same time. Let’s be realistic. We’ve always been on service business but I don’t care about walking to the grocery store. It’s a service business. At the end of the day, it’s not about the product you’re going to buy, it is about the service you’re getting.

Let’s dive in a little bit deeper. You’ve mentioned before about growth while working at Roth in general. What’s your take on it? Especially in your space, there are a lot of spaces even our own space we work with. Our agency works with creatives, that is basically a profession, a person gets talented or gets educated and has the experience in certain expertise. How do you make sure that you keep the momentum while they’re working? Sometimes, even your culture is helping make the decision, “Yes, I could go on my own. Yes, I could. Maybe make some money a little bit more somewhere else but it’s the environment and the culture that actually supports it.” What’s your take when you have those conversations with employees?

It’s funny enough you would talk about that. When we hire somebody, whether it’s at a starter-level or experienced, I’ll never tell somebody, “I want you to be here and work towards partnerships and all that.” I always say, “We’re here. As long as you’re here, we’re here to be able to support and make you be able to grow so that whatever you do in the future, whether it’s here or you decide to move on, we prepped you and we can be proud that we prepped you that you walk out of here with the best experience possible for you to succeed wherever you may be. Of course, we want you to stay.” Especially when somebody is good, we want you to stay. We want you to grow within, but circumstances don’t always allow that. Because we don’t know if circumstances will allow that, we’re going to invest in you no matter what your plan is.

Sometimes, we could even have people tell us, “I want to be in public accounting. I don’t really enjoy public accounting. I want to be in public accounting for five years.” Sometimes, a company or firm would say, “I’m going to use him as long as I can. I’m not going to invest in him.” We would say, “Let’s invest in him.” Firstly, you will never know what happens at the end of the day. They may succeed, and they may be happy and stay. You can’t just decide based on that. Also, “Let’s invest in him,” then when he does leave in a few years and he does go into private accounting in a company or something, we prepped him and we make sure that he will continue being successful.

What you said is a valid point. I think for the audience and business owners in general because this also came with a little bit of a mindset shift. In the last decade, once upon a time when a business owner, let’s call him the manager or boss, would hear from an employee, “I want to move on,” for whatever reason, they would feel like they don’t like it here and they have to move on, whatever it is and almost part ways on a sad note. We live in a culture, especially how you’re describing it, that we want to make sure you have a great time while you’re here. You utilize your time and your values to that company and the company gives you the expertise, preps you but if circumstances change, we stay friends and just move on. We’re going to help you with the transition and it doesn’t have to because it’s almost the nature of business in this day and age, that there is a span of our employees. At some point, it does make sense for them to stay or sometimes the company to keep its employees. We sometimes say at an interviewing process that there’s going to come a time that you will outgrow the company or the company will outgrow you. That’s perfectly fine. As long as you’re here, you have to have a good time.

I don’t want to make it sound like, “We’re going to prepare you for you to move on.” At the same time, we’ll do whatever we can to keep someone and incentivize and make them want to stay — and it’s not like we want to have people leave. But it’s inevitable. We tell people all the time and we’ve done it multiple times, “If you want to leave and you’re looking for a job, you can tell us. Not only are we okay with that, but we will actually try to place you somewhere. We have many contacts and many clients and if somebody goes and says, “I want to go into private,” for one reason or another, we know the value of that individual. We can successfully place and we have placed people. Our clients and even all other people have controllers, for example, because they said, “I think I need to move on.” We talk about the specifics about the employee and all that. You circle right back to the culture. It’s all about that culture. It’s all about that attitude of what we do, how we treat our employees and how things work around here. At the end of the day, it’s the same message whatever you do.

Would you mind sharing a couple of ideas that you implemented in your firm as far as cultivating the culture of excellence?

Probably one of our biggest projects was to set up and create our core values. Core values, for some companies, could be a piece of fluff and it could be an actual set of core values on how a business and how individuals make their decisions on a day-to-day basis on anything that comes up. We went through an interesting and rigorous practice of creating this which included a lot of people in the firm, regardless of level and everything else. We started at the partner level. We make this annual partner retreat. In our last retreat, the partner group had to sit and take from everything they know about the firm and all the years they’ve been working here to determine what they think certain core values are. We were narrowing down from 100 core values. There’s only a limited amount of values that you can pick. We started narrowing it down to what we think our top ten should be. At the partnership, we narrowed it down to maybe twenty. There was a top ten and the top three. We came back and had to follow-up with the partners. We narrowed it down on another few and we met with managers and they narrow it down. It was like an all-inclusive process until we’re able to come out with a real solid ten core values that sum up our entire behavior. Almost everything we do internally, externally, client’s service and philosophy.

When you create those core values, this is where everything can fall apart. There are companies that are creating their core values, and even if they did follow this process of including a lot of people, the question is, “What happens afterward? What happens once you have the core values and how do you get them ingrained in your partners, staff, and everybody else? How do we know to think about it when we need to think about it?” This is what I find is harder than actually creating core values. It has to be a constant and consistent message. Every issue is like, “What do we have to do and how does it tie in with what we said our core values are?” Some simple examples that our internal marketing team had been on top of is we have these big poles in the office, support beams. When we rolled out those core values overnight, we had those beams painted—each individual beam with our core values. We have definitions of core values. We have core value month, every month there’s something we focus. We have people selecting core values that they want to either work on or feel they identify with. Everybody’s name tag has a core value attached to it. There’s constantly a lot going on. Last month was “Passion month.” We had a one-on-one basketball game and I think I saw the video on social media. We’re constantly talking about it now. This is the process. like everything else, it will probably take a year to take effect, maybe more. The consistency is what is important.

[bctt tweet=”Having an analytic mindset means you would be able to identify when you start having trouble and save your business before it’s too late. ” username=””]

I think for our audience to pay attention to what you shared on the importance of core values and the point that you mentioned is so important and we teach this at our leaders’ forums that we do for business owners. One of the things I will say, developing your core values. Sometimes, we share the Ptex core values which are also on our walls and everybody’s desks with different booklets that we have on core values. We train our new employees on that but sometimes a person outside would say, “I love your core values. Can I copy it?” I always tell them that if you’re willing to live by it then copy it. The important part which I wanted to say is that I like how you approached the leadership teams first. They have to agree on those things.

It’s not something like, “Somebody externally is coming to us saying, ‘These are your core values. Live by it.’” It has to be led and lived by every single day from leadership on. I once spoke to a business owner, a CEO from a large company—I think it’s a $100 million company, very focused on culture and ingrained in everything they do. We spoke about the concept of culture and how much could a leader push the culture, push the core values and speak about the different core values. He said, “You’ve got to show your team how important it is to you.” When you have a meeting with someone, if anything ties back to one of the core values, mention it by name or show them. At one point in the beginning, I remember we had it over here, I turned on the team, “Who remembers core value number three?” Somebody mentioned it and I took $100 and gave it to that person.

We had a supervisor-manager meeting. I handed out a sheet with a pen to everybody and I said, “You have 30 seconds to write six or more core values.” Everyone got a gift card. It’s not even about the money but the concept of remembering. I was surprised. The majority of the people actually did know most of the core values. We’re making an effect. I agree.

It also shows how important it is to the leadership team because you keep on speaking about it. It helps you even with hiring. Now we have a new hire and you able to share this. The person will say, “Yes. My old job didn’t have anything like that. I’m excited about this culture. I’m excited about the values that the company has.” This is great and I know we could go on for so long because we’ve been in contact for a long time and I know a lot of the problems you have. But I want to move on to the second part of the interview and speaking about accounting. I know that business owners in general don’t like to speak so much about numbers. It’s not an exciting part of the business. At the end of the day, it’s the deciding factor between success and failure. I want to start with the statistics. Some statistics are 60% and now statistics are up to 80% of the businesses fail within the first five years. I know there are a lot of factors that go into business failing. From your experience being in the accounting business and dealing with so many businesses, what would you say is the reason for most of the businesses failing? How could a business owner prevent it from being part of the statistic?

The easiest way to talk about it and explain it in a non-accounting way, then I’ll get right into the accounting way but we’re talking about numbers, financials and all that. The easiest way to explain it—which I sometimes talk to clients about, and everybody that runs a business knows for themselves—is the access to data. Let’s not differentiate between numbers and other data. It’s the access to data when you need it, to understand what you need, when you need it and how easy it is for you to get it. It could be data if you’re selling product by product line and how much you are selling. You’ll remember everything I’m saying now has been transferred to accounting. Is it the data of the product line and how much you’re selling? Is it data of people and what you turn over is or much more detailed data as the business grows? They need to have the data. I think a business owner or anybody in the leadership position should always build the focus on the data they need in order for them to be successful. It doesn’t necessarily have to be in the whole business.

Whatever you do, in any position you’re doing, whatever job you’re doing, you need to understand what data you need in order to know how you are doing and what you need to improve to continue being successful. The example I gave was a product line. If I would start in accounting terms, “You know how to deal with the numbers when I have the time for it.” For example, we’re taking a product line, you say, “I want to know how each product line did.” That translates clearly in the various financial or accounting ratios or data that you need to accumulate. There are terminologies like “turnover,” how long did it take you to sell products of a specific line? How long have you sat on the shelf? How long did it turn over? There’s a lot of that data that you can get that’s called non-financial, you get it together from the financial numbers. If we have a mentality to think, “I need to have the information. I need to have those spreadsheets or those reports so I could look at it and analyze it.” When you have that attitude, I think that you would be able to identify when you start having trouble and can save your business because you can make changes way before it’s too late.

We always say that data doesn’t lie. When you assume things, it’s easy to steer those conversations to the favor of continuing doing what you’re doing. But if you have the data and you are able to review it on a monthly basis or sometimes on a weekly basis depending on what business you are, ultimately, you could make decisions accordingly.

It’s a given. I was having this conversation with one of our clients. They went to this big consulting project of being able to build a system that will give them all the data they need. Most costly of all is not to build a system but to understand which data is it that you want to know. To go through and understand the data you want, what you’re going to do when you get the data, how you look at it and how you interpret and translate it into a business decision.

A lot of business owners are confused when it comes to accounting terms. “I have a bookkeeper or I have a CFO. I have an accountant.” How do you clearly define it for our readers? What roles that different people usually play?

There’s what we call internal accounting in a company which is private accounting and there’s public accounting which is tax prep and financial statement prep—those are typically outside accounting. In a company, the internal accounting department in the company, there are multiple different positions and depending on the size of your company, depending on how knowledgeable you are, and depending on the need. You might need some or all of this. You start with a bookkeeper. A bookkeeper is someone who is used to understand accounting. They know the software to use in order to enter the financial data whether you’re putting in your bills, your invoices and you’re billing out of it. Whether you’re putting checks or you’re doing payroll. Those are all in the bookkeeper category. They do data entry. They don’t necessarily know how to extract data or analyze data. In every category, someone might have people that are more knowledgeable and understand more with experience. That’s the level of a bookkeeper. Sometimes, people need more than that, which will be a controller. A controller is responsible mostly for the reporting aspect of it. The bookkeeper does the data entry and the controllers will generate the reporting and a lot of the analysis.

With the data, we talk about financial analysis for owners and investors on a monthly basis, on a weekly basis. Controllers may manage cashflow. When to build, how long to hold, how much cash, and try to start predicting the cash someone needs to operate without having any worries. As the company grows and they are already much larger companies, they would potentially have a CFO. Some people interchange controller with CFO. At the end of the day, CFO is a C-level employee. You have the CEO, CFO and CMO. Those are officer-level employees in any company. CFO is much more responsible when it comes to financial data in general. They’ll do a lot more on the analysis. They would recommend a lot of operational decisions based on their analysis. They’ll interact with banks. They’ll get you lines of credits. They’ll do portions of due diligence if you want to acquire something. They’ll do portions of job costing if you want to buy a new product line and understand what your break-even points are there. They’re much more detailed when it comes to that analysis of financial analysis. Those are the levels.

I think this is very helpful. An average business owner would probably start, talking about a growing business, you’ll probably have the public accountant from the outside prepare your taxes and obviously the bookkeeper. At which point with you as an accounting firm advising other businesses, which would you recommend a company needs that controller or a CFO or both?

What I always say is you’ll always need the controller. The question is how often? You can be a small company or starting or growing and you have bookkeepers putting the entry but you need a controller for full-time and then pay a higher ticket item. You might want to consider having the controller coming once a month or once a quarter to do what a controller does because if it’s a small enough business, they can do it in one day a month, which saves an immense amount of money. That’s what they call outsourced CFO services or outsourced controller services, the same thing with CFO services. Although you pay more because you do outsourcing but you don’t have to go with the full-time controller. It’s not either, all or nothing. You could have that option of having part-time as you grow, as you build, you might then adopt one and say, “It makes more sense for us to have someone in-house.” Unless the owners have enough knowledge to be able to say, “No, I have a little time for that. I know enough, I can generate reports myself.” Sometimes, it doesn’t make any sense because they’ll be much more valuable to somewhere else in the business.

Let me ask you a question about obviously there is the profitability of a business which is basically helping other businesses to have a result on the profitability that the company has and there’s a part where there is the cashflow. A lot of businesses struggle with cashflow, especially if you have a lot of inventory and money comes in different ways. When you have to evaluate the healthiness of business even from a data perspective or percentage-wise, based on my knowledge, either or could put out a business from business. Either challenges with cashflow and profitability. How would you define it? When you see a company that’s profitable at the end of the year, but they’re having tremendous cashflow challenges throughout the year. What are the pieces of advice you would be able to give for our readers? How could they manage it better?

It’s extremely challenging. Let’s be realistic. If someone is not profitable then of course, he has a problem. He’s going to have a cashflow problem also, eventually. When you put money in from your own pocket to fund your losses and eventually you’re going to have issues. It’s not even totally about profitability. We’re going to talk more about the cashflow issues. The most common problem that I see those wide businesses have cashflow problems because owners are drawing amounts that the business cannot afford. The business might be making profits and they say, “I made $100,000 the last quarter, I’m going to take it all and put in my pocket.” That’s the biggest issue I see when it comes to cashflow. The biggest cause of cashflow problems with the owners may be having the need for the money because of the way they can’t live or whatever they can live. At the end of the day, they’re hurting their business more than they can imagine.

If they don’t leave a certain amount of their profits in the business for further reinvestments, they’re going to go nowhere and they’re going to have the biggest issues. That’s the biggest problem we have. There are cashflow issues when it comes to receivables. They’re not collecting as fast, they need to buy inventories but there’s a solution. If they’re responsible, if they’re profitable, they’re responsible for retaining a certain amount of profits in the business, there are solutions when it comes to the cashflow issues, receivables and inventories. There’s financing, bank financing. They’re not very expensive usually depending on the credit and everything else but not very expensive. It makes a lot of sense for businesses often to get in the line of credit cards to fund and those things. If you get in line credit to fund your receivable or parts of your receivables or part of your inventories, that eases cashflow and it makes a lot of business sense.

At what point would you advise a person to basically close shop?

If he doesn’t know what he’s doing. You have some people who are just spinning their wheels and don’t know what they’re doing, basically close shop. If there’s no solid plan of how it’s going to turn around and not, “I made more sales, it will work,” but plan on how you would do and what point to turn around, it’s probably time to close shop. If you can’t control yourself, you start drawing money, you keep losing money and you don’t have any idea how to do that, it’s probably time to close shop before you continue losing a lot more money than you did.

There’s an old saying, “You can’t continue doing the same thing and expect different results.”

“I just continue making sales.” It’s not going to help. Those didn’t work. You need to figure out a plan of how to turn around.

I would like to close with four rapid-fire questions. What is a book that changed your life?

Mindset.

Number two, what is a piece of advice you got that you’ll never forget?

Keep working at it. Keep doing what you do best.

Number three, anything you wish you could go back and do differently?

No.

Number four, last question. What’s still on your bucket list to achieve?

I want to create this firm to be much more than an accounting firm and being defined as an all-in business firm.

Zacharia, thank you so much. I know your time is valuable and that is why in the name of our readers, we will forever be grateful for sharing some of your time with us.

Thank you. It’s good talking to you.