The founder and CEO of Payro Finance, Morris Reichman drops by to talk about business loans, managing risk, and knowing your numbers.
If you know your numbers, then you truly know your business. Knowing your numbers means staying a step ahead, managing risks and managing capital and cashflow. In this episode, Meny Hoffman interviews the founder and CEO of Payro Finance, Morris Reichman. Morris talks about the struggles of small businesses, how to manage risk and debt, and how his company helps small businesses cover their operational expenses. An episode small business owners won’t want to miss.
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Secrets of a Successful Financial & Payroll Department―with Morris Reichman
Our guest is Morris Reichman. Morris is the Founder and CEO of Payro Finance and Former Vice President at Infineon Capital Funding. Morris’s expertise is in business accounting, risk management and investment analysis. He founded Payro Finance to support business owners and assure business growth. In our interview, we discuss how he decided to go into payroll financing. He talks about which businesses could benefit from his services and what the difference is between regular loans and payroll financing. He also touches on the number one concern of business owners and how to overcome it. Pay close attention to the practical tips Morris shares about how to go about lending in general.
*Disclaimer: Morris Reichman and Payro Finance is a client of Ptex. We’ve been so happy to help them get the word out about their services. It’s great to have him on the show because I want to bring more attention to the product he has to offer.
Without further ado, here is my interview.
Morris, thank you so much for joining me on the show.
Likewise, good morning to you.
We’ve known each other for quite some time now. We’ve been working together on some of the projects you’re doing for growing your company. I felt that I want to bring you to the show. First of all, what you’re doing is interesting. I think a lot of our readers, business owners and people that are C-level executives that are running payroll and covering the budget of a company might find this information useful. More importantly, the story of how you got to what you’re doing now. There’s a lot of lessons that I want to dive into for our readers to be able to take note of. For our readers that don’t know Morris Reichman, tell us a little bit more about what you do and how you got to what you’re doing now.
Thank you for the introduction. Throughout my years in lending, I have a lot of experience dealing with many small businesses. Small business is a very broad terminology. It ranges from a company that is starting up, just one employee to a few hundred employees but there’s a common struggle that they all deal with. One very common is cash flow and the need for capital. They don’t always go together but that’s based on where I come from. With my background, after being five years at a lending company dealing with loan servicing collections and the accounting of it, I’ve come across and learned of a unique problem business owners face and that is the need to cover payroll when cash flow is tight. That becomes a very specific need. I was the board at the regular lending. I wanted to make a difference, make an impact and launched this payroll funding concept.
After trying it a bit, we realized that it’s picking up. Business owners are interested in this short-term funding for this specific need. It helps them stay out of long-term debt, avoid the long process of other loans that they’re applying for and get these specific short-term immediate needs addressed. That’s when I launched PAYRO Finance. Just to be clear, it is a loan product like many other loan products. What makes it different is that it’s designed specifically for businesses to cover payroll. What makes it specific for that is its short-term and it’s only whenever you’re covering processing payroll. We’ll confirm your payroll new process and we’ll cover your payroll for that time period.One very common struggle that small businesses deal with is cashflow and the other is need for capital. Click To Tweet
From the get-go, for our readers, when we speak about loans, I think it’s important to differentiate that there are two types of loans. There are loans because I can’t cover. I’m using my credit card and maxing it out because we don’t have the cash flow and we don’t even know when it will come in. There’s something about managing cash flow in a way where you know you have receivables coming in but maybe there’s a delay of payment from a client or the cycle of when you get payments, which is once in six weeks versus once a week or two weeks, whatever it is. The money that you’re taking is basically to make sure that you have a smooth sailing payroll cycle without delaying it but it’s not meant to fill in a gap of somebody who says, “I have no clue where the money’s coming from.”
You’re saying there’s a time when someone needs money but they don’t know where the money is and there’s a time when they’re planning in money. The truth is there are three types of loans. There’s working capital. It’s when I have to build up a business you would invest in then you need money upfront. Then there’s money to get that business operating. In that category, that two types of loans. There’s the planned loan and the unplanned. Unplanned is what you mentioned. A guy, all of a sudden, shows up in the office one day and the bookkeeper says, “We have to cover payroll. We don’t have money.” He’s scrambling. The planned loan is when someone knows what the capital cycle looks like and they know they’re going to be tight at a certain time because they know that the big project coming up and the payments are due. Everyone has their own conditions. They can be doing 30, 60 or 90 days and they’re going to be tight so they plan ahead of time. We left dealing with those planned loans more than those who don’t know why they dry and they come looking for money wherever they can find it.
Tell me more about what you have seen in the marketplace. You’re a small run company in the sense of it’s a very personal setup where you get to speak to a lot of those partners in payroll companies and sometimes even the actual businesses. Tell us what you’re hearing from them. What is the typical frustration of a business owner? Where are the challenges business owners are facing in the market in general?
The challenges business owners face are wide and there’s a big variety of challenges. You’re on your own business. It ranges from people to getting sales and managing bookkeeping. I can talk about the financial strains and what they’re facing. Every business, even good businesses, faces the challenge of dealing with cash flow. If you want to do anything well, you plan it. Cashflow wealth needs planning. If the business is organized and would know ahead of time what the numbers are, they would know what to expect. They’re expecting a sale. They know it’s going to cost them or it requires X amount of resources. They know that their payment terms are XYZ and therefore, they’re going to get the payment at a certain time. They will know ahead of time that they’re going to be tied and they need to secure cash. Many business owners moments don’t have the time and the resources to know that information. They never get downtime to work their numbers and truly understand them.
That is the biggest pitfall that I’ve seen in the past few years. I’ve spoken to one owner after another owner and businesses don’t know their numbers. It’s unfortunate. Sometimes they think they’re making money but they don’t or they know they’re losing money but they don’t know how much and what’s required to get back up. Not knowing your numbers is the biggest challenge when it comes to the way I’ve experienced businesses. I had a tremendous challenge. It’s not easy to get to it. Just like you can have good doctors and less than great doctors, you have bookkeepers and companies that are sometimes less than great. They don’t have the ability to truly project what the company needs and where the money is. They’re great at booking transactions and not at putting out decisions. That’s something many small companies struggle with but every company should get to it as soon as they can, understand your numbers, know where the money goes and how it comes in to know what you need. If you know what you need, you can plan it so much better and you can avoid many loans as well.
I’ve got involved with somebody that has a pretty large company and they were only busy about growing the company. When you’re growing a company which you’re adding expenses, resources and buying in bulk if they are a product-based business. One point, it wasn’t matching up to the way the cash is coming in and out of the company. He was literally expecting a bookkeeper which is basically without a lot of experience, just managing the books because he has an accountant. All of a sudden, he found themself with an issue with cash flow management. He didn’t know when to tackle it and had zero clues and not even tapped to read those reports. We had some earlier guests on the show where they spoke about the importance of financial literacy and C-level executive. Sometimes it’s mind-boggling. You have C-level executives and companies that get hundreds of thousands of dollars paid, which means they’re making a lot of money. They’re making millions of dollars decisions for the company without knowing what’s going on in the financial part of the company.
To my advantage, when I started working many years ago, I went to speak to an accountant at a very high position nationally in that popular company. He gave me a little basic course. We had a conversation but he referred me somewhere else. I took a five-day crash course in Manhattan City. They are looking to the finance. You had all random people from around the globe who want to get a crash course in Accounting 101. I learned the basics of accounting and what a financial statement looks like. How to manage inventory and how to report inventory. That information was so valuable. When I build into anything, I had that information. I was more armed than business owners who have been there for so many years and they don’t know how that works. It’s extremely crucial for business owners to know that.
I remember we worked at one point on one of those educational platforms that educate people on accounting tracks. We surveyed after we spoke to a lot of students that went through the whole curriculum. Most of them said, “We didn’t end up using the skills that we learned working for accountants but we became business owners. Everything we learned came to us as business owners because it’s so important when you know your numbers. Especially if your type is the entrepreneurial type, which is all about growth. Most business owners are very much focused on top-line growth, which is how we can get another client. How could we get our sales in a 2X? You know me, I meet people on the street and all over the place.
Most of the time, we discuss business one way or the other. The model is Let’s Talk Business. I will say, “What are you up to?” “Growing my sales. Doubling my sales from last year or 2X or 10X.” Those terminology is being used very much by entrepreneurs but sometimes, the way to achieve doubling your sales might mean shrinking your margins and not even having the cash flow to double your sales. A lot of times, as a fun fact, if somebody will tell me, “I want to double my sales. How do we achieve it? I’m going to hustle.” No. Does that mean you have to double your team as well? No, you don’t so how are they going to it? You have to work backward from that because sometimes you can say, “It’s not even worth it. Maybe we’ll add 10% to our margins and work better and ultimately, we have a better result at the end of the year.”
As you mentioned before, what are the struggles business owners face? You mentioning another one. There are so many struggles. The entrepreneur faces the struggle of planning or corporate is tied to financials. There’s a lot of aspects to the business. You can be good at growing your sales, being ambitious and have great ideas but managing them is a struggle. The same solution to managing cash flow applies to all those. It’s about planning. Nothing works as well when you plan ahead of time. I learned that over time as well. I think every business owner learns that it’s a matter of how soon you learn it. The soon you’ll figure that out that planning ahead of time and giving up the day of sale plan will take your business much farther than the sales they make that day.
As you’re growing your company, you decided to not do the typical ending and very much specifically for payroll. Talk to me about the passion you developed for this space. Growing a company yourself every step of the way you need to be focused and you need to be able to know what’s my next step from a sale, marketing to operations. How much of this point have you developed a passion towards the industry you are in that motivates you to continue growing this business?
Anything that you own, you become very passionate about. Since it’s a company that I own and that we keep evolving it, it’s my baby so I have a great passion for it. The biggest passion I have is in my motto, “I like to lend money so you stay out of debt.” That may sound a little oxymoron. How can you lend money and stay out of debt? With a short-term loan, they give you the ability to get the loan you need and get out as soon as you can. That gives businesses the ability to borrow when they need and stay out of debt. Many business owners have a little blockage. Some don’t want to borrow money. I’ll tell you a story. I met someone, he’s building up a business and at the end of two years, he had some big success in the beginning. He told me he was so proud he doesn’t have to borrow any money. He’s funding his business from the profits he made. He brought inventory but one caveat is he had to sell his Mileage. His credit card points to live the next month because of all the money he had, he put in inventory and only sells the next season but he’s all proud they didn’t borrow money.
The truth is he doesn’t want to borrow money but he’s limiting himself. If he’s planned properly, he could plan how to borrow, not be in debt and live like you mentioned, how to grow the company but because many small business owners have that mentality. They don’t want to end up in debt and didn’t want to borrow. They feel like they have a passion to grow organically, be able to lend them money when they need it and pay it back immediately as soon as the cash comes in is a great solution for them.
Which point would it make sense for a business to use your service? We’re talking about short-term, we’re looking at somebody doing this responsibly and sometimes the company is even very healthy. Which point would you say it makes sense to use a service like yours versus tapping into a savings account that the business has put away or whatever it is? When you are faced with that question, how do you respond?Nothing works as well when you plan ahead of time. Click To Tweet
I have two types of clients. I have people that apply and say, “I’m not sure I need it. I just want to have it in case.” Then you have those that say, “I need it yesterday.” Those that come that needs it yesterday, usually indicate risk, not managing and maybe somebody we’re not going to want to approve. Those who say, “I may need it. I’m not sure I want to have it just in case.” Those are our ideal clients because those are the ideal business owners. They are forward-thinking on planning ahead and they’re organized, we know they can pay it back. They’re asking, should they depend on other financing options they have? Of course. If you have another financing option that’s cheaper than mine, you should do it. Our rates are 1.5% a week, the short-term, it’s good for the time being. If you can get a line of credit from the bank at 3%, 4%, 5% a year, of course, you should do that. If you have a savings account that you can dip into and doesn’t cost too much interest, you should do that. Some people don’t want to dip into their personal savings. They don’t want to mix personal with business. That’s very understandable in those cases but worthwhile to pay a little bit extra for a short-term loan. If you have other loan options available, cheaper and accessible, absolutely you should go for them. Many business owners don’t have that. That’s why our solution is we give a solution for them.
What you’re saying is that it might be a healthy company or a company that’s profitable. Maybe they don’t have the extra cash but they do want to pay on time and they want to do payroll. Your service comes into the proper use of that time because they are pre-approved. All they’re doing is using this as a very short-term loan.
We call it a healthy company. It means we own the right to determine that they’re not a company in distress and they’re healthy. It could be the company has big loan obligations that at the current moment means, the company’s not making a profit but they’re not there yet. The company grows and pays it off, it doesn’t mean they’re distress. As long as they’re not in distress, they’re healthy company. I’ll give you one example of a guy who borrowed money. Not that he has the story but he said it this way. He called me up and said, “I want to borrow money for a district’s funding.” He was an existing client. It was Monday when they were going to process payroll for Thursday. I said, “I’m expecting a big reimbursement from insurance to come in on Tuesday. I should have the money for payroll but just in case it doesn’t come in because it can always happen that the payment doesn’t come in that day you expect it.” “I want to borrow. I want to take advantage of my line and draw against it.” I said, “Why don’t you wait until Tuesday and see if the money came in?” He said, “I can’t go to sleep until I know payroll is there and have the money for it.” I said, “It’s just tomorrow. Today is Monday, it’s Tuesday, why pay for it?” He said, “Listen to me Morris, I’d rather pay you for the money than pay my therapists to deal with my anxiety.”
This is a tagline we should use on campaigns.
That’s the truth. Everyone knows you have to have money for payroll. A survey was done by QuickBooks. This was before COVID not so long before, it’s a few years ago. They surveyed 3,000 business owners. They don’t describe what they call small businesses. The overwhelming response was 60% said that they lose sleep ahead of payroll from time to time worrying about how to cover it. My passion is giving back some sleep.
As growing your own company, you’re building this from the ground up. Sometimes, I like to put people on the spot on the show. What would you say is your biggest challenge growing your company, getting the word out and speaking about running your company as a whole?
There are so many challenges in the business. Like yourself, there’s getting a sale, managing people, managing all the good ideas you want to do and which ones to focus on. There’s a lot of work and struggles. In terms of my biggest struggle since I get most of my leads to payroll companies are teaching and educating them that clients would like money. I always have this conversation ever the same. I speak to an owner of a payroll company. I’ll say, “Your clients may face some cashflow issues or cash crunch in running payroll. He’s like, “No, not my clients.” “How do you know?” “I bet my clients because I don’t want to take a risky client.” He bet his client, they do a great job and never telling him about their financial stress. He said, “I know my clients don’t need it and they’re still coming in.” I said, “How many clients do you have?” “Five hundred clients and none of them need money for payroll ever.” I said, “Great. Why don’t you invest with them? Why are you just processing payroll?” There are such great businesses. They don’t believe it all the way but they want to believe and wish to believe that their clients don’t put any risks to them and that they struggle and have to get3 over. I say, “If your clients do post, you don’t know about it.”
Based on my understanding because when we started working together, my biggest a-ha moment was that when you’re speaking about loans for a business. As you said, a company in distress, which needs some outside money. When you speak about people to the real estate people and market, they speak about loans because it’s growth. It’s a new construction project and it’s a new property they’re buying. They don’t see it as a project in distress but this is the way they operate. The way you have developed your product line and the way the educational part is probably the most important part. It’s understanding why exactly you’re here and where you come to use it. For a business owner, that’s the literally needs it short-term and you know where the money is coming in but they want to have a good night’s sleep. They want to make sure that they’re paying their employees on time without delay. The growth of the company depends on their employees and the last thing you want to do is not paying your employees on time.
Your employee is paid on Thursday then they’re not coming back on Friday. In real estate, everybody knows you borrow to grow. Borrowing is not a bad thing but in the business and the service world, those providing services especially for companies. Any business, providing a service and isn’t used to build. It takes education to teach them that a loan isn’t a bad thing and a sign of distress. A loan is good. Healthy loans are good, that’s how you grow your company if they don’t have access to capital.
However, you have to have that plan of action of how you’re going to repay it.
If you borrow without knowing how you’re going to repay it, you’re bound to borrow again to be able to repay it and end up in a very bad place.
I want to speak about something that you shared with me offline, which is that the next phase in your company is building a funding app to make it even easier for people to apply and to ultimately use the line. What’s behind it? Obviously, businesses are becoming more tech-savvy and developing technology to grow their company in a way that differentiates themselves and ultimately, be able to be more scalable. What could you share with us about the app and also a little bit more about the why behind it?
Right now, in a business that wants to access their line and cover payroll, they need to communicate with us. That communication is back and forth, it may take some time and from 9:00 in the morning, until 1:00 PM, the money is in their account. That replacing, two days and running after to have money in the account to cover payroll, were communicating back and forth for a couple of hours. That’s a great accomplishment. We’re looking to cut that down even quicker. What we do with our app is you don’t have to communicate with us anymore. There are no more emails, no more picking up the phone. You go onto your app, it will be integrated with payroll companies. We’re going to have their payroll data available and you’ll see your upcoming payroll, X amount, is coming out on this day. You can opt-in to cover it. You can complete it transaction online or on the app, had the dues funded, the payroll gets covered, the money is right in your account and you’re covered. You can do it instantly.
What is the current process for people that want to inquire more about your services and how they can reach you?Healthy loans are good. That's how you grow your company if you don’t have access to capital. Click To Tweet
You can always go to our website. Fill out a web form and someone will respond to you. The other option is they can always email me directly. That’s Morris@PayroFinance.com, simple. Always connected on LinkedIn we’re on there too and they can always give out my cell phone number, I can give it out to (908) 910-4474. I answer all calls, even spam calls because I always think maybe it’s a sale.
This is the first time somebody on the show gave out their cell phone numbers. You’d definitely go into breaking the record by giving the cell phone number. For our readers, I want to tell you one thing. As we mentioned before, when you borrow, you have to borrow responsibly but also knowing that if you are tight and you need to cover payroll, you have money coming in but somehow, maybe the documentation waiting, there’s a PO that you need to get cleared up or payment terms that you made with a customer. This is a great option at minimum. Apply for something like this. If you apply and you have it available on a rainy day if needed. If you don’t need it then great. If you do need it, you know at that point you’re not rushing into it last minute without being able to be approved for something like this. Morris is a great person to be connected with on LinkedIn. We had the pleasure of working with him on some of the campaigns we did for payroll to get the word out to educate the public about this concept. Therefore, I’m happy we were able to have a conversation now online as well. Let’s close with the four rapid-fire questions. Number one, a book that changed your life?
The book from him, E-Myth.
Michael Gerber. He was the first guest on this podcast, episode number one. Very good.
I think I heard of that the first time. It was maybe from you or was that at a conference years ago. That’s where I picked it up.
Yes. He spoke at our Let’s Talk Business Summit, the last one which was a few years ago. Number two, a piece of advice you got that you never forget?
How much did they cost you a month? I remember when I started on a business, “How much did they cost you?” I didn’t know. Someone asked me, “Why does it cost one month?” I figured it out. Ever since I know what it cost me, I know what I got to do.
Number three, anything you wish you could go back and do differently?
I wish you would have hired my business consultant earlier on. Having a consultant and someone you can talk with great ideas is so valuable and nothing I could do on my own. If I had it early on would have been even better.
Fourth and final question, what’s still on your bucket list to achieve?
We’re going to expand the app once we launch it to many more cool products. The app is coming out.
We’ll invite you back when it’s out and you could share a little bit more about it. Morris, thank you so much for joining us. I know your time is valuable. That is why in the name of our readers, will forever be grateful for sharing some of your time with us.
Thank you, Meny. Like always, a pleasure speaking with you. Have a great day.
About Morris Reichman
Morris Reichman is the founder and CEO of Payro Finance. Former Vice President at Infinity Capital Funding an alternative finance company, Morris possesses a versatile background in the finance industry. Having spent 5+ years at an alternative lending company managing the accounting, loan servicing, collections and customer service departments and working with businesses across an array of industries, Morris’s expertise is in business accounting, risk management and investment analysis. Morris founded Payro Finance to support business owners and ensure their business continuity.