Latest / The Relentless Pursuit of Winning Podcast / Why Profitable Businesses Still Go Broke and How to Stop It | Connor Tyson

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Why Profitable Businesses Still Go Broke and How to Stop It | Connor Tyson · The Relentless Pursuit of Winning Podcast

• 0:00
  If you really think about a business, the main components of it — it's the income.
• 0:04
  What's the profit margin? How much is it costing me?
• 0:07
  Money comes in and money goes out. You need to be able to understand and identify where that money's going.
• 0:11
  That's the difference between the top line and the bottom line.
• 0:15
  You're working for the business instead of the business working for you. I'm a prisoner of my own device here.
• 0:19
  Those are all symptoms of a bigger disease.
• 0:22
  Make sure you have enough cash and liquidity to weather the what-ifs in business.
• 0:27
  Are you gonna plan for the things that go wrong before the things can go right?
• 0:31
  As an entrepreneur, I have a head full of ideas and cloud dreams. It keeps me motivated.
• 0:34
  But business doesn't operate like that.
• 0:57
  Hey folks, welcome to another episode of the Relentless Pursuit of Winning Podcast.
• 1:02
  My name is Rick Meekins. I'm going to be your host today,
• 1:05
  and in our studio we have Connor Tyson. How are you today, sir?
• 1:08
  I'm doing good, Rick. How are you?
• 1:10
  Fantastic. Doing absolutely fantastic.
• 1:13
  Thank you so much for being here. I'm looking forward to our conversation.
• 1:18
  Folks, if you have questions or thoughts around your finances and need to do things a little bit different,
• 1:24
  you're gonna want to pay attention to the show.
• 1:27
  But before we get started — if you haven't done it already, I would be honored if you would like, subscribe,
• 1:33
  and hit the bell so you get updates every time we drop a new episode.
• 1:38
  Without further ado, let's get to it. Connor, do us a favor —
• 1:42
  tell us who you are, what you do, and why you do what you do.
• 1:46
  Yeah. My name is Connor Tyson, the owner and founder of Progress Solutions.
• 1:52
  I'm a financial wellness coach. I basically work with people that make good money,
• 1:57
  but they feel stressed, behind, and they feel like they should be further ahead.
• 2:03
  They don't have a clear system for their finances. So I stop the stress and conflict with people's money.
• 2:08
  You've had a history though with your own story, and you've created your present situation
• 2:12
  from what you experienced in the past. Can you walk through that a little bit?
• 2:16
  Yeah. So growing up I learned that there's a lot of power behind this thing called money.
• 2:21
  It changed people. There was a lot of fighting in the household and all that other stuff.
• 2:26
  So I took it onto myself to learn everything I could about money at a young age.
• 2:31
  I went to college, got a degree in finance, and I became a financial advisor.
• 2:36
  Got all the letters after my name, and then I looked down and realized I had serious debt —
• 2:40
  almost close to $60,000 of debt.
• 2:44
  And I was like, this doesn't make any sense. I have all the knowledge in the world. How could this possibly be?
• 2:48
  I realized it was really about habits and behaviors. It had very little to do with the knowledge.
• 2:54
  I started surrounding myself and asking questions to people I knew were successful with money,
• 3:00
  mirroring what they were doing, became debt-free, built up a very nice planning practice.
• 3:05
  Now I do financial coaching because I realized it's really about habits and behaviors.
• 3:11
  That's why it brings us here today — to get the message out. Like, you're not alone,
• 3:16
  and there are people that are willing to guide you.
• 3:20
  I think sometimes that's the hardest thing as entrepreneurs. We get into these businesses, and we're good at what we do —
• 3:27
  whether it's coaching, whether it's doing service work, whatever that is.
• 3:31
  But the financial part... I would bet that a lot of us could manage our money a little bit differently.
• 3:36
  What kinds of mistakes are you seeing right off the bat when you start working with someone?
• 3:41
  Well, it's kind of the lead-up to it. Like you said, you have this great idea, you're going to run a business.
• 3:46
  No one has taught you the finance piece — the different elements that go into running a business from a cash flow operating system.
• 3:52
  And that's really the lifeblood of your business.
• 3:56
  Let's say you're really successful. You sell a bunch of widgets or goods or services, you have this inflow of money. Great.
• 4:01
  Now what do I do with it? You have taxes, overhead, operating expenses, owner's compensation.
• 4:05
  Where does this all go? How do I make this happen?
• 4:10
  You kind of delegate it out sometimes, but then you get a report back and you don't even know what you're looking at.
• 4:16
  What levers to pull to get to the next level? A lot of people are reactive versus proactive with their finances.
• 4:21
  Not just on the business side, but also the personal side.
• 4:27
  What was a story — a client perhaps — that came to you who seemed like they were doing all the right things,
• 4:33
  but they just weren't hitting a profit margin that made sense?
• 4:38
  Well, the profit piece was good, but it was really the cash flow. I had a woman running a pretty successful business —
• 4:44
  making about $20,000 a month.
• 4:48
  Profit was great. But then the cash flow... I've seen profitable businesses go out of business
• 4:53
  because they can't make payroll — because they've already committed monies to future inventory or a marketing budget.
• 4:58
  And then they run out of money. Now they need to go into debt — a line of credit — to extend the life of the business.
• 5:04
  That might extend it another nine months, maybe twelve months. But sooner or later, the piper has to be paid, and there's no money.
• 5:10
  It's really about not being proactive and doing forecasting, or leveling out the cash flow.
• 5:16
  I talk about hills and valleys accounts — the fluctuation of business. It might be seasonal,
• 5:21
  but how do you level that out over a period of time to make it predictable and less stressful?
• 5:27
  It's human nature to avoid the things you don't understand. If you don't understand business or personal finance, it's intimidating.
• 5:33
  Procrastination is disguised as an emotional response to something causing you stress or boredom.
• 5:39
  You just put it off or delegate it out. But sooner or later it gets so pronounced that you have to do something.
• 5:45
  And you're reacting instead of being proactive. You're playing whack-a-mole with your bills.
• 5:51
  Taking things from 24% APR onto an introductory rate for six months. You know that cycle.
• 5:57
  And sooner or later it's: there must be something wrong with me. The guilt, the shame, the remorse, the anger, the confusion.
• 6:03
  It's almost a self-trust thing at this point. You've been in the game for a while, you keep running into the same cycles.
• 6:09
  You have all the intention in the world to fix it. But your brain subconsciously is saying: I've heard this story before.
• 6:15
  You've disappointed us. We're not even going to deal with this. And you avoid it. And that cycle goes on.
• 6:21
  Yeah. That's painful. I need to address the elephant in the room. The top line looks good — we're doing the thing.
• 6:28
  But the finance thing... we don't necessarily see it as how we're going to help our clients or pay our team.
• 6:33
  It looks like we need to understand what it's like to work with someone like yourself to get our finances under control.
• 6:39
  And I think we would end up better off financially working with someone who does what you do. Is that accurate?
• 6:44
  Yeah. Because I take something that's very complex and intimidating and make it very simple, tangible, and implementable.
• 6:50
  Perfect story — my accountant said: you had a phenomenal year, you made about a $90,000 profit.
• 6:56
  And I said: great, show me the money, because it's not in my bank account. Where did it go?
• 7:01
  The difference between the top line and the bottom line is all the missing pieces.
• 7:06
  If you think about a business, the main components are income — first you have sales and marketing.
• 7:12
  Then you have the products or services you sell. Which ones are profitable? What's the profit margin?
• 7:17
  If it's not profitable, you either have to reinvent it or get rid of it.
• 7:22
  Then you have overhead. How much is it costing me to run this business? What is my burn rate of fuel?
• 7:27
  Which brings me to cash flow inside your business. Money comes in and money goes out.
• 7:32
  You need to understand and identify where that money's going. That's the difference between the top line and the bottom line.
• 7:37
  What are the fixed obligations? Taxes. I need to pay myself and my employees. You might have marketing, inventory.
• 7:43
  And how do I survive not just this month, but a quarter from now? A year from now?
• 7:49
  You have to put money aside for those projects. Have an operating account, but also have a system — an automatic system —
• 7:55
  so you can show up as your best self even on your worst month. You can automate 70% of it.
• 8:01
  All I've got to do is take care of the other 30%. I can do that.
• 8:06
  When you're asking me to reinvent the wheel every month, it's daunting, and people sometimes give up.
• 8:12
  What I do for people is make it systematized, simple, and implementable so they get some control and confidence.
• 8:18
  Right. And thinking about pricing strategy — we roll our fixed costs into our pricing — operations, overhead.
• 8:24
  What are the mistakes we're making starting all the way back at pricing? Say I'm a plumber, I know my costs,
• 8:30
  but I'm not accounting for the hills and valleys account. How do I build my pricing models?
• 8:36
  Well, pricing is the effect of the profit you want to make. You can do it at cost, but you're not going to make any money.
• 8:42
  So you have to take into consideration the profit margin you want. And prior to that — salary, gas, supplies, time.
• 8:48
  This all goes into the pricing. And on top of that, profit. That's why you're in business.
• 8:54
  The insurances and everything else go into that price.
• 9:00
  When I talk about hills and valleys, some people have a good month or series of good months and start forecasting spending based on that.
• 9:06
  What they don't know is the cash flow might dip off. But they've already made projections based on high revenue numbers.
• 9:12
  If you hit a valley — seasonally or otherwise — a couple of cancellations, overages on that plumbing job —
• 9:18
  do you have the cash emergency fund — the hills and valleys account — to get through that season?
• 9:24
  So how do we figure out what we can reinvest in the business? If we're at a high point, can we do additional marketing?
• 9:30
  I feel like there's a struggle there — if we're just focusing on the hills and valleys account, we're taking away from growth.
• 9:36
  Yep. You can actually earmark a portion of that money to marketing. Just like anything else — want to have a Christmas party?
• 9:42
  Are you going to borrow that money, or are you going to proactively, intentionally set money aside for this project?
• 9:47
  Your marketing budget might be 11% of revenues. Stick to that over time,
• 9:53
  because other things are going to happen. You can't spend the same dollar twice.
• 9:59
  You've already earmarked this money for marketing, and then the transmission on your delivery truck goes out.
• 10:05
  Now I have to take money I already talked about for marketing to fix and upkeep the trucks.
• 10:11
  Be proactive and intentional. Have a clear dashboard. Tell your money where to go versus wondering where it went.
• 10:17
  Have a system in place so it's automatically happening. A thousand dollars comes in —
• 10:23
  how much of that thousand dollars is going to these different accounts, these purposes, these goals?
• 10:29
  The first thing I always say: put the mask on yourself first. Make sure you have enough cash and liquidity
• 10:35
  to weather the what-ifs in business — and there are a lot of them. Plan for the things that go wrong before the things can go right.
• 10:41
  As an entrepreneur, I have a head full of ideas and cloud dreams. It keeps me motivated.
• 10:47
  But business doesn't operate like that. You need accountability for what could go wrong.
• 10:52
  Make sure that's taken care of. Then let's grow. I'm all about growth and scaling.
• 10:56
  What happens when we have excess? We know our run rate for the next three months, all the buckets are full,
• 11:02
  and we still have cash on top of that. What do you recommend folks do?
• 11:07
  It's a good place to be. What I like to do is have my business pay me instead of me paying my business.
• 11:12
  I like to get paid in dividends. Take that excess cash flow and spend it on yourself as the business owner.
• 11:17
  If I have everything taken care of, I have choices and options. When I don't have cash flow, I don't have choices or options.
• 11:23
  If I have excess and everything's taken care of, I can pay myself, pay bonuses, scale, hire people, delegate.
• 11:29
  When you don't have that, it's the 70-hour week. You're not paying payroll for yourself. Another week goes by.
• 11:35
  You're not taking a family vacation. Why? You've got to be there for the business.
• 11:41
  You're working for the business instead of the business working for you. I see that a lot.
• 11:47
  People start the business, it's got legs, proof of concept, they're making money. And then they realize:
• 11:53
  I'm a prisoner of my own device here. I'm not seeing the family, not seeing the kids, I'm stressed out.
• 11:58
  Constantly doubting myself, coming up with band-aids. Those are all symptoms of a bigger disease.
• 12:04
  Let's cure the disease — which is usually getting a cash flow operating system in your business.
• 12:09
  Yeah. A lot of people I talk to just don't feel like they're getting enough business to take care of their personal needs.
• 12:15
  And then they're robbing Peter to pay Paul — taking from the tax account to cover XYZ.
• 12:21
  Yeah. You're always chasing clients and revenue. Because on the other side, you don't have a system on your personal side.
• 12:27
  There's always a hole in the boat. So you're constantly looking for ways to increase price, more clients, more revenue.
• 12:33
  You're using the business as an engine to fulfill your personal side. And those two things should not be commingled.
• 12:39
  Treat them as two separate entities. Have a system for each.
• 12:45
  So how do we get from all hell breaking loose in our financial planning to being fully systematized?
• 12:51
  As entrepreneurs, we're wearing many hats. It's not really a lack of time — it's a bandwidth issue.
• 12:57
  You're being called in all these different directions, putting out fires. At the end of the day, you put it off.
• 13:03
  It seems too overwhelming, too burdensome, too boring. I'm going to delegate it to a bookkeeper.
• 13:09
  If you simplify and automate those things — based on your revenue, based on prefixed formulas — it locks in profit,
• 13:15
  minimizes uncertainty and variability. Then you can actually get into a position of asking:
• 13:21
  what do I do with this excess? That's a good place to be.
• 13:26
  If they're not getting enough clients, there are symptoms to that. Who's your ideal customer? Not the demographics — the psychographics.
• 13:32
  What are they Googling? What are they saying to their buddies at the bar? People buy solutions, not benefits and features.
• 13:38
  If you can articulate the problem better than I can, I'm automatically going to think you have the solution.
• 13:44
  I'm probably going to be willing to buy that.
• 13:49
  Yeah. You keep saying "automate." Are we using Excel? Software? What are we doing?
• 13:55
  A combination thereof. Based on revenue ranges — zero to a quarter million, quarter million to half a million —
• 14:01
  there are different ratios of where your money should go inside your business. Overhead expenses, owner's compensation, taxes —
• 14:07
  Uncle Sam needs to be paid quarterly. A lot of people forget about that. And then profit —
• 14:12
  what is a reasonable profit margin in the industry you're in?
• 14:17
  I do a reconciliation bi-weekly. Here's the operating account with $20,000. Great.
• 14:23
  On the 15th and the 25th of every month, that money gets deployed — 22% here, 15% there — and it goes automatically.
• 14:29
  When do bills get paid? Not whenever an invoice comes in. I want to direct when my cash flow is leaving.
• 14:35
  Today is bill payday. All the bills before this date get paid. I'm not playing whack-a-mole with my bills.
• 14:40
  I control the cash flow — when it comes in and when it goes out. Receivables: is it net 60?
• 14:46
  What can I do to make it net 45, net 30, net 14? Let's get that money in.
• 14:52
  You can be very profitable and still go out of business. I've seen it numerous times.
• 14:57
  When you recommend shortening receivables — clients sometimes pay whenever they want. What do you recommend?
• 15:03
  For money going out: you can negotiate with vendors to extend that out as far as possible.
• 15:09
  For customers: contracts and automatic payment upon services rendered. Let's say construction, plumbing, HVAC —
• 15:15
  project cost upfront, then a third two weeks after the job is done. There are consequences to not paying, and they know that.
• 15:21
  You can't have money out on the street. You want that money in.
• 15:27
  Just gotta stay on top of them. What is the difference between a bookkeeper and what you offer your clients?
• 15:33
  I don't do bookkeeping. What I do is help people understand the components of their cash flow operating system.
• 15:39
  A bookkeeper takes all your invoices, makes it organized, and gives you back a P&L report.
• 15:45
  But a P&L is not just two letters in the alphabet. On average there are 15 to 16 things between those two lines.
• 15:51
  When you want to grow your business, maybe it's just two of those components. If you don't know how those numbers were generated,
• 15:57
  there's no way of knowing what lever to pull, what to eliminate, or what to grow.
• 16:03
  Sometimes we do a cash flow triage — where is all the money going? Let's get on the phone and negotiate.
• 16:09
  Eliminate, reduce, or pause for a bit. It's different for different businesses.
• 16:14
  But the biggest thing I see is that as the owner, there's no financial acumen around the lifeblood of a business:
• 16:20
  cash flow. You need to understand it. You need to have a system around it.
• 16:26
  Because if you're reinventing it every month or every quarter, it's very, very difficult.
• 16:31
  Yeah. I see a lot of running the business from the bank account. The balance is there — let's spend it.
• 16:37
  Right. It's like your personal life. You have $1,000 in your bank account, you go ahead and buy the $800 whatever.
• 16:43
  What you don't take into consideration is that quarterly auto insurance payment is coming out.
• 16:49
  The sports equipment for the kids. The credit card and car payment are coming out in the next six days.
• 16:55
  I didn't account for that. I just saw $1,000. I didn't know $1,200 is coming out.
• 17:01
  And then four days later I look and I'm like — I forgot. I've already spent that money and I'm trying to spend it twice.
• 17:07
  Spend the money twice. What's a great story — a company you helped really turn around?
• 17:13
  Someone who was in the straits, and you helped them build both the system and the discipline to use the system?
• 17:19
  Yeah. So one was a woman who walked away from her corporate job and saw an opportunity in a photo booth business.
• 17:25
  She started off right — great idea, bought the equipment. Then it's like: okay, now I have to get customers.
• 17:31
  Word of mouth — where do these people hang out? Where have you seen photo booths? Weddings, golf outings, schools.
• 17:37
  We got into the psychographics. More people became attracted to her. She was making close to $20,000 a month.
• 17:43
  Now I can scale. I have to hire somebody. Is it a 1099 or an actual employee?
• 17:49
  Now we need more vans, another photo booth. Taking her through that whole thing —
• 17:55
  and checking in with the money before she hired the new person. Is that a profitable decision?
• 18:01
  She knew her numbers. She knew she could only pay that person a certain amount before it didn't make sense.
• 18:07
  Building the habit of checking in with the money and reconciling — every Friday — for ten, fifteen minutes a week.
• 18:13
  Paying quarterly taxes and realizing she was overpaying — she'd probably get a refund.
• 18:19
  Taking that extra cash flow, putting it back in the business. Seeing a profit, paying herself a bonus.
• 18:25
  Incentivizing employees. Within a year, it was quadruple the revenue, quadruple the profits.
• 18:31
  She's loving what she's doing. Maybe working 25 hours a week and collecting monies.
• 18:37
  She has other people, an automated marketing system. It's a beautiful story.
• 18:43
  The best stories are the ones who realize they need help early on, and you take them on that journey.
• 18:49
  The hardest stories are those who've been in business for a while and they're doing the thing —
• 18:55
  maybe not including profit, just a certain percentage thrown in to cover ops. A wish and a prayer.
• 19:01
  Changing habits when you've been doing it a certain way for a long time — that's a rough thing.
• 19:07
  Especially when you're coming from behind. Say you've got $150,000 in debt on top of that.
• 19:13
  Yeah. It's about helping them realize what success would look like. There's a frustration point —
• 19:19
  what they're doing now isn't getting the results they want. I call it the restart button.
• 19:25
  If you could hit the restart button and go talk to your earlier self, what would you have changed?
• 19:31
  I would have carved out time. I would have repriced things. I wouldn't have accumulated $150,000 in debt.
• 19:37
  Getting deeper than the surface level — when did you first notice that? Why did that happen?
• 19:43
  And then moving forward: now we know how to operate so we avoid doing the same thing over and over.
• 19:49
  They're so exhausted and burnt out. They just want to sell and walk away — but they don't have the cash flow operating system.
• 19:55
  They're not getting the price they think the business should be worth for all the blood, sweat, and tears they put into it.
• 20:01
  They walk away completely aspirated sometimes. No matter where you are — five years, eight years into it —
• 20:07
  you can relaunch your business. Hit the restart button in these different areas and get clarity, control, and confidence.
• 20:13
  I was talking to somebody yesterday who had like a hundred-million-dollar business.
• 20:19
  He was just really challenged by some of the issues going on, decided over the course of a week he was going to sell —
• 20:25
  and he did. The valuation came to terms pretty quickly. He said: this isn't fun anymore.
• 20:30
  Yeah. That happens a lot. Like that book "The E-Myth" — working in the business versus working on the business.
• 20:36
  I help them work on the business. Once they understand those components, I hand them off to a profitability coach.
• 20:42
  You didn't have a strong foundation of the basics. Now you're ready to scale.
• 20:47
  What is a profitability coach?
• 20:52
  A profitability coach talks about the aspects that really drive profitability — receivables, cash, getting the money in,
• 20:58
  profit margins, how to increase those, ROI. That's the sizzle. That's the pieces people want to talk about.
• 21:04
  But if you don't have the foundations, it's going to turn ugly.
• 21:10
  It's usually cash flow — being able to have the business work for you instead of you working for the business. It's a big mindset.
• 21:16
  What are your thoughts on leveraging capital? Sometimes we have to raise money in order to do X, Y, Z.
• 21:22
  My biggest principle: you have to have the cash flow to pay the bill. Before you commit to something —
• 21:28
  are there enough revenue and profit in your projections to pay that obligation? If you're unclear, do not do it.
• 21:34
  I have a gentleman who runs a tiki boat business. Awesome business, loves what he's doing.
• 21:40
  He wants to expand because bigger charter boats in the area are getting more customers at lower price points.
• 21:46
  He's getting priced out of the market. I need a bigger boat. Before you jump —
• 21:51
  you better make sure that pool has water. Would a bigger boat actually mean more profit margin per capita?
• 21:57
  What would the marketing budget look like? Now you need a new captain. Bigger fuel costs. Bigger insurance.
• 22:03
  I didn't think about all that. I just saw: I need a bigger boat. And someone offered me a $3.5 million loan at what seemed like
• 22:09
  reasonable rates — compared to what?
• 22:15
  So: slow down. Be proactive, not reactive. Don't allow yourself to get into a position
• 22:21
  where it's almost too late and you don't have any choices. I'm all for leverage — it's what made this nation so great.
• 22:27
  We have lines of credit and capital requirements. That's how businesses become hundred-million-dollar businesses.
• 22:33
  You need to have leverage and debt. Use it as a tool, not a necessity. Understand it's not a bailout.
• 22:39
  One question I always ask my guests — the name of the show is the Relentless Pursuit of Winning.
• 22:45
  Winning is defined however we want. The challenge is the relentless pursuit itself.
• 22:51
  What does it take to keep going — regardless of those hills and valleys and everything else that happens while you're running your company?
• 22:57
  One of the exercises we go through is the Why Exercise. Understanding why.
• 23:03
  People come to me saying: I want to get out of debt, I want to get control of my money. That's not really what they want.
• 23:09
  I ask: why is that important to you? Well, I'm not showing up to my kids' sports games.
• 23:14
  Why is that a concern? One of my principles is family, and not showing up feels like I'm violating that.
• 23:20
  Now we're getting somewhere. That will motivate you to change habits and behaviors and drive through walls.
• 23:25
  What opportunities would open up? What would your personal relationships look like? Would you still be fighting with your spouse?
• 23:31
  Maybe you'd be unified instead. Those are the things I tap into to motivate people.
• 23:37
  Because there are days where you do have to pull out your index card — your constitutional statement of why you started the journey.
• 23:43
  There are some tough Fridays and Sundays before Monday. I've been there. I know what that feels like.
• 23:49
  Get really clear on it — not the surface level stuff. The deep-down: what do you really, really want?
• 23:55
  And what are you willing to do to get there? Tell the people around you what that is.
• 24:01
  It becomes contagious. Now you have a tribe of people saying: you can do this, I'm with you.
• 24:07
  And when you're down, somebody is there to build you up. It's a beautiful thing, Rick.
• 24:12
  Tribe, community. I love it. You have a giveaway you wanted to share with our audience. Can you talk about that?
• 24:18
  Yeah. For anybody out there that resonated with any of this — complimentary consultation.
• 24:24
  We sit down. I have a business launch kit — tools to help solopreneurs, business owners, small teams.
• 24:30
  And if it's not me, I have a whole army of people behind me that can help you find the solution you need.
• 24:36
  You're not alone. And I want to congratulate everybody. You've chosen one of the most exciting adventures —
• 24:42
  being an entrepreneur. Let's make it work for you.
• 24:47
  Thank you so much for that. We'll put information on how to take advantage of that offer in the show notes.
• 24:53
  Connor, thank you so much for being on the show. I appreciate you, man.
• 24:58
  Absolutely. Thank you, Rick. Thanks for the opportunity.
• 25:04
  Absolutely. And folks, thank you so much for watching or listening to another episode of the Relentless Pursuit of Winning Podcast.
• 25:10
  We'll catch you next time.