Latest / The SmallBizChat with Melinda Emerson / How Could a Fractional CFO Help Your Business with Kelle Thorpe

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How Could a Fractional CFO Help Your Business with Kelle Thorpe · The SmallBizChat with Melinda Emerson

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  Three, two, one, zero.
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  Ignition.
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  Lift off.
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  Ending small business failure.
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  Welcome to the Small Biz Chat podcast with the number one small business expert, Melinda
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  Emerson.
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  Melinda's goal is to end small business failure, and she'll give you the information
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  you need to succeed and live the life you dream of.
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  Now here's your host, the small biz chat lady herself, Melinda Emerson.
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  Have you subscribed to the small biz chat podcast?
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  Well, it's time.
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  Every Wednesday, we offer listeners bite sized actionable tips to start and grow a successful
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  small business.
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  In just twenty minutes or so a week, you can get a ton of insight and resources to propel
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  your business forward.
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  Be sure to subscribe to the Small Bitch Chat podcast today.
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  Hi, everybody.
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  Thank you so much for being with us today on the Small Biz Chat podcast.
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  I am so excited to welcome my guests to the stage.
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  We are here to help you build smart systems, increase your revenue, and lead like a CEO, and
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  not just work like an employee in your business.
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  Now if you are a fan of the Small Biz Chat podcast, I always invite you to please leave us
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  a good review, no hate mail, and also share our link with others because we want other
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  entrepreneurs to have access to the great information that we share here at the Small Biz
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  Chat podcast.
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  Now today, we're talking about something too many entrepreneurs avoid until it's too late,
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  financial strategy.
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  Not bookkeeping, not tax prep, but real financial strategy.
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  And if you've ever wondered why your revenue is growing but your profit isn't, if you're making
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  money and still feeling cash strapped, if you're trying to scale without truly
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  understanding your numbers, you're in the right place.
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  Joining me today is Kelly Thorpe.
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  She is the CEO of Commas with Kale, is a strategic fractional CFO firm dedicated to
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  helping service based business owners and senior level corporate executives increase
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  profitability and scale sustainably.
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  Kelly doesn't just look at spreadsheets, she helps leaders uncover the story behind their
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  numbers and optimize their productivity and really drive measurability around their revenue
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  growth.
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  She is a keynote speaker and a trusted advisor, and through her profit accelerator methodology,
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  she helps business owners two x their revenue in as little as sixty days.
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  If you're serious about building a profitable and scalable business, think no further than
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  commas with Kell.
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  Kelly Thorpe, thank you for being a guest today on the Small Bitch Chat podcast.
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  Thanks for having me.
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  I'm excited to be here and have this discussion.
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  Oh gosh.
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  Well, listen.
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  Many entrepreneurs understand bookkeeping.
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  We understand taxes.
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  We know March 15 business taxes are due.
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  We know April 15 personal taxes are due.
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  But what does a fractional CFO do and how is that different from what the accountant and the
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  bookkeeper do?
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  Yeah, no, it's funny because when you start a business, that's what they tell you to get,
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  right?
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  Get you a good accountant, get you a good lawyer, a good insurance plan and a good tax
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  CPA.
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  No one mentions a CFO.
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  Typically, CFOs are known in Fortune 100, 500 firms, and they're known for big corporations.
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  And that's no longer the case.
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  I think a lot of the economy, especially over the last year, has shown the importance of
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  guiding the future and foresight.
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  And that's what a fractional CFO does.
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  So we guide you into making strategic business decisions, but having a roadmap to get there.
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  So what I tell people is you have the plan.
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  The clients we work with, they're visionaries.
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  They're already running million dollar firms.
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  They have the plan.
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  They just don't have the time to sit down and talk about the micro goals that go in between
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  getting there to that main goal and what the road bumps may be along the way.
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  So a fractional CFO really guides you in that space.
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  What the biggest difference is a bookkeeper helps you record what's already happened in
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  your business.
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  So I hear a lot of people say, well, my bookkeeper never sits down and talks strategy
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  with me or explains the story what these numbers actually mean.
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  It's not their role.
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  They are great at accuracy, historical data, entering those things into your books, and then
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  that's where your accountant or your tax CPA comes in with compliance.
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  We'll help you with tax savings after the year has already happened though, unless you have a
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  tax planning retainer with them.
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  But really, with a fractional CFO is the sweet spot between the two.
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  So what are the biggest financial mistakes that you see small and mid sized companies make that
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  really limit their growth and profitability?
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  I really think there are three.
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  There's three.
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  So one, they look at revenue concentration.
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  There's this big thing of how much money have you made?
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  And usually when people ask that question, they're focused on gross profit.
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  And you and I both know that can mean nothing depending on how much you are spending within
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  the business.
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  So, I think the number one thing is definitely growing through margin discipline and growing
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  without margin discipline and knowing how to be better disciplined in your margins.
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  I also think emotional hiring, just, oh my God, just need this person now, and not making a
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  strategic hire decision so you know how long it's going to take you to get the ROI on this
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  hire, whether it's overhead or cost of goods.
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  No matter what, you should always have a plan in hiring that gets you back whatever the
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  salary or even the contractor payment is for that hire and then operating without
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  visibility, which I think a lot of people don't understand.
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  Well, let's jump into that.
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  Why is cash flow visibility so critical for business stability and how can people move from
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  sort of like reactive to proactive around cash management in a business?
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  Cash flow visibility is the key to keeping the business going.
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  It's important to know if I spend today, how much will I have two to three months from now?
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  That's the realistic timeframe to do what we call cash flow forecasting or cash flow
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  statement because anything beyond three months is typically a guess, depending on how strong
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  you are in your retainers.
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  But cash flow visibility really helps you to know where do when may I need to tap into this
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  line of credit?
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  When do I need to pay my vendors more closer to the net terms of payments and not just paying
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  bills as they come in the door?
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  How do I really leverage planning this company retreat that's coming up and put some of this
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  money away into a money market account where I may be able to lock it up for some time in a CD
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  or even a high yield savings.
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  I see a lot of business owners have liquid cash that's beyond what they really need for
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  operating, sitting in a main bank account, not accumulating any interest or doing any work for
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  them.
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  And that's where cash flow visibility is all key because if you know three to six months on
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  average how much I spend, then that's really all you need in the operating account and you
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  could put the monies elsewhere so that money is growing for you and you have a runway to tap
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  into.
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  So if you could narrow down, what would you say, like the top three, maybe five metrics
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  every business owner should track on a weekly or monthly basis, what would that be?
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  Gosh, okay, that's hard for an accountant to do.
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  I would say definitely your gross revenue is important.
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  So let's do, I'll do a monthly basis.
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  So on a monthly basis, I would say your gross profit.
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  That tells you whether the core services are actually gonna be profitable for your overhead.
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  So that's important for that instance.
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  The next is the bottom of it, the net profit margin, which actually tells you after
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  everything you spent, what's going on in your business.
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  Right.
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  What I just mentioned, cash flow.
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  Cash flow one way, which is a cash flow statement.
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  So your cash flow statement tracks in and out.
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  Your expenses, how much are you spending, how much, will come into the business where certain
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  times of the month have that three month position, but know on a monthly on average how
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  much you're spending would be my top three.
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  And then if I had to add two more, it would be how much are your employees costing you?
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  Your revenue per employee, which might be for some people.
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  So what that is, is that measures the efficiency and hiring.
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  I call it hiring readiness.
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  So if you don't know how much revenue each member supports, then you can't really hire
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  confidently to know how much that employee costs you.
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  How much is that employee bringing in?
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  What's your overhead capita for that specific employee?
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  And the fifth one is AR.
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  Oftentimes, especially depending on where you are in your business, you may be the one that's
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  still sending out some of the invoices, but you didn't get to the invoice until two weeks after
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  you did the speaking engagement or the trip.
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  Now we two weeks further down the road on getting paid.
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  So the importance of timely invoicing is definitely the fifth metric, I'd say.
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  Now, how would you say that if businesses are considering loans or taking on an investor or
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  lines of credit, how can a CFO person help guide the outcome of any of these three things?
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  Yeah, I think that's a great question because what a lot of people don't realize is the
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  importance when you're going to apply for loans is the story behind what your statements are
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  telling them.
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  It's not always how much money you're bringing in and I'll tell you why because often times,
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  what will happen is you could be bringing in a lot of money but if your net margins are
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  already in the negative, then, it's highly unlikely you'll get the money you're applying
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  for.
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  So what we want you to do is already know how to deliver the story of A, how you're going to
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  use the funds you're applying for, and B, what is the forecast over the next year to three
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  years is usually what the bank wants to know.
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  So the first thing they'll do is be able to clarify the purpose.
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  So you have to clearly, and with a CFO, we have gotten SBA loans closed in three weeks, which
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  is unheard of.
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  Wouldn't a government take three weeks.
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  No.
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  Nothing.
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  Nothing.
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  And the secret sauce to that is being able to not just present the income statement and the
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  balance sheet in a clean way, but being able to give them a summary that's supportive of how
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  they're going to use the funds that is alignment with what their growth plans are.
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  Usually when you're applying you're maybe in a growth or expansion space in general.
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  So really explaining like what are these funds used for for growth?
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  If the loan is not tied to revenue expansion, it's gonna improve your margins.
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  How is this loan gonna improve your margins?
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  If you're buying equipment, what does these things look like?
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  Also, helps you to know how to stress test the repayment before the bank even comes back to
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  ask you how you're going to pay this money back.
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  Because you already can give the bank, here's my CFO's forecast for the next three years that
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  once I get this money, this is the areas I'm going to put this money into the business and
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  here is the outcome over the next time frame of how I'm going to pay it back and what my net
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  margins will look like.
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  So it's not just about evaluating what the rate is or how much you're going to get, but you
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  also want to evaluate the use of these funds, the term lengths on the loan, and just
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  understanding the covenant collateral which we haven't even gotten into whether or not you're
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  able to not fund this loan as a personal guarantee but if your business is established
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  enough to fund this loan on the business is a huge thing as well
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  So I know that, one of the conversations that you and I have had in the past is about how
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  people need to diversify where their revenue comes from.
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  And we've seen this because you and I both have a lot of government contractor folks in our
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  midst, in our portfolios.
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  And it's like, we saw a lot of those people go from 40 employees to one because of everything
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  that was happening last year and the way so many government agencies and contracts were
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  just eliminated.
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  And all this DEI stuff that's out here in the streets that just has made so many professional
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  service contracts just be be be thrown out, disappeared.
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  How do you as a CFO help your clients think about not having one or two eight hundred pound
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  gorilla customers and then all of a sudden something happens and then you don't have any
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  more business because these people decided to do business differently?
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  Yeah.
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  So one of the first things that we do even before the last year shook everyone up, one of
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  the first things that we do coming in is the stress test of what are your revenue buckets?
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  And before we even have a client sign a contract.
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  Why that's important to us is because we already were able to identify before, long
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  before we started working with small businesses, that even the large corporations we
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  worked with did not have enough diversification in their portfolios to be able to sustain
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  anything that hit their companies.
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  So what we do is analyze the revenue concentration.
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  What I tell people, and you even see this question on your insurance documents annually
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  or every three years, however often you renew, is do you have one client that's over 50% of
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  your revenue?
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  The reason the companies ask that is because you are at high risk if you have a one client
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  or one contract that's that concentrated on your business profit margins.
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  So what we do is work with clients to guide them on getting more to 30 to 40% max under one
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  client, one contract, or one offer and that gives them the space to be less vulnerable and
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  actually can help them to demystify the, oh, I need to be all in DEI or I need to be a good
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  government is a safe space.
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  Clearly, we've seen that ain't true anymore.
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  So, one time, you know, you get a government job, you will secure for life.
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  No, that is not the case anymore, right?
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  And it's the same for us as businesses.
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  We can no longer put our eggs in these $50 zero government contracts if your business have
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  private money that barely reaches a million.
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  That is a scary space to be because what you're going to do is hire people to support that
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  $50,000,000 and then you're going to have this contract for what maybe a three year term.
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  Let's hope unless someone can.
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  Yeah, we want to go there but so you're have it for a three year term and then you're going to
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  have to lay off or terminate people.
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  So, what we as a your fractional CFO does is not only figure out, okay, this is where your
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  revenue streams are but how can you diversify and this is what we do.
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  We come in and we pull out all of the talents that you have in your business.
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  What is your main goal for this business?
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  What are the other areas that you may not even be tapping into so we can make that more of a
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  diversification in your portfolio?
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  Look at the different revenue streams.
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  Some services create cash, some may just be compressing margins.
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  So what's going on in that?
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  How do we scale?
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  How do we scale labor in a minimal way?
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  So you don't, you're not impacting morale if you do have to let people go because a contract
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  has expired.
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  But that you have clients and employees that are profitable and repeatable and not just busy
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  doing a certain term or a certain contract that you have.
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  So we design high touch, high ticket services, really look into the mid level retainers that
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  you can have on recurring, that's where we want those to sit at mid to high level.
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  And then scalable offers depending on your type of business that are the ones that are cyclical
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  like maybe in my instance it's more like my speaking engagements and things like that are
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  more of my scalable things that are just cyclical.
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  Whereas our fractional CFO services are mid to high touch high level tiers that is recurring
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  revenue for the firm.
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  So how do you help people, business owners in particular who feel intimidated by the numbers
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  in their business?
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  Like, I mean, I can honestly tell you I've been in business for over twenty five years, but
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  what I was able to do was I didn't know how to read my financials until I had been in business
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  for three years.
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  I used to let my accountants handle everything because I didn't know, I was scared of
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  QuickBooks.
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  I didn't know how the numbers worked in my business and it was like tax time was when I
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  kind of found out what was going on.
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  And so how do you help people feel more confident to, because I think sometimes if you
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  bring a CFO in, then you're gonna find out my business isn't as successful as people think it
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  is.
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  So how do you kind of demystify that for people so that they're not so like, oh, I can't let a
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  CFO come in here because then they're gonna find out how raggedy our business is on the
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  inside.
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  How do you help people with that when you first start talking to people about your services?
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  One of our top core values that's actually on our is judgment free and it's that because we
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  work with people that are smart.
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  Our clients are they're very much intellectuals so a lot of these founders aren't intimidated
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  by the numbers because they're capable and they're not incapable.
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  They need it translated in practical plain English, which is basically what you just said.
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  So the first thing that we do is remove that shame of because you have, and I'll tell you,
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  I've seen people that have on social media and on different Forbes publications, you would
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  think they knew their numbers inside and out.
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  And when they come to us in discovery, they are just as embarrassed and intimidated.
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  And they that's because they have this it's almost like this complex of what, what they are
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  perceived to be out in the world and what they may not know.
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  And it's okay because you're not expected to be.
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  You are expected to be the small biz lady.
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  Everyone comes to you to because you are the small bills of this lady.
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  They know you're gonna guide them to scale and be able to exit and sell multimillion dollar
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  businesses.
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  It's not your lane to be able to say, this is the story behind my finances.
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  This is how I'm gonna apply for this loan and flip this money to do these things.
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  That is what a fractional CFO does.
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  So my job and my firm's job is to remove that shame and that thing that you first think you
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  need to know it all.
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  Because if someone says I'm not good with numbers, I tell them then you don't need to be
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  a CPA, that's not what you came to me to be.
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  You need to be a visionary decision maker.
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  That's who we work with, visionary decision makers so we can guide you to make data driven
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  decisions.
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  So my job is to make the numbers make sense for the decisions and to simplify the focus.
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  So most business owners don't need 20 metrics.
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  That's why I kind of hesitated when you asked because we already got enough happening in our
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  brain.
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  So if I tell you these the top three to five metrics you need to track, then you're going to
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  be like, oh my god, my CFO said, I need to know these three to five things.
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  Let me go to chat GPT and see what they even mean.
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  No.
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  No.
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  We give you a narrow dashboard that gives you these things so you can see them on a monthly
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  or ad hoc basis to build your confidence.
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  So as you continue to do this, it's a new muscle.
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  So the areas that you do need to focus more on, you can.
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  But instead of saying your net margins need to be 18%, we help you to know what that 18%
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  actually means.
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  Mhmm.
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  So that means everything you're keeping, you're you're keeping $18 out of every $100 you earn.
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  So now that makes it more tangible, right?
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  Like I, so if I get this contract for 20, a $20,000 a month retainer, then, I need to know
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  that I'm going to bring, I'll just do a quick 50% margin.
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  I'm to bring $10.00 a month out of this out of this as a tangible thing.
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  So, let's normalize financial fluency being a muscle and not that you really gotta know the
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  story behind your numbers.
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  You just have to know the right person to have in your back pocket just like you are the
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  expert in certain areas.
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  That person's the expert in this.
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  So you can whip out your secret weapon of your fractional CFO and be able to explain it to
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  them in a way that makes it practical to understand.
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  Well, I need to wrap this up with you.
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  I could talk to you about this for forever, but tell me, what is the best business advice
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  you've ever been given?
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  I would have to say to stop thinking like an employee.
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  I and I just got that advice less than a year ago through a business advisor I was working
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  with where I was expressing my concern with her because I had been running this business and I
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  was in a great place of transitioning from owner operator to CEO and I had no longer been
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  able to tap into maxing out my four zero one ks at that time.
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  And now I was at a place that last year where I was like, okay, let's just pay it all at the
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  top of the year.
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  I'm going to max out my four zero one ks.
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  And she was like, you're still thinking like an employee.
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  The amount of money you're bringing your business is bringing in now is beyond maxing
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  out a four zero one ks, ma'am.
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  Man.
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  So the best business advice is definitely to stop thinking like I'm the S Corp W-two
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  employee I am in this business and start thinking exit and big vision for what I have
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  already built and what we're building as an enterprise.
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  Love it.
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  Love it.
• 23:43
  Thank you so much, Kelly Thorpe from Commas with Kelly.
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  She's a fractional CFO and a great resource to small businesses everywhere.
• 23:51
  Thank you so much, Kelly.
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  Thanks for having me.
• 23:56
  Thanks for listening to the Small Biz Chat podcast with Melinda Emerson.
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  Subscribe to this podcast wherever you listen to podcasts, and join us next Wednesday for
• 24:08
  more fantastic information and interviews.
• 24:11
  You can find more sources and small business success strategies by visiting Melinda's
• 24:15
  website, succeedasyourownboss.com.
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  Thanks again for listening, and we'll see you next week.