Momentum Podcast: 119

Don't Chase Finance And Accounting

by Alex Charfen

Episode Description

Finance and accounting is an absolute function in the business. It is either done or it isn't, there is very little ambiguity. Either a business is provided with clean financials on a monthly basis, or they aren’t. Over 90% of the entrepreneurs I talk to, are not getting clean books on a monthly basis. A lot of them do not have a solution in place, so not having books is understandable. What is shocking is how many of them have a solution in place, but they have fallen behind for some reason. This is unacceptable. If whatever solution you have in place for accounting and finance is not able to provide you with clean books on a monthly basis, they have a professional responsibility to tell you to find another solution. The one department you can never chase, is finance and accounting. There is more exposure here than just about anywhere else in your business.

Full Audio Transcript

I'm Alex Charfen, and this is the Momentum podcast, made for empire builders, game changers, trail blazers, shot takers, record breakers, world makers and creators of all kinds, those among us who can't turn it off and don't know why anyone would want to. We challenge complacency, destroy apathy and we are obsessed with creating momentum so we can roll over bureaucracy and make our greatest contribution. Sure, we pay attention to their rules, but only so that we can bend them, break them, then rewrite them around our own will. We don't accept our destiny, we define it. We don't understand defeat because you only lose if you stop and we don't know how. While the rest of the world strives for average and clings desperately to the status quo, we're the minority, the few, who are willing to hallucinate there could be a better future, and instead of just daydreaming of what could be, we endure the vulnerability and exposure it takes to make it real. We are the evolutionary hunters, clearly the most important people in the world because entrepreneurs are the only source of consistent positive human evolution and we always will be.

Don't chase finance and accounting. Your business exists for a singular reason, to produce a profit. In producing that profit, it makes you money. Now, I've heard all kinds of arguments against this, although to most of you, you're probably saying, "That's obvious." But I've heard people say, "Oh, well I really want my business to make a difference and so, I don't charge as much," or, "I really love what I do, so I don't feel like I need to have higher margins," or any other excuse.

But here's the challenge when you allow that type of thinking in and you don't insist your business makes you money, it makes a profit. You won't create a real business. When you hold the business accountable to actually creating a profit, it becomes a real business, margins are created, systems are created, processes are put in place to protect the money in the business. When you hold a business accountable, you think about it differently. And the only way you can hold a business accountable to making a profit is if you know your numbers every month like clockwork.

See, if you know your numbers every month, then you understand exactly what just happened, you just experienced it, and then you can see what profitability did that create. And when you start getting that close loop of, here are the activities we had, this is what happened, here are the activities, this is what happened, you start seeing exactly how your business can make more money, you start understanding your profitability better, you start seeing where the opportunities are, and it gives you an entirely different scoreboard for your business.

And it doesn't matter if you're a really high margin business. Because sometimes people tell me, "Alex, I'm in information products," or, "I have an online ads business," or, "I have a training business and the margins are like 80 percent, I don't have to worry about numbers as much as everybody else." And I always feel sorry for that person. I have to stop them and explain that just because your business makes a high margin doesn't mean you shouldn't hold it accountable to knowing exactly what it is every month. Because even if it's an incredibly high margin, the numbers will start showing you what's going on in the business. If you run at 80 percent and there's a month where you dip down to 71, you're gonna want to understand why. Because that's a dramatic difference and it's an opportunity.

Now, here's the challenge for most entrepreneurs. Most entrepreneurs, I would say 90 percent plus, don't have clean books on a monthly basis. They are chasing finance and accounting. And some, I would say a lot of them, it's self inflicted. They just haven't taken their books or they haven't hired anyone, they haven't put anything in place, they aren't really tracking their numbers, they've got some loose type of a system. So for a lot of entrepreneurs, they need to make a decision that they're going to take this seriously and put a process in place.

But then here's the other group that I talk to, it's the group that has in house accounting or they've hired a book keeper or a book keeping service or they have an accountant that they work with, somebody that comes in. They have some solution for it, but they're chasing finance and accounting. They're chasing the department to give them clean books, they're chasing them to get caught up. The conversation always goes something like this, I'll say, "So, how do you understand your, tell me about your financial process. Who does your financials and which reports do you look at on a monthly basis?" And they'll say, "Well, we don't really look at our financials, instead we look at our," and then insert whatever their CRM or billing system or software system is. And then they say, "Because, we're three months behind," or, "We're four months behind," or, "We don't know how far behind we are. We're waiting for whoever's in the position or whatever solution we have to catch up."

And whenever I hear that, it infuriates me. Because, finance and accounting is a absolute function. You've either done it or you didn't. And if you can't do it and you're getting behind, it's not suddenly magically going to cure itself. And if there's a finance person who's in a position, a book keeper, whoever it is, who's falling behind on books, they have the professional responsibility to tell you that you need a different solution. Because the most dangerous thing that an entrepreneur can do is operate their business without clean financials. It leaves you ridiculously exposed.

And so, if you have someone who is in this position or if you've hired a solution or brought something in, but you're not getting your clean books on a monthly basis, you're not getting them by at least the 20th of the following month so, January's numbers by February 20th, you have a major problem.

And here's the issue when you start chasing finance and accounting. If they get one month behind, then the next month they're gonna be a little bit more behind 'cause you already know they couldn't do the prior month. And unless they radically adjust something on their side, they're going to continue to fall behind. And it is a nightmare when you get behind on your books. Like I said, whoever's in that position has a professional responsibility to tell you you need a different solution. Because when you get behind on your books and they're being done three months back or four months back, that means for an entire quarter, you've been exposed. You don't understand your margins. You don't know what your business is really doing.

When the finance and accounting department start slipping behind, they're only going to get further behind. The first month it happens is the month you hit the panic button because this is an absolute function. It's either on or it's not. So if your team, the person who's working for you, if you have a service that's working with you and they can't adjust to the fluctuations in your business, you have to find another solution.

And in no way am I telling you you should bring finance and accounting in house. One of the biggest challenges I have had in my career is trying to solve the finance and accounting equation. I have had a book keeper. I have had a book keeper with an accountant. I have had a book keeper with a control. I've had a CFO and a book keeper. I've had a CFO controller and a book keeper. I've had a CFO with two book keepers. I've had a controller, two book keepers and an accountant. I've had every combination you can put in this department.

And I finally figured something out one day after far too long. I mean, this is one of those lessons that I learned after losing hundreds of thousands of dollars in this department. I can't tell you how many times in my career my books have gotten behind or, I mean, go back to the podcast on why entrepreneurs don't talk about embezzlement. I had a CFO embezzle over 1.3 million from us, Michael Goldberg from Boca Raton, Florida, just because I always wanna let everyone know exactly who he is. And he misappropriated over another million dollars in our organization. We sent him to jail, federal prison for five years.

So I have love lost for this department, and I also know how it's not strategic. Here's the challenge, as many entrepreneurs started growing their business, somebody gets them in a meeting one day where they go to a coach, where they find a consultant or someone, and they're an excise business, so that person convinces them they need a finance and accounting department, or they need a CFO or they strategically need some additional level of service here. And 99 percent of the time, it's just not necessary. The way that we've solved this issue and the way I think most entrepreneurs should solve this issue, is to outsource finance and accounting to a large enough firm where they have a team that can cycle up and cycle down on a monthly basis if you're growing.

Because, here's why I had so much trouble in this department throughout my career. I would hire a book keeper when I needed one, but I never stopped growing businesses. The companies I've run my entire career have grown in an extraordinarily fast rate. That's what I specialize in, that's what I do myself, that's what I'm showing companies around the world to do. And the problem is, when you hire one person and then the business doubles or triples, it's very difficult for them to continue to do what they're doing in the same way.

So we've solved this by getting it out of the building, getting finance and accounting out as an outsourced service. We have a organization we work with where, their name's Concero, and they have a team overseas that does all of the book keeping overnight. So our books are updated every single day, we know exactly where we stand, we know what we're doing and how we're doing it. Then they also have online systems where there's checks and balances, so it's totally redundant, we know exactly where our money is. And, the only way a payment comes out of the system is if we log in and make it happen. And they have cycled up with us, and they've cycled down with us as we needed both directions. If we needed more support in the department, they've gotten bigger. And if we needed less, they've done less. And as we've needed services, we can add them. It's been incredible because now, we can grow our business to any size we want and they can cycle up right behind us.

Now, there may be a time in your future where finance and accounting become strategic. Or if you're in one of these situations, then it's strategic to you now. If you're loaning money or extending terms, like if you're a huge organization that has a credit line, or even if you're a small organization where you have a credit line and you're passing credit onto another person, it's important for you to have somebody who's an a credit department in your company. So in that regard, that person would be strategic. You probably could still have finance and accounting outsourced.

If you are borrowing money, if you're going out to borrow a lot of money or raise money, like private equity or you're looking to find people to invest in your business, it might be strategic for you to have a finance person who helps you with those presentations. It might be. But most of the time, that can be hired out as well. When you're raising money, so if you're going to go raise money from individuals, if you're going to, like I said, try and find venture capital or angel investors, it might be strategic to have someone in finance. Often times today, you don't need it. That's why I'm going both directions here, because for so long, we've been convinced that this is a strategic department, and I have a hard time finding companies that really need the in house finance and accounting.

Now if you're going IPO, if you're gonna do a public offering, become a public company, or post IPO, then it is strategic. Because the amount of compliance work that you have to do in house means that you actually need somebody full time that really is running all that compliance work, making sure all the reporting's done right, and making sure that things are sound within the organization.

Now I know I'm gonna frustrate a lot of accounting and finance people by saying this, because the, and if you have accounting and finance and you're getting clean books and they feel strategic and they're doing what they should do, then I'm not encouraging you to shift. But if you have an accounting and finance solution that isn't actually working, then I'm telling you you must. And I am thrilled we got accounting and finance outsourced.

I've worked with some really good finance people in my organization, some great accounting people. Our first book keeper, Amy Hood, was amazing. And she worked with us when we were this tiny little organization and just went through a lot of stuff with us. And she was a high S personality, I'm a high D, I used to make her cry all the time by accident, but she was awesome. And Elliot Boney, who was in our finance department, he was an analyst, is the guy who caught Michael. He has this ridiculous photographic memory, and he realized that our books were being manipulated. And we wouldn't have caught him without Elliot. So you know, there's people that I absolutely adore that have been in this department for us. But, we struggled still because our company was growing so fast, they struggled. It was hard because they didn't have a way to throttle up and to throttle down.

Now, that being said, I've also had a lot of challenges with finance and accounting people. And I've found that my clients have a lot of challenges with finance and accounting people. Their personalities tend to clash, they tend to have disagreements, they tend to be the person on the team that doesn't really lean in to doing the things that the entrepreneur wants to do, they tend to be the most difficult team member to work with.

And then I can't tell you how many times in my career I have seen an accounting and finance person want just extraordinary amounts of money from entrepreneurs, especially in high margin companies. It's interesting how in high margin companies, accounting and finance people always believe they're worth more. I had a consultant, Mason [Lovelowe 00:15:17], one of the greatest guys I've ever spent time with, he taught me so much, and he used to say, "You don't want accounting and finance around because he who counts beans all day gets hungry." And I remember when he said that, I laughed out loud because if there's one department where I've had ridiculous salary requests from people based on what they're doing, it's been this one, accounting and finance. And I think Mason's right. He who owns beans gets hungry.

And for me, here's how I look at accounting and finance. They provide me a service. They give me books that I can look at on a monthly basis. I don't need them in my building every day because I'm not asking finance and accounting questions every day, and if I was, something would be wrong. I should be asking, "How do we get stuff done?," questions everyday. And the way I look at the entire discipline is, I need to have the right reports when they're available and have them be as clean and accurate as possible.

And when I say don't chase finance and accounting, here's how I look at it. It's an absolute function. It's book keeping. There's a limited number of transactions, and if you get them all done, you're done. So on a monthly basis, it better be done. My expectation is that it's done. And if there's ever a problem with getting it done, we have a problem. Because there's no other answer that is acceptable from accounting and finance other than, "Here are your clean books on time and they're accurate." And when I have the books from my company, I can look at our expenses, I can look at our revenue, I understand what's going on, I calculate the ratios that I wanna calculate so I know exactly where our company stands, and that's it. And we have a discussion with our outsource finance person who lets us know what they're seeing in the books. It takes about an hour every month. And that is the total we need and it works.

So instead of having a person in house that I have to manage and work with and put energy into that provides the service I just described, and usually wouldn't provide it at the same level, we spend an hour with an outsourced person a month and we get an email from them every week with our cash position and exactly what accounting and finance would've told us, and the operational drag for us is reduced by 99 percent. And, since we've been with them, we have never chased our books. We've never had to run around and figure out why we were a week late. And the errors or issues that we've had have been minimal. And so, if you have anything other than clean books on a monthly basis that are accurate, you have to decide you're gonna stop chasing finance and accounting. Because this is one place where if you start chasing, you will lose.

I've worked with hundreds of entrepreneurial companies. And I've seen people get to nine figure businesses and make errors so egregious that they shut their companies down because they didn't have clean books or they had errors in finance and accounting or they had had a person in place early on that made mistakes that weren't understood. I have seen people take retail chains and restaurant chains and construction businesses and all kinds of companies, and get behind of their books, not have an understanding of what's happening, and put themselves in the place where they're either going into debt to keep the company, or they're trying to figure out how to start the next one because they had to close it down.

And for people like us, ambiguity anywhere creates a lack of momentum everywhere. When we don't understand what's happening, that is actual constraint for us. So when you don't know what's going on in your books, when you don't understand the profitability of your business, that is creating constraint every single month that it happens.

So if you're trying to grow your business, the one place you can't ever chase anything is finance and accounting. It is an absolute function. Hold whatever service or solution or person you have in this position accountable to doing everything on time 100 percent of the time with no errors. Because that is the only way finance and accounting works.

If you're an entrepreneur and you're growing and scaling a business, we should talk. I'd love to connect with you. If you have a business that's over a million dollars and you have created more opportunity than your current infrastructure will allow for, I don't know of any other organization that can help you build a team like we can. We've recently helped some companies create extraordinary growth and I know we can help you. So give me a call. We'd love to connect with you. You can contact our, or sorry, don't give me a call, you can contact our office online. You can go to or you can call our office at 800 482 0335 and let Justin know you're interested in talking about our Grow and Scale program.

Thanks for being with me today, I'll talk to you soon.

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