Adam Lean | Avoiding the Cash Flow Trap

It’s a frustrating situation. You’ve increased revenue in your growing business. But, cautions Adam Lean, that doesn’t mean profit increases automatically.

In fact, profits can fall even as you boost revenues… unless you pay attention to key elements in your business. In other words, you can be making a ton of money – and not have anything to show for it. We’re talking about numbers… and it’s probably not the ones you’re thinking of.

We dig deep into the financials you need to watch – and work on – to create a business that’s sustainable in the long term, as well as…

  • How to harness the 3 main drivers of your business growth
  • Why your bookkeeper or accountant can’t help you
  • The real difference between profitability and cash flow
  • The reason franchises have an advantage in hitting financial targets
  • A four-step for setting attainable profit goals

Listen now…

Mentioned in this episode:

Transcript

Giuseppe Grammatico: Welcome to Franchise Freedom Podcast. I’m your host Giuseppe Grammatico and today we have a very special guest. Today I’m talking with Adam Lean. Adam is the president of The CFO Project, an organization that helps small business owners understand how to make their businesses more profitable. Before starting The CFO Project, Adam was an accountant, and then started and built his own small business. Upon selling that business several years later, Adam fell in love with teaching and coaching other small business owners on how to understand their numbers and how to focus on improving what matters. This passion morphed into the creation of The CFO Project that provides a small business CFO to guide business owners in making their business more profitable. I am really excited to speak with Adam and learn a little bit more what he’s up to. Adam, welcome to the Franchise Freedom Podcast. Adam Lean: Hey, thank you so much. I’m really excited to be here. Giuseppe: This is great. I know we’ve been talking a few times. Very interested. This is definitely a passion of mine and just something when I started my first business, definitely just an interest and shocked how many people are not, don’t have their numbers in line. So fill us in just on a little bit of your background, how you got into business and what that journey looked like.

Adam’s Entrepreneurial Journey

Adam: Yeah, so I actually graduated from college in 2005 and became an accountant. I was an accounting major, so I thought, well, I’ll become an accountant. And I spent a few years as an accountant and realized that it was just simply not my calling. I enjoyed where I worked, I just didn’t enjoy, the accountant’s job is to record what happened in the past. Not really to necessarily help the business grow. I wanted to actually get my hands dirty and work in the business and do something. So at nights and on the weekends, I started my own business. And that business grew enough that I was able to leave my day job as an accountant and I worked full time on my business. And the sales were going really, really well. I mean, they were growing. By 2009, I mean, I was doing probably 750,000 in annual revenue. This is an ecommerce store. And around the same time, I actually bought into a franchise. And so both of these things were going great. But then my ecommerce store, around 2010, sales were still growing but cash flow and profit was getting tighter and tighter every single month. And it was frustrating. It was even more frustrating because I was an accountant. I should be able to understand these things. But I was able to use my accounting background and sort of figure out what was the problem and I was able to fix the businesses over the next couple of years and get out from the mess I sort of created with the profitability and cash flow. And then a few years later I actually started working with other business owners because I just have a heart for other, for small business owners and for teaching and coaching. And I started working with these other business owners and realized they were going through the exact same things I went through. Sales probably were growing, but profit and cash flow was getting tighter and tighter every month. They were making a lot of money, they just didn’t see it in the bank. And so the thing is, though, they didn’t have the benefit of having an accounting background, so they didn’t really understand what was going on. So I created this sort of system, this sort of four-step process to help any business owner understand their numbers, and then once they understand their numbers, help them figure out what needs to improve in order to grow the profitability and cash flow the business. And that’s why I call it The CFO Project. CFO as a chief financial officer. That’s what a CFO does for big businesses. I want to do the same type of thing for small businesses. Giuseppe: Wow, that’s great. I couldn’t agree more. I speak with business owners every day and most of them don’t know the difference between cash flow and profitability. You know, they look at what’s in the bank, what’s coming in. So, that definitely, there’s a drop in the education there so I definitely see a strong demand for this. As you know, I assist corporate executives in finding franchise opportunities. How do you see yourself being able to help a typical franchisee franchise owner in the US here?

How The CFO Project Can Help You

Adam: Regardless of what type of franchise you own, you’re still a business owner, right? And a business requires essentially three main things. You have to have revenue, you have to have a profit and you have to have cash flow. Well, cash flow, which is the definition of cash flow is just more money coming into your bank account then is leaving. Whatever that difference is, that’s positive, what’s called positive cash flow. You need cash flow to pay next month’s bills and to take out, you know, money for yourself or to save for retirement or go on vacation. Whatever you do with it you still have to have positive cash flow. Well, there’s the best way to get cash flow is to make a profit. I mean, there’s other ways to get cash flow. You could take on debt, but of course, you owe that money back. So the fact remains, you still have to have cash flow. The best way to get cash flow is to make a profit. And so the first thing that we do is help the business owner understand their numbers, understand the revenue numbers and what’s driving revenue. Understanding profit and what’s driving profit, and then understanding cash flow and what’s driving cash flow. And then we help them figure out what are the most important things that need to happen this month in order to improve those three things, those three numbers, revenue, profit, and cash flow. So it all boils down to we really help with two things, helping the business owner understand their numbers and then understanding what to do about it so that they can improve the profitability and cash flow of their business. Giuseppe: Right, right. Now that makes a lot of sense and I wish we spoke 13 years ago when I first started my first franchise. So it’s a shame. I wish there was a better education out there but that makes complete sense. So basically what you’re saying franchise is a small is a business. So regardless if it’s a franchise. a license or business, pretty much, you know, business owners are dealing with the exact same things when it comes to the financials. Adam: Right. And the nice thing about franchises is that most franchise owners will give the franchisees a set of KPIs or key performance metrics or benchmarks or whatnot that they need to hit that will help them make sure the, ensure that the business is profitable. You know, of course, some franchise owners don’t give you that but that is a nice benefit of having a franchise is that you sort of get this type of help. However, you’re still a business owner, this is still your business and it’s still your responsibility to make sure that you have enough cash flow. And the cash flow and the profitability is really difficult to understand. I mean, because you know, you’ll get a, you’ll get these reports like the profit and loss report, the balance sheet or statement of cash flows. You’ll get this from your accounting software like QuickBooks or Xero. But those reports they’re really difficult for the average business owner to really read. On top of that, you need to know how to influence that report next month. If you made a profit of $10,000 this month, how can you make $10,001 next month? Well, these reports do show you how to do it, they’re just incredibly difficult to read. So that’s why, you know, somebody like us comes in, we interpret all this for you and just show you. We actually create a scoreboard that replaces all those financial reports. And this one-page scoreboard simply shows you, you know, what’s going right and what’s going wrong. And then we’ll highlight the areas where you need to improve. Giuseppe: Oh, wow, that’s great. Wow, that’s, so that’s very helpful. And I’m sure to all the listeners, they could definitely benefit from this. And I guess it gets a little bit more complicated. So, you know, going around owning maybe a combination of non-franchise and franchise businesses. I’m sure it gets a little bit more complicated when you’re owning four different businesses, four different industries. Correct how to manage one or leverage one, you know, over the other. I’m sure that’s where your services definitely I see coming into play. Even more just because it gets to be a little bit more complicated. Adam: Yeah, I mean, regardless of the type of business, whether it’s a franchise or not, or even the type of industry, all businesses have the same goal, and that’s to create cash. I mean, if you think about you bought your, you know, everybody listening, you bought your franchise or want to buy a franchise to give you a cash stream. A stream of cash every single month. That’s the whole reason you bought it or want, or thinking about buying a business. If, you know, there’s no point in buying something, a business, if you don’t think it’s going to give you cash. Positive cash. More than you’ve paid for it in the near future. I mean, what’s the point? So the bottom line is, you got to think of your business as sort of this machine that manufactures cash. And I mean, that’s exactly what a business is. And so you want to do everything you can to make sure you get as much cash from that business, from that machine as possible and keep all the moving parts, and there are a lot of moving parts in your business. You got to keep them as high-functioning and well oiled as much as possible. Giuseppe: Right. I could not agree with you more there. One last question, so you had mentioned franchising, you had some involvement there. What has been your experience in and around franchising in general? Adam: Yeah, so I used to own a franchise. Ended up selling it about eight years ago. And then I had my business, The CFO Project, we have several franchisees as clients. And the nice thing about you know, franchising is that you have a system, and you just got to work the system. That’s the beauty of it, you don’t have to reinvent the wheel, for the most part, you just got to work the system that’s laid out for you. And the same thing is, you know, if you work the system the right way, then you should get, you should hit your sales targets and your profit and cash flow targets. And that’s, I mean, to me, that’s the best thing about a franchise is that you can that you have this established system. And that’s what I enjoyed when I owned the franchise, is working this established system. And if you do it right, and if you understand your numbers, you can really do generate some good cash flow. Giuseppe: Yes, yes. I couldn’t agree more. Thank you for that. Adam: And the franchisor wants you to succeed, right? Because of course, I mean, let’s face it, they, you’re giving them a royalty. They want you to give them more royalty. So the more you succeed, the more they succeed. So that’s, you know, that’s another benefit. Giuseppe: Yes, yes, absolutely. 100% accurate. This is, this has been very helpful. As I mentioned, I wish we had crossed paths 10, 15 years ago. One thing so regarding The CFO Project, what can a new client expect in the very beginning? So what does the overall process look like from the very beginning conversation, having that individual starting to work with you?

The CFO Project Experience

Adam: Yeah, no, that’s a good question. Our entire goal is to be a confidant for you. To be that trusted advisor to help you when it comes to the financials. And so that’s our goal to be your confidant. But our entire mission is to help you improve the profitability of your business. And we do this in two primary, primarily two ways. We help you understand the numbers and then we show you what are the main objectives and the main focuses that need to happen this month in order to improve the profitability of the business. So we actually have a four-step process that we lead all clients through. And the first step of this four-step process is we’ll establish together, we’ll establish a target for profit for December 31. So on December 31, we’re going to come up with a number that you want for profit that will make you happy and energetic. Of course, it has to be realistic and attainable. But this is a number that the entire year we’re aiming for. We want to hit this profit target and that’s what we’re going to help you do. We’re going to help you as much as we can hit that target profit. So that’s step one. Then steps two, three, and four, these three steps happen every single month. So step two is we have this, your CFO, you’ll be assigned to your own CFO. They’ll go through this sort of checklist and assess your business. And they’ll look through everything. They’ll look through all the performance metrics and the numbers and prepare a scoreboard and action plan. So the scoreboard is step three and the action plan step four. So what we’re going to do is once we’ve assessed and analyzed your business, every single month, we’re going to get on a video call with you and we’re going to show you the scoreboard, and this is a one-page scoreboard that shows you what’s going right and what’s going wrong. It’s literally color-coded red, green, and yellow so you can see what part of your business, and we’re going to track everything by the way. We’re going to track leads to all the way through profitability. So getting a lead, converting that lead to a new client, tracking reoccurring clients, frequency, purchase of, purchase frequency, revenue, cost to sales, expenses, everything that impacts the profitability of business, we’re going to track this on the scoreboard. So you’ll be able to tell easily what’s going right and what’s going wrong. And we’ll go through the scoreboard with you. That way you will understand your numbers. Fourth step, we’ll also do this at the same time on the video call each month, is we’re going to give you an action plan. And these are up to three objectives. We call them objectives. So these are just main, the most important things that you need to focus on this month and actually accomplish in order to stay on track to hit the profit target by December 31. And we’ll come up with the objectives for you. And then on the call, we’ll strategize with you on how to make it happen. Because at the end of the day, we’re concerned with making sure you hit that profit target. That’s our entire mission. And so those four steps target, at the beginning of the engagement, and then the three monthly steps where the CFO is going to analyze your business, then we’re going to create a scoreboard and then reveal to you the scoreboard and then the action plan. Those are the four steps to help you hit your profit target and have a growing business. Giuseppe: That’s great. Very easy to follow and very beneficial overall. So I appreciate that. Adam, if anyone wants to learn more about The CFO Project and what you do and get some additional information, what is the best way they can reach out to you? Adam: Yes, so the, my website is thecfoproject.com. So THECFO project .com. And at the top right-hand corner, there’s a bright green button that says book a call. So if anybody just wants to chat, I love talking to business owners to schedule a 20-minute call and we’ll talk about your business and see if I can help you and so I would love to talk to any business owner. There’s also a, if you go to thecfoproject.com/video, you can watch sort of a kind of how we work and what we do and learn more about how to improve the profit of your business. Giuseppe: Okay, great. And for all our listeners, we’re going to put those, put the following links in the show notes so everyone has access to that. So, but Adam I, once again, I really appreciate your time. This has been a great call. I’ve learned a lot as I mentioned, wish we had spoken 10 plus years ago. I appreciate your time and looking forward to definitely speaking in the future. Adam: Yeah, sounds good. Thank you so much for having me.