Blue Collar Culture

Business Results the Old Fashioned Way

Adam Lean | The Higher Revenue, Lower Profit Paradox

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The key drivers of your business success are your numbers and financial data. But too many small business owners have a vague understanding of how to measure success, says Adam Lean of The CFO Project. In fact, despite growing sales many find themselves with dwindling profits.

But used the right way, says Adam, numbers can actually tell you what’s working and what’s not in your business – and how to fix it. There are two numbers that matter the most in your business. Get a handle on those and you’ll have less stress, more money, and a better work/life balance.

Tune in to get all the details, including…

  • The key differences between cash flow and profit
  • 3 metrics you must watch to improve sales
  • How to avoid your business turning into a job
  • Getting the most ROI out of your employees
  • The Seven Drivers of Cashflow

Listen now…

Mentioned in this episode:

Transcript

Ryan Englin: Welcome back to another episode of the Blue Collar Culture Podcast. I'm your co-host Ryan Englin and I am here with Jeremy Macliver. Say hi, Jeremy.

Jeremy Macliver: Hey, welcome, everyone.

Ryan: Today we are very excited to be joined with Adam Lean, the president of The CFO Project. And Adam and his team, they helped improve the profitability of small businesses. They give their clients a CFO who helps them understand their financials and use them to make better decisions. Adam, thank you for joining us today.

Adam Lean: Hey, I'm super excited to be here. Thanks for having me.

Jeremy: Welcome.

Ryan: Yeah. So what I'd love to do is just have you share a little bit about your story with our listeners, how you got to do what you do. And then exactly what is it that you do over at The CFO Project?

Providing Experienced CFOs to Small Businesses

Adam: Yeah, so I used to be an accountant and hated every minute of it. I'm just kidding. I really didn't like being an accountant because the accountant's job is to record what happened in the past. And I didn't, I hated sitting behind the desk and just crunching numbers. I wanted to get my hands dirty. I wanted to work in the business and help the business grow and work in sales and operations and marketing.

So to sort of scratch that itch I started my own business, this is in 2006, while I had a day job as an accountant. I started an e commerce store and over the next couple of years that business grew. By 2010 I was doing almost a million dollars in annual revenue. And I was able to leave my day job and focus on being a, you know, business owner, and I loved it.

Here's the problem though, is all of a sudden I had to wear all the hats in the business, not just accounting, but I had to do sales and marketing and operations and fulfillment and customer service and employee management and all these things that, you know, that I A, didn't really enjoy, you know, some of those things and B, I was stretched way too thin. Because of that I sort of took my eye off the, what I was good at understanding the numbers and financials.

And even though sales were still growing, I was more stressed out than ever. I was working longer days. I had no work-life balance at all. And most importantly, my profit and cash flow was getting smaller and smaller every month. Even though my top-line number, my sales, was growing. So I essentially took a step back and of course, this took a year or so to figure out but I took a step back and started zeroing in on what I was good at which was understanding the numbers.

And front of that I was able to spot what was going right and what was going wrong from a number standpoint. And here's why I keep using the word numbers, at the end of the day, regardless of what type of business you have, you have to make a profit and you have to make more positive cash flow. Basically means you take your bank balance at the beginning of the year, at the end of the year, you should have more in the bank. And those are the only two things that matter in a business.

And those are both numbers. And so, you know, I've sort of figured out which parts of my business using numbers, which part of my business was working, which parts were not working. And then I zeroed in and started working on those parts that were not working. And slowly but surely, I was able to get myself out of it and improve the profitability and cash flow of the business. Well, in the meantime, I started working with other business owners to help them and realize that they didn't have the benefit that I had of understanding accounting and numbers because they're not accountants.

Most business owners get into a business because they are experts in the craft or the trade of that business, not because they understand numbers, but again, at the end of the day, you have to have profit, you have to have cash flow. And those two things are numbers. So fast forward about a decade, I started what I do now, which is called The CFO Project. CFO stands for Chief Financial Officer. A CFO in a big business, so let's say amazon.com. They have a CFO, their job is to tell the CEO and the other members of management what's going right and what's going wrong when it comes to the numbers.

What, here's what needs to happen in order to improve profit and cash flow. That's really what they do. Well, big businesses have CFOs. Small businesses don't have anybody like that. So we that's what we do. We bridge that gap. We work with small to medium-sized businesses and every single month, we get on a Zoom video call and show them here's what's going right and here's what's going wrong over the past 30 days. And here's exactly what to do in order to improve the profit and cash flow in the business.

Ryan: Oh, that's fantastic. So, you know, we talk to a lot of small business owners that have this perception of being an entrepreneur that it equals freedom and it equals control of your time and control of your schedule, a lot more money than with a job. And so many of them get caught into that self-employment rut where they just created a job for themselves that's 80 hours a week instead of 40 that pays less that has more stress and all of these other things.

But I love what you said that there's really only two numbers that matter. You have more cash the end of the year and are you making profit And I mean, that's really what being an entrepreneur is all about. So, but it's not that simple. I mean, that sounds so easy. Just focus on those two numbers. I mean, there's got to be more to it than that.

Building Your Cash Machine

Adam: Well, I mean, it is easy and it's not. I mean, at the end of the day, really you have to have cash to stay alive in your business. And in cash flow, let me clarify this. You can get cash in three different ways in your business. So if you had $10,000 on January 1, and you ended the year with $20,000, on December 31, you had positive cash flow. However, you could have had that positive cash flow one of three ways.

The first way is you could just get debt. So you could take out a line of credit or a credit card and you have access to cash. The problem with that is that you owe it back obviously. It's not yours to keep. The second way to get cash is to get investors or get, you know, take your own money and pull into the business, you know, your own personal savings, You could have poured $10,000 of your own personal savings into your business, you have got cash, but it's, you didn't really create cash. The third way, the best way to create cash or to get cash is to make a profit.

And this is profit from the operations, the normal operations of your business. And of course, that's why those two numbers go hand in hand. You have to make a profit and you have to also have positive cash flow. But the best type of cash is cash that you get to keep, that you created. And so that's why I like to say that a business should be thought of as sort of a machine that sits in your garage. That machine's job is to manufacture cash. I mean, that's really it.

And so, the machine is made up of a ton of parts, but the whole point of it is to manufacture cash that you get to keep that you don't owe anybody else. It's yours. You can go on vacation with it, you can save for retirement, you can give your employees raises, you can reinvest back into your business and expand. It's your money. And that's when you hear, you know, people like Warren Buffett, they say free cash flow, that's the only thing that he uses to measure, or one of the things he uses to measure a company.

That's what that means. you have cash that's free, it's yours. You don't owe it to anybody else, you've created this cash. And that's really the whole point of a business. So it is sort of simple. But of course, it's easier said than done. I mean, there's a series of things that have to happen in order to improve profit and cash flow. But at the end of the day, very simply make more cash. To do that, make more profit.

Ryan: I think that's great. And I was just say, there's nothing that you said that says that I, as the business owner, and that machine. Like there's a machine in my garage that's generating cash. And so working harder, doing more, spending more time in the field, that's not what's going to generate that cash. It's creating that machine to create the cash for me.

Adam: Yeah, and I'm so glad you brought that up because that's a trap that a lot of people fall into, you know, myself included. I mean, it's really easy to buy yours, to have a very stressful job, for your business to turn into a job, that's like you said earlier, is stressful and doesn't pay as well as if you go work for somebody else.

You don't, I mean, unless you want that. I mean, that's totally fine. If you just want to be, you know, what would be known as like a self-employed person, so like an accountant or a doctor or lawyer who has this skill and they just want to be self-employed and practice being a doctor and lawyer or whatnot. But that's different than owning a business. Owning a machine basically, where other, people you employ other people in other parts of the business are running. But you own the machine. You're not the machine. I'm glad you brought that up.

Jeremy: Yeah. I always think of that, you know, when you're out traveling, you see those souvenir pennies that you got to crank the little machine and it spits it out. That's what I always think of like, that's the thing that I'm building. I got to put something into it and then I got to get something out of it that is worth something to me.

And, you know, there's several ways to get that going. One is I put more in so I could get more out. And the other way is I turn it faster so that I can get more out. And that's building the machine versus building the job. I remember, you know, every business that I've grown, when we hit that critical spot where we felt stuck, we brought in, you know, an outsourced CFO like you and help to figure out okay, were in this machine, what gears aren't working right now?

What one's become disconnected? Or what one can we put in here to make this machine go faster, spit out more of what we're looking for? So when we look at this from a high level, what if you were going to give the audience today one bit of feedback, what is that one thing that you feel like, maybe there's a couple things there, that you feel like are the just the gold where you typically go and look first for a place to increase the profit?

The Seven Drivers of Cashflow

Adam: It's a good question. But every business is different so there's not going to be one or two things for that will work for every business. However, here's a great way to figure out how to find out what the problem areas are in your business is take your income statement, so just ask your bookkeeper or accountant or if you have QuickBooks, just run it yourself. Take your income statement in for the past three years, and quite simply, look, did you make a profit? Are you growing in profit bottom line, the bottom line?

And remember it doesn't, you know, like Robert Kiyosaki from Rich Dad, Poor Dad that book he said, doesn't matter how much you make, it matters how much you keep. You know, profit and cash flow are the keeping part. So on your profit and loss statement, also known as an income statement, look at the bottom line. How much profit did you make? Is it going up every single year? And then also, there's another report that a lot of business owners don't look at, but it's called the statement of cash flows report.

Run that also each year for the past three years. And there's a line at the bottom that says increase in cash. That's your cash flow. Is that going up? And quite simply, those two things will help you figure out at a 50,000-foot view is your business working or not? You know, and regardless of how well the business is doing, even if the profits are skyrocketing, your cash flow's skyrocketing, there's several, every business could improve. There's always room for improvement.

So there's seven, what I call drivers of cashflow that really needs to be improved in every single business constantly. And so once you've taken a look at sort of your profit and cash flow over the past couple of years, then you could take it a step further and break it down and look at these seven numbers and try to improve those numbers this year. And if you improve each of these seven numbers, you will improve your profit and cash flow. And we can go over those seven numbers if you want.

Jeremy: Let's do that. That sounds exciting.

Adam: The first set of numbers, the first three numbers revolve around sales. Getting sales. So obviously, to improve profit, you got to get more sales and/or reduce expenses. Well, the first three numbers revolve around sales. So the first is leads. How many leads Did you get last year? And can you improve that for this year?

So a lead is an opportunity to do business. So however you define that in your company, can you get more than you get last year? And by the way, if you're not tracking these things, you need to start today tracking these numbers that I'm talking about Because they're very critical. So you need to get more leads. That's number one. And then you need to, number two is to improve what's called the lead conversion rate. What percentage of those leads can you convert into new clients or new customers?

And so if you had 100 leads, and you got 10 actual paying customers from those hundred leads, that means you have a 10% conversion rate. So that's the second number. Can you improve that number? So then those are two drivers of getting new customers. So to get new customers improve one of those two things, one or both of those two things. The third number two track or the third driver of profit and cash flow to track is the percentage of past customers that you can get to buy again.

So if, you know, if you own a heating and air business, for instance, you know, what percentage of customers that have done business with you in the past can you get to buy again? So that's the third driver, increasing the percentage of existing customers that buy again. You know, it's also, you know, some people call a purchase frequency or retention rate, all that just a fancy way of saying what percentage of your past customers can you get to come back.

So those three drivers will help improve the number of customers that you get. Then the fourth number is increasing the average sale. So if you take the average transaction or the average sale for every client or every customer, can you improve that number? So by, you know, just pausing here for a second, these are four numbers that you get can work on just one of them and increase your profit and cash flow.

But imagine if you started working on all of these four numbers. You know, this takes time, but if you started working on all of those, you'll dramatically increase, you're turning the levers up, you're dramatically increasing your profit and cash flow. So number four is average transaction value. The fifth number is what's called gross profit percentage, or gross margin. Some people call it that. Basically, it's, you take your total sales, and you subtract all the direct cost involved with making the sale. That leaves you with a gross profit or profit on the sale. So let's use an example of a pizza restaurant.

Let's say you sell a pizza for $10. Well, you've made one sale at an average value of $10. And let's say that it costs you two Make that one pizza, let's say the dough and the cheese and the pepperoni and all was $4. That means your gross profit was $6. 10 minus four is six. So you made a $6 gross profit. If you convert that to a percentage of sales, so six divided by $10 that means you had a 60% gross profit margin.

So then the fifth driver of profit and cash flow is can you improve that gross profit margin? And, you know, you can either improve it by raising your prices and/or getting shopping around to suppliers or vendors to get cheaper cost or making the pizza more efficiently improving the gross profit. The sixth driver of cash flow is expenses. So you have your sales, you subtract all your direct costs of the sales, that gives you your gross profit. What's leftover has to pay all your overhead.

So this is things that are sort of fixed in nature like your insurance and rent and payroll, things that you sort of have to pay regardless of your sales volume. So the sixth number is to can you reduce that overhead as a percentage of sales? So if you spent, you know, 20% of your sales last year on overhead, can you get that down to 19% or less? If you take your sales minus your direct cost that gives your gross profit. You subtract out your overhead, that gives you your profit. But we're not done. I mean, obviously, you want to make a profit, you want to so all those six numbers, if you improve those, you will make more profit than last year at least.

But we're not done. You've still got to convert that profit into cash that you get to keep. So the last number, the seventh number is the conversion of profit to cash. So how much of that profit are you keeping? And that's, obviously we want to make, you want to keep 100% of it. So that's the goal. You want to keep as 100% of that profit as cash. So that's, those seven numbers, if you start tracking those and creating goals for this year, and then just start measuring your progress, you will increase your profit and cash flow.

Ryan: Wow, that was some, that's a lot of numbers there. But I think it's great because a lot of business owners, I mean, I see, we see it a lot in just the work we do. They don't know any of those numbers. You know, they're focused on, am I bidding high enough? Is my pricing, right? But they're not looking at the expenses. They're not looking at cost, those kinds of things. I can't remember who it was that said it, I'm sure you know, but it's the idea of the power of one.

And that's what I was thinking about when you said that. If I just focused on 1% improvement in one each of those areas, at the end of the year, it's not one plus one plus one equals seven. Like 1% revenue increase or lead generation increase, one percent expense reduction, I mean, that could equal $25,000 net income to the business owner by the end of the year.

Adam: Yeah, incremental improvements, it snowballs into something huge. And you don't see it on a daily basis. You don't see those 1% increases every day. But you see it on a yearly basis. So you're right, they add up.

Ryan: Absolutely. So what, can you, a lot of great numbers, there are a lot of great things, but what are some of the things that you see that when you work with business owners, you're like, hey, well, we're looking at this cash flow driver, let's do this and see what happens. Like what are some of the stories? What are some of the things that you've seen work or not work when people start tracking these numbers? Because I think tracking the numbers is part of the solution but then you actually get to do something with that information.

Acting on the Numbers

Adam: Yeah, absolutely. I had a client who's still a client, started with me about three years ago. They owned a marketing company, marketing agency, and they were doing about a million and a half in revenue. And they, I mean, they were knocking it out of the park when it comes to sales. They were increasing sales. That's what their focus was. But they had a loss that year of $250,000.

And so they were working themselves to death just to try to get out of that hole, but they were working on sales. Well, after we started working with them and we started tracking these numbers, we realized that sales wasn't their problem. They were not making enough profit on each with some of their services that they were offering. And you know, they were spending way too much time because they're a marketing agency they spent way too much labor on certain processes and they weren't making enough money. So we were able to help them stop focusing on sales and start focusing on improving efficiency, improving the gross profit on every client that they had.

And they were able to turn that loss of $250,000 into a profit last year of over $350,000. I mean, that's a huge swing. Almost $600,000 swing without, and this is key, without growing sales. And, you know, that's a prime example of you may think that sales is the problem. And of course sales cures a lot of problems but that's not, may not be the only problem.

You know, here's another example. We had a client that was a doctor, a doctors practice he owned a large doctor screening colonoscopy screening practice. He had 16 doctors working for him, and they were doing a pretty big business. You know, multiple seven-figure business. And we spent a couple years together, but I remember one meeting distinctly. I explained to the guy that owned it, the head doctor, you know, you had, you know, X amount of patients schedule an appointment. Like you spent time and money, your sales team went out and got these people, built relationships with referring doctors to give you these patients.

And they said yes, I want to schedule an appointment, but about 20% of them were not even showing up. Well, they didn't realize because they had so many patients come throughout the day, they didn't really, I mean, they knew some patients didn't show up, but it was never on their radar. You know, if you were a small doctor's practice, it was just one doctor, you would notice when if, you know, half, you know, 20% of your patients didn't show up. But because this is a large practice, they didn't notice.

But I explained if you can reduce that from 20% down to 10%, you would add almost $800,000 to your bottom line. Because it's those patients, they scheduled a slot for them that they can't refill. So if you're able to improve the percentage of patients that were, that showed up, you'd be able to add so much to your bottom line. It was a complete eye-opener. But these are the things that you have to look at the data, you have to look at the numbers. And if you're not doing that yourself, you got to have somebody that is doing it for you and explaining it in a way that makes sense.

Jeremy: Adam, I'd like to take us to the seventh one that you had there, profit to cash. You know, I find that teams when they do start focusing on their numbers, some of these other ones leads and conversion rates and some things like that, we might start tracking those. But I know how frustrating it is to get to the end of the year, and the p&l shows that we've made $100,000 and there is no money in the bank.

Adam: Yeah, it's a common story.

Jeremy: So tell us a little bit about how do we get profit to cash?

Adam: Yeah, that's a great question. I mean, that's a very important question. Because you're right, a lot of business owners are making, they're making a lot of money. They're just not seeing it. Like, where is it? I made $100,000 like you said. Where is it?

It's not the bank. So let's figure out some of the reasons why, some of the main culprits of why this is happening, and there's a few. The first is if you sell to clients on credit, so in other words, if you do a job and then you issue an invoice and you're waiting on the client to pay you, that means you've extended credit to your client. So let's say you did a heating and air, you own heating and air business, you did a $5,000 job. And then you send an invoice to the client for $5,000 and it takes them a month to pay.

So if you think about it, you made $5,000, you have $5,000 in revenue, and then let's say you paid your employees for that job and you pay your supplies for that particular job and let's say you profited $2,000 on that job because you already had to, you've made sales of five thousand and you spent all this money on labor to do the job. So you profited $2,000. So did you make, on there, on paper, you made $2,000 profit, that's great. But if the client hasn't paid you, you're not only out the $5,000, you're also out the money that you paid your employees and your suppliers.

So your, if the client takes, you know, 90 days to pay, you're out that money. And so that's a very prime example of how you can make a profit on paper, but not have the money in the bank. And in fact, you're having to spend more money to do that job because you have to pay your employees and your suppliers. So accounts receivable is the name of the, you know, the account where that's a big culprit in a lot of service-based businesses. So the best way to combat that is to get the, to watch your, who owes you money like a hawk.

And I tell our clients every week you should be running this report and get your, you know, get your bookkeeper or accountant to send you that report. Or if you have something like QuickBooks Online, or Xero or any of these other accounting softwares, run your report every single week and see who owes you money. And anybody that owes you more than 30 days, you need to be on the phone with them figuring out exactly where that money is. There's a report on QuickBooks Online is called the accounts receivable aging summary report. But, or just get your bookkeeper to send that to you.

Another example of where the cash could go is inventory. So if you own a retail store or e commerce store or something like that and you're stocking inventory, you're having to buy all this inventory to stock your shelves. Well, that's cash is going out the door. Well, until you sell it, you do not get it, you're not making cash off of that. So if you buy $100,000 worth of inventory, that's $100,000 that's sitting on your shelf or in your warehouse, that's not sitting in your bank.

And until you can sell through that inventory, you're not replenishing your bank account. So that's another culprit of cash flow. You can you know, have profit and a lot of profitable businesses go out of business because they're not able to maintain a positive cash flow. And, you know, those are two big culprits of cash. Another and this actually happened with a client recently, he, you know, they're baffled as to why they always have to rely on debt credit cards and line of credit. You know, but they're taking owner withdraws.

They're taking a salary from the business, but then they're also withdrawing, you know, this case was about $10,000 a month, every single month, because they needed the money for their personal use, for their family use. But because of that, and you know, they didn't really, until we pointed it out, they didn't really understand why their bank account was very low every single month. It's like, Well, hey, either we improve your business to support that withdrawal every month, or you got to stop taking the withdrawal because you're hurting your business. And, you know, and you're relying on debt and you're increasing your debt.

Ryan: Debt is a very quick way to get rid of cash. especially long term debt. I've had to talk to some clients in the past about that. They're like, we're so profitable, but we have no cash because you're servicing this debt, this liability that you took out last year, and I think that they forget that those are so closely related that will suck up your cash even though you might look really, really profitable on paper.

Adam: Absolutely. Yeah.

Ryan: So one of the things that Jeremy and I spent a lot of time working on and, you know, we're talking about this in the book as well, is that the health of your business has a lot to do with the people on your team. And that doesn't necessarily always mean the people that are providing your service. It could be your bookkeeper, it could be your, someone helping you with your financial strategies, but people are such a big driver for the health of your business that when you get the right people, you get them in the right seats and you've got a team that's really productive, that can do huge things for the profitability of your business.

In the trades, especially home services, there's a saying that a lot of the technicians they sell from their own wallet. They're like, well, it's not my credit so I'll work with the customer to get the credit set up and then somebody else's problem to get them to pay. Or not selling them the right services or that kind of stuff because it might be more expensive. But having the right people on the team can really impact your cash, your profitability, all those numbers that you talked about.

Because if you've got a lot of leads coming in, but you don't have people closing those leads, that's a problem. Or servicing, a lot of times, yeah, a lot of times the owner has to step in to take care of that and that keeps them from working on the things that really matter in the health of their business. So would you mind talking about that a little bit? Just what you see when you're working with clients, what the impact of people or the right people have on profitability, cash flow, some of these other numbers you're talking about?

Numbers Everyone Can Relate to

Adam: Yeah, I mean, it, you know, that's a great question because employees are likely one of the largest expenses that you're spending every single month. And there's a rule with that, a rule of thumb with expenses, regardless if you're paying an employee or paying your rent or marketing or, you know, the guy to cut your grass, only spend money if you're going to see a return on that money. So when it comes to employees, if you're going to pay somebody to do a job, that job has to, that person has to pay, cover their salary, and all the benefits and all that in some way. I mean, otherwise, why, if they're not helping do that, why give them the money?

You might as well keep the money in your bank account. So you've got to measure somehow the productivity of every single employee. And every employee whether I mean measuring the productivity of a sales employee is easy. Did they, are they making sales and closing the sales to cover their salary? That's easy. But what if it's a dock worker, somebody in the warehouse or somebody, how do you measure their productivity? So you, there are ways to do it, I like to use a method where that we set sort of a strategy or what I call objectives for the whole company.

And then for every department, we set objectives to help support the big company objectives. And then for every department, we set objectives for each team member to help meet the objectives for the department, which would help meet the objectives for the entire company. And if you set these objectives for the company and for the department and for the team member, then you could set measurable, you can define the metrics that you can use to say did the employee make the objective, or did the department made the objective, or did our company meet this objective?

And that way, you're not only making sure that everybody in the organization is aligned to the objectives of the company, which should help you improve your profit and cash flow, you're also measuring whether or not they're actually doing that, they're actually being effective at meeting the objectives of the company. So that's a great way to help ensure that your employees are being productive and improving the profit and cash flow of the business.

Jeremy: I love that. Another thing that I love to ask, you know, when you know, you, you mentioned the dock worker, or I actually just recently had an inventory stalker that we had to figure out what are their key metrics? And a question I love asking is what happens if we don't have them? And that usually surfaces out well, you know, if we didn't have this guy in inventory, we would have our inventory backup, our workflow would drop, we wouldn't have the right stuff going out. There's just all of these things happen.

Like, great. So how do we measure to make sure that if we're paying this guy, we're not getting those things. Are we were getting what we want? And recently with that inventory thing, we got through it. And he looked at said, we had no clue that that person was that valuable to our cash flow. And now we know exactly what does it look like, how do we know that that person is driving these results for us? So I love the way that it all pulls together and where you pull it down like that. So

Adam: Yeah. And it all starts with measuring something, a number. And it doesn't have to be, and the number doesn't have to be a dollar amount. It can be a percentage or a number. It's just, it, you've got to start measuring.

Jeremy: I had a team that grew their one division of sales by 85% in one quarter on the number that they were measuring. They were measuring one single number, and that was windshield time. How much time are our guys driving? And they just started measuring that one single number. And lo and behold, they found ways to reschedule, schedule faster, schedule density and areas of town. And actually, one of the biggest things they got was people turning their paperwork in. If you turn in your paperwork in, now it's billable hours not drivable hours and sales go up right there.

So they were able to speed up the time that they were able to get that turned into which you know what happens with that, now that we have those billable hours if we build a customer right away, or more likely to get the money, get the money quicker, cash flow's up. And that number had nothing to do with dollars and cents or anything like that. It had to do with how much time are we driving around going from job to job?

Adam: Yeah. It sounds like it was a very clear way, a clear number for their employees to understand. And it was a driver or something so that number was a driver, windshield time. So because it was clear and easy for them to understand, and they knew that their superiors were measuring it, they would improve. So, you know, people improve what's measured. Peter Drucker says, You measure what matters.

You know, there, I have no idea if this story is true or not, but there's a story about Henry Ford in the factories trying to figure out how to get each shift to work harder, to produce more, you know, cars, and so at night, after one shift, they decided to write in chalk on the floor, a number, of, you know, like 60 And then the next shift figured out, you know, wondering what that number was.

And it, they figured out that it was the amount of cars that the first shift produced. So they wanted to, because they were, they wanted to beat the first ship. So they did 61. And, you know, wrote that in chalk. And so the third shift, figured it out, and they wanted to beat that and say we did 62. And, you know, it kept going because they were measuring it and everybody wants, they understood the number and if somebody was measuring it so they increased output. I have no idea if that story is true or not, but it sort of fits.

Jeremy: But I do know that in reality, I've seen that so many times. And the big thing with even that story or the windshield time story or any of those is the number has to be relatable to the employee.

Adam: Absolutely.

Jeremy: The owner wanted To increase sales, increase profit in that division. That's what they're after. But the employee couldn't understand that without understanding the accounting and the infrastructure. Like we weren't going to get there. But they could understand windshield time. And it did directly affect their lives and how long there are working between these things.

And so it was a number that was in their world. And that's what I always encourage my teams to do is to get to a number that they recognize. And like at the end of the day, do they know if they were successful or not? Too often our employees are playing a game of business and they don't even know what winning looks like.

So they're at the basketball court, just, you know, at the park just kind of lobbing the ball, stopping and for some water, chit-chatting because they don't know what winning looks like. We gave them numbers. We kept track of their points, we cheered them on. We encourage them to do that. They start playing tighter, cleaner shots, faster passes, more energy in it, because they know what success looks like. They know what winning is. Once you find it for them, and now we help them win, they help us win.

Adam: I mean, you're right imagine like, a basketball team. The head coach is the business owner. The business owner gets these reports and let's assume, and most business owners don't do this, but let's assume that the business owner understands their financial statements, or the income statement, balance sheet, cash flow statement, all that. So the head coach understands these numbers and they're pouring over these reports every month, but their team is lost. Their team has no clue what's going on.

You know, and what makes it worse is that many head coaches don't even look, understand those reports anyway. So everybody's lost. So how do you solve that? Well, you have a scoreboard, a very simple, easy to understand way for everybody involved, the coaches, the players, the fans in the stands to understand what's, who's winning, who's not winning. It has to be, like you said, it has to be relatable, and has to be simple. And so those seven numbers that I talked about, they go on what we call a scoreboard.

And we create a scoreboard for each one of our clients. So our clients don't look at income statements or balance sheets or cash flow statements. They look at the scoreboard because it's clear and easy to understand. And if the business owner understands it, then they can know what to do to improve it and they can explain it to their team more clearly.

Ryan: Oh, I love that. You just measuring it just keeping track, just being able to share that information with the team can do so much to improve profitability and cash. Well, hey, Adam, we, we're actually out of time. So want to thank you for being here today. It's been a really enjoyable conversation.

When these go really quick for us like as it did for me, I know it's got some great information for our listeners. I really enjoyed it. For people that are like, you know what? He's right. Yeah, we for the people that are listening this going, you know what? He's onto something. But I have no idea, I don't even remember what those seven things where. I need to reach out to him. How did they get ahold of you?

Adam: Yeah, that's a great question. My website is thecfoproject.com. So THECFOproject.com. And to get ahold of me honestly, at the top right there's a button that says book a call and you'll see my calendar, just book a call. I would love to speak to any business owner. But to get those seven numbers and to understand them, I have a short 25-minute sort of video workshop. So if you go to thecfoproject.com/video, you can watch, you can get those seven numbers and a whole lot more. Thanks so much for having me.

Ryan: Thanks a lot for talking with us today. Really enjoyed it. And, you know, great numbers, go check it out. Go learn a little bit more about how to drive some cash in your business. Thanks again, Adam.

Jeremy: Thank you.

 

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