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Financial Meeting Cadence with Kristen Reinking

Published by Summit Marketing Team on 02 Sep 2020

The Virtual CPA Success Show for Creative Agencies: Episode 22

In this episode, we are joined by Kristen Reinking to talk about the meetings you should be having to keep up with your finances. There are three main meetings that every organization should be having regardless of their size.

Listen to learn about each of these meetings and how they can be used to keep your agency’s finances on track.

Jamie Nau: Hello and welcome to today's podcast. Today we're going to touch on an awesome topic for all of our listeners out there. We're going to talk about what types of meetings you be having to keep up with your finances. So we think it's a really good topic, so we brought in one of our best CFOs, Kristen Reinking. So she'll be joining Jody and I to talk to this topic. So I'm going to throw it over to you right away Kristen.

Jody Grunden: Before that, we say “best CFO” to everyone that comes on Kristen.

Kristen Reinking: I understand that.

Jamie Nau: She’s listened before.

All: Laughing. [in audible]

Jamie Nau: Yeah it would be great if you would just do a quick introduction on your background and your time with Summit.

Kristen Reinking: Well I've been a VCFO for with Summit for about five years. My client concentration is heavy in digital agencies. Love it, live it, love to give advice, it’s fun.

Jamie Nau: I know our clients love you. We do NPS scores, and Kristen is one of our highest scoring CFOs. One always is coming in for Kristen with another 10 score. She does great work, so this will be an awesome topic for us to talk through. So, yeah, I'll start with you again, Kristen. So just kind of talk about again, what do you think are the most important meetings that any organization should be having about finances, and how often should they be having those meetings?

Kristen Reinking: I think the answer to that question, at least in my opinion, kind of varies on the agency a little bit. If you're a larger agency with different departments and leaders, like at the different levels, like for sales, for instance, or the owners, maybe they're disengaged from what's going on and they need a summarized type meeting. definitely once a week. I really like those meetings. And to have like a scorecard where basically you're hitting some of the key topics like cash receivables, pipeline, resourcing. So I usually start the meeting, and just quickly go over the finance section. But really what it does, is it sort of spans conversation, and allows us to be able to talk about the business. And then basically everyone then contributes in like an IDS type format, and sort of provides a highlight as to the week so that we're all on the same page. It really gets everybody rolling in the same direction.

Jamie Nau: You mentioned IDS format. So I'm going to unpack that a little bit. So for people who haven't heard of IDS, it stands for Identify, Discuss and Solve. I think a lot of meetings to have that cadence is really important because everybody's been in those meetings where you only do the deals. You sit there, and you just discuss and discuss and discuss, and nothing ever gets solved, everyone comes out of that meeting feeling discouraged. So a lot of times what we do is we just spend time identifying the issues. Might be one issue, it might be 20 issues. Then after that, you just discuss them. Then again, depending on how many issues there are and how deep the topic is, if it's an hour meeting, you may only get through three of those issues, and then you just keep the others on the back burner. But before you drop an issue, you have some kind of solve. Might just be, let's form a committee to dig and dig on this further, and then we'll keep working on it and making sure we can come up with a solution for this. Or the solve might be super easy. It might just be yeah, IT has a solution for that. Let's go through that. So I think that the IDS format has been super helpful for us and for all the agencies we work with.

Kristen Reinking: And what's really nice is when you do it in this type of format, you have more people listening. You'd be surprised the different people that can contribute. So you get a broader perspective rather than, you know, if people were to just have a meeting outside of this meeting to discuss it, where it's a little bit more confined. So it also allows people to be able to contribute, which is great.

Jody Grunden: So backing up there, the weekly meeting, who's typically in that meeting?

Kristen Reinking: Owners, CEO, COO, the head of sales, whoever that might be, and then of course the CFO. So really, we're talking about larger clients in that particular instance.

Jody Grunden? So five million and above roughly?

Kristen Reinking: Yeah.

Jamie Nau: So then you talked a little bit about the goals. I think that was a good point and I think that's something you can do whether you have a CFO or not. And again, we're talking about larger agencies here. So a lot of agencies have a CFO, or someone who's in charge of finance. But having those numbers, you're looking at them each week, and talking about where they're at and you can say okay, cash is here, AR is here, and then having whatever those key metrics are and they could be different for every agency. Obviously, we've talked on our podcast about what we think those metrics are, but I think every agency might have a couple of additional ones in there. So having someone that reports to those on a weekly basis is your recommendation for the larger companies, Kristen?

Kristen Reinking: Indefinitely.

Jamie Nau: What about that smaller company? What about the one that's a two owner shop with four or five employees, what should those two owners be talking about when it comes to finances? How often should they be meeting?

Kristen Reinking: Yeah, so I still believe a weekly connect is really important. Just keeps everybody on the same page. Usually the audience is much smaller. It may be the person processing some of the transactional side, most likely the owner and then the CFO. And basically a lot of it is discussing cash needs, cash inflow, cash outflow. It's more cash centric, definitely more cash centric, so that combining that cash flow. But then the other thing that we supplement really is from the financial performance side, we'd go over past performance, you know, once a month looking at how we did for the quarter, for the month, you know, that type of thing. And then we'd have another meeting for the forecast looking for, especially if you're, you know, a two million dollar company or one and a half million dollar company, more than likely your intent is to grow. And so understanding what the progress you're making is really important.

Jamie Nau: Yes, you mentioned the three meetings there. I think every organization, regardless of size, regardless of number of people, should at least have those three meetings. First is the cash flow. I think that should be weekly. I mean, personally, if you are not looking at your cash weekly, you're in trouble. The second one you mentioned was the financial statement meeting where you just take a look at how the last month did. Look at performance, talk about how you're going to take action in the next month based on what you learned in that previous month. Then the third one is the forecast. So I think every organization should be having those meetings in that order: Cash flow weekly, financial statement once a month, and forecast once a month. Jody do you want to walk into, I know you're a big fan of the forecasting meeting, but we've talked about forecast in the past. Do you want to talk a little bit about those meetings and kind of how an organization can run those meetings? The kind of topics they should hit on during that forecasting meeting?

Jody Grunden: Yeah, for sure. So forecasting, basically that's how we designed our company, around forecasting both on the cash as well as on the income side. So it's really important to understand what the drivers are of your revenue, the revenue is going to be a big part of that. So once you've actually created your forecast and everything is in place, we're going to assume that everything is already in place both on the revenue and the balance sheet every single month, we should be looking at it and discussing, you know, the impact that it had. So like Kristen said, as we look at the past and say well, how will last month impact the next three months? How will the last month impact the next six months? You know, what's happening now that we didn't know last month, that we can actually make some changes and adjustments to the forecast on. So it could be just something as simple as maybe one of your producers turned in a resignation. So now you've got a hole to fill. Do you need to fill that hole? Do you have the pipeline? Do you need to make that knee jerk reaction, hire somebody right away or can you wait? If you decide to wait, how long can you wait? What's the timeframe that your pipeline is going to pass actual capacity of you team? So those are the different things we're looking at constantly. Pricing is another thing. Are you hitting your bottom line? No. Okay, do we need to increase our standard rates so that our average rates look closer, a little higher or, you know, whatever that might be, those are the different things we're actually looking at in that forecast. Keep in mind, the forecast is always dynamic, always changing. So every single month you should be making adjustments to it all the time. The budget that you set at the very beginning, you recall that as the plan, that never changes and that's something you can look at towards the end of the year and say, yeah, did I guess right or guess wrong? That's kind of cool when you look at creating a new budget for the following year. But the forecast is what you're actually living and dying on, because that's the thing that you're actually managing your business. And flipping it over and saying hey, so what's my cash position going to look like in three months? Is that acceptable? Yes, it is acceptable. Great. You know, it's a good checks and balance. If I have a line of credit that I will be tapping into in March because of whatever reason, but I don't want to tap into it, now I can make some adjustments ahead of time. So always be looking at that forecast and making adjustments to keep you in line for hitting your goals.

Kristen Reinking: I know when I communicate with my clients, there are a lot of key metrics that we always talk about, like gross profit percentage. That one I sort of harp on just because that's where it begins and ends. If you don't have the gross profit to support the bottom line, you're not going to see a bottom line. So it's great to say hey, I want 45 percent or 50 percent or 55, whatever that that number is, putting it in a forecast makes it a plan, a plan for success. If you don't do that, it just becomes very random and you're really not set up for success.

Jody Grunden: Plus you might make decisions contrary to that, not even thinking about it. But when you focus on that, and you know that hey, that tool that we're going to look at bringing on, maybe we shouldn't bring it on because it's not going to really save us gross profit wise, or maybe that tool is going to really help things out tremendously. Maybe it's software, or whatever that's going to really boost our gross profit. You know, those are the things that you really start focusing on, which Kristen said is the key to your success. That gross profits huge.

Kristen Reinking: Yeah, the biggest element there that affects the gross profit is when you're in a growth mode and you're trying to figure out whether to hire less utilized management, that has a higher cost. How does that impact it, or is the business able to sustain it? Well, let's not guess. Let's run it through the forecast and find out.

Jamie Nau: I think the other important thing too is, to look at different periods of time in the forecasting meetings. So always look at the next month, look at the next six months, look at the next year, and look at what the year is going to be, because that will help you make some of those decisions. So if you thought you were going to be where you are when you created your plan, you wanted to be a five million dollar company with 20 percent of net income, and now we're here. We are in July and we update the budget. We have six months of actuals in here. Now it looks like we're going to be a four million dollar company with 10 percent profit. You still have time to fix that, right? You still have time to either try to grow your revenue over the next six months, or maybe there's some cost you can cut because you're not a five million dollar company. Maybe there's some things you can do to still get to that 20 percent net income just based off the current revenue. So that's another thing, you want to make sure you're looking at those numbers and that's helping you drive those decisions, because it's going to create a lot of really good topics between your leadership team, and the people that are actually building the budget. It also helps you go to departments like wow, look at our marketing department, it’s really bloated right now. Instead of just the CEO trying to make that decision, let's bring in the marketing manager in here and try to figure out what we can cut, and what do they think makes the most sense, because we are a million dollars less in revenue than we thought.

Jody Grunden: To add to that, December 31st is the end all of budgets either. I mean if you're looking at things like well, I had a slow start because of X, Y, Z, and that's a legitimate reason, then maybe it'll be that five million dollar company 12 months from now. So, you know, you might be in June and now you're target has changed a little bit, just delayed. So you wouldn't want to necessarily make a reactive decision just to get it done with a fictitious timeline, which is December 31st. You may want to look and see a little further and say hey, we just got off track a little bit. We're on pace of hitting. We're going towards four dollars million by the end of the calendar year, but as a fiscal year, 12 months from now, we'll be at that five million. So it's constantly looking forward.

Kristen Reinking: It is okay to be outside of parameters. For instance, maybe you're in a growth mode in. So our parameters are 9 to 11 percent for sales. But the truth is, we might be intentionally investing in the company and it might be 15 or 16 percent for a while. As long as it's intentional and there are ROIs there, then it's okay. As long as it's understandable and everybody's aware of it and you are keeping track of it. That's the big thing you get from the forecast. Just that constant awareness of where are we, and where do we want to be, and why are we doing it? As long as it's justified, you're good.

Jamie Nau: And that's a great point. I like Jody's point about December 31st just being an arbitrary date that's kind of pulled out of thin air. It's important to look back 12 months, forward 12 months and be like okay, instead of looking at what we're forecasting this year, let’s look at how we did the last twelve months compared to what we're going to think the next twelve months look like. Even if we are looking at June, what will next June look like. So great point there, Jody.

Jody Grunden: That's kind of when I look at our financials, I'm always looking at the next twelve month rotation. I also look at what the last twelve months look like as well. So I'm looking from July 1 of 2019, to June 30th and saying hey, how did we do comparably over the last 12 months in the same period. And so that gives me an idea if we are truly improving year after year. Then I look at the next year going forward, is that going to be improving over what we just accomplished? And so that to me is a really important thing. It just shows me that we're growing profitably versus simply growing.

Jamie Nau: So we hit on the forecast quite a bit. So that's a very important meeting. If you're not having those meetings we definitely recommend having them because it helps you keep your company moving forward, and in making sure you have a roadmap to follow. So next topic, I want to talk a little bit more on is that financial statement meeting. So what should a small business, or a business around five million, what should they be doing when they're doing a financial statement meeting? I guess my first thought, and I'll let Kristen expand on this a little bit more, and add to her thoughts as well, but I think you want to make sure you're asking questions during this meeting whoever you're asking questions to. Whether it's your CFO, whether it's your bookkeeper who's doing the transactions, you want to make sure you're asking questions to understand what's going on there. Not just basic questions like why do we spend five thousand dollars with X, Y, Z vendor? You know, you don't want to just ask those type of questions. You also want to bring those questions to the CEO like, do we really need to spend five thousand dollars with X,Y,Z vendor. Try and have those discussions when you have that financial statement meeting. So what else do you think is important during that meeting Kristen?

Kristen Reinking: Gosh, well one, comparing against the metrics, always talking about that relative change. One of the things that I always look at pretty heavily is the changes in average bill rate. What's causing it? Is it the standard rate that’s going down, or are we not able to secure business at the same rate we were before? Do we have really large write ups or write downs? What are we doing to be able to contain those or improve upon? You know, sometimes during our financial statement presentation I like to focus on the next three months, and sometimes it will take the owners by surprise because it'll be like right there in front of them, and actionable, and they'll be like, why is it so low? So sometimes we'll start digging in a little bit deeper, and be like oh, so really, it's kind of like, you know, qualifying what we're seeing in the very actionable next three months. So I think those elements are really important.

Jamie Nau: I definitely agree. I think the other thing is to compare the current numbers to a lot of different places. Obviously, we talked a lot about the forecast. So compare it to your expectations, compare it to the forecast. That's super important. If you knew that December was going to be a super low revenue month because all of your employees were taking time off, then it's not going to be bad if you have your lowest revenue month of the year, if that's what you expected. So comparing it to expectations is key. I love to compare it to the same month prior year. I think that's a great thing to do. To look at it and say, last December, we were only a two hundred thousand dollar a month company. Now we're a four hundred thousand dollar a month company. Look at the growth we've made. So compare it to that. Also compare year to date, the prior year. So we're in July, how were we last July? Where are we at in terms of revenue? Where are we at in terms of net income? Where are we at in terms of cash, or where is our turnover at? What was our effective rates? Compare all those things to different points in time to help you get that right perspective, because you never know what's going to give you that additional insight you need for improving your business. That's one thing I always like to do our call, sometimes just pointing out the weird numbers that you can compare to.

Jody Grunden: To add on to what Jamie is saying there, that's hugely important. If you're sharing your financials with your team, it's even more important to add context to it, because like you said, if November, December, because of the holidays we were planning on having our lowest months, we may actually have negative income. Our bill rates may actually be very low. Our utilization may be low. So it could be a combination of everything else. If you just look at it in a bubble and only look at your November, December, you could, the sky is falling. What are we going to do? Make some really serious knee jerk reactions that could really detriment the success of your company instead of putting it in context, like you're saying. Then say well, yeah, we were planning on ending up with a fifty thousand dollar net loss. We thought we were going to be negative thirty. So that's a great job. High five. Finally our bill rate is the lowest it's been all year. But we were planning on it being higher. That is even higher than we were forecasting. Those are kind of weird conversations that say hey yeah, we had this great loss, let's give each other kudos for it. In reality, when we were forecasting, it was supposed to be a much greater loss. The reverse is important too, you may have had an August that was the best month you ever had in your life. And now it's like, oh, let's take some money out and spend it on this new vacation home or something. In reality it was supposed to be that way. Maybe the next month you're going to see a little backlash because of timing. Something like that could actually have impact that. So it's important to take all that context, especially when looking at something that static like a financial statement.

Kristen Reinking: Hey Jamie, I want to bring up one other thing. So this really is incorporated into the financial statement. However, I know that there is also a separate meeting specific to this, and that's the pipeline. We say look at the forecast, but the truth is, anyone can forecast anything, but we need to be sure that it's based in reality. The way that we forecast is based on capacity. So we need to be sure that we have the pipeline to be able to support that capacity goal, because that's what's going to allow it to become a reality.

Jamie Nau: I think that you should be having it monthly and again, a lot of people don't think of it as a finance meeting, but I think the pipeline meeting is a finance meeting because you want to understand if your pipeline is enough to support the revenue goals you have. I think that that's a unique meeting. That's one where, in a way you kind of want the marketing or sales person to lead it, and be able to explain what's going on and what's in your pipeline, and which ones look good, which ones are bad, and really just have the discussion because, you know, again, we do all sorts of calculations because we're numbers people. I think that's great and that's what CFOs and accountants are supposed to be, but sometimes you get a million dollar pipeline and it's awesome because it's made up of four deals. And you think three of those four deals are going to close in the next weeks, then that million dollar pipeline looks great. Sometimes you get a million dollar pipeline and all of those deals just started, and you don't feel too good about two of them because you're reaching for them. And then the other two are just so early on you know nothing. So that same million dollar pipeline means different things, depending on what the sales and marketing people say. So I think having them run that is super important, and just really helps you understand what the outlook look for this next month, or at least the next three months looks like.

Jody Grunden: To add to that with what Kristen was saying, we build the forecast based on the team's capacity. So it's really important to take a three month look like Kristen had mentioned and say hey, how does this pipeline impact the next three months? Really a pipeline after three months is really tough, because there's a lot of variables in there, a lot of ifs ands or buts. But the next three months, you pretty much have a good grasp on that and everybody is pretty comfortable with that. So it's important to make those adjustments now, you know, even though your forecast, your capacity says you're going to hit three million dollars over the next three months, or a hundred thousand dollars, or whatever the dollar amount is. If your pipeline is not showing that, historically you don't have a big make up, meaning that typically at the end of the month you don't make up half your pipeline. You need to know all that stuff and make those adjustments so that you don't kind of fool yourself into thinking you're going to be better, or worse than what you actually truly are.

Jamie Nau: Yeah, I definitely agree with that for sure. I think that the pipeline compared to capacity is important. We are talking about a meeting schedule, and I think that's important. I think we've hit on four or five topics that have a half hour podcast alone on them. So if you're interested to get more information on any of these things, whether it's pipeline, cash flow, financial statement metrics. or even forecasting, we have podcast on all four of those individual topics. So if we didn't go deep enough in an area for you, look at our podcast archive and download one of those, because we'll definitely go a little bit deeper in those podcast episode. But I think this has been really good. So I'm just going to take a second here to throw our email address out there. So we're always looking for new topics. We're looking for guests. We're looking for people to talk to. So feel free to email us at: vcfo@summitcpa.net. We love to hear from our listeners, and we're always trying to evolve the show, so we'd love to hear from you. So before we end the podcast, Jody, Kristen, any other thoughts you might have about topics, or things that people should be meeting on a monthly basis on that we may have missed?

Jody Grunden: I would say cash flow. Cash flow meeting at least once a week. It really needs to cover all inflows, all outflows of cash too. This is not a financial statement meeting. We don't care about non-financial stuff like depreciation ,and stuff like that. We're looking at what loan payments are going out. You know, what your revenue is expected to hit the exact day so that you can plan for it. It’s important for every business owner to at least take 30 minutes out of your Monday or Tuesday, and look at that and then kind of recap the following Friday on what actually did happen through what was forecasted. You can make adjustments and get ready again for the following Monday. It's just a reoccurring thing, and if you're not doing that as an owner, that's pretty silly. We need you to make sure that either you, or you have someone on your team that's 100 percent responsible for that and looking at that. Communicating it to you on a weekly basis, no matter if you've got a million bucks in the bank or, you know, you don't have anything in the bank, it's important to know what that is.

Kristen Reinking: Kind of expanding on what Jody is saying regarding the cash flow. I'm huge on the cash flow actually, because you talk about financials but really that's on accrual basis. It's when you earn it. But the truth is, is that you invoice at a different pace. You could be burning cash, you know, burning through customer deposits. You could be creating whip, who knows, are customers delinquent in payment? Keeping track of that AR and how what affects it. I like to look at it from a like in a 10 to 12 week window, and look at that top line and make sure that I'm covered. The other thing I do is, I look to see what our balance is right now. If we are saying no more inflows, you know, we may have three hundred thousand dollars of inflows we're expecting the next two weeks. But let's just say doomsday happens, and we don't get a single dollar. Can we cover the next two weeks, or do we need to pull from our reserve just to make sure we've got the comfort to move forward? So just always protecting the business and the owner.

Jamie Nau: Yeah, I think the biggest takeaway from those weekly cash flow meetings is walking away with an action plan. I think that's the most important part of the cash flow meeting is we're going to pay these three vendors and Jody really needs to work on collecting from these two customers, because if they don't, we're going to be in trouble, or we have to go to our cash reserve. So I think having a bulleted action plan after that cash flow meeting is super important. Especially if you're doing it internally and just having someone that follow up on it. If we decide that we can't pay vendor three unless we get collections from customer one, it's really important for me to check in with Jody and be like hey, I'm getting ready to pay vendor three if you get collections from customer one. So it's really important to walk away with that action plan and kind of if/then situation to that you might need.

Jody Grunden: We know clients that actually do weekly cash flows meetings and do them the right way. Their accounts receivables typically are in pretty good shape. They don't have delinquent accounts that are over 90 days or very, very few because they know they have to get on that person to get payment, or follow up on a regular basis because they can see how it really impacts the numbers. A lot of times you're looking at financial statements and you really never think about it because it's this one big number. Whereas when you're looking at the cash flow and looking at your aging receivables and your aging payables, we find that customers really take ownership of that. Their receivables are in much better shape than if they didn’t.

Jamie Nau: Yeah, especially because the monthly balance sheet can be deceiving. If you're looking at your balance sheet at the end of each month, it could always be very high because that's when you pay you traditionally because you invoice at the first of the month. But what about day 15 or 16? Where you are kind of in that zone where people might not be paying you as quickly because you're not in that 30 day period. So that's why the balance sheet can be very deceiving, because I can say you will have five million dollars in cash on July 31st, but then you had to make a huge payroll the next day, and then your cash just went down to $600,000 or so. Your cash can be very deceiving depending on the day, so it's important to have that weekly meeting to understand where it's all going instead of just relying on that monthly financial statement.

Kristen Reinking: That's very true. I think it's kind of interesting. whenever we are onboarding clients, you always find that their accounts receivable is a little less than as great as you'd like it. But when we start those cash flow meetings, sometimes it can take up to three months to get it really where you want it to be, because, you know, anything over 90 days becomes very difficult to collect. More difficult than it really needs to be. Rather if you just keep pace with it then your clients know that you're going to be expecting it, and they just send it naturally, and you develop a cadence that they're expecting. So, it's a fun thing we see with onboarding clients during the first 90 days with them.

Jamie Nau: Well, we are right on time here. So I appreciate you joining us, Kristen. I'm sure the listeners will be emailing us. They will want more of Kristen. This was a great topic, and a little bit less of Jody. So I appreciate you as well, Jody. Good job as always, appreciate you both coming in.



Financial Meeting Cadence with Kristen Reinking

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