Build to Enough

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Keila Hill-Trawick: Hello. You're listening to Build to Enough, a podcast for entrepreneurs who want to scale at their own pace. I'm your host, Keila Hill-Trawick, and I'll be your chief storyteller and cheerleader in a world that glorifies endless expansion, we're tuning out the noise and discussing the beauty of enough. Each episode will dive into inspiring stories, practical insights, and strategies to cultivate sustainable success on your [00:00:30] own terms. So whether you're a solopreneur, small business owner, or aspiring entrepreneur, get ready for a refreshing take on the entrepreneurial journey. This is build to enough.

Keila Hill-Trawick: Hello and welcome back to Build to Enough. Today I want to talk about the financial foundations of growth and really why scaling smart matters. So as we've talked about before and as I mentioned a lot, a lot of business owners chase growth, but there's no solid financial foundation. So you end up with [00:01:00] cash flow issues, pricing mistakes, and sadly in some cases, closure. And what I want to make sure that we're all in understanding about is that scaling isn't just about doing more. You want to do what you can in a way that is sustainable. And along the way, you've got to be making informed financial decisions. So the key question that we want to talk about and answer today is, are your financials set up to support your growth. Or are you just hoping that it works out? Let's dig in to the [00:01:30] details. All right. So before you grow you really need to know where you stand financially.

Keila Hill-Trawick: And I'm thinking about four metrics that really provide clarity on where you should focus. First one revenue. What money comes in. So the first thing you need to know is what's working. What are your most profitable services and clients? Not just who pays you the most, but after you account for the expenses or cost of those sales. Where are your highest profit margins? Do you have services that people aren't signing up [00:02:00] for? Do you have services that are making you a lot of money? But then you've got to spend a lot in order to deliver on those. If that's what's happening, it may be time to reassess so that you can see if you're missing the mark on what your ideal customer needs. Also, look at your trends. Are you growing steadily or is revenue unpredictable and inconsistent doesn't mean unpredictable. You may always know that, like the top of the year and Q4 are your big seasons and spring and [00:02:30] summer are going to be a little low. If that's a consistent trend, that's not really unpredictable, right? Like, you know, when money is going to come in, you know, when your highs, your peaks and valleys are going to happen. And so really you can then use that information to make sure that your revenue sources align with your long term business model, whether that's the time that you're spending, the team that you're building, or the services that you continue or discontinue. Second up in terms of core financial metrics is expenses and what we're what we're looking at, expenses. [00:03:00]

Keila Hill-Trawick: The question that we want to ask is where can we optimize? Growth often means more expenses. And that makes sense, right? Like the more you do, the more you potentially need. But what you want to check on is, are these intentional investments? Am I doing these because I'm expecting a return on the other side, or are they just added costs? And later I want to do a podcast episode on distractions, but put a pin in that because that's where a lot of those expenses go. If they're not intentional, they just [00:03:30] end up being things that you're spending on that aren't necessarily going to make or sustain your financial growth. Regularly review your expenses. So you want to be looking at what is the central like? What are the minimum things that I need in order for my business to continue, and what can be streamlined? Are there softwares that I can condense? Is there travel that I'm doing more of than I would typically that I'm spending the money? And maybe it's not really returning on something that I can use within my Within my business. So ultimately [00:04:00] you want to avoid scaling beyond what your business can handle financially. And a good example of that is we know that it costs money to make money. Right. And when we take an example like hiring, like growing your team, we're often told that we should hire before we need it, because you want to make sure that demand isn't there and you don't have the people to support it, but you don't want to hire too soon either.

Keila Hill-Trawick: Right. You don't want to have this cash outlay of people who are on your team, but not actually doing work, because you don't have that demand there yet. [00:04:30] Another example is overspending on tools. What does your business need right now? And yes, plan for that next step. But you don't have to make corporate level investments when your business is still small. You want to do the right thing at the right time for the right price. The third core financial metric that we want to look at are profit margins. And the question that we want to ask is are you pricing for growth. Because the reality is revenue is not profit. And revenue is great. But profit is what keeps you in business. If you are [00:05:00] making a ton of money and you are spending all of that money, you are not better off than if you were making less and spending less, right? So when you're looking at your profit, you need to look at your pricing. So are your services priced to support sustainable growth or are you under charging? You have to have a sense of how much it costs to run your business, how much it costs to pay people to support the running of your business, and whether you're charging enough to cover those costs.

Keila Hill-Trawick: Yes, you have to, you know, charge what you're worth. You want to charge [00:05:30] what it costs to cover your cost, what it costs to pay yourself, what it costs to have money in the bank, to pay for your taxes and to have savings. And so all of those need to be taken into account versus just like pricing off vibes. Finally, have a balance between profitability and reinvesting in the business. So we already know that there's going to be some years where your profits are going to be a little lower, because your goal is to invest in those foundations. Maybe it is setting up a new software that's going to make you [00:06:00] more efficient next year, but has a lot of upfront costs. Maybe it is about building a team that you have to invest in a few people at the front end, but they're going to pay off down the line. The idea is that, you know when you're going to be less profitable so that you can plan accordingly in terms of your cash flow. And then the fourth core financial metric is accounts receivable. And the question around that is how reliable is your cash flow. You may have heard this before, but most businesses that fail or close close because of cash flow issues. [00:06:30] So not because you didn't have a good idea or because you couldn't make money more so that the timing of the money that was coming in versus the timing of the cash that needed to go out were not aligned.

Keila Hill-Trawick: And you were always kind of missing the mark. What that means is when you get delayed payments. So when people are not paying you on time, that usually leads to some kind of growth challenge. When you are waiting on somebody to give you money and you need to pay the contractors or reimburse for travel or cover the cost [00:07:00] of an event that you're putting on, or anything that is alongside that. When you are essentially getting reimbursed by an invoice, you need to make sure that you're getting paid on time. And one way to do so is to ensure that you have clear payment terms and a system for consistent invoicing and follow ups, because cash flow determines whether you can invest in hiring, marketing, operations, all of those things that keep your business going. And so it's critical that you keep that cash flow machine steady. So how are you using [00:07:30] these metrics? Right. We laid out for that you want to make sure are always at the forefront of your decisions. Really you want to use these financial insights to guide growth decisions, because you are going to use these metrics to determine when to hire. So knowing how much money is coming in, how consistently you can expect cash to come in, and when you know your low periods are are not only going to help you financially decide when you can hire, but also when you'll have time to train them what you want them to get started on when they [00:08:00] come in.

Keila Hill-Trawick: Your busiest season is a really hard time to bring in a brand new person that you need to hit the ground running. It also tells you when to invest in marketing or new services, and what you should be marketing when you get that set up. So you want to make sure that you're focusing on either those areas that are most profitable so you can get more people into that service, or areas that have been feeling a little neglected. And you want to make sure that they're getting more people into that service in order to make the money that you're expecting from it next. This tells you when to raise [00:08:30] prices. What you need to know is how much things cost, how much your business costs, so that you can know if you're pricing accordingly, and whether the market will bear the price that you need to charge. And then finally, when to slow down and stabilize. In order for this to be sustainable, you have to know when you've got to stop, assess what's going on, determine what you're going to keep what you're not, and then move forward. If you never take those steps to really take a break. It's going to be really difficult to not end up on a roller coaster [00:09:00] where the business is getting ahead of you because you constantly feel like you're building as you're going. Remember that the difference between scaling with a plan versus scaling reactively is going to be the difference in how successful you can be without burning yourself out along the way.

Keila Hill-Trawick: So what can you do to build a stronger financial foundation? First, check your numbers regularly. Don't just wait till tax season. So one of the things that I often tell people is when they are asking, like, how can I save on taxes? [00:09:30] Or how can I make decisions? Bookkeeping is the most important part for you to be able to get that done. Next, align pricing with profitability. Make sure you're looking at your rates on a regular basis to say, are these projects making me money? How much time are they taking versus what I'm actually making versus what I'm actually taking home? And ensure that you have rates that support your growth and don't just cover the cost so that you break even. Next, Monitor cash flow consistently. You want to not only make sure that you're setting up systems for invoicing and [00:10:00] payment tracking, but also that you're looking at your bank accounts to see how many months of cash you have on hand so that you know when you need to make different adjustments. What's the minimum that needs to be in your bank account before you know whether you can make new investments? And then finally use financial data to plan next steps. Every time you're thinking about growth, it should be a strategic move, not a gamble. Now, none of us know what's going to happen next, but we do have some information in terms of how we can set ourselves up for the best possible outcome. [00:10:30]

Keila Hill-Trawick: And the universe is going to do the rest. But we don't want to start with just a gamble, right? We know some information that we can use in order to determine how we're going to proceed. So again, scaling is not just about getting bigger. Bigger doesn't always mean better. You've got to grow in a way that's sustainable, profitable and aligned with your goals. So that is our talk for today. Really excited to just start these conversations around thinking about scaling and growth differently. And [00:11:00] if you are interested in checking to see if your business is financially ready to scale, we just built a growth roadmap. So if you head to The Accounting Podcast, you'll see where we have a pop up for you to get that to give you all of the information. As you start thinking about growth and scaling, that can propel your business to the next level with a strategic plan and again, not just going off vibes. See you next time.

Keila Hill-Trawick: Thank you for tuning in to another episode of Build to Enough. If you enjoyed today's episode, [00:11:30] don't forget to subscribe, rate and share the love with your fellow entrepreneur friends, and make sure to sign up for the Build to Enough newsletter. The link is in the show notes. Stay tuned for more episodes as we continue to redefine success one intentional step at a time.