Episode 106 Podcast Transcript

Speaker 1 (00:00):

It’s your ability to sit down with the right rhythm weekly and monthly, look at the right reports at the right times to deeply understand how your business is performing using these three statements. Helps you stay on top of cashflow, helps you maximise profitability, and it helps you improve the equity that you’ve got sitting in your business. And that’s why those three reports exist. Hi everyone. Rob Kropp and Dan Stones from Pravar Group, and welcome back to another episode of The Trade Den. Good to have you back, Dan. How are you?

Speaker 2 (00:36):

Good to be back. Hi, Rob. Hi, everyone. Yeah, part two. Love it. Love a good two parter and today’s the juicy part of what we talked about in part one of the triple bottom line. So looking forward to get stuck in. And I think the key thing as we start this off today is that the idea that knowing your numbers isn’t a one-time thing. We talked about what they mean and what the different statements are, but it’s not about looking at your P&L once and saying, “Well, that’s that done.” And like you said at the top, filing it away and sticking it in a drawer. It’s a habit. It’s a rhythm. It’s something that you need to do. And just like going to the gym, results don’t come from knowing how to lift weights or just walking in and staring at them. You’ve got to actually get in there and showing up consistently and doing the work.

(01:20):

And before we get into the rhythm, I think today is a starting point. Let’s look at why most business owners don’t do it perhaps. And if we can start to pull that apart. So for me, I think most people never have a financial rhythm for one of three reasons. I don’t have the time. I don’t understand what I’m looking at or it’s somehow, and I don’t know how this works, but we’ve heard it a million times. That’s not my job. That’s the bookkeeper’s job.

Speaker 1 (01:45):

Yeah, this is a big one because the reality is as a business owner, you cannot abdicate your responsibility as a director of the company around your responsibilities around the management of the business’s financials. It’s the heart and soul of running a business. It’s an obligation. It’s a responsibility that comes with being a director. So many business owners put it at the bottom of the list and treat it like it’s with little respect, don’t they?

Speaker 2 (02:18):

Yeah. It’s like I’m paying people for this. They know what they pay their accountant and their bookkeeper. It’s like, I pay the money, you do the work. But it’s like you said, it’s a non-negotiable in business. If you want to make better decisions, you have to know your numbers. We talk about this all the time. Yeah.

Speaker 1 (02:34):

And I think that comes from a place of just not knowing and not understanding. Like you said, I don’t have time is just really an excuse, a surface level excuse for reality is, “I just don’t understand.” And I think that’s the position most business owners fall into is they’ve never been trained around business financials. And then when they go and talk to their bookkeeper, the bookkeeper just drops financials on their desk and says, “Here’s a summary of your financial position.” And it just doesn’t make sense. And then when they do go and talk to their accountant, the accountant is just more worried about talking to them about their tax and what they owe. And the accountant’s just like, “Hey, Rob, well done. Pat on the back, congratulations. You’ve had a good year.” And the business owner’s like, “Really? Mate, what are you talking about? I’ve had a great year.You’re telling me how good it is we’ve got no money in the bank.” And so there’s all these disconnects along the way. And I think that’s why no wonder so many business owners just don’t prioritise your stuff.

Speaker 2 (03:33):

Yeah, absolutely. And I think that the other thing I want to say here at the top is that you don’t need to become an accountant. I think that’s the next thing. It’s like, well, if I’m going to understand this, I would have been an accountant. That’s not what we’re saying, but we need to know the basics, where your money’s coming from, where it’s going, is the business healthy. And that’s not the bookkeeper’s job. It’s not your accountant’s job. That’s yours, your business. So I think it’s really important that upfront people get that.

Speaker 1 (03:58):

Yeah, correct. Because I think when your business is a little bit smaller and you are a one man band, you can run your business a bit like from gut feel. And you don’t have to have the level of financial acumen to run a bigger business. But the bigger the business that you have, it is just not acceptable to run your business by gut feel. It’s like driving down the highway at a hundred kilometres an hour with a blindfold on. It’s just poor leadership and poor business ownership that you think you’re running this business with the responsibility of managing people’s jobs and your employees’ entitlements and all the obligations you’ve got around company tax and your legal obligations. It’s just not acceptable to not have your head around your numbers. It’s a duty and an obligation you’ve got to really start taking seriously.

Speaker 2 (04:53):

Yeah. I love what you said there because it’s one of the biggest barriers as well where people never fully separate from being on the tools or always on site because it’s the only way they’ve got to know if a job is going well, if the business is performing as it should. They have to be everything. They would have eyes on everything to be able to do it. But when you know your numbers, you leverage that knowledge, that information through the numbers, and you can learn to tell the stories that these statements tell you and you start to do the work, like we said last week.

Speaker 1 (05:21):

Correct. Because as your business gets bigger and the more structure that you build in, as structure comes through good people and good systems, the more that you build structure into your business, you become one removed from things. As you start to get offsite, you don’t have the visibility around how jobs are run when you used to be on the tools managing the jobs. Now you’ve got to rely on information. You’ve got to be informed to be able to know what’s going on. And that’s why as your business gets bigger and your structure becomes more complex from a people side of structure, you’ve got to be able to … your depth of understanding around the financial position at the job level and at the business level has to increase the bigger you get because you’re becoming so removed that that’s the only way you know what’s going on within the business is through by going to site and checking out things.

(06:16):

But the numbers tell a story like we spoke around last week. And so yeah, the bigger you get, the more understanding you’ve got to be able to have around your business financials.

Speaker 2 (06:27):

For sure. So now that we’ve sold you on hopefully the benefits of knowing your numbers and diving all the way in, let’s look at the rhythms that we’re talking about. We’re going to talk about too, a weekly rhythm and a monthly rhythm. The first weekly rhythm though is all to do with receivables and your cash flow. So if we can get that right on a weekly basis, we’re setting ourselves up really well.

Speaker 1 (06:48):

Yeah, it is. The money coming in and out of the bank account needs to be looked and managed on a week-to-week basis. It’s like we’ve spoken around, the cash is the oxygen that keeps the business alive. And so in particular your cashflow forecast, I’m a big believer that that’s something you’ve got to be all over, not just to checks and balances to make sure that your forecast is marrying up to what’s coming in and out of your bank account, but you’re actually using as a decision making tool looking forward over the coming weeks ahead to be able to go, “Well, what’s money anticipated coming in? What bills are anticipated to be paying out? Who do we owe where? And how can we start putting pressure on that receivable or massaging the payment of that bill?” So what you’re doing is using your cashflow forecast as a cash management decision making tool to manage the ins and outs.

(07:45):

So you can pay your suppliers and pay your employees and collect the money when it’s due. So your cashflow forecast is really something you’re all over on a weekly basis to manage the oxygen of the business to keep things moving along well.

Speaker 2 (07:59):

Yeah. And it also, it stops you getting blindsided. It stops those things happening where it’s like, where did that go? And when you just look at your bank account for how much cash have I got, you get blindsided all the time. I thought there was more in there. No, we took that out. Oh, I thought there was less and no, they didn’t pay. All of those questions happen on a weekly basis when you do this review in order. So like you said, cash flow, looking ahead probably, and just in terms of how far, it’s probably only two to four weeks ahead that you need at a starting point. If you can get that clarity, the blindsiding comes down a hell of a lot.

Speaker 1 (08:28):

Because what you’re doing is creating hindsight in the moment. And what I mean by that is there’s no point getting four weeks down the line and going, “Oh shit, we got no money this week.” Because if you do forecasting well, you’re looking forward two to four weeks, like you said, and then you’re like, “Oh, we’ve got a pinch point in four weeks.” You’ve created that moment of hindsight in that moment to be able to go, “Uh-oh, pinch point, four weeks, what are we going to do? ” Okay, invoice here, pull in that debtor, push out that payment. You can really massage the way that you manage the cash, but if you don’t have really good cashflow forecasting, you just land there in four weeks’ time and go, “Oh shit, we ran out of money this week. What do we do? ” It’s too late then.

(09:14):

So good cashflow forecasting allows you to look forward with the information that you’ve got in your fingertips to be able to better manage cash flow and manage the pinch points that come along the journey month in, month, out, week in, week out within your business.

Speaker 2 (09:31):

Okay. So cashflow forecasting’s a big focus and a big tool that you can use in the business. The second thing that’s really important every week though is just a cash receivables review. Do you want to explain what that means, Rob?

Speaker 1 (09:43):

Cash receivables is super important from a management point of view because invoices go out the door and obviously you invoice for stage claims or works complete, but invoice sent does not equal money in the bank. And you’ve got to remember you run a business, you’re not running as a bank, you’re running a business here. And on each of your invoices, you’ve got payment terms of when invoices are due and when payment needs to be coming into your bank account on agreed payment schedules. And so being all over this is super, super important. Now this is reliant on you to be able to have a really good frequency of invoices getting out the door. So as soon as something can be invoiced, bang, an invoice goes out because the faster you invoice, the faster the money comes in the door. So that’s one thing that sets you up here.

(10:36):

The next thing is your bookkeeper being all over your reconciliations. As soon as money hits the bank account, they’re reconciled in your accounting package. And this is where it’s so important then that you sit down with your bookkeeper or your bookkeeper runs your debtors or receivable report where you’re actually looking at it every week to be able to go, who owes us money? What’s overdue? Who do we need to chase? And this is critical because what you’re doing then is staying on top of those accounts that are due or overdue, and you can ensure that money flows into your bank account in a timely manner rather than big, long overdue accounts, which causes a cashflow nightmare in your world. So if you know you’re busy, but cash is not hitting the bank, it might be symptomatic that you’re not staying over top of the people who owe you cash on a week-to-week basis.

Speaker 2 (11:31):

Yeah, nice. So that’s our weekly rhythm. The next step above that is what we call our monthly rhythm. So you do your weeklies in exactly what we just told you there. The next thing is monthly rhythm. So this is all around now the other two statements, P&L, profit and loss statements, and your balance sheet review. So once a month, you sit down with these statements and you start to work through them. So I think, Rob, let’s start with monthly P&L reviews.

Speaker 1 (11:55):

Monthly is important for profit and loss. You just don’t look at it on a week-to-week basis because sometimes something’s only due once a month. And so you’ve got to be able to look over a period of time. So when it comes to your monthly review of your profit and loss, I always like to get this done within the first seven to 10 days of the new month, because what that’s done is given you and your bookkeeper an opportunity to get in, reconcile transactions, ensure all the money that’s come in and out of your bank statements married up to your accounting package. And what I mean by reconciled is it all balances out nicely. So that’s what it means by reconciled. So what you’re doing is your bookkeeper is giving you a profit and loss within the first seven to 10 days of the new month.

(12:43):

And what you’re doing is looking at the month prior in isolation, but you’re also looking at quarter to date and year to date to be able to iron out the kinks along the way. So as soon as you can in the new month, you want to be sitting down, not just getting a report from your bookkeeper, but even having a conversation with them to be able to go, let’s talk a bit about the results that have been and let’s chat through how we went last month, last quarter.

Speaker 2 (13:09):

I like it. How about some questions? I mean, like we just did before with the cash receivables review and some of the questions you can ask yourself, just when someone picks up their P&L for the first time and looks like it’s like double-dutched to them, what are some of the questions they could ask themselves just to try and get the ball rolling in terms of increasing their understanding as they do it?

Speaker 1 (13:27):

The question I like asking is, what does this mean? And it’s not being afraid to ask that question. Like you’re sitting down with your bookkeeper or your accountant or your coach or whatever it is and you’re like, “What does this mean? What’s happening with our revenue? What’s happening with the profile of our revenue? What’s happening with the trends? Are we going up, down, trending, sideways? What’s happening with our trends?” And so what you’re doing is getting inquisitive with your power team around you to be able to go, “Help me understand what’s happening with my revenue.” And then you’re looking around your cost of sales. Like we spoke around on last week’s episode, you’re looking around, well, what’s happening with our cost of sales? What’s going on with our labour? What’s happening with our materials? What’s going on with our gross profit? Is it getting out of control?

(14:14):

Is it in line? Is it lining up to what we’re expecting to be delivering jobs at? And you’re getting a good understanding and you’re not afraid to keep asking that question, “What does this mean? Please explain it to me. Help me understand this. ” And the only way you’re going to get better at understanding your profit and loss is asking those questions and being inquisitive. And I think, Dan, having that inquisitive mindset goes a long way, doesn’t it?

Speaker 2 (14:39):

It really does. And it’s amazing when you ask the question, and we do this in coaching all the time, the minute the client asks the question, has the courage to ask it, the explanation they get almost immediately, it’s like, “Oh, that makes sense. I get that now.” And then you ask the question again or you look at the same statement again and you remember that question, the answer you got, and all of a sudden it starts to join up and piece the puzzle together. So I think that this is a big thing in terms of what are the questions I ask because the minute you do that, you start to make progress in your understanding and your ability to make informed decisions, like we said.

Speaker 1 (15:10):

Correct. And you’re getting in there into your overheads and you’ve got a chart of accounts that make sense and you’re looking into them going, “Well, what are we doing with our spending? Where are we doing sloppy spending? Where can we cut costs? Where can we be more efficient?” You’re looking at the numbers on a page and you’re looking for a story. That’s what you’re looking for. The numbers are there telling you a story and you’ve got to have the discipline to sit down on a monthly basis and look at it, look for trends, look for different ways the business is moving around. Look at your bottom line and go, “Are we making money? Are we not making money? What can we do to improve that? Are we breaking even, including debt repayments and everything?” It’s about understanding that and asking the questions, “What do we do here?

(15:55):

Why is that doing that? ” And the more you can do that and immerse yourselves into the numbers, the more natural it’s going to feel over a period of time.

Speaker 2 (16:03):

Yeah. Let’s be clear here. Again, this is the next question we always get when we start talking through this stuff is, is this a meeting that I do with my bookkeeper or by myself? How does this work?

Speaker 1 (16:16):

I think if you’ve got a bookkeeper, I think, especially someone who’s coding these transactions, I think the bookkeeper can be there to be able to run you the reports. I think it’s your ability then to go away and digest them and try and wrap your head around what makes sense with them. But if you’ve got a bookkeeper, I wouldn’t be afraid of sitting down with them weekly to talk about cashflow, weekly to talk about debtors. That’s in the same meeting, by the way. Then once a month, you’re actually sitting with the bookkeeper and going, “Let’s talk about these. What are we doing here? What’s happening here?” So I think it’s not abdicating your responsibility. And what I mean by that is just pushing it on and going, “Oh, well, that’s my bookkeeper’s and accountant’s job to manage my finances.” No, they’re there to help you.

(17:04):

Your job is to sit with them and get them to explain things and help things make sense, but you’re responsible for the completion and the decisions that come from those complete financials and utilising that support around you to help them make sense.

Speaker 2 (17:19):

Great. Absolutely. Now we’ve still got one more thing to do in our monthly review and that’s the balance sheet review. Again, probably three areas we do here. Balance sheets are a bit of a mystery, right? And they’re the accountant’s favourite sort of thing to play in. So there’s a lot of stuff that goes through a balance sheet that is important, of course, but there’s probably three key areas we’d recommend when you do your monthly review that you should focus in on with your balance sheet.

Speaker 1 (17:43):

Yeah. Again, monthly, like with the profit and loss. And remember from last week’s episode, it’s at a moment of time. So a balance sheet as of the 31st of January, 2026, for example. And so it’s at that moment of time. It’s a snapshot in time. Now, the three areas that as a baseline you want to be looking at your balance sheet is your accounts receivable, your loans, and your regulations accounts. We’ve already spoken around your accounts receivable to make sure you’re really clear on who owes you, your loans. You want to make sure that they’re all being coded correctly to ensure that the interest is being claimed by your bookkeeper or your accountant and the principal or payments is coming off those loan balances. So you should really be watching your loans decrease over time. And then you want to be looking for your regulations.

(18:39):

You’ve got to make sure that your accountant or your bookkeeper is allowing for your regulations obligations around your PAYG, your super, your company tax payments, your BAS. You want to make sure all that is being captured correctly on your balance sheet. And then you’ve got to make sure that the money you’ve got tucked aside for that somewhat marries up to that. Because really, if you’re managing your regulations correctly on a month to month basis via your balance sheet and the money you’re tucking aside in a bank account, then you should never be surprised when your bookkeeper or your accountant says, “Hey, guess what? You’ve got a payment to the ATO due. You should never be surprised.” And if you get surprised like that, it’s because you’re not looking at your financials and managing your regulations correct. So yeah, managing this on a month to month basis allows you to be all over these critical elements of the balance sheet and stay on top of the things that really matter.

Speaker 2 (19:39):

Yeah. There’s one in there that I’m going to maybe throw at you is what about accounts payable? That’s also on the balance sheet, right?

Speaker 1 (19:45):

It is. Big business like to load in invoices and have them on a payables report of when they’re due. Most small businesses just pay off the invoice and never really capture them. So yeah, bigger businesses run more of an accounts payable system where they load them in and then pay them at certain due dates. Most small businesses don’t always run that way and they just pay them off the invoice and off they go.

Speaker 2 (20:09):

Great. And again, lean on your bookkeeper, the person who prepared these accounts, who knows what they mean to ask the questions you need to like that exact one we just did. All right. Before we get into a challenge, why does this matter? Again, I think just let’s tie this in. Why do we review these specific statements? And maybe, Rob, I’ve heard you teach this a number of times, but why does all of this matter? Because if you don’t do it, sure it’s going to mean there’s some tricky points. Sure, you could get blindsided. But I think at the end of the day, there’s a real reason to do this. There’s a reason why these three statements exist.

Speaker 1 (20:45):

Correct. And as a business owner, you got into business to make money. Let’s not skirt around the situation here or the scenarios. You got into business to make more money, have more free time, have better choices, and provide a great lifestyle for you and your family. That’s why you’re in business. And you’ve got an obligation and a responsibility to manage your money well. And a lot of business owners get confused because they’re like, “Well, my profit and loss is showing me that I’m profitable, yet I got no money in the bank.” It’s one of the biggest challenges that we hear from so many business owners. And so it’s your ability to sit down with the right rhythm weekly and monthly, look at the right reports at the right times to deeply understand how your business is performing using these three statements, helps you stay on top of cash flow, helps you maximise profitability, and it helps you improve the equity that you’ve got sitting in your business.

(21:46):

And that’s why those three reports exist. You can’t look at them in isolation, you’ve got to be able to look at them all together to be able to get the complete package. And so it’s so critical. I get fired up when I talk to business owners and I ask them, “Well, when was the last time you look at the financials?” “Oh, Rob, probably 6 or 12 months. “I’m like, ” Mate, it’s not fucking good enough. You got a responsibility here as a director of this company and so many people are relying on you to pay their bills, put money, food on their table through their salary and wage and getting jobs done. You got to step up and take responsibility for this. So I get fired up when I hear business owners who just don’t take this responsibility correctly in their role as a business owner.

Speaker 2 (22:28):

For sure. Absolutely agree with you 100%. What about a challenge for the week? Let’s get this ball rolling and put a challenge out there to listen and get this stuff working. So first thing in this challenge this week is set up your weekly and monthly rhythm right now. As soon as you get off this podcast, go and go into your calendar, book it in. Put a recurring calendar reminder in. When is your weekly meeting, your weekly finance meeting going to happen? When is your monthly one going to happen? And book it in. That’s the first step. When you book it, it becomes real. Okay? So schedule it in. After you’ve done that, make sure you invite your bookkeeper if you’ve got one and you’ve got someone in your power team that you can lean on. Book them in for that meeting this week. At least have it in the next seven days where you get a walkthrough on your P&L and your latest quarterly results and get them to explain anything you don’t understand.

(23:19):

Go back and listen to the questions we had. Write them down on a bit of paper. Come back and actually ask those questions and give yourself the gift of finding out that it’s not all a mystery. Okay? So really important you do that. Last thing, do your first cash receivables report now as well. Next 30 minutes, get off the thing and chase this down. Who owes you money right now? If you don’t know, you must know. And what’s over 30 days? Start chasing that. Who are you going to chase this week? So really get into your first cash receivable review as soon as possible to find out where the money’s sitting, who owes it to you, and who are you going to go and ring next to go and get it. So really important. I think if you can get that challenge done, you’ve broken the ice.

(24:00):

The ball will start rolling and you’ll start to see the results really quickly.

Speaker 1 (24:06):

If you know you’re in that position where you’re, as a business owner, you’re ready to really step up and take more accountability and get a greater understanding of your business’s financial position because you want to improve the numbers that you’re getting from your business, then booking discovery call at strategysession.com.au. Let’s talk a bit about where you’re at, where you’re trying to go, and how we can help educate you around your understanding of your numbers. Hopefully you’ve enjoyed part one and part two of these episodes here in The Trade Den. Make sure you get in, get these rhythm booked and start getting a grip on things that actually matter when it comes to running a business. Until then, take care.

Speaker 2 (24:46):

See you soon.