196: Greg Crabtree — Keeping Your Business Financials Healthy

Cash is king. Cash is a fact. You can't survive without cash and you can't take advantage of opportunities without cash. If you've prepared well, you've got a big cash reserve right now and you'll maximize your return on luck during this period. But what if you didn't have much and don't have much in reserve? What if you didn't prepare as much as you really wanted to? What if your business or your supply chain is really being impacted right now? Well, we're talking here with business finance guru and best selling author Greg Crabtree about what's important right now to move your business from survival to thrival. Hi, I'm Bill Gallagher, scaling coach and host of the show. This episode is one of the series of five episodes on the five big moves that leaders need to make right now in order to navigate a major crisis like the one we are facing today. You'll find this series in about 200 other episodes on leadership and scaling up at our website scalingcoach.com youm'll also find downloads of all the tools we talk about and you can even get a free copy of the international best selling book Scaling up right there@scalingcoach.com Listen in now as we talk to Greg Crabtree about improving your cash situation.

All right, I'm joined now by Greg Crabtree. Greg Crabtree wrote the book Simple Numbers and he wrote a great deal of the cash section of the Scaling up book. So he's perfect person to have on the show. Greg, you're in Nashville now, aren't you?

Near the airport? Yeah, actually on the road, about to head out to a speaking event and.

You'Ve been talking to clients and people all day the last few days about this subject of cash and managing cash in a crisis.

Yeah. Yes, it's. Yeah, it's very reminiscent. I mean it was kind of one of the things when I wrote the original book back, probably the writing was in 2010, got published in 2011. We had just come off of the last recession and it was really where it reinforced our concept of why we talk about two months core capital target as being a fully capitalized business. Because what we found, and I think this is something I want everybody to hold dear to. What we found was is fully capitalized business in a period of economic crisis were the ones that took advantage and came out, not only survived it and well, many thrived during it and all of them took off after it really. I would say 2009, 10 and 11 were three of the most profitable years Many of our clients had because they were the ones that were stable, they weren't worried about their lines of credit being pulled and all those things. So these are the moments that the first thing that comes out of people's mouths that we talk to is they said, man, I'm sure glad that you convinced me to have two months of cash on hand. And you know, that kind of starts with it. Now, not everybody has too much of cash on hand. And so you've got to go into other means of thinking through situations like this. But you know, here's really our assessment so far because this has been something that has been discussed on every client call that we've had for the past two months. And so far, other than I can think of three specific clients that are connected to the travel industry in one way or another, they are certainly being affected, but actually all of them seem to be faring well and many of them start with this. So if you are connected to the event or travel industry, you start with this oh no moment and you start to look at it and say, okay, well first let's take an assessment of the real. We always start, look at your profit engine and say, am I going to be losing money or am I just not going to make as much? And so that's step one. If you're going to be losing money, then you look over to the balance sheet and see how much is my Runway in terms of. Because I've got two months of cash in some cases even more in some businesses. And you go, how much of a Runway do I get to have? One of my travel clients, we kind of plot it out for their business that we kind of feel like that they've got a 90 day window that they just need to keep their team together. Don't panic. They've got enough ability. They probably, you know, at first they kind of talked themselves into thinking they were going to lose money after we talked about it, I don't think they're going to lose money. They probably will break even during that time frame. Might make just a little bit, you know, but, but in their case, they found one significant knob that they could turn that protected their staff. But essentially they don't have any need to do marketing spend at the moment. And so all of their active paid search and all those kind of things, that was the first number to turn off because I don't need to be attracting customers at the moment because there's not any customers buying at least in particular things that they were selling, you know, that nobody was Going to be buying at least for the next few weeks. So they could turn it off and just take a. Wait, see, keep a couple of things on. It didn't go totally dark.

You know, if you think about that, right. That, that points to the wider impact. So come back to it in just a second. But so that there's ad spend, ad tech, online ad revenue goes down. I was in an Uber earlier today. He's like, oh, I'm down like 40%. Restaurants are down. We. I know someone with a travel and tourism business. They're down. All their tours are getting canceled. That's travel related. Then look at musicians, right? They, they record music, but then they have to tour to make money.

They have to perform.

Nobody's going to go to show. Restaurants are going to be down. When the markets go down, then investment goes down. If you're dependent on that next round of investment, like, there's all these ripples, and when the markets start to tank, like, everybody slows down, people stay home.

Yeah, there is that. But as you, as you play through it, and one of the advantages I get is I get to look inside the real numbers. You know, we've got a real estate client. Sales are up. Sales are up. In, in February, they did fine, you know, and, and we have restaurant clients. And they're doing okay. They're not, you know, doing. Like I said, it's not tops, but it's not disaster. And so granted, I mean, this is where you, you really got to look deep and say, is this, you really look at your situation and say, you know, is this a disaster for me? Or, you know, one of the things we don't know. And I'm certainly not a pathologist, you know, so my wife is a, was a hospital lab technician. So. And my mother was my mother. I was married to a lab tech and my mother. Mother was a lab tech.

So you've been tested?

I've been, yeah, I've been around this. Now, I haven't tested that. But. But essentially, you know, what we don't know is is this virus going to go away once it's summer? And that's the reason why, you know, so, you know, this is, this is March. Yeah. And when I was talking to my client, I said, let's give it. We've got 90 days easy of Runway, so let's not rip up our operating machine because that's hard to build back.

Right.

And so turn off every cost that isn't adding value. You know, one of the things I talk a lot about is, you Know, look at every cost that you're spending and say, is it adding value and is it going to be disruptive if I have to turn it back on? If I turn it off, can you.

Put it on hold? Can you freeze it for a minute?

Yeah, but I would be really careful. Certainly, if you got underperformers, you know, if you do any staff reductions, you might look at those things. But I'll tell you, I mean it. I mean, most of the clients that we're working with right now are still. Many of them are growing at anywhere from 10 to 30% a year, and adding capacity with good labor is really, really difficult. So I would just caution people to be careful about, you know, any staff adjustments that are unnecessary. Because as I told this other client, I said, you know, think about it. In 90 days, I mean, we're going to be in June. You know, the flu doesn't last into June, if my memory serves me correct. I mean, somebody could correct me on that. But. But I'm pretty sure, you know, kind of flu season is over, you know, once it gets into summer. And so it's like, that's not that long, folks. You know, and so. So I think, you know, it wait and see.

Like the public, like the stock market, right?

The.

It's anticipatory. The things drop as people sell it because they anticipate it all going and there's fear running the show and people bail on things and then that. That builds momentum in a particular direction. I think the same thing happens in business and purchasing. In other areas of life. We're like, oh, wait a minute. And so we anticipate something perhaps being bigger and more painful. But of course, as you point out, like, the last few years, hiring has been massively painful.

Well, let's put it in perspective. Back in 2008, we had a $14 trillion economy. When the recession hit, largely largely focused in construction and banking, GDP dropped to 13.5 trillion. You know, 13.5 trillion is still a lot of money. And so, yeah, the airlines are feeling it, the travel industry is feeling it. There's a few ancillary people feeling it, but there is a whole lot more economics of things going on that short of, you know, like an Italy shut down, you know, that kind of thing. That, that certainly. But even in Italy, I mean, I was listening to a podcast tonight, you know, driving up in that. I mean, people are still going to the grocery store and still doing some. That they have super, super restrictive travel. But there actually is some economics going. And. And so I You know, when you look at, and this has kind of been my main message in the last few years is the stock market is not an indicator of the economy, alright? So just keep in mind there's been more companies go private than go public in the last 10 years. The dominant driver of the US economy which nobody has any real sight on. Now I get to monitor it because my clients are all over the US and we get these little pulses of information every month from every client that we talk to that goes from the east coast to the west coast and the north and the south. So we cover, we've got clients kind of dotted in little bit in every industry all across the country. And I'm telling you, I mean, short of those people directly affected by events and travel, life is kind of rolling along, you know, and they're, they're still getting paid and cash flow, payrolls are getting paid and nobody's getting laid off. And if you go look around, right.

What the, if you sell toilet paper, supermarkets are busy, if you sell hand sanitizer, face masks, gloves, all those things are selling out, right? And people are staying home. So you know, Netflix is going to do better for a little bit.

You know, all the takeout, you know, places are slammed, you know, so, you know, so, so really like I said, granted, I mean I do not want to diminish the fact that yes, there is an impact. It does it take us below zero? No, no, not, not in the least. And it is much the fundamentals of the underlying economy from everything we've seen is still just incredibly robust. That what you have, and this is the part everybody needs to think about, be prepared for the bump, the pent up demand release. Because certain things, you know, a room night not sold in a hotel is a room night that's gone forever. You know, a meal not eaten in a restaurant is a, is gone forever. But at the end of the day, you know, it's like, you know, I feel for the impact of probably the variable worker. Those are the people that I really hope we can do something for, you know, in terms of, you know, some sustenance, support of those people who get, you know, turned down, you know, potentially and certainly, you know, those are things that will be great to help. And don't forget that hey, if you see somebody needs help, reach in your pocket and help them. You know, that that's kind of the main thing. These are the kind of things that can, you know, makes us, makes us all great as a country is just don't wait for the government to do something. Just look around and help your fellow fellow man in need. But at the end of the day, be prepared for that bump and that pent up demand because here's the thing that's happening. Those people who are sitting home are still drawing a paycheck, who didn't go out, who didn't take the cruise, who didn't take the flight. They still have the money, they're gonna spend it. Trust me. They're not saving that up to go pay down against the mortgage, to pay down against the credit card bill. It is sitting there going, oh, I got a refund or hey, I got a flight credit. I mean the airline may have actually, you know, can't give away the cancellation fee, but there you're going to take another flight and so it's gonna come screaming out once everybody feels like that. Okay, you know, we've kind of learned our lesson to you know, let's have better hygiene. And I'm talking to all you people who don't wash your hands when you leave the bathroom. Come on people, you know, let's, let's step up our game a bit.

You know, we are reading about some of these. So you say try to have couple of months of cash on hand and that's a good thing to work towards if you don't have it right. Now I just heard a friend's company who has, whose business has been hit very hard in the immediate term, but who has four months of cash on hand. I'm like, well if you just cut your expenses now for a little bit, you're going to have, with that kind of cash, you're going to have competitors who are going to go belly up and you could buy up some. Think about what you would love to buy, whose business, what kinds of things could you go shopping for, for.

You.

Know, just a terrific value.

And, and I have actually heard of some people that panicked quickly and you know, was ready to take bottom dollar just to exit their business. And you know, and that's, that's just the people who weren't prepared. They didn't, you know, they weren't fully capitalized. They didn't follow the simple numbers game plan of hey, have your, have you be fully capitalized and know how you make a profit and know, you know what knobs you've got to turn.

And I talked to another entrepreneur earlier today. He said in 2001 the people they let go right away were the easiest to replace. Sort of lowest end people which is a terrible social hardship on that, who they capped Were like the engineers, the expensive, hard to hire talent. And then as soon as they bounced back, they rehired everyone they could and they came out really well. In the meantime they had those critical folks that they had them double up and do extra things and you know, cover the other kinds of tasks that would be handled.

Yeah, and there's some, there's some great stories if you follow. Great game of business. I followed them for years and years and I spoke at their conference a couple years ago and several of the stories who were kind of inducted into their all star hall of Fame thing, we're telling stories of the 08 recession and I was really amazed. Quite a few of those companies, you know, the senior management, you know, took took a deeper pay cut than the rank and file. And so the company looked at it and said, so if I have to do cutting, and I thought this was brilliant on their part was, you know, you're going to cut relative to people's ability to survive. And so generally the higher paid people can survive with deeper percentage cuts than the lower paid people. But everybody shared in the burden. And it was really remarkable because quite a few of them, I mean they all basically survived and were able to pay back those pay cuts once the market turned. But those were have to situations where they didn't have, I don't know if they had the two months cash like we recommend, but they had to make cuts to give them length of Runway until things turned around. And so the difference in this situation, as I was thinking about this today, is the fact that if this virus works the way viruses typically work, there is a harder end to it than nobody knows when the recession is going to end or we're going to come out of it. And so that plays a good bit differently because like I said, I'm telling you, there's still plenty of people who are getting paid and plenty of people who would like to spend some money and they cancel their cruise or they cancel their trip, but they're going to take a cruise and they're going to take a trip, you know, as soon as it's clear to go.

I won't be on any cruises, but I bet there'll be some fantastic values.

I'll be more than happy. And you know, we, my wife and I were planning an Alaska cruise and we, you know, we canceled it because we were coming up on the 100% refund date, but we've kept the dates on the calendar and for July. And you know, if this thing passes, I will, I will absolutely, you know, look at being right back on that boat.

I'm a big old sailor. I just never like big boats, even when there aren't viruses going around.

But I've heard viruses on the golf course, so that's.

Yes.

Yeah.

Yeah. And you.

You.

You don't want to be held at sea.

That's true. That's true.

That's all it's going to go through. They're going to have a big shock and an impact now, of course, as people reconsider. And they've had issues for years with transmission of things like norovirus and. Right. So.

Well, there's some. There's some pretty cool technology out there. I don't know if you remember one of the founders of Rackspace. I had heard that he has actually gotten focused in on this technology that actually. And I forget what type of technique. It's a, you know, an ultraviolet or laser or something like that that will go and actually kill all the bacteria and viruses, you know, in a hospital room. And I think, yeah, it's a light. Yeah. And so when actually. And I think he sent one of the machines over to China, you know, just as a kind of a goodwill gesture, you know, once the virus broke out. But those are the kind of things that I think this is where, you know, it. We've gotten people's attention and focus and say, listen, folks, we can actually be better in this. We can actually. We have the technology, we have the mindset. We just need the will now to go fix these kind of things so that they don't pop up and we can stop them sooner. And I think that's something that we can certainly hope that the right minds and the right people will focus their attention on it as well.

Well, thanks so much for coming on. Tell folks how to find your company website.

Yeah, so the easiest thing is go to Simplenumbers. Me, actually. Our firm is recently merged, so we're now, part of Car Rigs and Ingram cricpa.com so one of the top 20 accounting firms. And so we're able to spread the Simple Numbers message much broader and got tons of resources now to go push it. And those that are faithful readers of Simple Numbers, have no fear. In about a month, the second book will be out.

Awesome. Well, we'll have you back to talk about that when you're ready.

Super.

Yeah.

So fantastic. Thanks for talking to us and reinforcing the message of shore up cash where you can, but don't panic just yet. Be mindful of the thing and then look for the value and the opportunities that arise.

If this show helped you, please share it with someone else right now. Like it subscribe to get them every week. Wherever you get your podcasts, you can email us@info scalingcoach.com Special thanks to Vern Harnish, author and creator of the Scaling Up Framework. This show was edited by Albert Burge at Podfly Productions and the show notes were compiled by Ein Kudina with proofreading by Tim McGowan. Thanks again for listening. Keep Scaling Up.