From Bookkeeping Basics to Investor-Ready: The Entrepreneur's Financial Roadmap

As an entrepreneur, I love building things. I love doing the marketing. I love doing the sales. And the part that I enjoy least is the accounting. And if you're anything like me as an entrepreneur, you kind of put the accounting off to maybe the Friday evening, Friday afternoon. But that's really not going to help because actually the only reason we have a business is to fulfill a purpose, and that purpose is to generate revenue. And profit. So my guest today is going to help us to understand what is a financial situation awareness and why it's so important to us, because at some stage we might want to raise money, we might want to sell the business or hand the business to the next generation of owners who are currently working with the company. Ben Risser is joining us from Pennsylvania today, and he's the founder and CFO of a company called Provident Financial Services. Ben Risso, welcome to the show.

Thank you for having me, Jim James.

Well, it's my pleasure because, as I said at the introduction, accounting, you know, it's not my, not my strong suit, but I do know that it's essential. So grateful to you for coming on and, and helping, you know, me and my fellow unnoticed entrepreneurs to understand what are some of the basic tenets that we need to have when it comes to being aware of how successful our business is now, but also to prepare it for a financial event, an investment, a liquidity event, or otherwise. So help us, Ben, to understand what do we need to know as an entrepreneur about our businesses from a financial point of view.

Thank you, Jim James James, for the question. I would, uh, what you need to know is and what your investors are going to want to know and your lenders are going to want to know, or your prospective buyers, is financially, where have you been? Where are you at? Where do you want to go? And where are you actually heading? Those are 4 questions that answer, that provide financial situational awareness if you can answer them. And the 2 components that provide financial situational awareness is financial literacy, which is the— an individual's ability to understand financial content and format. And then there's financial intelligence, which is high-level, concise, actionable financial data that an owner, an entrepreneur uses to manage their business and enables them to relate the operational activities of what they're overseeing and doing every day and what those financial results of those activities are. And that's all together, that financial situational awareness enables them to manage their business, understand if what they're doing is working. And to investors, it helps them understand what's the economic potential of this business and where is it heading.

So we'll talk about the investor part in a little while, but Ben, At what stage should an entrepreneur start to invest in this? Because if you're a solopreneur, maybe everything's coming in and out of PayPal, or, you know, maybe going in and out of Stripe. Um, is there a time when you need to start this, and is that now or is that later? Help me to understand at what stage we should be thinking about this.

I would say, as far as, uh, you know, if we're talking about fractional CFO services, um, That really comes down to when, when you can afford it, but you can afford a bookkeeper a whole, you know, a whole lot sooner than before you can afford a fractional CFO. And I would say, um, like hire a bookkeeper right away so that you as the entrepreneur are not wasting your time and talent on sorting out receipts and bills and invoices and such. Hire a competent bookkeeper and even better, a bookkeeper that has the heart of a teacher and wants to teach you how to understand the financial statements that they're preparing and delivering to you every month. So first thing I would say is hire a bookkeeper who has a heart of a teacher.

I love that idea of someone being a teacher that they're going to educate you as well as an entrepreneur. Ben, what is the hallmarks of a good fractional CFO? Because if you've got a bookkeeper in, why would you need a CFO in addition to that bookkeeper?

So the bookkeeper is typically a, they're recording things that have happened in the past. The value of a fractional CFO is to be a strategic partner to the owner and to help the owner take their business plan, whatever their vision of the business is and their mission, and break that down into annual and quarterly goals that they are then held accountable to. But then the CFO also makes sure that the, the accounting system and the interface of accounting with operations supports the production of financial key performance indicators and things that need to be tracked by the owner so that the owner can be strategic and intentional about the actions they're taking in the next quarter that's based on high-integrity data. And the CFO, you know, a lot of times there's an education process there, like I mentioned, literacy piece, just getting the owner to the point where they can consume and understand this financial data and ultimately become kind of autonomous in making those everyday routine financial decisions so that the conversation with the CFO can be more strategic and less on the, you know, the literacy part, you know, why is this booked in this account and not that account.

Right. And one of the common complaints that we have with agencies, whether it's an ad agency or a PR agency or otherwise, is that, that they don't really know the client's business. And so quite often clients are unhappy with an agency because they feel that the agency can't deliver. Can you give us some guidance, Ben, on looking for the right fractional CFO? How do you know where to look, for example, what questions to ask of that person, and ultimately, how do you remunerate and incentivize them to work with the business owner over time?

So I would say, you know, before you would hire a fractional CFO, interview several, several of them to understand which ones have experience in your industry. And/or which ones have enough experience in general where if you're an entrepreneur bringing something new to the market that there's really not other things to model it after, that they have the, just the, the, the, the ability to learn and understand how your business creates and delivers value to the customer and what are those key performance indicators that we need to track. That are going to indicate growth and profitability, and how do we get all that data from the activities and tools that are in place. And so I would say interview several, but you know, you're really looking for somebody who does have the heart of a teacher, who's empathetic to the owner, because a lot of times owners They, they don't know what they don't know, or maybe they don't want to admit that they don't know something. And somebody who can graciously educate the owner in a way that, you know, is emotionally intelligent to that particular owner's nature with the end goal of just giving them that situational awareness that they're going to need to make those day-to-day decisions in their business.

And so some, you say, industry expertise, really key. What about the mistakes that you've seen entrepreneurs make, Ben, when it comes to sort of trying to go it alone, which could be a mistake in itself? When they're looking at that, you know, past, present, and future, for their business. Where do you find people are making the most common mistakes that we can take a look at ourselves and see if we're doing it and then change?

I think not understanding the impacts on— I think an entrepreneur's worst nightmare is running out of cash. Any business owner's worst nightmare is running out of cash. And I think not fully understanding the need to retain cash to finance future investments in the business as it grows and understanding, you know, especially if you're a business that has significant, what I would call, work in progress where you have projects or customer projects that are tying up significant capital. You have an invoicing schedule for that project. The project has its costs. If you have multiple customers whose projects layer on top of each other. And if, if the stars align, you know, you can get in a situation where you're heavy on costs and you run out of cash just because of how these projects are interplaying with each other. A fractional CFO is really going to help you project cash flow based on the operational model of your business and really understanding When is income earned and when is it realized? When is expense incurred and when is it realized? There's a timing thing there. And it's really important to know those things when you're growing because you've got all these activities that are going to have to happen that are not going to be reported on the balance— on the income statement. They're going to be on the balance sheet when you're purchasing equipment, making investments in the business. That's not on the P&L. But it is on the cash flow statement. And a competent CFO is going to model your business operations and its financial results to produce those projections and make sure that you know well in advance of when you start— you need to start courting investors to raise capital for the next stage of growth.

Yeah, let's just talk about that, Ben, because I think often entrepreneurs get in a little bit of a cycle. I know I have where you're You're trading, then you grow and you use the extra cash to invest in maybe more staff or more equipment or a bigger office. And that takes up all the cash and you end up in this kind of earn to work to earn to work situation. With your experience at Provident Financial Services, what are investors looking for when they meet that entrepreneur who is quite possibly in a little bit of a loop. Um, maybe they've got good business but they haven't got good cash flow. And I think certainly I was under the impression that people were just wanting to buy my cash flow. Um, and so, you know, you kind of chased cash maybe even at the price— at the expense of profit. So can you give us some guidance? How can a business that's struggling to grow maybe is cash flow starved, approach an investor and look attractive to that investor when superficially it may look as though it's struggling to generate enough cash to grow?

I would say they have to tell the investor the story of, well, first revenue, like they need to show revenue and show that there's demand in the market for the product or service they're offering. Um, that's the first thing an investor is going to be looking at. And then, uh, if they're struggling for cash or struggling for profitability, they have to be able to tell the story of how we're going to get from where we are today. What's that roadmap to profitability? What are the necessary investments we're going to have to make in the business to increase profit margin, to increase cash flow? At what point When can the investor start expecting to receive dividends on their investment? What's going to have to happen operationally, managerially, like from a human resource perspective? Who is the entrepreneur going to need to team up with? What's the management structure that needs to come into place so that this visionary entrepreneur who's very talented at what they do has the stability that good management provides and making sure that all the trains run on time and that the profitability— profit is sustainable, that the dividends are going to be sustainable. That comes from management and understanding what are the investments on the balance sheet that are going to have to be made to create the level of profitability where— or the level of profits and profitability for an investor to say yes. So the investor is going to be looking a lot at Who's in the kitchen? It's not just the entrepreneur. The investor is probably also going to want, like, you know, you know, an adult in the room for— it's a terrible thing to say, but that's common in private equity is like have an adult in the room to make sure that there's, you know, financial restraint and wisdom and common sense being applied. And that's fractional CFO can provide that, provide that risk reduction to an investor by, you know, being installed in the company, making sure that the balance sheet remains healthy as the business grows and that the necessary investments are being budgeted for as the growth occurs. So you don't get in a situation where you've just— you've completely outgrown your capacity to deliver and you fail commitments and you miss, you know, striking the market, striking the iron while it's hot in the market.

Yeah, and it's a good point as well that the, the CFO could actually be very reassuring to the investor, one or other, because, you know, there are lots of senior entrepreneurs, but they're busy running the business, right? And they don't necessarily have the time or the wherewithal to manage the cash and to leverage the business to make optimal cash.

It's really a risk reduction measure for both the investor and the entrepreneur. So, you know, typically you, you know, you exchange risk for reward. So this is a small exchange of reward for a large reduction in risk. And I think investors and entrepreneurs should be very keen to consider having a CFO in place, you know, for investors even specifically as a condition of investment is that we're going to put this CFO in place that we have transparency into the financials of our investment and that we know that there is somebody with financial acumen embedded in the day-to-day operations.

Yeah, I think it's a really interesting point that we've not addressed much on this show because we're so busy thinking about getting noticed that we think about that in terms of customers only. But when it comes to investors and potential buyers, they want to not look at necessarily the brand. They want to look at, as you say, these statements of cash flow and the balance sheet and the P&L, which really are giving a true picture of the business, aren't they? Both the present and the past and planning into the future. Um, Ben, let's just think about technology just for a second. What impact do you think technology is making on the role of the fractional CFO, and how is it helping the relationship between the CFO and the entrepreneur?

I think it's this technology, the ability to do so many things virtually. So I mean, we live in the world of virtual meetings. So you can have a CFO that is not, you know, he can do their job virtually, which allows CFOs to have many clients and it provides those economies of scale that benefit the customers because now the CFO can handle more customers at a lower rate, making it more affordable to their customers because of all this technology. And then on the software side, it's just amazing, all the different software applications that can integrate with each other. And even like, like one of my recent favorite tools is Google Sheets, and it just interacts with the whole world. And I can tie into accounting and produce beautiful dashboards and forecasts. And so like technology is increasing the capacities of CFO to deliver value to more customers and increase the mission impact of those customers. And, you know, as far as, you know, you know, if we talk about AI, you know, I don't think AI will replace the strategic capabilities of a CFO to work alongside the owner and study the market and come up with credible budgets and forecasts. And so that side, I don't think AI will replace. AI may drive efficiencies in the historical financial reporting and analysis, but as far as strategic decision-making, that's still a very innately human activity.

It's interesting, isn't it, that you say that the AI still won't replace the need for the human to think through the decisions with the entrepreneur. And to some degree, of course, the AI won't give the emotional comfort and reassurance that also can come from a trusted advisor. We mustn't forget that the numbers are important, but also the relationship that a CFO can bring and the personal sense of confidence and support that they can bring to the entrepreneur is a very important role too, isn't it, Ben?

Yeah, the, the personal or the, the accountability that a CFO brings to the owner, um, that cannot be replicated by AI, there's just the personal relationship, the emotional intelligence, the human empathy, all that stuff is very valuable in the relationship in helping encourage the owner to stay focused on the things that matter that are going to make the biggest impact.

Speaking of impact, Ben, so you're running Provident Financial Services over there in Pennsylvania. Um, if people wanted to find out about what you're thinking about, what would you say would be the book that you would recommend that you found quite inspirational to you? Because plainly you're a man with numbers in your business but also great thoughts in your mind. What are some of the— what would be a book that's inspired you or changed the way you think about money?

Well, the book that really changed a lot for me and kind of began the transition from my background in aerospace engineering to financial entrepreneurship as a CFO was really the Rich Dad Poor Dad books. Robert Kiyosaki, he put into words the restlessness that I was feeling as an engineer, being an entrepreneur. As a junior engineer in an organization that didn't really give me much wiggle room to be innovative and entrepreneurial. And he explained to me, you know, people are wired differently. They can be wired as employees, they can be wired to be self-employed, business owners, investors. So Rich Dad Poor Dad and all those books were just great eye-openers for me.

Yeah, and I think one of the great things about Rich Dad Poor Dad is it makes you realize you're not alone. Right? The things that you used to think about and wonder why things are the way they are, you realize not everyone thinks like an entrepreneur, but other people do think like entrepreneurs, that it's not such a lonely journey after all. So it's a great, great selection. Um, what about a podcast, Ben? What do you listen to when you're driving, traveling?

I like Jordan Peterson. I always find him very intellectually engaging and challenging. So I, you know, it's off topic of CFO stuff, but I always enjoy Jordan Peterson and his long-form interviews. I appreciate the long-form interview and format.

Yeah, he's terrific. And I read his book while I was on vacation and really kind of some down-to-earth wisdom really about well-being and building a worthwhile life. But I will ask you, Before I let you go, what would be one piece of advice that you would give to entrepreneurs? We're talking about Unnoticed Entrepreneurs, but really you're, you're someone that has a handle on the financial aspect. So what would be your piece of advice you would give us?

I would say an entrepreneur should hire a bookkeeper, uh, right away, as soon as they start making transactions for their entrepreneurial pursuit. Hire a competent bookkeeper and even better one with the heart of a teacher who wants to explain and teach you how to read financial statements. That would be awesome. They don't have to be necessarily an industry expert, but a bookkeeper so that the entrepreneur can focus on what they do best and not have a nightmare at tax time.

Ben, that's great advice. So really, when you issue your first invoice, that's the time to get your first bookkeeper. Ben Rissa, if you want to find out more about you and talk to you maybe about being a fractional CFO for them, I'm assuming that your jurisdiction means you need to work in America. Um, how can people find you?

Uh, it would be my website, which is providentfinancialservicesltd.com. Or you can find me on LinkedIn, just search for Ben Risser. And if you see something with Provident Financial Services, that would be me.

Ben, thank you for bringing Providential advice and some really, I'm going to say, straightforward, which in a way it needs to be as an accountant, straightforward advice. But also this idea that we can have a fractional CFO, not just to be a safeguard for the business, but also to reassure people that might want to invest in the business or to buy the business in the future. So that CFO is really a strategic investment in the long-term, either liquidity event, for example, um, either to an external or internal group, which I'd never thought of it as before. I thought of it as sort of someone I can't afford full-time but that I might need. But what you've done is made me think, well, actually it could be someone who helps me to exit. So thank you.

Yes, absolutely. Thank you. And often I see private equity firms, they bring fractional CFOs in once there's trouble. But I would challenge that and say, why not put one in in the beginning to protect your investment? But thank you again, Jim. I appreciate it.

Yeah, that's wonderful, Ben. So we've been listening to Ben Risser of Provident Financial Services. And of course, I'll put his contact details in the show notes. So for those of you looking on YouTube, you'll be able to see his website because I do share screen using the Riverside platform here. So as an entrepreneur, we're always, always thinking about growing things, we're thinking about launching things, we're thinking about marketing things, and sometimes it's the financial side that actually undermines the potential success of the business. So get those documents in place and find someone like Ben who can help you take a strategic view of the business, because whoever eventually is interested in buying into your company or buying you out of the company will ultimately come and look at your numbers, and you want them to be in order. Thank you for listening to this episode of The Unnoticed Entrepreneur with me, Jim James, and my guest today, Ben Risser. If you've enjoyed it, do please leave a review. It always really helps. And do also please share it with a fellow unnoticed entrepreneur. And until we meet again, I just encourage you as always to keep on communicating.