68. Your Client Is In Trouble - What To Do (Fractional CFO)

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Of the worst parts about being a fractional CFO is realizing the fact that one day you're going to have to have difficult conversations with your clients who are facing existential crises. What I mean by that is their revenues start to go down, their expenses are going up. Maybe they're not landing those big clients that they need to continue their growth or maybe even to sustain their business. What do you say to those people? How do you help them? What things are you going over with them? That's exactly what we're talking about about on today's episode of the CFO Report. In fact, Carlos is having a conversation with one of our inner circle clients that's having this issue with one of his big CFO clients. So we're going to walk through exactly what do you say when a client faces an existential revenue crisis? What types of things are you doing to help them and what can you do to preserve your job as one of their trusted advisors during one of these tough times? Let's dive in.

I got a question that kind of falls in the category you mentioned earlier of the client's problem is my problem. The client, he has had some big contracts that he thought he was going to get, so he's like going to have to shut down his shop. And I'm having a hard time of what to do. We've talked about it, I've seen it come and I do a forecast now. It's going to hit in June. And you know what to say to him. I've tried everything of hey, follow up on every bid, see what's going on. Are there other areas you can do other services? Part of it is it seems to be a part of maybe the economy. The interest rates are going up. People are less prone to being doing big capital investments. A question is what do I tell him? And B, one of my best clients is going to be zero here very shortly, which is a bummer. And what do you say to a guy like that?

Those are tough conversations, right? I've had a, unfortunately a few of those along the years as well. I think you said all the right questions in terms of a, can we pivot to some other business that allows us to still be in the industry but serve in different ways? So instead of renovations, maybe it's just service. I have a client in the repair business and they do very well during recessions because people stop buying actual products and they, they start repairing them because they don't want to spend spend the cash outflow. So is a repair instead of a Full remodel, a viable business model for him going for just to transition through this phase. Right. Or not even that. Maybe just adding that to the portfolio and building a bigger business. Right. So if we can diversify different types of services and products, then that could definitely be something. Now that's harder to do when you're right there in the mix of things. That's better when you saw that coming and you started doing all the work, previous work to get all the people and the processes and the roles and responsibilities and everything laid out. Right. So that when this time hit, you already had customers, you got a sales process, all that kind of stuff. Much harder to do when you don't have cash. The first thing I would say is for all of you, anticipate all these things. When I'm looking at a business like, for example, construction, we got a couple of construction companies. And one of the things I know is that when the economy tanks, the construction industry is one of the first ones that tank. It's always been the same cycle repeating year over year, right? So when the economy hits, there's a lot of new construction, there's a lot of renovations, there's a lot of things, and construction goes booming up. Right? And to me, construction is one of the most powerful motors for the economy because it hits employees, it hits insurance company hits banks, it hits so many components of the economy that construction does. That is important. But I know it's also going to go down the tubes when the economy hits a really tough stretch. So what do I do with the clients? I'm in cash conservation mode right now. I have a client in construction industry and they have $3 million in the bank and they keep trying to use that money for something else, and we're not doing that. I'm keeping that money in the bank, in various banks because of all the things that are happening right now. But we have to be prepared for the downturn. Now you're not at that point either, right? In terms of having done all that prep work, you just write up against it. If we don't have alternatives, how can we keep the lights on for. For as long as possible? That was my strategy when I faced that with a client. Right. So I'm putting together some forecasts and projections of what is the bare minimum that we need and the bare minimum of staff and the bare minimum of this and that, that we can keep the company alive the longest period of time. Now, I also know that the more Runway we can generate, the more opportunities we give the business owner to Breathe air into the organization and find different ways. But my job is to find a viable path where we keep the lights on for the longest period of time possible. Now that requires then me telling the business owner, you need to make some difficult conversations. You have to let people go or you have to reduce schedules, pay schedules and stuff like that, hours. Let's say you don't want to fire people. Well, you can pay them full time work. So if you don't want to fire people, do you want to put everybody on part time and reduce their salaries and reduce their compensation and all that kind of stuff? So again, very difficult decisions, whatever that looks like for your client, your job is just to extend that Runway, that amount of cash that he or she has as much as possible. That's your job.

And if, and that's what I've done. I made a list of went down as P and L. And here's, here's the bare minimum. You would have to expense out, quit paying yourself, stop all these expenses and here's your bottom line. He's going to go through that and revise it even more so or whatever and then talk to his partner and say, hey, here's a minimum. We need to keep going every month. I've been seeing this coming for months and telling him for months and it was like, you got to get more jobs on the books. You know what's going on. And he was very, his comments were, yeah, I know, yeah, I need to get some more books, work on the books. And I told him other options, let's look at some other things. Yeah, I know. And I, I have a hard time reading them in that area. But now it's hitting the fan and I don't know it's going to be very interesting in the next 30 days because I said, well, do you have any money to put, you could put in the business if you had to to keep it alive? Nope, I don't have any money. Like I say, it'll be interesting. And I'm, I'm doing what you say, you know, what's the bare minimum to keep the lights on? If he can do that, great. And if he can in the same time keep chasing those jobs as much as you can if you can get one of them to come to fruition.

So it gets to a point where we can make the business owner make the decisions that need to be made. And that's unfortunate. When we get to that point, hopefully you've developed a good relationship of trust that you can push and you could pull people accountable and say, hey, we need to do this or we're going to go out of business or whatever, you can make a really grandiose point, right, to, to, to leverage the situation. The most important thing to do in those instances is just to put a really good solid forecast in place. Maybe 24 months, that person can look at profitability and cash flows. I teach on the forecast and projections model that we use that it has the profitability and the cash flows built into it so that he could see the distributions. Hey, we're going to put those at a bare minimum or we're not, or we're going to take those off and we're going to put them on the back end or whatever that looks like. Specifically, it doesn't really resonate when you say we need to generate $20,000 a month of revenue. But when you lay it out in a, in a 12 month or, or a 24 month projection, saying every single month, all the expenses and all the cash outflows for debt payments, for distributions for all those things, and you see the cash balance and you see in a net loss position or net profit position or we're breaking even or whatever, that business owner, there's a click that goes in their head and says, okay, I need to cut this, cut that, increase that. I mean, I've seen business owners just go, when they see that laid out in front of them, there's smart people.

My, my forecast, we look at every call every week and that's where it's coming from. But yeah, my fee is one of the things he, I know he's gonna not be able. It's one of his biggest expenses.

What we usually say here is, are you really going to get rid of your flashlight? Is if you're lost in, in the forest in the middle of the night.

Right, right.

So if, if you want to get rid of your flashlight at that point, then you're, you're lost, dude.

So make yourself very useful talking all the time about that forecast and projection because that business owner can't do that. So if you show him what you can do that he can't to get him out of this situation, he'll keep you around.

Thank you.

You're welcome.

All right, my friends, I hope you found this episode helpful. If you did, it would mean the world to me if you would leave a five star review on Apple Podcasts, Google Podcast, Spotify, wherever you're listening to this episode. In the meantime, I can't wait to see you back right here next week.

I'll see you then.