Bookkeeper, Controller, or CFO? How to Know Which One Your Business Needs

In this episode of the HabitStack Podcast, host Scott Ward sits down with Josh Leyenhorst, fractional CFO and founder of BasePoint, to break down the financial frameworks that help founders run smarter businesses.

Josh breaks down the difference between bookkeeping, controller work, and CFO-level thinking, framing them as hindsight, insight, and foresight, and explains why even founders who think their books are clean often have messy data driving bad decisions. He introduces a reverse-engineering framework that starts with a founder's personal life goals across five areas (faith, family, fitness, fun, and finance), converts them into a monthly cash requirement, and works backward to determine exactly what the business must generate in revenue and which specific levers to pull to get there.

Josh also unpacks a vested profit sharing model as an alternative to equity, explaining how it creates long-term employee alignment without giving away ownership or control, and explains why overpaying good people is often cheaper than losing them. He addresses financial shame directly, noting that many outwardly successful companies are quietly struggling, and why naming that reality is often the first step to fixing it.

Tools from Josh Leyenhorst

• https://www.basepoint.ca/tools
• https://www.youtube.com/watch?v=c9kOU_dHoUU

Transcript

Scott Ward (00:00)
Today I have the pleasure of speaking with Josh Leyenhorst He is a fractional CFO and his company is called BasePoint. He works with companies in a variety of industries, including construction and tech. hosts a podcast called Business Growth Factor and has developed a series of tools for founders to clarify their financial situation. It's going to be a good talk. Let's dive in.

Scott Ward (00:23)
Josh, you have had an interesting trajectory over the years. Tell us a little bit about your path. How did you get to where you are?

Josh (00:33)
Yeah, it was not directly linear, I suppose.

Scott Ward (00:37)
They rarely

are, the paths usually aren't, you know.

Josh (00:40)
Yeah,

yeah, yeah, it was more exploratory, I suppose. I guess my background, I did my undergrad in molecular biology and biochemistry. So I worked in sciences for a number of years. I had zero interest in accounting and finance in university. The reason being, guess I just thought it was, you know, tapity tap on the keyboard, bunch of data entry. I was like, that sounds like the most boring career to ever do. So didn't even cross my mind. And so I got into the health sciences, really enjoyed it.

I worked in pharmaceutical research and development for a few years. Then my wife and I started a couple of small businesses and I took a data-based approach to decision-making in the business. And so, you know, started using numbers to make decisions on inventory management. And in the process, I was like, I think this might actually be accounting. And so, but a fun part of it, because it's like the decision-making ⁓ side of using the numbers. So, ⁓

Scott Ward (01:31)
Right, man.

Josh (01:39)
Yeah, so anyways, I, I from that experience took our accountant out for breakfast one morning and I just picked his brain a little bit on the profession and he sort of steered me into that direction. So I decided to go get my CPA designation. It's a years after I'd finished university. So I kind of stumbled into the, the profession, I suppose. And yeah, I up taking a position in finance for a construction company or where I worked for about six years and worked my way through there. So I got to touch all the operational sides of

of finance and following that. I thought it'd be there forever because it was fantastic company based out of Surrey, BC. Really great owners, great leadership team. I thought it'd be there forever. So I took my accountant out for breakfast following that whole journey just to say thanks and close the loop and everything. And then he sort of pitched the idea of coming to work with him. ⁓ so that was a hard decision because I loved where I was. But it was

better hours, better work-life balance, better for the family, very close to home. So I eventually did that. And then long story short, decided to start my own firm and that's where we're at. So very not linear. When it came to being in university, I'm gonna be I'm be an accountant and then start my firm and then off we go.

Scott Ward (02:50)
Yeah.

Yeah, yeah. You know, do you... This might be a bizarre question, but molecular biology is what you said, And biochemistry, like, do you... How do you feel like that prepared you for what you're doing now?

Josh (03:02)
Yes, and biochemistry,

The analytical approach and the decision making off of the numbers. ⁓ The way I kind of describe it as accounting and finance is kind of like the science of business. And so I get to understand business at the molecular level when I look at the financials and we dig deep into the numbers. Yeah, I know it sounds really dirty, but we're all nerds in a row, right? ⁓ So that's the way I sort of see that.

Scott Ward (03:14)
Yeah.

Ooh, that's good, that's good. Nice.

you

Yeah. Yeah. I, ⁓ started university in computer science and then switched to philosophy. And, ⁓ mainly I went into philosophy because it's so lucrative and there's so many job opportunities, right?

Josh (03:44)
Okay.

Inchard.

⁓

Now that said, mean, sorry to cut you off, but like philosophy is very logic based, right? Like if you take the logic side of it, I suppose.

Scott Ward (03:58)
Yeah.

Yeah. That's why I bring it up because I've always felt like it's, it's, it's served me well. Um, and both when I, you know, was primarily doing software development and now doing what I'm doing now with coaching and consulting, like it's. Yeah, it was, I'm, know, I'm kind of a fan of, um, of broad education, actually. I think that it does end up helping even if it's not a clear path to.

Josh (04:05)
Mm-hmm.

Mm-hmm.

Scott Ward (04:29)
You know, because a lot of times we go through university and it doesn't turn out to be a straight line anyway. I mean, you were a molecular biologist in biochemistry and now you're, you know, doing accounting. And so it's not a guarantee that you go to get a certain degree and you end up doing that anyway. So.

Josh (04:29)
And you go.

I mean, my

initial undergrad focus was kinesiology. And so even as I started that, ⁓ you know, we started bumping into some courses where the prof would be like, OK, this is how this happens. But, know, we're not going to get that deep because that's beyond the scope of the program. It's like, well, I want to know how things work, like down to the molecular level. So that's when I swapped out.

Scott Ward (04:47)
Right. Right.

Yeah, right. ⁓

So let's start with this. you're a fractional CFO.

And I think that some people probably understand perfectly when they need a CFO versus something else, et cetera, but not everybody does. And so when you think about these different roles, maybe this is kind of basic, but I think it's helpful just to define our terms or get everybody synced up who's listening right. have bookkeepers, accountants, controllers, CFOs, financial advisors, know, like help us just kind of understand the lay of the land. ⁓

Josh (05:17)
red.

Scott Ward (05:37)
Maybe not spending too much time on, like, I think everybody understands bookkeepers day to day, you're reconciling physically, you're digitally reconciling the actual transactions. That was probably the most well understood, but help us delineate the roles and responsibilities of these different ⁓ groups of people. And when you should think about getting who.

Josh (05:44)
Mm-hmm.

Sure. As a business owner, internally or fractionally or either or I suppose.

Scott Ward (06:05)
Yeah. Yeah.

that's a good question too. think that's a separate question, fractional versus internal. But first of all, let's just do the roles

Josh (06:11)
Okay.

Yeah, I think the best way to differentiate between the three bookkeeper controller and CFO and there's, you know, a spread in between there. If you look at it, you know, just dive in a little bit deeper. If you look at financial operations in a larger company, you know, those are sort of like sections of a long spectrum of different positions that can exist in finance. So but if we were to sort of carve out key features of financial operations or the average small, medium sized business,

⁓ The way we kind of describe it is bookkeeping, controller, CFO is kind of like hindsight, insight and foresight. So hindsight is kind of like what happened. Get the record keeping in. That's table stakes for business. And when I say that, lot of business owners don't even have really good bookkeeping. So that's very, important to make sure that that's tight and current, because when that doesn't happen,

you you start missing on things like remittances to regular like tax authorities, regulatory authorities. And so ⁓ that's when start having penalties and interest and you can avoid that by staying on top of things. So that's hindsight. Yeah.

Scott Ward (07:24)
Okay,

this is great. is great. So that's how I'm so I'm just gonna sorry, I'm an interrupter, but it got me interested. So let's say that somebody is as far as they know, pretty good on the bookkeeping front, right? They think the books are pretty good.

Josh (07:29)
Yeah, no problem.

you

Scott Ward (07:38)
where is there typically room for improvement? Even when somebody feels like, I had no idea that that was actually, you know, going on and that could have been better. I thought we were pretty good. So in other words, forget about the people that just know they're totally out of date, you know, but the people that are doing pretty good, where are some likely rooms for improvement on that side?

Josh (07:51)
Yeah, yeah.

funny you mention that because I would say type books are one of the biggest challenges we bump into when we take on new fractional CFO engagement because a lot of people think their books are good, but to make good decisions based on your financials is like garbage in garbage out, right? If you don't have good financial information readily available, then what you're using to make decisions moving forward becomes more of a challenge. common issues, ⁓

Scott Ward (08:09)
All right.

Josh (08:25)
double entering things, and this is going to get into some of the, I guess, nitty-gritty accounting type stuff, things that are entered twice, things that are not entered at all, things that are entered in the wrong spot, things are just not reconciled. So it may show a certain way on the balance sheet of the income statement, but by the time you kind of clean it up and reconcile everything, it's vastly different. I mean, we do year-end accounting in taxes for clients as well, and sometimes we don't do fractional CFO work for. And so when that comes in, sometimes the preliminary information or data, financial information looks

vastly different from what it is when we're done simply because there's a lot of stuff that gets cleaned up in the process, right? So ⁓ there's a whole range of things that can happen on the bookkeeping front. ⁓ Even at current, ⁓ yeah, there's a lot of stuff.

Scott Ward (09:05)
Yeah, Yeah.

Any common misunderstandings, you know, think everybody, if you, know, expenses are expenses and revenues, revenue, but then other things are kind of like, how should this be handled? know?

Josh (09:21)
Yeah,

that's a good question. that would I would say depend on the industry that we're talking about. So when you have, for example, we work with a lot of construction companies and tech companies. So revenue recognition becomes pretty important in those businesses because just because you collect money at a certain time doesn't mean you earned that money quite often. In fact, you know, if you have

⁓ prepayments, like prepay for something for the year, that's not necessarily earned revenue at that moment. And so you kind of recognize that revenue over time. If you have monthly recurring revenue for something that's not always delivered at that particular month, now, you know, service terms and stuff like that, and your contracts can play with that a little bit, but that can impact revenue recognition. So that's where things can change, right? Somebody might look at their income statement in their ⁓ accounting software, maybe like QuickBooks Online or something. And they'll be like, yeah, it looks like we're, you know, we've got

Scott Ward (09:57)
Yeah.

Josh (10:18)
net income and it's looking pretty strong. But then if we have to back out a bunch of the income that they recognize because it's not actually earned yet, it's showing a loss and they're like, I didn't expect that. Right.

Scott Ward (10:27)
So you've, collected some money, but it's actually just going through to somebody else, but it's in the, in the account. That's scary, scary situation.

Scott Ward (10:33)
Quick pause. A word about Habitstack. If you're a founder with a leadership team, you know the feeling. The week fills up with meetings and fires to put out

And by Friday, nobody's touched the strategic work that actually moves the needle.

That is exactly what Habitstack fixes. It's a strategy execution program I created and run with ambitious leadership teams.

We meet weekly, get your goals broken down from the year all the way to what needs to happen this week. And I hold everyone accountable to do the strategic work. Teams I coach go from scattered and reactive to focused and making dramatic progress on the things that matter most.

Even when the founder can't join the weekly meeting, I'll be there. If that sounds like something your team needs, go to Habistack.com and book a call. Now, back to the show.

Scott Ward (11:21)
Okay. So let's, let's keep going. So that was hindsight, ⁓ smokekeeping and, ⁓ now, yeah.

Josh (11:25)
Yeah. So hindsight it's like what happened, right? What happened

over the last like whatever period of time you're looking at insights or the controller level work that we do is we call it insight kind of does two things. One is it looks at the bookkeeping to make sure it's good. So there's some checklists that we usually like to go through to make sure things are done, things are reconciled, things are tight. Compliance is good to go.

because that's at a base level what should happen. And that's what a controller normally does in a company is make sure the bookkeeping and the compliance is all good. On top of that, it also answers a question, how are we doing compared to maybe what we should be doing? Right? That's one of the questions that it might answer. And so then what you can start doing is looking into some financial analytics, you your actual profitability metrics, some of your balance sheet metrics, and see how those even compare to industry benchmarks.

with other companies in the same industry. Now, this kind of gets to your earlier question. Are there things that people do wrong? don't necessarily know what they're doing or whatever. Where things are coded as far as like, you do you put payroll costs and your costs of goods sold, or you keep it in your overhead? Those things will start to impact how you might compare to benchmarks. Sorry, this is getting a little bit nerdy, but like, so those things are important, right? We'll look at benchmarks and how a company might compare to industry relative to the financial data.

out there. So that's the insight side of it.

Scott Ward (12:55)
And that's all controller. Okay. What does an accountant, where does accountant fit into? You're talking about keeper control of CFO, but where does accountant fit?

Josh (13:02)
Yeah.

Yeah. So accountant, that's that's a very interesting term because it can be very broad in its use and application. So ⁓ accountant can mean the person that you go to your taxes with. Accountant can mean the person who is in charge of your financial operations. Accountant could be the person that you hired to do your bookkeeping. It's a very broadly used term.

Scott Ward (13:27)
Okay,

so really it's not as useful as the term as bookkeeper controller CFO. There's more of a continuum there that makes.

Josh (13:32)
Yeah, bookkeepers,

controllers, CFO is ⁓ indicative of like what what's being delivered. Accountant is a pretty broad term that ⁓ a lot of people will refer to us as accountants, right? I'll talk to my accountant about that. ⁓ But it could be a pretty broad term for sure.

Scott Ward (13:39)
Right.

Okay, cool. Time to us about CFO.

Josh (13:52)
Yeah, so CFO, that's the fun part. So CFO is the foresight, right? So we're bookkeeping is like what happened and controller is like, what does this mean? CFO is more answering the question, where do we go from here? What decisions can we make? And what can we do moving forward? And so the best way the analogy that we'll quite often use with clients is a sort of like Google Maps for business finance. So we help

Scott Ward (13:54)
Yeah.

Josh (14:21)
Clients understand where they're currently located, right? So your Google Maps are like, where am I? And it gives you a little pinpoint, right? And then you determine where you're wanting to get to from a financial perspective. And that should be tied to the overall strategic goals of the company, right? They should be aligned. Your financial targets should be very much aligned to the overall strategic goals of the company. um,

Scott Ward (14:43)
You mean

the founders personal targets or the revenue targets need to be aligned? What targets are we aligning with what?

Josh (14:49)
Yeah, so.

That's a really good question, Scott. And we can dive into that in a sec, because I think that's a really important point. We actually have a tool which I'm happy to make available to your listeners, like no costs or anything. And it's a tool that helps founders think through what it is that they want, the cash flow that's required to feed that, and then what the business needs to do in terms of cash output after tax cash output to feed that. Because ultimately, at the end of the day, if you think about it, our businesses

are essentially vehicles to get us to the goal that we want to get to personally, right? That's currently with current cashflow coming out of a business, but also in the future, right? Because at some point there's going to theoretically or ideally be a liquidation event where you sell your business, harvest value out of it, and then that further projects you into the future that you want.

so getting back to the Google Maps for Business analogy, you kind of put in that destination on your map, right? And then that becomes your roadmap. You're like, hey, we have to go this direction. But it doesn't stop there. And you asked when we were talking about this previously too, the difference between like budgets and forecast. Budgets will kind of be where you lay that out, right? That's your initial route.

Forecasts the recalibration of that process. you know, generally we'll meet with clients on a monthly basis. So our regular CFO ⁓ cadence is once a month we meet to talk about that, that journey, the roadmap and see how things are progressing. And then the two week intervals in between there, we do tactical. So using the road trip analogy, because I love road trips, you know, the CFO call is like, are you on the right path? Do we need to recalibrate the route? Do you have enough?

Scott Ward (16:07)
Yeah.

Josh (16:33)
like gas in the tank, which is cash, right? All those things. And then the two week intervals in between, we open the hood. We're like, how can we make this engine perform better to get you there quicker, more efficiently, whatever it might be. So that's the CFO side, which it's a shame because now again, we all go through our own journeys to become who we are. But if I had known that there was this really fun part of accounting and finance, I probably would have dove into it in university. But instead I...

did this 10, 15 year journey to get to that part afterwards, which is okay, because I still really enjoy it. Yeah.

Scott Ward (17:08)
Yeah, it's maybe who you are though.

but okay. So what in practical terms, uh, the CFO part. So you're going to be like, again, I kind of a similar questions. I think like, is a good example of something, an adjustment that came out of you putting your CFO hat on with a founder and they're like, you know what I got to make, this is a concrete change I got to make as a result of this conversation with Josh.

Josh (17:37)
It helps identify what's driving the revenue, what's driving profitability. Most businesses often, often to their detriment will have many revenue streams, right? You know, the more focused a business becomes, the cleaner that can become. But a business with a lot of different operations going on, a lot of different revenue streams could have some products or services that are effectively cannibalizing the profit of other

products or services unbeknownst to the owner, right? Cash is coming in. looks like business is humming along. It's like, if you actually look at the individual products or services and dive into those numbers, you may recognize like, wait a minute. This is losing you money every time you do a sale, right? So it's understanding your profitability drivers, your revenue drivers. ⁓ So sometimes it's just some switches that can be flipped that can vastly. ⁓

Scott Ward (18:29)
Let's get out of that

business. Let's not do that anymore. Right.

Josh (18:31)
Yeah, exactly. Or or maybe

it's a price adjustment or maybe it's how can we add value in order to justify a higher price? Whatever it might be. Maybe there's some costs that can be trimmed, right? As part of the process. It's very common for businesses, business owners, especially to get very busy running their businesses. So they start to lose track of those little things. You know, if you start a business, you typically intuitively know, OK, this makes money. This doesn't make money. This is working the way it should. This isn't. But then when you start to layer

operations in there as things grow and expand, you have people that are now doing things. You don't necessarily know if it's being done as efficiently or properly as it should, right? So ⁓ it's a good way of just coming back to that and be like, hey, this is losing your money. This is making you money. ⁓ Sometimes it's a matter of ⁓ knowing, because cashflow forecasting is very much part of what we do as well. So we'll kind of project out cashflow.

Scott Ward (19:16)
Right.

Josh (19:27)
and be like, okay, based on this, you're currently wearing too many hats in the business. ⁓ You need to, to steal the words from someone named Dan Martell, who I did some coaching with, ⁓ you need to buy back some of your time, right? You need to get somebody who can ⁓ do some of this, this like more administrative work or whatever it might be to free you up to do more ⁓ valuable work. And so then we'll look at the cashflow forecast, be like, can you do this? You know, cashflow justify it. And then

Scott Ward (19:51)
Right.

Josh (19:54)
From there, they can make decisions that then free up a lot of their time to then focus on more higher value activity in the business.

Scott Ward (20:01)
Yeah, so it sounds like strategic decision making is the purview, not exclusively, but kind of the focus of the CFO.

Josh (20:14)
Yeah, using the numbers, right? Because everyone has a ⁓ pulse generally on their business. How are things going? ⁓ To know for sure is nice, right? To see what that might translate into in three months from now on the income statement or on the bank balance is very helpful. To know if you need to, know, a very common thing that we'll touch is like equipment. Hey, we're thinking about buying this, you know, a dump truck. We're thinking about buying an excavator or whatever it is, right? ⁓

Does it make sense? Should we buy this? Right? How do, how should we buy it? Should we lease it? Should we, you know, uh, like all different options there? So, um, will, will it make sense just from a business perspective to own this or should we just continue renting it? We need it, whatever it might mean. So, so then we can look at the operational, uh, side of things like the benefits there as well as the financial impact and, and then map it out. So it'll be like, okay, in three months, this is what this will look like. So it's not a surprise. You're not like,

Scott Ward (21:07)
Yeah.

Josh (21:12)
We really should not have done that. ⁓

Scott Ward (21:14)
Dang it.

Yeah, I see that sometimes you have service businesses, maybe an agency, and they're thinking about building a product. And it's important to think ⁓ being in the product business has a lot to be said for it. There's a lot of nice things about being in the product business versus the service business.

Josh (21:30)
Mm-hmm.

Scott Ward (21:36)
pros and cons both ways, but nice to have at least do the napkin math on the product. And maybe, again, I think you would take it even farther than napkin math. I usually napkin math, but. Can I have this? What's that? Okay, just napkin math it out, yeah.

Josh (21:37)
You

Yeah. Yeah.

That's about where we stay, Scott. No, I'm just kidding. I said that's about where we stay. We just keep it on the napkin and throw darts at the

wall and see what happens.

Scott Ward (22:00)
Yeah.

I have Josh, a question for you that we didn't talk about talking about that. just occurred to me. And I, so I have no idea if there's any context for this, but sometimes, do you know much about how like cooperative ownership works? Like employee owned companies? Um, do you see, do you have much exposure to that and how that works? And sometimes I'm used about that being kind of a cool structure, but I don't know if you have any experience with it.

Josh (22:28)
like an ESOP or something like that.

Scott Ward (22:32)
Maybe, maybe, I don't know, like...

Josh (22:33)
Okay.

There's definitely, it's becoming more common. And even the Canadian government for your Canadian audience has introduced incentive to have employee buy-in opportunities just from a tax perspective for the seller. So it's becoming more common. So from an exit planning perspective, you know, if you're or like transition planning or whatever you want to call it as the business owner, at some point you're to leave the business, right? So question is how.

So do you sell it to somebody external, like family member? Employees are a great option because they're already vested in the business. They care about the business. They have an interest in seeing it succeed. You can kind of phase it in. you have a good culture is key for that, right? mean, otherwise you're to have like a very dysfunctional culture that's got ownership as well. So I don't deal with the mechanics of that regularly, but yeah, it's definitely becoming.

Scott Ward (23:22)
Yeah.

Josh (23:31)
more common and is definitely an option for growing businesses.

Scott Ward (23:36)
I mean, more broadly, it'd be interesting to hear your thoughts and like, you know, it's, it's a common discussion. Like, well, you know, clearly, ⁓ we need, ideally people are motivated, ⁓ as motivated as possible. Right. One way to do, ⁓ what's that? How do you do that? mean, one way is, ⁓ salary. ⁓ one way is.

Josh (23:53)
Mm-hmm. So how do you do that? So how do you do that? How do you incentivize that?

Scott Ward (24:06)
I mean, there's lots, actually there's hundreds of different ways, culture, mission, all those kinds of things. But in terms of money, ⁓ salary, bonuses, profit sharing, ownership, maybe in that order, right? Of complexity and what you're giving up and how much motivation you would generate. Do you advise people about this kind of thing and how do you help them think about how far down that path?

Josh (24:11)
Mm-hmm.

ownership. Yeah.

Hmm.

Scott Ward (24:34)
to go like where it is, what gives you the highest return.

Josh (24:39)
That's a really good question. Again, it totally, totally depends. Typically the most expensive form of financing. So if you think of financing for company, where does a company get capital? Aside from generation of cash from its operations, it's either going to be debt or it's going to be equity, right? ⁓ Equity tends to be the most expensive form of financing because it's kind of locked in. So if I'm a lender,

And you're like, Hey, we need 50 grand for an operating line for the next three months or whatever. I'd be like, okay, cool. Like, you know, you can give me your firstborn son. It's like collateral. That's usually like what ends up being in the terminal. Not officially, but like, you know, they ask for everything for collateral and usually a personal guarantee is what that ends up being. Right. But then you're paying an interest rate and then the interest rates, you know, somewhere between five and 8 % right now or something, depending on your credit and your risk. But.

If you get somebody to become an owner, so they have an equity interest in the business, they can't just call the debt. They can't just be like, I'm out, pay me out. So because the risk and the investment is higher, typically, the expectation of returns can be higher. So that was a long way to ways of saying generally equity financing is more expensive than debt financing. Now, if you have employees coming in as owners through some kind of plan,

Scott Ward (25:43)
Yeah.

Josh (26:04)
whatever it might be, they have a vested interest in the success of the company. So what you're kind of achieving there is alignment of the employees' goals and interests with the owner's interests for the company. That can be achieved in a different way. So there's a really interesting model that I encountered recently, and it's essentially a vested ⁓ profit sharing model. And so instead of

giving away equity because here's the other kicker little side note like on the equity side, giveaway equity sometimes there's a an element of control or there's like more cooks in the kitchen, right? Like there's more people who have a say in what's happening on the strategic direction of the company that becomes more of a challenge. And so just a word of caution for anyone listening who's like I need some cash. I'm just going to bring in a partner.

Think of it like you're marrying somebody. Like it's that kind of level of cooperation that's required to make a business work well and sometimes almost more complex in terms of some of the ramifications. So, Vested profit sharing. ⁓ What it does is say you have an employee, it's like, you're,

profit sharing potential in a given year might be $10,000 based on you know these metrics or whatever it might be and just aside for that sorry there's a lot of side streets but I think they're important to mention. ⁓ Bonuses should always be tied to some kind of objection like objective criteria if you're just giving bonuses to employees without letting them know how they earned it what it was tied to. ⁓

there sometimes becomes a sense of entitlement that I just get a bonus every year and they don't necessarily know what they should be doing to game it. Like we're all people, we all respond to incentives like the first law of economics, right? So we should, and we will always game whatever incentives we have before us. And so you want to try to align any kind of profit sharing or bonus structure with specific objective criteria. And it should not just be financial, right? Whatever the job is that the person's doing, you know, a salesperson,

You want to not just have them turn over sales and generate good revenue. You want to make sure that the customer is still satisfied at the end of the day. Right. So things like that, like non-financial metrics are key. Getting back onto the highway. that.

Scott Ward (28:23)
Actually,

this is interesting. just want to say one thing about, I don't know what you think about this. I'd be curious to hear your thoughts, but one way that I've had to talk about it with folks is kind of like ⁓ three buckets.

Kind of like whether or they achieve their goals, just like in black or white, whether or not they achieve their goals, but also the quality of the execution of those goals matter too. In other words, it's a wild and wooly world. Sometimes you do everything right and you still miss the goal. And so we should take into account how the quality of execution. And then the third bucket is like ⁓ a discretionary.

I don't know what you think about that because it's a little bit different than what you just said, maybe, but it does feel like there needs to be some latitude for the founder or whoever the, who's making the decision about the bonus to be like, you know what? can't, we didn't qual, we didn't quantify this. cannot quantify this exactly, but they are a rock star or they, you know, everybody is better because of them or, know, for something, or there's only toxic, you know, like there needs to be some kind of qualitative judgment call component.

Josh (29:18)
Right.

Scott Ward (29:28)
I think, but maybe not, maybe I'm wrong. What's your take on it?

Josh (29:33)
That's a good question. think probably what you were maybe alluding to a little bit there was like, I call it compliance, because it could be such a bad word, but like compliance or alignment, maybe with company culture, right? So if somebody like wildly out of company culture, and like say, maybe very toxic, that could be hard. maybe now that's going to be a lot more subjective and as an account that just drives me nuts. But like, if you can somehow

Scott Ward (29:47)
Mm-hmm.

Yeah, you're the one who it asked.

Josh (30:01)
You know, if you can have a rating of one to five, that's maybe from assessments of multiple people or something like I'm sure there's ways you can drive that a little bit. But yeah, I think there's a lot of creative ways out there. I mean, put it this way. I'm very much opposed to people getting pay raises and bonuses for simply taking a trip around the sun with a company. You know what I mean? But that's what it often becomes. And I don't think it should be that. think it should be, you know.

Scott Ward (30:22)
Mm. Right.

Josh (30:28)
Hey people fairly and I would say I would argue competitively because if you pay people well they stop having one foot out the door and they start really wanting to crush it in their work. But then when it comes to. Yeah.

Scott Ward (30:40)
I'm Josh, so just I'm going to ask you about that. what

are in your mind competitive? What is it? What, how much overmarket or over like the average does it take for somebody to not have, not be looking?

Josh (30:55)
That's a great question. ⁓ And that would depend on the industry significantly. at any time, there's, as you know, there's poaching going on all over the place, right? I the best place to find an employee is to, I didn't say this, but pick them from somebody else, right? mean, it's...

Scott Ward (31:04)
Yeah.

Yeah. I

mean, most of the listeners will be founders of software companies or, or adjacent And so I, yeah, I mean, I, I'm not asking for a specific number, but it's probably not 50 % overmarket and it's probably not 2 % overmarket, right? I don't know. It's somewhere.

Josh (31:20)
Yeah.

Somewhere in between.

would say, yeah, this is a very good question and there's no right answer because what incentivizes somebody to both stay and crush it at their work is not just financial, right? It's circumstantial. Where do they get to work? What's their work environment get to be like? Is there flexibility with time? What's paid time off look like? So there's a lot of things that might not even be financial in nature. Does the company do retreats once a year so you get to connect with everybody? Some people care about that.

I think probably the best way to dial that in would be to maybe deviate a little bit from a very structured interviewing process or candidate intake process as more cookie cutter and try to get to know them a little bit more. Even do something like a disk analysis or something to get a sense of what drives them ⁓ and try to make an offer that speaks to that a little bit more ⁓ than what might just be like a cookie cutter.

offer with like a 10 % premium to and hope that that works right because it just takes another recruiter to be like hey we can give you five percent on top of that right and then off they go so

Scott Ward (32:31)
Right.

Yeah. Yeah. I I think, I think it goes, yeah, there's all the other things, but money on the money front, like you do need to make it so that like they don't feel. Yes. I wonder if 10 % is not a bad rule of, um, layering on all the other things, but you know, if they, if they're, I don't know. That strikes me as about right now. So, okay.

Josh (32:49)
Mm-hmm.

Yeah, no, I

think that like our approach is to overpay here. So ⁓ because here's the thing, if you if you have to hire somebody, takes three months to get them up to speed and fully functioning in the role that they're doing. Right. So if you this is getting in the weeds and totally different topic, but it's super critically important. Right. I if you if you need somebody doing something now three months ago is when you should have started getting them hired and trained up. Right. So

Scott Ward (32:59)
Right.

Yeah, I do.

Josh (33:23)
If somebody leaves, it's really, really important. I've had this conversation with with owners before as part of the budgeting process and stuff, looking at things that the company does to, you know, for lack of a better term, like bless their team. Right. And it's like, hey, this is very expensive. Like the retreats are expensive. The food is expensive. All these perks that they have are expensive. But if you look at recruiting fees, right, 23 to 25 percent of the annual salary of the employee, that becomes very expensive when you have some key employees that might go.

And so then all of sudden you're like, okay, why don't we just not pay these recruitment fees for two to three people a year? No offensive recruiters. There's some fantastic ones out there. But if you can keep good people and avoid that turnover and avoid the retraining and all that, you know, the time that's required to go into it, because it costs like between five and probably $20,000 of time and training and inefficiency to get a pretty high level employee up to speed, right?

So if you can save that, that's key. So that's where, in my mind anyways, justification to overpay is definitely there. Maybe that sounds counterintuitive from the CFO, right?

Scott Ward (34:22)
Yeah, yeah.

Yeah. Yeah. Okay. I have no idea what we're talking about. No, I do.

I think I can track it back to what we were talking about. So we're talking about ⁓ vested profit sharing.

Josh (34:40)
We're talking about compensation plans.

Yeah. So what I was going to say, yeah, like the profit sharing thing, right? Yeah. So what what that model does is it says, OK, say your profit sharing potential is about $10,000 for the year or your bonus potential. Rather than giving the $10,000 that year, it vests over three years. So now it's going to be like three thousand three hundred three thirty three.

Scott Ward (34:46)
You're invested profit sharing, yeah.

Josh (35:09)
Webinar math is the worst, like, you know, so it's like they get a section of it for the next three years. So the first year will be a

Scott Ward (35:16)
No matter what,

it's locked in. They're going to get it as long as they stay. Is that right?

Josh (35:19)
long as

they stay. So and they'll get the interest on it too, right? So it's not like they're losing out on interest earning potential. So there's still benefits that they get from it, like sitting there. Now, I'll get to the liability thing in a second there. But what that does is it makes them want to stay and then the next year, their bonus amounts going to be bigger because it'll be, you know, first year invested and then the first third of the next one, right? You can do it for three years, five years, whatever you want to do. But it creates the long term perspective

Scott Ward (35:45)
Yeah. Yeah.

Josh (35:48)
that you want from your team while still being able to give them a bonus and have that tied to ejected criteria. Now what it does do is does create a liability on the company balance sheet. So you need to be aware of that in terms of what that does with financial ratios. But that is another option so that you don't necessarily have to give away ownership because the ownership in my mind generally should be one of the last things you give away. Like that should be one of the last things.

Generally, there's always exceptions, but.

Scott Ward (36:20)
Yeah. So what you avoid with that vested profit sharing is the, you know, I'm going to stick around. I'm actually going to the last six months of the year, like I'm out of here, but as soon as I, but I'm going to wait until January, uh, because they get paid out, but that totally helps with that part, right? They'd be better off just leaving because it's going to be, they know they're not going to get it right away. Um, that's interesting.

Josh (36:35)
Right. Yeah.

Mm-hmm. Mm-hmm.

Now there's, you you have to be have your lawyer look over the the employment agreement for that, right? Because you don't want to get yourself into a sticky situation where it can be argued that, you know, they're entitled to the full amount if it wasn't clear. Right. So I'm not a lawyer. So I'm not going to talk about the legality of it. But but that is a model that some companies are using. And it's it's interesting because it allows for that long term alignment, which is ultimately what you're trying to get to with your team. Right.

Scott Ward (37:00)
Yeah, yeah, yeah.

I just want to think about that for a second. The equity definitely gives you the long-term part. You get that with the scenario you're describing. Equity also gives you the desire for growth part. What you're describing,

does that as well on a year to year basis, not necessarily the five year basis, right? So you lose, still, it's not quite as good on that front. You don't get like, well, or, the, you know, I think this is, I think we're going to sell for a hundred X or something. And so I'm really, really committed. not, you know, wouldn't necessarily, ⁓

Josh (37:36)
Right.

Scott Ward (37:59)
I'm just thinking it through. If there's anything that's still left on the table with equity, compared to equity, I think there is a little bit, but it's a diminishing gap. It's a diminishing gap of what you're leaving behind with doing a property sharing thing. pretty cool.

Josh (38:01)
Mm-hmm.

And it might be like a first step towards employment ownership as well. It's like, here's a way to sort of try it on without actually getting people into an equity situation.

Scott Ward (38:17)
Yeah.

Do you ever see people do profit sharing like on a quarterly or monthly basis? like, because a year is a long time. ⁓ sometimes for a lot of us, you know, so I don't know. Do you ever see people do that?

Josh (38:32)
Mm-hmm. Yeah. ⁓

Yeah. Oh yeah. Yeah. We've seen it happen on a quarterly basis. Monthly is tough because you can have swings. I you know, say it's based on a certain, I mean, even a quarter. This gets back to our conversation earlier with like, you know, the record keeping and bookkeeping. know, a big company has a massive invoice that comes in following the close of that quarter that was actually tied to that quarter. Now that's going to impact profitability, right? So, but I've seen it, yeah, quarterly, you know, in project based businesses.

Scott Ward (38:53)
Yeah.

Josh (39:07)
⁓ project based incentives, right? So it's like, once everything's like all said and done, and we've closed out the project, what do we look like on the profitability front? So you get a portion of that. So there's like company wide profit sharing, but then you also have specific to whoever had some kind of accountability level on the success and profitability of the project.

Scott Ward (39:09)
Project based, right. Interesting.

Yeah.

Yeah, how do you, you know, this is a problem with commission based, you know, quotas or targets and stuff like that is that, you know, the right, ⁓ there's always, it could be, it's, you're gaming the system in some way, right? Like you want, we want to get the

Josh (39:44)
Mm-hmm.

Scott Ward (39:47)
We're not going to hit the target. So we want to push this deal to the next one or, know, where you're kind of like shifting and these things. The same thing can, I can imagine happen no matter what boundary it is. Well, you can really see that with the monthly, but maybe think of it when you said that the monthly, like the swings could be so big and there's no profit. There's no, there's no loss sharing. That's the problem with profit sharing. There's no loss sharing. Does anybody ever do loss sharing, Josh?

Josh (40:02)
Mm-hmm.

Yeah, that's

I've never seen it aside from ownership. That's those are the people who bear the brunt of the losses or the soft periods or the slow periods, right? So yeah. And so those are things to keep in mind, because stay you have a seasonal business where you get a lot of a lot of business happening in short period of time. And there's maybe reliance on line of credit for the slower seasons.

Scott Ward (40:21)
Yeah.

Josh (40:33)
There's going to be interest expense that eats into the bottom line of the business during that period of time, which technically is subsidizing the profitability of the projects. so for companies that are looking at profit sharing, you want to make sure you capture all of those things. Otherwise, the owner, you're burying the entire brunt of some of those downward pressures on the bottom line ⁓ and not necessarily accounting for that when you're sharing. that's something to look at as well.

Scott Ward (41:04)
Good discussion. like that. like so vested profit sharing. ⁓ you know, it's probably, it's, it's prideful for me to say this, but I'm delighted to know that I, I, it crossed my mind. Something like that crossed my mind one time. There you go.

Josh (41:19)
That's awesome. Well, because it's a good idea. So, you know, I think people

who have good ideas are probably like, how can we do this in some way, right? But if there's not a framework that's readily available, then it, you know, it sort of evaporates, but

Scott Ward (41:31)
Well, yeah, and as a, as a non-financial expert, I don't know what the gotchas are. Maybe it's a terrible idea, but now I know, okay, well, all right. So people actually do that thing. That's cool. All right. So. Yeah, go ahead.

Josh (41:39)
Right. Yeah.

good term you mentioned there, Scott, sorry to jump in there, but the gotch is

like, you know, we call them pitfalls. That is those are like the landmines of the business arena that, you know, our goal is to try to help remove those for for owners. Right. So it is those gotchas. like, hey, this is a great idea. It's like and that's why sometimes, you know, we don't want to be the wet towel. But it's like, yeah, but right now you got to keep in mind this and this and this because we're always thinking on the risk mitigation side as well.

⁓ But yeah, the gotchas is a really good term to be aware of, right? The pitfalls to be aware of and ⁓ do anything really big and new in the business that's outside of maybe what you're used to get some good help and review on that before you just, you know, sometimes evolution, not revolution is the way to go with business growth, right? But if you're to do something big and revolutionary, make sure enough people you get enough eyes on it to be like, ⁓ landmine right there. Be aware of this, right?

Scott Ward (42:42)
Right.

Yeah. I think it's tricky, Josh. Like I think that's good advice. Clearly that's good advice. And also, ⁓ there's a lot of things.

I'm getting philosophical here a little bit, I guess reflecting my, so me saying, me saying it's like a really big problem, right? Like there's a lot of things that happen in this world because somebody did something they shouldn't have done. Basically they had no business doing that. And it was a bad, you know, it was like, it was unlikely to succeed, but you know, but then they, ⁓ they found a way. ⁓ and so, I don't know, it's an unanswerable question. guess sometimes I.

Josh (42:59)
Okay, if you're back on there, Scott.

Scott Ward (43:26)
⁓ I wonder, ⁓ how do you personally balance? Let me ask you that Josh. How do you personally balance the need to like give a dose of, I mean, you're obligated to caution people like these are the ways this could go wrong. But also I think, I think you like entrepreneurs and you know, you want them to try stuff. And so how do you balance in yourself those two values?

Josh (43:45)
Mm-hmm.

That's where the black and white part of being an accountant comes into play. So ⁓ I will tend to be conservative in recommendations of something new ⁓ I'm not afraid to give Bad news for an idea to an owner. I would rather a client want to leave working with us because ⁓ Because they just don't like that we

don't support everything they want to do rather than a client leave to be like, they give us a worse advice and told us to go ahead and it was a bad idea, right? So I would rather nix a bunch or at least give enough parameters and awareness around ideas that people can proceed with caution on some new things, right? ⁓ So it really comes down to modeling and the modeling, know, modeling's never perfect, forecasting's never perfect, but trying to think through as many scenarios as possible. we call this

Scott Ward (44:23)
Right.

Josh (44:45)
scenario planning or what if analysis, right? To be like, okay, so based on this model, say it doesn't work out as good as it used to, right? So like maybe this product you're thinking about bringing to market, ⁓ it's overpriced. What happens if you have to drop it 50%, what do the numbers look like then, right? So that's what we try to look at. And then they know their risk parameters and then they can make a decision from within that. And if it's a massive range, right?

you know, it's up to them to decide, do I want to play in that much unknown? Right. I suppose me the best way to put it is like, we're trying to remove a lot of unknown from a new thing that's not been experienced yet for that particular business.

Scott Ward (45:17)
Right.

Yeah, yeah. Are you familiar with Playing to Win?

Josh (45:34)
I have the book and I have started it, but I have not finished it.

Scott Ward (45:35)
Yeah.

Yeah, I, the reason I bring it up is just because I, I'm reminded this conversation reminds me of it. There's a great approach to big new ideas.

in there, which has to do with like identifying all the things that must be true in order for this to be a grant. What are all the things that must be true? And then you look at the things that must be true and that you're, you're, ⁓ you're really not sure are true. There's some things that must be true and you're quite sure they are. There's other things that they really must be true. Like the people must be willing to pay X in order for this to work. Like that's a good, what must be true. And then you design an experiment.

Josh (45:56)
Right. Sure. Yeah.

Mm-hmm.

Scott Ward (46:19)
You design a way of testing whether or not that is true or not. Right. And then you go through that process and the person who gets to design the experiment is the person, the most skeptical person in the room gets to design the experiment. Yeah.

Josh (46:22)
Mm, right.

Right. Yeah. Allowing for descent, healthy descent

in discussion. Super important.

Scott Ward (46:40)
And the way to move through that descent is to identify what must be true, to identify an experiment to design by the most skeptical person. You go out and you run the experiment and come back with results. And if you do that process and then what's the next thing that must be true, right? And go through and then tell you really, there's nothing left that you're, that must be true that you really are worried about. And then basically that strategic choice.

Josh (46:57)
Mm-hmm.

Scott Ward (47:08)
It's not a leap of faith, know, like it's, it's not, it's decided. Like it's everybody in the room by definition, cause it's the most skeptical person who created the test, you know, every, so you're ready to go. And so I really liked that. But what it does is it takes a lot of discipline to move through a strategic decision that way. It takes months. It takes months to, to like come to a, many cases. I mean, when you're super small, a couple of co-founders working on something, you don't necessarily have to.

Josh (47:16)
Yeah, if you convince that person. Yeah.

Scott Ward (47:38)
⁓ I mean, talk to, basically talk to customers and work, move through that way. But when there's. Yeah. But when there's more at stake, a lot of times it takes, ⁓ well, even, even when you're small, it can take, you know, the long time, it can take months to figure things out. But anyway, I always thought that was, ⁓ a way this is, I think this is what I, maybe what brought it up to is as a coach, I'm supposed to be like, you can do anything. You're limitless. ⁓ and you know, I also.

Josh (47:42)
It's a lot more agile then, right? Yeah.

lot more rigor.

Yeah. ⁓

Scott Ward (48:08)
But I think that people fail all the time, you know, and I know that people say like, well, failure was just learning like, no, but it's, better not to fail. Like let's try not to fail. and so, ⁓ I think this is a nice way to respond. like, this could, you're right. Could be great. So let's, let's prove it out in the, in the nitty gritty. Let's prove it out. And if the person is like, I don't want to go to the trouble to prove it before I'm to do this thing. I'm like, well, I don't think you're that serious then.

Josh (48:17)
Yeah.

Mm-hmm.

Mm-hmm. And I think your comment there on failure to Scott is good because if you think of what you want to try to do and to use an analogy of like years ago, we used to do a lot of snowboarding. First time I ever tried a 360 was off the end of a half pipe. And so it's pretty hard landing. And I did not make it. And it was a hard landing. Right. So I failed the land. I could have done it somewhere else and had a softer landing. So sometimes you're still going to fail when you try something new.

But at least try to arrange the environment or the parameters in a way that it's not catastrophic. You know, I didn't break anything, fortunately, but like, you know, it's a softer landing if something does go unexpected in a way that you don't want it to go because failure. mean, there's a business. There's a lot of bushwhacking in business, right? A lot of trying, trying new territory, trying to get to new places, things you haven't done before. ⁓ was helpful. Coach My once said there's always something broken in your business and that's not working, right? Because whatever worked now.

Maybe got like, you a hundred thousand dollars of revenue kind of in the early stages and you get to like five million, you know, whatever worked for a hundred thousand is definitely not working at five million. And once you hit five million, like getting that 10 mil part, there's other things that have to happen in there and things will break along the way. And it's important for business owners to understand that because, know, I include myself in this. We have a lot of pride in our business and we don't want it to look bad, right? We don't want to feel like we've failed. So if we do fail in something or something looks broken,

It can be an identity crisis if we don't recognize the fact that, know what, it's actually normal for things to kind of fracture a little bit as growth happens. Your responsibility as the owner is to identify that and then learn how to pivot and how to adjust based on what's

Scott Ward (50:25)
Yeah. Yeah. I like that. It's like a fail, small and quick.

Josh (50:30)
Yeah, yeah. With a soft landing.

Scott Ward (50:32)
And then, and yeah,

yeah, I guess that's what I mean by small. ⁓ I failed soft, very soft and quick. Okay. Let me ask you this. Okay. So CFL, think, ⁓ somebody, think a lot of times it's not crystal clear for a founder that they need that level of support. Right. And I know, I know, I know Josh, everybody needs a CFL right away, but.

Josh (50:36)
Yeah, yeah.

Mm-hmm.

Not everyone

Scott Ward (51:02)
Okay. ⁓

Josh (51:03)
needs the mindset of strategic finance, but not everybody needs someone like me right away. And in fact, oftentimes it won't make sense. Sorry, I'll let you finish your thought there.

Scott Ward (51:14)
Okay, good. I'm

glad you said that. was, I was teasing because I think you're right. Probably not everybody, not everybody means this. And so, it, but also it's, ⁓ it's not a, yeah, so it's not a good idea to hire a CFO before you need one, but it's also not a good idea to go without a CFO ⁓ when you do need one, you know, so help, what rubric or what heuristics can you recommend that people use to discern what situation they're in?

Josh (51:17)
Sure. Yeah.

Mm-hmm.

That's a good question and sometimes a lot of people what they're asking underneath that is what revenue level do I need to be at to get a CFO? ⁓

Scott Ward (51:50)
It could be, it, or, maybe

add, I'll add to that because you may be a certain, ⁓ I would imagine certain particular, ⁓ types of businesses, businesses or situations or feelings even are, can indicate, you know, and they may kick in depending on the situation at dramatically different revenue levels, I would imagine.

Josh (52:00)
Mm-hmm. Mm-hmm.

So I would I would say. If I were to sum it up, you need the mindset for appreciating and desiring strategic finance, because if you don't appreciate it, if you don't recognize the importance of it, you won't value it. so because the flip side of that coin, then, is you need to be able to action from the insights. Right. I mean, you know, again, the hindsight insight foresight rate, it's like

What happened? What does this mean? Where do we go from here? What do we do with this doing action? That's the key part. And so, you know, we'll look at the information. We'll map it out. Be like, hey, these are things that need to happen now moving forward based on the information that we have. ⁓ If that doesn't happen, right, if people aren't moving on the recommendations or with that information, then we're not really worth it. Right. I mean, as as a CFO, like what we're doing is we're looking at.

the deployment of dollars in the business. you know, to steal an analogy from Kevin O'Leary, he had this analogy where it's like, you want to see every dollar in your business is a little soldier, right? You don't want to send them out to die unnecessarily. And so I really like that analogy. And so when we look at the numbers, obviously, we have a cost as well. And so there needs to be some kind of return on that, right? I mean, for any overhead costs, this is a quick metric to help listeners too.

Think of your gross margin, right? So maybe it's like just use 50 % for math, right? Easy math. Whatever overhead costs you decide to take on, you can divide by your gross margin. And that's how much revenue you have to generate to cover that position or how much savings you need to be able to materialize. And so, you know, if you're thinking about hiring somebody for $100,000, that's strictly overhead and you have 50 % gross margin, you need to be generating at least $200,000 simply in revenue, simply to cover that role.

we're acutely aware of the fact that we are a cost on the income statement is we want to make sure that is valuable. So if at any time it doesn't look like a client is benefiting from the services that we're doing, we will let them know because ⁓ it just goes against my grain. It's like you're not benefiting from us, but we're just going to keep charging you anyways. That's I mean, we like to work with growth mindset companies that are on an excited journey to move forward. And so generally that that doesn't last very long. ⁓ We'll know pretty quick within like a month or two.

Scott Ward (54:19)
Yeah, yeah.

Josh (54:34)
if somebody is well-fitted to do it. Typically in our intake process, that's where I try to filter it out as much as possible because our onboarding process is fairly extensive. And so I don't want to go through the process only to find out, you know what, this is not a good fit for you. our discovery call is generally where we try to filter that out.

Scott Ward (54:49)
Yeah.

Okay. So somebody who's motivated, like has a growth mindset and is willing to take, ⁓ take the input and do something with it. That, that seems like a good kind of baseline. ⁓ what else? Like, what do you typically, what, what typically, what I mean, I said, you didn't mention revenue. Like what are the revenue levels that, ⁓ you usually see?

Josh (55:18)
It's funny, like you would think that companies that are doing 50 million in top line revenue would have a CFO and have somebody with strategic financial guidance, but there are many that exist that do not. ⁓ definitely at that level, you want somebody helping. ⁓ The lowest I would say that we've helped clients in this capacity on the revenue side, again, it depends on the nature of the business, right? I mean, if you have a construction company, a lot of their, you know, they might have higher revenues, but they have significant costs on the projects, right?

It really does depend, but, ⁓ you know, we've helped companies to do as low as about one and a half million in top line revenue. But generally, it's between the one and 10 million ⁓ top line revenue mark, because at that point, the owner has kind of gone through the growing pains to recognize they need help ⁓ in some operational things. So they're not wearing all the hats. So they have the bandwidth to be able to do the next steps that they have to do. They've also gone through the growing pains of having to fix things that are broken in the business.

They usually have some good systems in place that we can start to integrate into. And they have a bit of a growth mindset. mean, companies that hit that one and a half million dollar mark in top line revenue, they're on a path at that point. Right. Like they they know typically unless they've just stumbled into it, they generally know what they're trying to get to or where they want to go. And I don't know if you want to get into the personal goals and how those align at some point, too. But that's where that starts to come into play as well. Right. What do they want?

Scott Ward (56:44)
Right.

Becomes something serious.

possible at that level it becomes impossible to dream about something, you know more than a good salary ⁓

Josh (56:58)
Maybe a good

way to put it is, and I'm to steal kind of the idea from, man, the story brand framework, what's his name again? Donald Miller. So I really love his framework and the whole idea is, you you want to serve as the guide for the hero of their own story. And, you know, to steal from Luke from Star Wars, which my kids are like big Star Wars nerds. If Luke Skywalker was like, you know what, I'm not really interested in blowing up the Death Star. Like I'm just going to fly my X-wing or whatever.

Scott Ward (57:07)
Done, yeah.

Josh (57:28)
thing is called, he flies around. I'm just gonna fly it around like I'm not really interested. Yoda would be like, okay, we're not doing training like you don't bother coming in. Right. So that's maybe the idea is it's like, we're here to be a guide for the business owner to take their business into the future that they want to see it happen. If they don't have that that drive, they don't have that vision. If they don't have the the gumption to move forward on steps that they need to, then it doesn't make sense. And so that

Scott Ward (57:36)
Yeah, when I started at the tree.

Josh (57:58)
maybe is the best way to answer your earlier question of when it makes sense or not to, or doesn't make sense to do that.

Scott Ward (58:05)
Yeah. Yeah. That makes, that, that does make sense. Okay. So talk to us a little bit about this frame rate that you have. ⁓ I think it has to do with connecting the person, the founder's goals to the company's goals and yeah, tell me about it.

Josh (58:19)
Mm-hmm. Yeah,

so we have, I mean, ultimately, and I mentioned this earlier, at the end of the day, our businesses are vehicles that get us to our overall personal goals, right? ⁓ Lots of times, so often, guilty business owners start a business, right? They have an idea of what they want to see. Then they get very busy just in the day-to-day operations of the business, and that becomes very consuming. It grows. Life happens. They get married, buy a house.

all the things of life kind of happen. you know, fast forward five years, it's like life happens to them, right? What we try to do with clients as much as possible to get them to think about what do you want to happen to your life? Like what kind of life do you want to build? And this might kind of even speak to what you do on the coaching side too, right? So, ⁓ so get them to think through different areas of their life, right? So kind of the first one is we call it, and there's F's, we like to use alliteration, five F's.

Five F's, right? So we get them to think about faith or fulfillment, right? Like the most important things in their life where they want to give their money, their time, personal development, those things. Think about all the things you want to do there. Your family, right? What do you want your family life to look like? What do you want to do with your family? All those, childcare, all that type of stuff. Fitness, right? The health of your body and your mind. All those things then.

fun, let me call it fun and lifestyle. It's kind of like a euphemism for like everyday stuff. But, you know, where do you want to live? What house like where, where, where, you where do want your house to be? What kind of vehicle do you want to drive? A warm you want to keep your house? All those types of things like your lifestyle, right? ⁓ And then we have ⁓ finance, right? So, you know, maybe you want to pay down some debt, maybe you want to save up for retirement, maybe we want to build up a bit of a ⁓ security blanket. So

Five sections that we kind of get them to look at because if you say to somebody build a budget, ⁓ they the eyes glaze over, right? But if you get them to think about their life in these different areas, these different compartments of their life and think about exactly what it is that they want to do and then put numbers beside it's like, hey, where do you want to go on vacation? Right? Well, I want to go here and I want to go here to vacations, you know, throughout the year, maybe it's going to cost this much in total. So you lay it all out, all the costs.

then we have a tool for this happy to make it available for your listeners. It divides it up into 12. So now you have a monthly cash requirement to feed the life that you want, not the life that you're stumbling into, but it's like, okay, I may live here. I actually want to go live over there. And so that's going to change how much that'll cost by this amount, whatever it is. So once you know what your cashflow requirement is as a business owner, now you know what your business needs to, to generate in terms of, in terms of cash.

So then we work backwards to effectively reverse engineer how the business works. Right. So the business has to generate a certain amount of cash. And then we look at, what's your overhead like for your business currently? So if that's your overhead, that means you have to be generating an extra amount of gross profit from your sales. Right. Well, what's your current margin? OK, so based on that, you need to generate a certain amount of revenue. Now that you know what your revenue is, you know.

Scott Ward (1:01:11)
Yeah.

Josh (1:01:38)
and what that difference is going to have to be. Now we look at some of the leading indicators on revenue growth, right? Your lead generation, your conversion rates, all those things, because what that then does is gets away from the annual goals of like, let's build a business like 10 % year over year on our top line revenue, right? Which, you know, that's a better goal than no goal. But what it does is it helps you be like, okay, this is the actual number that I need. And this is what it translates into in my day to day work.

I need to get this many leads coming in the door on a weekly basis. I need a conversion rate that is about this. So then you know the levers to start to pull, the dials to turn to really tweak how your business performs to feed your lifestyle.

Scott Ward (1:02:20)
Yeah.

Okay, let me ask you this question, Josh. So.

It's not exactly devil's advocate, but, it's a, it's a, it's a, it's an interesting kind of like area of human motivation. think you could imagine what you're describing to be like. So you go back to your map thing. So you are here and you want to be there. ⁓ these are all the turns and this is the disc, the exact distance and the driving time or whatever.

Josh (1:02:37)
Mm-hmm.

Scott Ward (1:02:58)
So, so now you know all those things, but you still have the same car, you know, and you actually need a better car in order to make that, that journey. But knowing all those things, do you ever think that a founder, the reaction is kind of like,

It's not like I can work any harder or I'm not even sure that I'm doing the wrong thing. yes, I mean, yes, I need more money. Like I'm, I'm doing all the things that I can think of already. In other words, I'm not, it's kind of nice to know that, more pers with more precision, but I already knew that I need to, triple the, I already, I already wanted to triple the company. So what does it do for them to have kind of.

Josh (1:03:24)
Mm-hmm.

Mm-hmm.

Right. Right. Yeah.

Scott Ward (1:03:48)
the specificity when they already are very motivated to grow.

Josh (1:03:53)
What the specificity allows for is knowing which levers to pull because when you have a business, as you know, there's so many things that can happen in any given day. Right. Fires come up like all sorts of things. ⁓ Knowing what you should be focused on at any given time in your business is key. And I would I would argue. You know, a good practice is every week like Sunday night, look, your calendar.

and put blocks in there that are like fully non-negotiable so that things that move those needles happen. And so that's where tracking specific metrics come into play. Like, okay, I already knew I needed my revenue to grow by X. Like, okay, well, what's going to drive that, right? ⁓ You're going to have leads, you're to have conversion rate, you're have retention rate, you're going to have referral rate, right? You're to have average cost per customer, number of transactions per customer. These are specific drivers that drive revenue. So there are now, now that you know there's drivers,

There's specific things you can do that move the needle on each of those drivers. so sometimes it's, I mean, when they have that awareness, that's awesome because they know something needs to happen. And so then it's more directing the focus into where they can get the most output for the effort or ⁓ capital investment that they put into the business to move the needle on.

Scott Ward (1:05:15)
Yeah.

I, yeah, I think, I think the, the brilliant part of what you're talking about, well, at least one of the brilliant things about what you're talking about is the breaking it down to the month. Right. Because it's really easy to feel like, well, my goal is, ⁓ is to grow a lot this year.

I'm working hard and, ⁓ and, maybe we're going to, and and you know, if things play out just right, we'll make it and we'll know at the end of the year and whether or not we made it or not. And it's too late. It's too late. You know, like you need to know this month or even this week, ⁓ whether or not you're tracking with what you, what you decided was likely going to need to happen in order to achieve that. Because.

Josh (1:05:46)
Mm-hmm. Yeah. Yeah.

Scott Ward (1:06:07)
And I like, then to translate, this is kind of your, you're, you're speaking my language here in terms of the way I think about it as those KPIs.

They're either, they're either doing, going great. that which was in which case you just kind of look at them periodically and make sure they keep going great and manage them lightly. But then some that aren't. so those need to fall down and to be specific. Like, so what's the project that we're going to do to make it so that, so I don't know the number of leads we need to generate. You know, it's half of what we need it to be.

And so what's the project that we're going to do? Well, we're going to make more calls. How are we going to make, I can't make more calls. Well, we're to have to find somebody or whatever. Like you just have to like tie it up in a bow. Like what is actually going to happen in order to make this change and not like, hopefully, hopefully more leads will come. Like maybe Google will change their algorithm and we'll get more leads. I don't know. Like that's, that is not a sure far way. So I think, I think I like what you.

Josh (1:07:00)
Yeah.

Yeah.

Yeah, 100 % Scott, that's,

yeah.

Scott Ward (1:07:13)
I think in some ways what you're describing on the financial side is kind of what Habitstack does on the project side. In other words, those KPIs fall into like, and then this is what we strongly ⁓ suspect will lead to those changes in the KPI. And then let's do the same thing with the projects to break it down to the quarter of the month in the week and then do that weekly planning. And if we miss the month, then we know we missed the month.

Josh (1:07:18)
Okay.

That's right. Yeah.

Scott Ward (1:07:43)
Because it's important to know if we missed a month, because if we missed every month, then we're definitely going to miss the quarter. We definitely missed the year. if we, know, because I think what we're talking about maybe in summary is like earlier feedback, tighter feedback loops.

Josh (1:07:45)
Mm-hmm.

Yeah,

and actually having the discipline. So it's discipline mindset and discipline rhythms like the two are so critical. And ⁓ you talk about the monthly thing. I think that's a great way to do it. And quite often what we'll do is we'll have, you know, there's a whole EOS thing, right? Like quarterly ⁓ objectives. think having quarterly goals is good because they're small enough that they're not too far down the road, but they're not so soon that it's like, I can't do that in a month. So you make it a quarter, but

sometimes even give it a theme, right? So we're working with a client that's ⁓ the most important thing might be cash flow improvement, right? So maybe the theme is like flipping the switch, right? Let's get you from reactive to proactive, catch deployment, right? So ⁓ it's like, okay, cool. That's our theme. Now what are the things that we're specifically doing over this next quarter to really flip that switch, right? And then people can kind of get behind that. But if it's just like tasks or some vague

goal that maybe you bump into, ⁓ then you you accidentally do business, right? But if you want to do business with purpose and intention, you have to set very clear objectives, and you have to track them. So that's key.

Scott Ward (1:09:07)
Yeah. Yeah. Yeah. And I guess maybe this, the tweak that I would add is that I think, uh, if what you're saying is that you shouldn't set a monthly goal because it feels like you can't, you can't achieve it in a month. Um, I think what we need to do is actually to set a monthly goal that is achievable for the month. Right? Like, so in other words, so take the quarter and break it down to like, okay, so what are the things in the service of that quarter that we will

Josh (1:09:28)
⁓

get out of mine.

Scott Ward (1:09:35)
we will be behind if we don't achieve this month and then do the same thing for the week. I think we need more goals, not less. We need more goals.

Josh (1:09:43)
Yeah, 100%.

Yeah, and I think so. that's super key because if you get your quarterly goal, break it into monthly objectives and then weekly objectives. And then if each of your teams have their team meeting, like whatever day they do it, you know, Friday tends to be best and looks at those those objectives and those metrics, then you've got a good system running at that point. Right. Because you have teams looking at how they're performing relative to what they're trying to do.

which feeds into the week, which feeds into the month, which feeds to the quarter. And at the end of the quarter, even if you don't make it 100%, you've sure moved the needle heck of a lot closer than if you didn't do that with intention, right?

Scott Ward (1:10:23)
Yeah. Yeah. Yeah. I like it. You know, ⁓ time is flying here. It's, we've covered a lot of ground. did want to ask you about one last thing you, you think I read on your ⁓ on LinkedIn or something, something about financial shame And it caught my attention Can you just say a few words about what you, what you're talking about there?

Josh (1:10:42)
Yeah, it's a common thing that, and it's probably relieving for a lot of people even to hear that there's a lot of people who when they come to see us things are not working the way that they want them to work We talked earlier right Things are always kind of broken at some point in your business ⁓ We see it with clients who come start working with us who have a ton of debt with the CRA, right? Big hole to dig out of when it comes to tax debt. So,

Scott Ward (1:11:10)
By the way, if you're in the States, that's Canada Talk for IRS, yeah.

Josh (1:11:13)
virus. That's right.

And so yeah, our US clients, fortunately, we haven't bumped into major debt there. But yeah, so ⁓ coming with that, you know, I mentioned a little bit earlier, like we all take pride in our business and a lot of our identity is wrapped up in that So to have to talk specifically to things that are not working, and big problems that maybe nobody sees, right? Like you can have a

a nice flashy looking tech company. You know, everyone's like, this is fantastic. Nice office, right? Product service is really good, but maybe there's profitability challenges, right? And like every day or every week or whatever, like you're seeing your cash balance deplete and it's like, this is not working and we only have maybe like two months of runway left in our cash. ⁓ That's hard to admit when it looks really good. We have some, it's funny, like with the clients that we have, a lot of clients even know of each other.

And I've heard, you know, sometimes be like, they have it like super together. You know, of course we have to maintain confidentiality so you can't say anything, but it's like, it's interesting because the perception of some businesses, like that is a fantastic business, right? They've got the team is great. You know, the branding is great. Everything looks really good. ⁓ But it's not if you look under the hood, right? So this is where we talk about like, are you on the right journey and how's your engine performing if we look under the hood? And so that's the hard part for a lot of business owners. And it's interesting because when we

Scott Ward (1:12:16)
Ha

Right.

Josh (1:12:39)
You know, we're remote, so it's usually zoom calls, right? We hop on a zoom call with client and start like getting into that. ⁓ When we mention that they are not the only one or when we mentioned I've seen way worse tax debt than that or when I mentioned I've seen a whole lot more debt like, you know, that companies have to have to grow out of ⁓ You can almost see shoulders just coming down just like a level of relief that comes So ⁓ so, yeah, if anything, you know, if anyone's wrestling who's listening

Scott Ward (1:13:02)
I bet I bet

Josh (1:13:08)
to this like with any issues in the business where they wouldn't want anybody to know about it Just know that you're not the only one that has that issue In fact there's a of business owners wrestling with the same thing I would highly encourage you, you know, if you're wrestling with this to find somebody who you can connect with on that even if it's someone else who owns a similar type business be like hey can we journey through this together? Right. So that you're not alone and you can.

Scott Ward (1:13:31)
Mm-hmm.

Josh (1:13:33)
air your dirty laundry with that person, make sure it's a safe person, right? So they're not sharing with anybody else. But ⁓ that's so important because as business owners, we often do this on our own, right? Start a business, want it to be successful, want it to look successful. That's usually an indicator is the perception, right? And so ⁓ we don't necessarily talk about the weaknesses of it. And it's important to recognize them, have somebody you can confide in to talk about those things and brainstorm how you can make it better. But ultimately, no

Scott Ward (1:13:43)
Yeah.

Josh (1:14:03)
you're not unique in that situation. So that often helps address just the shame part of it. And it's normal. It's normal to have something broken in your business. Your responsibility as the owner is to find a good, effective, strategic way to come out of

Scott Ward (1:14:19)
Yeah. Yeah. I'm sure that I can just kind of visualize that, ⁓ that relief people realize that they're not alone. ⁓ and it's good of you not to toot your own horn, but you know, the, the advantage it's, I think it is good advice to talk to fellow business owners, certainly. But one of the nice things about talking about it to talking to a, a professional is that they like, you and others who fractional or CFOs or otherwise.

Josh (1:14:28)
Mm-hmm.

Scott Ward (1:14:50)
see a lot more than a fellow founder would, right? So you have a lot of context. maybe because you might talk to a fellow founder and like, Ooh, man, you've got a lot of debt. I don't have that many debt. it might be counterproductive. Probably not. no, no. should, it's really good to talk to your peers, but it's also good to talk to somebody who has a higher perspective, you know, dealt with 50 different companies over the last few years. And so you have a lot of context, even,

Josh (1:14:58)
Yeah, right. You are so unique in this problem.

Yes.

Scott Ward (1:15:18)
you know, it's even more powerful to know that ⁓ with that broad swath that you're still in the, you're still in the realm of acceptable ⁓ as a founder.

Josh (1:15:29)
Yeah, it's

not game over, right? And you're not going to have to go hang your head in shame walking out the door being like, you know what guys, I failed, right? It's like, okay, this is not working properly. Let's fix it. You're not unique. So there are some unique things that I have never seen before, but ⁓ I'll try to be tactful in how I communicate.

Scott Ward (1:15:33)
Yeah. ⁓

Yeah

Yeah. Yeah.

Right.

Yeah. Hey, Josh, I appreciate you spending some time with me today. ⁓ I like what you're up to with base points and you know, if somebody wanted to get ahold of you, how could they do that?

Josh (1:16:04)
Yeah, basepoint.cpa, that's our website. That's probably the best way to do it. I'm on Instagram, josh.the.cpa on Instagram. they can hit me up there. Any of the tools that we talked about in here, you can just be like, hey, can I have that? send me direct message. We'll get that sent over. You know, some helpful things. We talked about the model, right? Coming up with your personal goals and then tying that to your business. It's very helpful tool that we have.

One thing we didn't talk about that maybe this is another conversation for different times is like how much cash to have on hand in your business, right? Depending on your revenues and things like how long it takes to bring cash in the door, cash going out the door. So we've got a tool for that just to help you get a sense of a benchmark for that, right? So any tools like that, happy to share some of the tools that we use here.

Scott Ward (1:16:47)
Right.

Cool.

Yeah, we'll link to them in the notes for the show. That's great. So wait, is basepoint.cpa? I didn't even know that .cpa was an option. That's cool.

Josh (1:17:01)
Yes. Yep.

They came up

with it three years ago, maybe. I was like, hey, that's pretty cool. So before we hit the Oklahoma land grab situation with new URLs, I like, think I'm going to grab that one. So yeah.

Scott Ward (1:17:17)
Yeah, nice. Cool. Hey, Josh, it's been a pleasure. Have a great rest of the day.

Josh (1:17:21)
Yeah, thanks so much, Scott. Appreciate it.