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Hey everyone. Welcome back to the podcast.
Today is a financial day. Don’t we love that? Doesn’t everyone love talking about finances?
I’m talking today with Danielle Hendon. She’s the founder and owner of 4 Corners CFO, which was a firm offering financial advisory services to small business owners [00:01:00] on a scale that fits their company and budget. Coupling her decade of experience in corporate finance and accounting with her passion for small business owners, Danielle brings the benefit of big business financial analysis to entrepreneurs. So instead of helping corporations increase their share price, Danielle gets to help business owners increase their personal livelihoods so they can leave a legacy and lasting impact on their community.
You will see as I get into this conversation with Danielle that she has a personal connection to our field and is parlaying that into pretty awesome financial support for practice owners.
Our conversation is a little different than some of the financial conversations I’ve had in the past on the podcast because we focus most of our conversation on debt and the role of debt in a practice.
Danielle is a big fan of what she calls good debt. [00:02:00] We talk about what qualifies as good debt versus bad debt. She talks about how to utilize a Line of credit, what that is, and contrasts that with credit cards. She talks through her general framework for working with individuals on their finances and many topics in between. We touch on how to talk with your kids about financial stuff. Generally, we had a really nice conversation. You can tell that Danielle is very invested in helping folks in our field.
If you are curious about what else she offers, make sure to check out the link to her website which is our specialized landing page in the show notes. And like she says in the podcast, there are a few things to download, look at, and even do a [00:03:00] consultation call if you would like.
Related, if you are a practice owner and you would like some support in running your practice on the business side of things, I would love to have you check out The Testing Psychologist mastermind groups. I have mastermind groups at every level of practice: Beginner, Intermediate, and Advanced. New cohorts are starting in January. If you want to get more information and do a pre-group call to see if it’s a good fit, you can go to thetestingpsychologist.com/consulting.
All right. Let’s get to this conversation with Danielle about good debt, bad debt, and finances in our practice.
Danielle. Hey, welcome to the podcast.[00:04:00] Danielle: Thank you so much for having me.
Dr. Sharp: I am really glad to have you. We’ve talked about financial stuff on the podcast many times, and no one has really approached it from this perspective where we’re going to be talking a fair amount about debt, I think, how to work with debt and why it’s maybe not a bad thing. We’ll tackle lots of other things as well, but that’s something that I’m excited to talk about. I’m just grateful that you’re here.
Danielle: Thank you so much. Yeah, the dreaded D word that nobody wants to talk about, but it’s such an important part of running a business.
Dr. Sharp: It is. I’m trying to hold myself back from just diving in, but I get so many questions from folks around, it’s usually like, how do I start my practice or how do I fund my practice in the beginning? Do I do a credit card? Do I do a loan? Do I do a friends and family funding? There are lots of questions. I know we’ll [00:05:00] get to all of these things, but people are wondering, and we certainly don’t get a lot of financial coaching in grad school by any means so I’m grateful for folks like you. But first…
Danielle: I am grateful too.
Dr. Sharp: Thank you. We will start with the question that we always start with which is, why is this important? Why choose to spend your life, energy, and time on this pursuit?
Danielle: I’ll start with the macro. The broader scheme of why is this important and what I do as a fractional CFO is because it’s my way to give back. It’s by helping business owners build a business that they can thrive in. I’m able to help them increase their livelihoods and their legacies and the community impact that they can have. You get to build and branch out that network of people that are growing and thriving and helping others grow and thrive. It [00:06:00] just feels really good to do that.
Dr. Sharp: It is really nice to do that. I suppose so. How did you, I’m always curious about folks who find their way into financial careers. What is the path for that? Was there a model? Was it a parent? Was it a transformative experience for you? Or was it just hey this is a good way to…
Danielle: I’ve got a funny story. I went to college to be an Opera singer.
Dr. Sharp: That’s unique.
Danielle: I had an English professor that told us to write about the future of our career path. I realized in writing that essay that I was never going to be able to afford myself. I had some friends that were in accounting. I decided to take a couple of accounting classes and I loved it. I loved everything about it. I went forward, got a master’s, got my CPA, and never looked back from there.
Dr. Sharp: That’s amazing. Do you still sing?
Danielle: A little bit on the [00:07:00] side in church.
Dr. Sharp: Okay. Fair enough. Wow. I mean, good for that professor. It sounds like that was a pivotal moment for you.
Danielle: I tell my kids all the time because my daughter is very much like me and loves the arts. And I was like, I love that you love them. They make really great hobbies. They don’t necessarily make really great careers.
Dr. Sharp: That’s for sure. We could talk about that for a long time, I think. I will ask though, I’m going off script already, which happens sometimes, but you mentioned your kids. This is something that I wrestle with a lot and how to talk with my kids about finances. So I’m curious, are your kids old enough to talk about finances at all?
Danielle: Yeah, a little bit. My kids are 11 and 13, and I love being part of your network because my oldest is ADHD and GT and all the things. So I have a special place in my heart for everyone that helps kids like that. But we do have conversations about the bills that [00:08:00] we pay, about what it takes to be in a house.
And like I said, my daughter loves the arts. She loves to sing. She loves to act. She loves musicals and she’ll tell you she wants to be a fashion designer when she grows up, which is amazing. I tell her all the time, I want her to do whatever she loves. I want you to love what you do, but I also want you to know that it takes money to live. And you have to be able to live a life you’re comfortable with. So balancing that.
We do a lot of personal finance stuff in the house. So the kids have their own kids debit cards that they use. They earn money in the house by doing chores or both of my kids are on the swim team so they can get rewards for working hard at swim like you would at a job and we reward that process as well.
Dr. Sharp: I like that. It sounds like we have a lot in common. I can’t say I’ve done a lot deliberately necessarily, but we try to, our kids are 10 and 12 [00:09:00] and we talk with them a lot about managing their own money. They have little debit cards and allowances and clothing budgets and things like that. They get to navigate some of that and hopefully get some sense of what it means to manage money and budget.
Danielle: I feel like they start to have a little bit of their financial personalities at that age. I don’t know if you’ve known, but I can tell my daughter is definitely the saver and my son is in his hand out of his hand.
Dr. Sharp: It’s wild. My kids are, it’s like there’s an ebb and flow, they will both almost like forget about their accounts for a while and stack money. And then in a weekend, it could be gone. They will all of a sudden remember they have money and then they’ll spend most of it. And then save back up, wait for a birthday or whatever.
Dr. Sharp: It’s been an interesting journey. I feel like we could talk about that for hours on how you work with finances with your kids. Maybe that’s another [00:10:00] conversation, but I appreciate you diving into that for a second.
Danielle: Of course.
Dr. Sharp: Well, I would love to pivot into some business finance stuff. I know there’s so much that we could tackle with this, but I want to maybe get something on the table right off the bat, which is this question about shame around money and finances. You brought that up in our pre-podcast chat. I’ll leave it open. I would love to hear your thoughts on what you’ve seen over the years working with folks and how shame comes up in money conversations.
Danielle: So, it doesn’t exactly come up, but it’s the reason money conversations don’t come up at all. I was having a conversation with a friend the other day and doing my own market research. I was getting on LinkedIn trying to figure out who are the influencers that are talking about budgets and cash flow and what are people talking about. I realized people aren’t [00:11:00] talking about it, which is part of why I love doing this.
So the macro of what I do being to bring an impact to the community and to people, but the micro being people aren’t talking about this. Coming on podcasts like this gives me an opportunity to at least get someone asking the question of themselves, if not of anybody else, of how do you feel about your money and your finances, and what are you doing to grow your business and feel confident in those numbers?
You were trained to do what you do. You weren’t trained to do the numbers, and there is absolutely no shame in not knowing them. But there’s this, especially for professional service providers, there’s this feeling that you need to know it all. That you’ve gone to school, you’ve got the degree, you did the things, you’re supposed to be really smart and you should know this. And that keeps people from asking for help. So, it’s not so much that shame comes up in the conversation as it is the reason that the conversation doesn’t even happen.[00:12:00] Dr. Sharp: It’s like that monster lurking in the background keeping people from sharing. I think that’s so true. I was just thinking about, especially most of us, I think have doctoral degrees. We’ve gone to school, we’ve done really well, we’ve theoretically taken a bunch of statistics classes and should be fairly skilled at math, and we do testing, which is all data analysis and synthesis and so forth.
Danielle: Accounting is a different language. It’s almost not even math. It’s language.
Dr. Sharp: That’s wild. I’m going to go with that. Tell me more. What do you mean by that when you say accounting is a language versus just math?
Danielle: I love math. Don’t get me wrong. But one of the first things I realized when I went into a public accounting firm is holy cow, we have to write a ton and you have to write it with the right words. I would almost equate it, and I have a lot of attorney clients [00:13:00] who are probably going to look at me and go, Nope, but I would equate it to attorneys having to draft all of these legal documents.
There is jargon in accounting that we are all used to throwing around and if you’ve never taken an accounting course, I start coming at you with ROI and profit margins and all of the acronyms and the jargon that we could throw out there, it’s going to go straight over your head and it’s meant to. It’s not meant to make sense to somebody that’s never spoken it, learned it, or done it, which is why I love talking to other accountants and the first thing I’ll tell them is my biggest marketing technique is being approachable. I don’t ever want to say something somebody can’t understand because what’s the point?
Dr. Sharp: Well, I think what you’re saying is probably resonating a lot with my audience because there’s a big push. We wrestle with this too. Like, how do we translate psychological, neuropsychological jargon into every day [00:14:00] conversation that our clients and others can understand? I think that makes sense.
Danielle: That’s exactly the same thing. So don’t feel bad not knowing the financial jargon that nobody ever told you what it was.
Dr. Sharp: Right. That’s the thing though. That’s what I was going to say it’s such a juxtaposition, I think for a lot of us like, Hey, we’ve done really well in school. We’ve got this advanced degree. We’re highly specialized in this area. People wrongfully assume that we should be good at everything, and when it becomes clear that we’re not good at everything, it’s really hard to admit that, embrace that, share it with someone, or ask for help.
Danielle: What I would challenge your listeners with is as much as you think you don’t want to ask for help, you are giving somebody the opportunity to do what they love. I hope my words express it, but I could not tell you how much I love what I do. And when someone says, I don’t know how to get from here to here [00:15:00] and I can give them that answer, that’s just the best feeling in the world. It’s like you guys being able to give somebody that diagnosis or that test result that they’ve been craving and needing that support and evidence for, and now you’re like, I got it. We got this.
Dr. Sharp: Yeah. I like how you flip it around. That’s one of our techniques almost. That’s pretty good. Frame it like you’re giving someone else the chance to shine and do what they love to do by asking for help. Yeah, I’m with you.
Well, I hope that as we go through this conversation, my intent is to be as transparent as I can. I’ll say right off the bat, and I’ve talked on the podcast, I think a good bit about being completely financially illiterate when I started my practice, losing, I don’t even know, not tens, maybe over a $100,000 from not knowing what to look at and what to manage or measure or whatever. And it continued. Finances are [00:16:00] continue to be like a sticking point. And we’re always trying to figure out how do we get more profitable. Why aren’t we more profitable? Where’s the money going? It’s not as easy as it looks despite what the Instagram or TikTok influencers might lead you to believe.
Danielle: Definitely. It’s something that takes practice. I love that you’re asking why. To me, that says that you’re looking. Anybody asking why is at least looking at the numbers. And as long as you keep asking why, you’re going to move forward.
Dr. Sharp: I like that. You’re full of positive affirmations and hope today. We’re off to a good start.
Danielle: If we’re going to talk numbers, we got to make it interesting somehow.
Dr. Sharp: This is true. Well, let’s get into it a little bit and talk more about the numbers and the framework that you use to work with people. We could start wherever you would like. I know you do have a framework. So maybe give an overview of how [00:17:00] you actually work with people and even define the term fractional CFO. I don’t know if people even know what that is. So yes, let’s start from the beginning
Danielle: I’ll start by saying, there are different fractional CFOs. I’m sure you guys have this in your career as well. I could tell you fractional CFOs and introduce you to 10 different fractional CFOs that do things differently and approach it differently, but in the base form of it, a fractional CFO is a Chief Financial Officer. All the big corporations have them. And this fractional component means we’re taking that Chief Financial Officer role and we’re bringing it to smaller businesses in a fractional way so that we’re doing it, some do it on hours, some do it based on packages, some do it based on projects, but bringing small business owners access to that Chief Financial Officer level of strategy, knowledge, and information. So that’s the fractional CFO piece.
How I [00:18:00] personally do it is through a package process. We go through a 6-part framework regardless of who the client is, and how big they are. We may do it in a group membership. We may do it once a month. We may do it once a week, but 6 step process, and it starts with the balance sheet.
Most business owners I know could tell you what their P&L is. Very few of them have looked at their balance sheet because all they’re doing is looking at their bank account, which is great. Looking at your bank account at least tells you what’s in there, but your balance sheet represents what your business is worth. If you ever wanted to get funding from a bank, they’re going to look at your balance sheet first. It tells us what you have, what you owe, and who owes you.
Dr. Sharp: Yeah, I was just going to ask…
Danielle: So, what you own, what you owe, and who owes you.
Dr. Sharp: Okay. What are the major differences between a profit and loss or P&L and a balance sheet?
Danielle: The balance sheet [00:19:23] is going to reflect year over year what your business is worth. Think of it like, your bank account reflects the cash that’s in there. It doesn’t necessarily reflect the sales you’ve made if you haven’t collected on them.
Dr. Sharp: I see. So it’s a little more complicated.
Danielle: It finishes telling the story. It also tells you, and the reason we start with the balance sheet, if you are able, if your bookkeeper is reconciling your balance sheet every month, then that tells me that all of the information is on your profit and loss.
I’m going to date myself a little bit and say, it’s kind of like reconciling a checkbook. So when you balance a checkbook and you say, all right, this is the bank account, this is the checks I’ve written, that’s what your bookkeeper is doing, but they’re doing it based on your books and the bank account to make sure that everything is recorded in the books. So if the balance sheet doesn’t reconcile, we might be missing things on your profit and loss statement. So we start there.
Dr. Sharp: Got you. I might [00:20:00] be off on this a bit, but my sense of the balance sheet as well is that for me, the profit and loss is telling me monthly or quarterly or annually, the money that comes in and the money that goes out for whatever time period income versus expenses. But then, we have other accounts like our savings accounts or whatever, we’ll just say savings accounts, that don’t really factor into the P&L as much because I don’t look at them daily or anything, but they’re on the balance sheet. That money that’s sitting in that savings account is on the balance sheet and it factors into the overall worth.
Danielle: That’s a great way of tracking goals.
Dr. Sharp: Can I go way back and ask another question just to clarify because people might be wondering how is a fractional CFO different from an accountant or a bookkeeper like other financial people we might work with?[00:21:00] Danielle: The answer to that is, it depends. You may have a CPA that does it all. There are definitely CPAs out there that are what I would call your one-stop shop. They will do the bookkeeping, they will do the fractional CFO work, and they will do the tax preparation.
The big difference between and I’m going to say bookkeeping, some may call it accounting depending on where you are in your business and what level of service you’re getting in that area, you’ve got the bookkeeping, the tax preparation, and the CFO, the bookkeeping is going to organize your numbers. It takes what’s already happened and organizes it and puts it in a way you can hopefully read; the tax preparation is going to tell you what you owe the IRS. It’s purely a compliance effort. And I highly recommend if you aren’t getting strategy out of it to ask for strategy as part of it. A lot of CPAs will give strategy but usually have to ask for it. And that will be the tax side of it.[00:22:00] And the CFO work is all about looking at the future.
So your bookkeeper and your tax preparer, whether it’s a CPA or not, are looking at the past. They’re looking at what’s already happened in your business, and they’re helping you understand the past. A CFO is going to help you look at the future, forecast the future, and decide where you want to go and how to get there.
Dr. Sharp: Yeah, I was just going to say, is this Budgeting forecasting, modeling, and those kinds of terms? How do we project out into the future and know what to expect and how to manage money?
Danielle: Yeah, and quantify those goals and all of those things.
Dr. Sharp: Yeah. Thanks for filling in some of those gaps.
Danielle: No problem. So on that balance sheet component, I’m also going to jump back. We talked about debt earlier and that is one of the most important conversations I have with clients in that balance sheet piece because a lot of our personal feelings about money come out through debt and they affect the way that we run our business.[00:23:00] I’m just going to throw it out there. If you’re a big Dave Ramsey fan and you’re debt averse and you feel like you should never take on debt because it’s not good for you, that is a great way to live your life personally, but you have to switch gears a little bit professionally when you run a business. There is such a thing as good debt. It’s not all bad. And there are reasons to use debt in a business. Go ahead.
Dr. Sharp: I was just going to say, let’s talk about that. I’m so curious about what you consider good debt and how to conceptualize that.
Danielle: The easiest way to differentiate between good debt and bad debt is going to be your intention. Good debt has intention and thought that goes into it. Bad debt, and I’m just going to throw out credit cards being the easiest one to put there, are going to be the things that you unintentionally took on, not to say that it doesn’t happen.
Every business owner I know in some way, shape or form, you have [00:24:00] to have money to make money. And if you didn’t save it up before you left to start this business, you’re going to be in some form of debt. And while I’m calling it bad debt here, I want you to remember it was necessary to get where you are.
Dr. Sharp: Well, that’s fair.
Danielle: So bad debt is usually that unintentional I couldn’t pay the bill so I grabbed the credit card or I needed to make payroll so we went and dipped into whatever we needed to. It’s usually what you go grab when you don’t have savings to help support a decision.
Good debt, the best kind of debt, is going to be very thought out and it’s going to be, I’m going to use something that probably comes up for you guys more often than you’re not buying equipment and things like that, but you’re hiring in your business and we all know it can take 3 months for somebody to get up to speed and be truly revenue generating in your business. So you have 3 [00:25:00] months of salary you’re going to need to pay. And if you don’t have that in savings, but you do know you’ve got the clientele to start giving to these people, you know you’re ready to bring this on.
A line of credit is my absolute favorite thing for every business owner. It’s the perfect safety net. It’s the perfect way to use good debt and dip in and say, hey, we’re going to go with it. We’re going to hire this person. We know we can fill them. We know we’ve got the work. We know it’s going to take time, so we’re going to use this line of credit for the next 3 months, and then we’re going to map out how this person’s salary is getting paid, but then also how the revenue they’re about to generate is going to pay down the line of credit over the next 3 months.
Dr. Sharp: I have so many questions from all of this. First of all, I like how you shape it in terms of intention. It’s almost like the credit card stuff or the bad debt is reactive. It’s like you weren’t planning [00:26:00] for it. It’s not necessarily expected, but good debt on the other hand is a little more methodical, a little more deliberate. You’re not panicking presumably because you’ve already thought through it and you have a plan. I like that.
So talk about a line of credit. I know we have a line of credit for our practice. It’s sitting there. I don’t think we’ve ever accessed it, but I don’t know that everyone knows what a line of credit is and how that’s different from a credit card or from a loan or any number of other financing options.
Danielle: I’ll start by saying, we all know what a credit card is. Most of us should know what a credit card is. You grab it out, you swipe it. I’m hoping you’re paying it off every month. But if you’re not, that’s where we start talking about should we refinance some of that credit card debt into what I’m going to call a term loan? A term loan is set for a set number of months, a set dollar amount. You make the same monthly payment every single month.[00:27:00] I have clients where we would take, I had one and just to normalize for everybody out there, that’s used a credit card to get their business going, we refinanced almost six figures in credit card debt into a term loan so that there was a set number we knew was going to come out every month and we could create the habit of paying the credit card off.
So you’ve got your credit card, you’ve got your term loan, a line of credit is different and it’s kind of a mix between the two. Your interest rate is also going to be a little bit of a mix between the two. You’re not going to have quite as high of a credit card. It’s not going to be quite as low usually as a term loan, but a line of credit is access to money. It’s access to funding.
You are approved for, I’m just going to throw a number out there, we’ll say you’re approved for up to $50,000. If you needed to go pull $50,000, you could. I wouldn’t recommend it all in one fell swoop, but you could, and you could put that into your business and then [00:28:00] pay it down in whatever increments you want it.
A line of credit is usually set up in such a way that your minimum payment is equal to the interest. And then it’s on you to pay it down to where it needs to be. That being said, lines of credits will turn into term loans if the bank is not happy with how you’re treating them. So be careful that when you are drawing on a line of credit, the goal of a line of credit is short-term funding. And when I say short-term in the accounting world, that usually means within 12 months. So if you’re going to pull on it, we want to put it back within 12 months, or at least show a cycle of pulling and putting back over those 12 months.
Dr. Sharp: Right. So if you only pull and keep taking money out, the bank is not going to be super happy about that.
Danielle: No, and they usually reassess the line of credits once a year. They can do what they call calling your line of credit, which means they’re going to be like, Hey, now you owe me. And that is normally [00:29:00] where they’ll be like, okay, but we can put you in a term loan because they want to make sure they’re getting consistently paid and you’re not just pulling more and more money.
Dr. Sharp: That’s fair. I just want to acknowledge that I’m feeling anxious talking about all of this even though we haven’t touched our line of credit. We don’t have debt in our practice but loans, interest rates, and people calling you to get money is nerve-wracking.
Danielle: And that’s where I like to say when you have the intention and you have a plan, which is why I love budgets. When you’ve got that plan, it feels less out of control. You have control over what you plan to pull, you know exactly when you’re going to put it back and you know what the plan is to get there. And that also helps if they do call. You say, hey, I know you want me to put this back. We’ve got so and so paying on this date and we’re going to have this infusion of money coming in and then we will be paying you this much.
Dr. Sharp: Yes. That [00:30:00] sounds good. Some people might be thinking, why go through this hassle? There are tons of 0% interest credit cards out there for the first 12 months. Why not take one of those cards to start your practice, pay it off over a year, and be on your way?
Danielle: Absolutely do it. If you can get a 0% interest card that gives you enough room to start your practice and you can be accountable to yourself to make those payments back down, go for it. If you can’t be accountable to yourself to make those payments, you are potentially going to be sitting with a 0% interest card that you then are trying to roll to another card or get a different card or pay upwards of 30% on right now because credit cards are all variable rates. Those rates have gotten insane at the [00:31:00] time that we’re recording this.
Dr. Sharp: That’s fair. Okay. So it could be a viable option if folks are pretty disciplined and if they get the right card
Danielle: and if you have access to enough capital. You don’t want to start this process with a credit card and not have intentionally thought about that, because this goes back to the intentional. Normally, a credit card is used on unintentional expenses. If you’ve intentionally gotten this 0% credit card, you’ve thought through what the expenses you’re going to have to get this started, and you know you have enough space because I don’t want you to run it all up on the credit card and then run outta room. So it all comes back to that intentionality. And then in that it’s scenario, I would also say intentionally knowing you can pay it back before 0% becomes 30%.
Dr. Sharp: Of course. So that leads me to another question, which is I have worked with folks before who’ve had trouble not getting approved for a business credit card, but [00:32:00] getting a high enough line of credit to do anything because their business is brand new. The banks understandably don’t want to just give them this enormous credit limit without proof of income and financial stability. So how does that work with a line of credit? Are they more, I don’t know if lenient is the right word.
Danielle: It’s going to be the same there. You’re going to run into the same questions from the bank on a line of credit that you would on a credit card. They probably think of them very interchangeably. My biggest recommendation on that scenario is to have a really good plan that you can present to them.
Dr. Sharp: Okay. Do you have thoughts on what that plan might look like or what we could highlight as new business owners if we’re trying to go down this path that would be more compelling?
Danielle: I’m going to be completely transparent and say, I am not usually your funding CFO. I’m more of the budget and the cash flow CFO. I have friends that do this far better than I [00:33:00] do, but the plan is going to be and I’m sure you guys have all heard of a business plan and making sure you have really thought out what is this business going to do? What is it going to look like? What are the costs? What’s the market? And having some numbers to give them that say this is how we forecast growth and we didn’t make it up because we have this support over here that tells us we can do it.
Dr. Sharp: That’s fair. I’ve talked to folks in the past and said a real “business plan” is a little bit of overkill for our kinds of businesses but this strikes me as a scenario where it could be super helpful.
Danielle: Before you go down the rabbit hole of even paying because a lot of times people will pay for a business plan, before you go down the rabbit hole of paying for a business plan, talk to the banks. The other recommendation that I will say credit unions tend to be far easier to get funding from than the [00:34:00] big banks. We all think Chase, the Bank of America, Wells Fargo is not my favorite, but the big banks that you can go to and get funding from are not usually the easiest to get funding from.
If you have a car loan through a local credit union and you’ve got a relationship there, relationships can go far when it comes to getting funding. Go talk to the local credit union, let them know what you’re up to, ask them what’s available, and before you go down the rabbit hole of a business plan, ask them what it takes to look at it. What do they need in order to look at a loan?
Dr. Sharp: That’s great. Asking helps. Never hurts.
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Danielle: Never hurts. Credit unions tend to be a lot more lenient because they’re not under the same Red tape that the bigger banks are.
Dr. Sharp: Yeah, that’s fair. Now, I’m curious why you don’t like Wells Fargo because all of our accounts are with Wells Fargo. I have to detour for a second.
Danielle: The audit experiences I’ve had with them in the past. Sometimes when you need to come up with… I’ll throw out an example. If you get audited by the IRS for any reason and need to provide all the support because they can go back three years and you need to provide support for something three years ago, getting your hands on copies of checks from Wells Fargo can be very difficult sometimes for wire transactions.[00:36:00] Dr. Sharp: Hopefully that is never a thing.
Danielle: Sometimes getting support from banks can be like jumping through hoops a little bit.
Dr. Sharp: Got you. That makes sense with the larger entities.
Dr. Sharp: This is a great discussion on debt. We’ve been talking about this, I think, primarily in the context of launching a practice where it seems like the expenses are pretty, I don’t know if predictable is the right word, but that makes sense to me. You’re going to have to buy furniture. You might need a computer. You will need some testing materials and kits. Pretty standard predictable expenses are there. What about the practice owner that’s a little further down the road and relatively well established. What are scenarios where we might consider a line of credit in those cases?
Danielle: That’s usually going to be 1 of 2 scenarios that I see often. The first one we [00:37:00] talked about a little bit is when you’re looking to grow and scale and hire. That costs money. Whether it’s a person or a system, it costs money and it takes time for that to be revenue generating. So for a short-term dip into your line of credit, knowing that in the long term, I’m going to use a financial term, the return on investment is worth it to you in the long term, you know and you’ve mapped that out.
The other reason that you might need to dip into a line of credit is going to be depending on your billing practices. Accounts receivable can be a pain point for a lot of business owners, and if you’ve got a whole lot of money sitting in receivables, and you’re waiting for either the client or the insurance to pay out, that can stack up pretty quickly, and a line of credit can help you cover the expenses for the month, knowing that the insurance is going to pay. You just got to wait for them to do it and you got to jump through their hoops to get it. So you pull down on the line of credit, make sure that you’re able to keep everything running [00:38:00] comfortably and smoothly. And as soon as that money comes in, you put it right back.
Dr. Sharp: Yeah, that makes sense. I’m guessing that resonates with a lot of folks who are listening because insurance and patients are a pain sometimes when it comes to paying.
Danielle: It’s every business out there. If you are collecting on the back end of providing services, collections are always going to be a pain point. So a line of credit and there are a lot of banks that actually, if you are in a position where you have a significant number in your accounts receivable line on that balance sheet, they will collateralize that in your line of credit. They’ll be like, okay, so you’re collecting this much money. This is why you need it. And we can tell that you’re going to get it. So we’ll give you this much money so that you can keep turning over your accounts receivable.
Dr. Sharp: That’s good to know. Folks may or may not be paying super close attention to that, but I think that’s important, especially in an insurance-based practice [00:39:00] to keep a decent eye on your accounts receivable, at least. I look at 0 to 60 days because we have a range of timeframes for how quickly our insurance panels pay, but that’s a leading indicator of how much money I can expect to be coming in over the next month or two.
Danielle: Yeah. And if it starts getting out past those 60 days, you’re probably running into issues where it may not be as collectible as you thought.
Dr. Sharp: Right. Now, you may or may not know the answer to this. So feel free to pass if you need to. But do you have a sense of what percentage of our, I’m trying to think how to phrase it, basically how much we should have or should not have in our accounts receivable past 60 days or if there’s any metric, we can even pay attention to know what’s normal or not?[00:40:00] Danielle: Not so much a metric. I will tell you for non-insurance, for client pay, everything past 30 days, and every day you go past 30, it becomes less and less collectible.
Dr. Sharp: Yeah, that makes sense.
Danielle: And I would venture, I don’t know this for sure, but I would guess that with your insurance payments, they are usually collectible. It’s a matter of jumping through the hoops, getting them the support they need, getting the right… I don’t know that there’s a metric per se, but it is definitely something I would monitor within the business as a year over year if not quarter over quarter. Like, is this number growing or is it decreasing?
Because if you’re beyond 60 days, if you can usually collect from insurance and clients within those 60 days, and the percentage of revenue that’s beyond 60 is growing, then that says we’re either not getting things in right to the insurance company, the [00:41:00] billables aren’t getting through the right. There’s something in the process we could probably fix to make that better. I don’t know that there’s a number per se that it should or shouldn’t be, but if you’re seeing it grow in your individual business, then that’s something I would think you want to look into your medical billing and make sure we’re getting everything to them the right way.
Dr. Sharp: That’s fair. That makes sense to me. So we’re talking about a line of credit to help fund starting our practices, growing, scaling, hiring, that sort of thing, billing to cover billing issues. Any other debt situations we might want to think about or topics within the debt realm to talk about?
Danielle: The other scenario that I see come up sometimes and this is definitely unintentional debt, but it is something I talk a lot with prospective clients about is what I’m going to call the [00:42:00] crisis mode. You are in crisis. You’re not bringing on the clients you thought you would. You’ve got bills to pay. You need somewhere to turn to keep the lights on. And it’s happened to many a business owner. And the last thing I want to see is that you have to close your doors because of it.
What I like about the line of credit, and you have to get it before you need it. So this is why I love that you guys have one, even though you haven’t drawn on it. A line of credit is so much easier to get when you don’t need it. But then if you do, if there is a crisis and you have to dip into it for unintentional reasons, it gives you enough wiggle room to think straight. When you’re in crisis mode and you’re trying to pay the bills and you don’t know where the cash is coming from, you are going to do anything and everything to try to get out of it and keep your head above water. But if you have access to something like a line of credit that can get the bills paid and give you just enough mental space to think about what you want to do next [00:43:00] and how to get out of this the right way, then you get to build a sustainable business.
Dr. Sharp: Yeah. I hate to even think of this, but I’m guessing that there is someone out there that this is relevant for. How do you approach it when it’s not getting better? Maybe you get that line of credit, it gets you through two months or three months and the systems or the cash flow aren’t working and it’s not getting better. Maybe this is a bigger discussion. I’m just curious. I’m playing this all the way out and have talked to practice owners who have been in a lot of trouble and it’s just moving money from one place to another and trying to,
Danielle: It’s exhausting.
Dr. Sharp: Yeah, I think it is.
Danielle: It’s exhausting. My number one advice is to ask for help. Find a coach that can help you. Find a fractional CFO that can help you with the [00:44:00] finance. Whatever help you can get, whether it’s free or paid, find somebody that can help you come up with a plan because you’re not going to get out of that scenario without a plan. Something has to change.
Dr. Sharp: Yeah, that’s fair. I know it’s a lot of our nightmares,
Danielle: Mine is always, I don’t want, I don’t ever want to go back to corporate. I don’t ever want to have to go back to corporate. We don’t want to be there, but that’s where we’ve all seen over these last few years, especially that anything and everything can happen in this world. And you have to be ready to pivot, which is why it’s so important to know your numbers and keep your finger on the pulse of where your business is. And before you hit crisis mode, when you start to see the dip, what needs to change?
And then if you don’t happen to see it then, and you are in crisis mode, having access to something like a [00:45:00] line of credit to say, okay, now we’ve got a three-month runway. What can I do in three months to change this business and pivot out of it?
Dr. Sharp: Yeah. Got you. And just to track back a bit and nail things down, what kind of interest rates are we talking about on a line of credit? You mentioned the credit cards it’s going to be anywhere from 20%, 22%, 25% to 30%.
Danielle: Line of Credit isn’t going to be great right now because you’re still going to have something that’s usually prime plus, so it might be, I’m going to be honest and tell you I’m not entirely sure what prime is right now, but I would venture we’re in the range of 12% to 15% on a line of credit probably.
Dr. Sharp: Yeah. That sounds about right. It’s tough. I only know we were looking at a HELOC six months ago or something to do some home stuff and the interest rates were already going up.
Danielle: They’re just insane.
Dr. Sharp: Yeah. Well, I think this is super important. Even spending [00:46:00] this amount of time talking about debt and using debt is shining a light on something that we don’t talk about a whole lot and people do in the dark and just talking about it is important and providing some exposure there. But I know that there are many other parts of the framework that you use to work with people. So I want to make sure and touch on each of those too.
Danielle: Yeah. I’m going to run through the other parts pretty quickly just so that we don’t take too much of everyone’s time. But once we get through that balance sheet and we have an understanding and part of your money personality but also of what your books look like, we dig into the revenue and we look at what are you offering? What are your services? Are they flat fee? Are they hourly? I’m sure with your team, you guys have a combination of what you offer between hourly and you might have assessments that are flat fee versus hourly conversations.
We [00:47:00] dig into what I’m going to call profit margin. What are you making on all of those services? And as a growing business owner with a team, what are you paying your team or yourself if you’re a solopreneur to generate that revenue? So what is the cost of the revenue, which we call the cost of goods sold? A lot of service providers don’t use that line in their books, but they should. What is the cost of goods sold and what is the actual revenue making sure we’re also understanding what are the types of revenue.
I see so many, especially service providers come to me and it’s just revenue because they’re like, we provide the services, but was it assessments? Was it clinical hours? What type of revenue is coming in because they’re going to have different costs associated with them? And that means they’re going to have different profit margins.
What I love about the revenue side of things, and when we analyze it with clients is there are 2 profit levers you can pull in revenue. And I realize your hands might be tied a little bit with insurance, [00:48:00] but you can raise your rates and you can sell your most profitable product or service the most. So if you sell more of the most profitable thing, if you’re marketing towards whatever that most profitable thing is, then you are naturally going to increase your profit.
Dr. Sharp: It’s really important and challenging for some of us. Speaking personally, we know in our practice therapy is significantly more profitable than testing because we have to pay for testing materials and that’s a big portion of…
Danielle: And I’m sure your hands are tied a little bit on how much you can actually charge for those assessments afterward.
Dr. Sharp: Sure. We’re an insurance-heavy practice. We do our best to negotiate and I’ve had some success, but not as much as we would like. And so, there’s a natural cap, but at the same time, I want [00:49:00] to keep our assessment services front and center because they’re really important for folks. And also, that’s what we’re known for. I’m just voicing that. I don’t expect any kind of solution there, but I’m guessing some people have some dissonance around what’s most profitable and what they need to highlight.
Danielle: And it becomes a question of what really that turns into is how much of your marketing dollars do we want to spend? If you’re already known for testing and the word of mouth behind that is probably powerful in and of itself, then do we want to put a little bit of marketing dollars on the therapy side because if we could get a few more of that, it would help buffer.
Dr. Sharp: It’s a great point.
Danielle: It’s a balancing act. And it’s all about what feels right for you as a business owner while also making sure that we’re building a sustainable and profitable business.
Dr. Sharp: Yes. I like how you call those revenue levers or profit levers. Are there any [00:50:00] items that we need to know about? I want to know about as many profit levers as there are.
Danielle: So the third one sits in our third part. The third profit lever is expense. It’s cutting costs. We all know we can cut costs, but it’s not necessarily the way you think. We are not going to go slice and dice the team or cut people. That’s not how we want to cut costs.
When we sit with a client, we look at expenses and we bucket everything into three categories. You have your required expenses. I don’t know a single business owner that can function without the internet and a cell phone. So we have to pay those. And then you have what I like to call personal perks. The things your tax CPA told you could run through the business.
I don’t know if you know this Dr. Sharp, but you can put your kids on payroll. So those kinds of things that add to the value of the business owner not to the value of the business. And then everything else in your business is an investment. We want to look at what is the return on your [00:51:00] investment and I know that can be a financial term so I break it down even further and I tell my clients we want all of these things to be providing time, money, or both to either you or your business as a business owner. And if they’re not doing that, the question becomes, why are we spending money there?
Dr. Sharp: Do you have any examples off the top of your head of these investments in the business that aren’t actually providing that much return?
Danielle: I have one and it’s a little, how do I put this? It’s going to be a little weird. So I’m going to use an attorney example knowing this is not attorneys listening, but it’s a real-life example that I had with a client. I want to preface this by saying I am a huge proponent of coaches and accountability and all that comes with that, but you have to use it.
So, [00:52:00] this attorney, we were sitting down and we were going through the expenses and they had $3000, or $4000 in CLEs, in continuing education costs and I said, I don’t know about you but I know I have to get continuing education for my CPA and I can go pay $200 dollars online and get access to unlimited courses and just get it done. And she was like, yeah, I can do that. There are places we can do that. And I said, okay.
So the required cost for that was probably about $200. The rest of this was an investment in your business. What were you doing? What did you learn? Why did you choose to make that investment? And how did you come back and implement it to give you time or money? So I will be the first to tell you because a little bit of what I do feels like coaching sometimes, I don’t want anyone to build a budget and not use it because that’s a waste of time and money. [00:53:00] If you are investing in coaching programs or things like that, and you aren’t implementing them in your business, or they aren’t working for you, then that is not a good investment.
Dr. Sharp: That’s reasonable. I think that probably resonates with many of my listeners. It’s easy to rack up CE costs and go to the workshops and do the traveling and everything that comes with it and it can be a lot. That’s a good example.
Danielle: And it can be worth it if you’re implementing. If you are learning from this program, you’re implementing it, you’re able to streamline and increase revenue, all the things, then it’s definitely worth it, but if you’re not implementing or you don’t have time, and that’s what I find with a lot of professional services is they are doing these CEs and getting all these great ideas. They don’t have time to do the implementation. So then the question becomes, do we need to pay [00:54:00] somebody else to implement it? And is that a better route to go? Or do we not need to be doing these?
Dr. Sharp: Sure. Yes. I like that distinction. Yeah, if we’re just getting the credits to fulfill our licensure requirements, that’s a different story than, hey, I’m trying to actually learn something and put it into play. And that could be really valuable. But those are 2 different objectives and we can mix them up sometimes.
Danielle: And we’ve all got the subscriptions we forgot we signed up to that will pop up when you go through that analysis. Those are the low-hanging fruit that are the easiest to cut.
Dr. Sharp: I’ve run into a lot of practice owners who have, I call it like software salad. They’ve signed up for different, they have Gmail and Google Workspace and then some kind of task management thing, and then EHR, and then this other Faxing service. It’s all these different…
Danielle: I am sure Dropbox is somewhere in there too.
Dr. Sharp: Dropbox is somewhere in there. Of course, always. All these different [00:55:00] software that may or may not be duplicating themselves and be redundant. That’s one thing that jumps out to me as well.
Danielle: Definitely. So the goal of that is to figure out what are your expenses, how often are they coming in, what do we really want the expenses to be and how do we maximize. I’ll also say for those things that are required, we will visit those once a year or so and say, when’s the last time we figured out if we could get this cheaper.
Business insurance is a big part of being a business owner, but when was the last time you shopped it around? Is it giving you what you, do we have more than we need? Making sure you’re being as diligent as possible with those required costs.
Dr. Sharp: That’s fair.
Danielle: So then we got our balance sheet. We went through revenue. We went through expenses. Now we get to build a budget. Now we’ve got enough information to build a budget line by line, month by month out for the rest of the year, taking that information and saying, how often is revenue coming in? How is it coming in? We figured [00:56:00] all of those pieces out. We build a budget for the rest of the year and then we talk with the business owner and we say, what’s happening next year?
So, we build this budget based on historical what we know, but what do we want it to be next year? What are your growth goals? Who are we hiring? How much capacity does that add if you hire this person? How much revenue can we make that way? Who are we? What are we implementing? What new systems might be on the board? What conferences do you want to go to? What traveling is going to be in this budget? Lining all of that out to build the whole picture.
It’s one of my favorite months because when you get to the end of that, you get to say, this is what we’re going to make at the end of the year. And that’s assuming most of the people I work with are S Corps, that’s usually after you’ve paid yourself. So, this is the profit we get to do something with. And that’s really fun.
Dr. Sharp: That is really fun. We all like thinking about profit, and getting paid.
Danielle: It’s fun. Numbers don’t have to be boring,[00:57:00] Dr. Sharp: Right. It’s super fun. Yeah, this is good.
Danielle: And you heard me say just a minute ago, I never want you to build a budget and not use it. So after we build the budget, in the following month, we start a process which we go through every month with our clients, a budget to actuals. You want to take the budget you built and compare it to what actually happened. Did your actuals meet your expectations?
And I’m going to tell you, in three years of doing this, I’ve had it happen once. It’s not going to meet expectations. It’s not meant to. It’s meant to give you an opportunity to ask why, which is why I love that you said you guys do that. When you compare the budget to the actuals, a lot of people are going to be like, oh, if I went over budget, that’s a bad thing. Not always. If your staffing went over budget, if your payroll went over budget, but it’s because they did more hours and your revenue also was over, that’s a really great thing to have happen. The question becomes, is it going to keep going? Do we want to change the budget to project this higher level [00:58:00] or is it not going to keep going? It was a one-off thing. We’re going to stay with the number we’ve got.
I am not a fan of set-it-and-forget-it budgets. I think you need to revisit your budget every month and review when you do that budget to actuals, you’re either going to change something in the budget or you’re going to change something in how you are running the business. And that’s what we want to project.
Dr. Sharp: Yeah. I know that we were just talking about software, but one software that I like and is integral is QuickBooks for budgeting or Financial stuff. So a granular question, but I’m curious, do you use QuickBooks to build this budget or some other kind of software? Is this an Excel thing or what?
Danielle: I personally use a system called Syft and that’s what I use with my clients. It is cost-effective for me as an accountant. Not quite as cost-effective for individual business owners. QuickBooks is great with building a budget and it gives you the reporting tools to run the budget to actuals if you want to do [00:59:00] this yourself.
What I like about Syft that’s a little different than other tools is my team and I can layer in every individual item. So instead of having a number for your accounts, [01:00:00] let’s say utilities, instead of just having $1000 a month for utilities, we actually have $500 a month for the electricity bill, $100 a month for the phone bill.
And then when we go to compare to actuals, I can literally bring up your QuickBooks and say, okay, electricity, phone. Oh, what is that thing? Hey, what did we do with this? Is this supposed to be there?
Dr. Sharp: That’s always a great conversation.
Danielle: It is. I like Syft, it is S-Y-F-T. If anyone wants to look into it, it is not the most cost-effective for business owners. I think the last time I checked, they were either $100 or $150 a month, so to add it on top of QuickBooks isn’t necessarily the most cost-effective for a business owner.
Dr. Sharp: Fair enough. I’ll put it in the show notes if people want to [01:01:00] check it out. I think the majority of folks are probably using QuickBooks or maybe Wave.
Danielle: Which is great. My only add-on to that would be to keep a list of what you put into those numbers so you can do that comparison. When I have clients that want to stay in QuickBooks, and our smaller group membership clients will usually be in QuickBooks, and we teach them how to do it in QuickBooks, we keep an Excel list of what’s in utilities, electricity, that way they’ve still got something to go back to understand when those numbers are off, what’s off.
Dr. Sharp: Yeah, okay, cool.
Danielle: And then once we have budget, we have budget to actuals, the very last step that we go through and then we cycle into a monthly process of doing all these things is cash flow because cash is king and at the end of the day and we kind of started off here. So we come full circle. Money is what makes or breaks, so we want to make sure that we can forecast cash flow.
And what you are going to get if you look for cash flow in QuickBooks, is it a cash flow statement that most accountants don’t [01:02:00] even like to look at. It is complete gibberish to every business owner I know because it talks about direct and indirect and operating and it doesn’t speak in the language we can understand. So when we build a cash flow forecast, we do it in Excel or Google Sheets, if that’s the preference.
We take the budget and we take what the budget is forecasting. So you got to update it every month, just like your budget and we layer in the timing. So if you’ve got a traditional 60-day turnover, we’re going to say, okay, this is what revenue was in October. That means that’s going to be cash in December. We want to know when is the cash actually going to hit and we make it look just like a budget. So you’ve got sales. You’ve got the cost of goods sold. You’ve got all your other expenses, which is almost always sitting on somebody’s credit card, which means it’s actually going to get paid next month because your credit card hit this month, but it’ll pay next month. So just layering in those timing components.
And [01:03:00] then your budget because it’s built on a PNL is never going to show you your debt payments, so it’ll show you interest, but it won’t show you the paying down of the debt on the principle. It’s never going to show you savings, whether that’s for operations or for taxes because my goal is for everybody to be profitable. And if we’re profitable, we’re paying taxes. So we don’t want that to be a surprise. And it’s not going to show you profit distributions, which you may call owners draws owners distributions. I like profit distributions because I want it to come out of your profit. But all 3 of those are an important component of running a sustainable business.
So, when we do our cash flow forecast, we take the budget, we layer those components in and we make sure that we’re going to have enough cash to keep things going.
Dr. Sharp: I love this. I think about numbers and finances a lot and have chatted with a lot of folks about numbers and finances, but [01:04:00] the way that you approach it you make it sound very easy and very straightforward. You know exactly what we’re going to do. It’s very comforting. So I appreciate that.
Danielle: The easier it is, the more accessible it is to everybody. Our mission is to bring this kind of information to every business owner that deserves to be able to be profitable and sustainable and not have to stress and worry about where things are coming from and where they’re going.
Dr. Sharp: It’s reasonable. Like you said, going back to the beginning, I think we do really good work and we help a lot of folks, and the lack of business and financial knowledge is driven more than a few people out of our field. And that’s a shame. The more knowledge that we have out there and more folks to help us out, the better.
Danielle: And the more you get to help.
Dr. Sharp: Exactly. There we go. Well, I know folks are probably super [01:05:00] interested in learning more about what you do and this program or framework. Tell us how to get in touch with you- how people can reach out.
Danielle: We will have a landing page just for you guys. It’ll be 4cornerscfo.com/drsharp, and it’ll have information there. You can book a consult call. You can get on our email list. We’ll have some freebies you can download and check out and put some of what we talked about into practice.
Dr. Sharp: Nice. I’ll definitely put that in the show notes so that folks can access it. Thank you. This has been great. The time went by really fast and I feel like we could talk about a million other things for a million more hours, but this is great. Thanks for bringing your time and expertise to the podcast.
Danielle: Thank you so much for having me. Like I said, just the opportunity to get to talk about these things and get people thinking about the numbers, I’m on a mission to get more people [01:06:00] engaging and talking about their finances.
Dr. Sharp: Well, this is a good step in that direction. I really appreciate it.
Danielle: Thank you so much.
Dr. Sharp: All right, y’all. Thank you so much for tuning into this episode. Always grateful to have you here. I hope that you take away some information that you can implement in your practice and in your life. Any resources that we mentioned during the episode will be listed in the show notes, so make sure to check those out.
If you like what you hear on the podcast, I would be so grateful if you left a review on iTunes, Spotify, or wherever you listen to your podcasts.
And if you’re a practice owner or aspiring practice owner, I’d invite you to check out The Testing Psychologist mastermind groups. I have mastermind groups at every stage of practice development, beginner, intermediate, and advanced. We have homework, we have accountability, we have support, we have resources. These groups are amazing. We do a lot of work and a lot of [01:07:00] connecting. If that sounds interesting to you, you can check out the details at thetestingpsychologist.com/consulting. You can sign up for a pre-group phone call and we will chat and figure out if a group could be a good fit for you. Thanks so much.
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