Maximize Business Value Podcast
Maximize Business Value Podcast
Susan Bryant, CPA - Is Your CPA a Trusted Advisor? How CPA's Help You Maximize Business Value with your Finances (#22)
Is your CPA a trusted advisor to you? They should be. In this episode, I'd like to welcome our guest Susan Bryant, CPA, who is a principal at the MB Group, a CPA firm, based in North Texas. I met Susan a few months ago in a professional networking group called ProVisors. Let me start out by saying that not all CPAs are cut from the same cloth. Some are bookkeepers, some do taxes, and then there are some who really look at accounting as a calling to help their clients be better. They take a surrogate CFO role in the businesses they serve, and they truly are trusted advisors. That’s how Susan and the MB Group work. I network with lots of CPAs because they are typically close to my prospective clients - business owners. I explain what we do, and offer my services for their clients thinking about transitioning their business. Susan is the first CPA who, after hearing what we do at Mastery Partners, who said “oh my gosh, my clients really need your help!” She really understands why every business owner needs to have a solid exit strategy. Want to watch our live webinar with Susan? Email Tom at tom@masterypartners.com and we will send it to you.
You can also check out our live webinar we did together here or to watch us on video, you can find us on the Maximize Business Value youtube channel along with many other resources.
Building on her experiences as an auditor, Susan Bryant, CPA works with clients to bring efficiency and discipline to the accounting function in their businesses through the use of our outsourced services. She thrives in crafting personalized and innovative strategies that allow business owners the freedom to dream big, focus on growth, and plan for taxes. As principal for MB Group, Susan has helped MBG to steadily grow to serve over 600 business owners, solopreneurs, and high net worth individuals. Outside the office, you’ll often find her in the kitchen cooking up a new recipe or running to keep up with her two teenage daughters.
Tom Bronson is the founder and President of Mastery Partners, a company that helps business owners maximize business value, design exit strategy, and transition their business on their terms. Mastery utilizes proven techniques and strategies that
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Tom Bronson is a serial entrepreneur and business owner. He is currently the founder and President of Mastery Partners, Mastery Mergers & Acquisitions, and the Business Transition Summit. All three companies empower business owners to maximize business value and serve business owners in different capacities to help them achieve their dream exit. As a business owner, Tom has been in your situation a hundred times and knows what it takes to craft the right strategy. Bronson is passionate about helping business owners and has the experience to do it. Tom has two books to help business owners on their journey to a dream exit: "Maximize Business Value Playbook," (2023), and "Maximize Business Value, Begin with the EXIT in Mind," (2020). Both are available on Amazon.
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Welcome to the maximize business value podcast. This podcast is brought to you by Mastery Partners, where our mission is to equip business owners to maximize business value so they can transition their business on their terms. Our mission was born from the lessons we've learned from over a hundred business transactions, which fuels our desire to share our experiences and wisdom, so you can succeed. Here's your host, Tom Bronson.
Tom Bronson:Hi, this is Tom Bronson and welcome to maximize business value. A podcast for business owners who are passionate about building longterm sustainable value in their businesses. In this episode, I'd like to welcome our guest Susan Bryant, who is principal at the MB group, a CPA firm based in North Texas. I met Susan a few months ago in a professional networking group called Provisors. Uh, now let me just start out by telling you that not all CPAs are cut from the same cloth. Uh, some are bookkeepers, some do taxes, and then there are some who really look at accounting as a calling to help their clients be better. They take a surrogate CFO approach in the businesses that they serve, and they are truly trusted advisors. That's how Susan and the MB group work. Now I network with a lot of CPAs because they are typically close to my prospect clients. So business owners, I explain what we do and offer my services to their clients, uh, who are thinking about transitioning their business. Susan is the first CPA who after hearing what we do at Mastery Partners said, Oh my gosh, my clients really need your help. She really understands why every business owner needs to have a solid exit strategy. So welcome to maximize business value. Susan, tell us about MB group.
Susan Bryant:Hi Tom. And thanks so much for having me on the podcast today. So the MB group is a certified public accounting firm. We're based out of Plano, Texas. We provide accounting services and tax services to business owners. Um, and one of the things that really, um, we focus on a lot is helping to business owners to develop solid accounting policies and procedures so that they are getting timely information so that they can end up building their business more successfully. And then we take that information and all of those profits and we find, um, and employ very strategic tax, uh, plans to reduce and minimize their taxes.
Tom Bronson:Minimize taxes. Gosh, no business owner wants to do that. Do they?
Susan Bryant:Surprisingly, it's their number one complaint.
Tom Bronson:Yeah, exactly. So, so what is your background and why did you become A CPA?
Susan Bryant:Well, I am definitely a different kind of accountant. So I originally started off my career as an internal auditor with a degree in marketing. Um, everybody says, Susan, how did you choose accounting? Right? Um, so it's not every day. You get a CPA who is a marketing major. Um, but I really, um, became a lover of accounting when I studied for the CPA exam. And I really learned about how powerful, uh, what it is that we can do for business owners. And so, um, I became an, uh, I started to work for a very, very small accounting firm in Denton, Texas, um, where it was me and two partners. And I basically got to learn and do everything. So I've done taxes and compilations and audits and reviews and, um, tax preparation. I'm you literally name it, I've done it. And so, um, it was really there that I, um, sort of understood maybe the holistic approach that needs to be taken when we start servicing clients. It's not just one thing we need to look at. It's so many things,
Tom Bronson:Taxes and accounting and audits. Oh my,
Susan Bryant:Yeah,
Tom Bronson:I think, I think we need to spend some extra time and maybe come up with a new tagline for MB group, maybe a jingle. So for those of you who may not know this, Susan and I did a webinar a couple of weeks ago where we highlighted 21 of my favorite things business owners can do to maximize business value. You can find that webinar on our YouTube channel, which is called ironically maximize business value. Uh, today I want to focus specifically on the things that our listeners should do to maximize their business value in finance and accounting. So I say that, I say that business owners should really require and, uh, and review their financial statements by the 15th. You agree with that?
Susan Bryant:Absolutely well, because you need information to run a business. You just can't make decisions about cutting costs, managing a revenue, u m, setting expectations, really holding people accountable for what's happening in the business. If you don't, if you, yourself, as a business owner are not setting up those policies and procedures to ensure your accounting information is being produced timely. So you g ot t o have the information to make the decisions. I t's all there is to it.
Tom Bronson:I'm really alarmed by the number of, uh, clients. When we first engage that really don't get monthly financials at all. They don't look at their financial statements until year end. You know, a financial statement in my opinion is a history book, right? We can't rewrite history. It is what happened. But the earlier that you have that, in my opinion, the faster you can react and potentially make changes that can impact the outcome in the month that you're in. And if you don't get your financials until the 20th, you've got 10 days left, you know, do you, do you advise clients to get them even faster than the 15th if they can,
Susan Bryant:In a lot of cases? Yes. I mean, there are some clients where we're producing them by the six to six business day. So I mean, it's, it's fast and it can be, but it really, um, in a lot of cases, what happens is, is that you have to have procedures and processes that are not people dependent. They have to be organized and orchestrated in such a way that they, they basically hum. And, and, and in a lot of cases, there's just not a lot of resources that are put into accounting. It's viewed as a cost center, not as a profit center. Um, it really is an opportunity center, um, as the way I like to think about it. So, um, there really has to be an emphasis on that. And so I think the business owners who dedicate the appropriate amount of time and resources to making sure their accounting is right, they often find the greatest success.
Tom Bronson:I'm just making a note cause I love that it's not a cost center, not a profit center. It's an opportunity center. I'm going to steal that from you.
Susan Bryant:All right. All right. Well, I'll, I'll, I'll send you an invoice for my royalty fees.
Tom Bronson:Oh, perfect. So, uh, well, yeah, I'll let you know. I'll let you know what it makes it into my next book. Um, so, so, um, you know, a lot of business owners push back on that, on having it by the 15th cause, Oh, I just don't have enough people in place. I don't have that. You know, my, my story is when I owned a sizable business CEO of a sizeable business that had multiple different operating units, our finance team, by the way, our finance team was four people. Uh, and we were a solid middle market company. I mean, we were very lean and mean, but we produced our CFO produced preliminaries by the fifth, uh, so that our, our GMs of our different business units could react and ask questions and finals by the seventh, no later than the eighth, uh, because I needed that data in order to make decisions. And so, and by the way, when I first bought the company, you know, financials were done, you know, by the 20th or by the end of the month, but it's all about just putting the right processes in place. And you can do that, uh, if you really think about it and think about eliminating. So even though we're not talking about processes much here today, that's, that is an important point to building value
Susan Bryant:And leverage technology. So you're right. You can do it with four people. You could probably do it with less now because technology is your friend. So, um, but it takes an investment of time and leadership to really guide and direct the accounting processes so that they are very seamless,
Tom Bronson:Very much, very much so. So I think that, uh, eventually Businesses should have their financials reviewed and even audited. Uh, that's a, that's a hard pill for some business owners to swallow. So first maybe give us, uh, the difference between a review and an audit and tell us a little bit about the benefits of having, uh, the financial statements reviewed and audited.
Susan Bryant:Sure. So, well at assurance, engagements are definitely a lot different than regular accounting services. So when we start talking about assurance, there's three levels of assurance. There's a compilation, that's no assurance, it's a review limited assurance, basically no material departures from gap. And then there's an audit, which is bullish for it. So these financial statements are in accordance with gap. So, um, in a review there, um, the auditor is not necessarily, um, looking for, uh, or testing your controls. They're looking for more, um, analytic, uh, procedures that are performed. What are the differences between last year and this year explaining those changes, especially on the P and L side of things. Um, and the balance sheet, really just kinda making sure that everything makes sense with what's happened in the business on an audit. It is a lot more involved there's tests to controls there's substantive work that has to happen. Um, there's fraud questions that have to occur. Um, it is, uh, a deep dive into is everything happening in your business, the way you say it's happening and does the documentation prove it? And it is edited lengthy process, and it is usually painful the first year, very painful. Um, and you will learn a lot about the things that you're doing right in your business, the things that you're doing wrong in your business and the ways that you really need to improve in order to, um, have a more successful and streamlined audit in the future. So in terms of benefits, so the review in the audit is great. Um, from a user standpoint, especially the larger your company becomes the users of your financial statements, want assurances, that the information that they're looking at is right. I mean, I can't tell you the number of times I've received, uh, a printout from, uh, a client, just a QuickBooks print out, and you look at it and you're like, okay, well there's a negatives and the liability accounts, I know that's not right. I mean, there's all sorts of problems in there. So, you know, when you're looking at a set of reviewed or audited financial statements, that there has been the appropriate measures taken to ensure that to some degree they're limited or full, that the financial statements are accurate. That's what you're after as a user of a financial statement, is this right? Should I trust it?
Tom Bronson:So I, you know, frankly, that's a great point when, when you go to sell a business, having audited financial statements, you know, basically as a stamp of approval that these are right,
Susan Bryant:they are right.
Tom Bronson:I think that that improves longterm value, but a lot of companies, and I tell you, in some of my own, I've made mistakes like this before waited until I had a business doing, you know, 25 or$30 million and very complicated before we decided to audit. And it was like having a root canal every day for like, you know, nine months. Uh, and, uh, and, but the year after that, it was much easier. So, so I suggest, uh, to our, to our smaller clients, like if you're getting up$10 million range, you probably do ought to do the audit. Now it's going to be painful, but it's not going to be as painful as it will be when you're 50 million. Uh, and then you got processes in place, right? I mean, does that make sense? Yeah,
Susan Bryant:Totally. Absolutely. I could not agree more. I think that really is sort of a magic number right around 10 million. Um, and it gives you enough room, um, yesterday, you know, you don't have the same level of bureaucracy and you're not as slow. You're a lot more agile still at that revenue level where you can make those necessary changes and you can move into different, you know, altering those procedures and processes, but yet you have the manpower to make those things happen. So that's, uh, that's a really great number to be at right there in terms of getting it an audit.
Tom Bronson:Excellent. Excellent. So we're talking about a you in their prior answer, you were talking about, uh, uh, investing in the right people and making sure you have systems in place. Uh, we say that you should never under investigate, uh, uh, under invest in your accounting and finance team or your accounting system. Uh, now I'm going to just go out on a limb here and say that I bet you would agree, but when should a company evaluate and reevaluate their accounting system?
Susan Bryant:Well, it depends on the business. Certainly I will tell you any, anybody who is involved in manufacturing, that, that has gotta be something where you, if you are starting off, let's say in QuickBooks and your company is growing. So probably somewhere around four or 5 million, maybe a little less than that. You're probably looking, I need to make a switch to an ERP system. It's unsustainable in a very tiny little program. You're just going to bandaid the system so badly. You'll never get it to, uh, the information that you need in order to really run things, or you're in constantly be making adjustments along the way, and you're wasting your time. So that was sort of be my recommendation on the manufacturing side. Um, certainly in other types of businesses like professional services, software consulting, things that are maybe more service oriented, you can last a little longer sort of your beginner programs. Um, and that might be sort of maybe in the more eight to 10 million, you might say, okay, I really need to start getting into a more sophisticated way of doing things. Um, and you maybe thinking about job costing, maybe allocation of salaries, you're really starting to think more about the big picture in terms of profitability. And so there's other drivers that are pushing you to that ERP system. So, and then efficiencies as well. Um, and then construction would probably be a whole nother animal because I mean, not job costing from the very beginning is so important. So, um, and those, those dollars can get really big, especially for any type of GCs. So, I mean, they start off with having really large demands on their accounting systems.
Tom Bronson:So I guess that it really depends on the industry that you're in is what I'm hearing. And, and if I kind of read between the lines, it's where your pain points are. If you have to do a lot of manual things in your system, perhaps there's a system that can help automate some of that. And, and even though it might be an expensive upfront, it could lower your costs long term. Is that, is that a fair receipt?
Susan Bryant:Oh, absolutely. You on a lot of times I'll walk into a client and we've got, you know, you've got a CRM sitting on top of QuickBooks. We also have an inventory module sitting on top of QuickBooks. We've got, you know, you've got sort of the payroll piece. I mean, you've got all these different things. And as we, I mean, you know, Shopify is syncing. All these different things are syncing into this. It is unsustainable to have that many different types of programs. And I mean, just think about hiring somebody and bringing them on board. I mean, okay, well, let me tell you about the 27 programs we use in accounting. I mean, it's too hard. Um, so, and at that point you really have to start thinking there must be a better way to do this.
Tom Bronson:Right? Right. So evaluate your system, uh, on a, on a regular basis or when you start seeing those pains. So one of my favorite things, uh, that business owners should be doing to improve long- term value is to complete a budget before here in. So look, I've been guilty of this one in the past. I, you know, I had businesses where many years we were actually doing the budget sometimes in the second quarter of, of the year that we were writing the budget for. And I recognize that there are some other schools of thought on budgeting, Charles Koch and his great book, good profits says that you shouldn't budget. But I, I disagree with that. I'm now he runs, he runs a multibillion dollar international corporation and perhaps they've got systems in place, uh, otherwise, but I think for small businesses, they really should budget. What do you, what's your opinion on budgeting?
Susan Bryant:Yeah, I think it's good for them to actually apply some type of thought to the future. Right? I mean, this is sort of, probably to me, this is probably the area where business owners struggle the most because they don't have any time to step back away from the daily emergencies and fires. They're putting out to really say, where am I going and why am I going there? And how am I going to get there? I need to set some goals and need to set some parameters. I need to have a way to measure my, what I felt was going to happen versus what I wanted it to happen versus what actually happened. So I, I think it's a good idea to do it. I think for small businesses, it's probably going to be a little looser, maybe not as regimented, you know, it's not going to go through, you know, eight committees to get to, okay, well, this is what I think the budget should be. Um, but I do think it's a good idea for business owners to be applying some routine thought to the future, dreaming big time is what I call it. What do I want? You know, and where am I gonna apply the resources in my company to get what I want? There should be an ROI to everything I'm doing. How am I going to spend the money? I, those are the types of things that the business owner, you know, is directing they're leading the company to that end. So they should be, they should be setting forth the expectations.
Tom Bronson:I love that. I really think about a budgeting time as the time to be reflective. You know, look, if you've got good growth, you've been growing, you know, 10 or 20, maybe 30% a year. Uh, there comes a time when you have to think about, okay, what do we have to do in order to sustain that growth, right. And what things do we need to change? And when you, when you're writing a budget, you know, the top line is the, the income, the revenue line, um, it forces you into a strategic thinking process to make sure that you've got the products and services that can deliver another 20 or 30% in the, in the coming year. So, so I'm hearing that, uh, the budgeting is a good process. What do you think about, uh, business owners? Should they share the budget and hold their managers accountable to a budget?
Susan Bryant:You know, depending on the size of the business, you know, in a lot of cases, it just really depends on how big of business we're talking about. If they don't have managers, they get to hold themselves accountable. So they just gotta, they gotta be looking at this stuff and comparing. Um, but if there are managers who are responsible for certain types of things in their business, marketing, sales, marketing, operations, whatever, the, you know, HR, whatever. Um, yeah, I think that they, um, they need to be training those individuals and grooming them to take on additional responsibility as their company grows. And the only way to do that is to educate them on the financial aspect of it. So we can never deprive anyone of that understanding of the financial piece of running the business. Otherwise you're truly not. And helping them to help you grow the company.
Tom Bronson:Yes. I think managers should understand the financials. You know, I used to think about budgeting as a process to make my next year easier because I did have a good management team. And of course they all participated in the budget process, but we had those discussions and arguments and, and, and back and forth and wrangling about how we were going to invest in the, in the coming year, before the coming year started. So we might make a decision that we're going to invest a quarter of a million dollars in this or$50,000 in that in Q two or Q three of the following year. To me, it eliminates all of those conversations in Q two or Q three, if a manager comes and says, Hey, it's time to pull the trigger on the thing we agreed on. Can we do well? Yeah, we already budgeted. We already had this conversation. So go, you know, as long as we're tracking, according to our plan, then yeah. It's time to make those investments. Don't don't bother me.
Susan Bryant:Right. Right. I agreed. Yeah. Like, go ahead and get your job done.
Speaker 1:Yeah, exactly. So we're talking with Susan Bryant. Let's take a quick break. We'll be back in 30 seconds,
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Tom Bronson:We are back Susan Bryant principal with the MBA group of CPA firm in North Texas. And we're talking about things that you can do in finance and accounting to maximize your business value. So Susan, so many times small businesses, don't take the time to properly recognize a crew and relieve assets and liability. So in a nutshell, why should our audience take a hard look at that? If they don't do that already,
Susan Bryant:Because it is impossible to calculate performance without those things. And when we are talking about the value of a business, or even running a business, we have to look at performance performances, profit, and or loss. And so that's how you, that's why it's important to have accounts receivable, how much money did I earn? So it, perhaps you have stuff you've built, but it's not revenues and you have deferred revenue. So you have to understand how much money you're actually earning and how much money you're actually spending, whether or not you've actually spent it or not, or received the cash or not. So, um, it is important from my perspective to have all those necessary accounting rules in place so that you can truly understand the performance of your company,
Tom Bronson:You know, and it's, I think to me, it goes back to that whole, uh, systems and processes in place. It's not that hard if you set up processes to do this stuff, right. Um, that's, that's my opinion. You know, if you're buying assets, uh, uh, set your threshold and, and determine if they're going on the balance sheet or if they're, if you're going to expense them, uh, and then treat Them properly, track everything, make sure it's relieved properly. But, but one of the keys, especially in small business is properly recognizing revenue at the right time. Um, I bought a company one time. That was, that was invoicing clients when they got a deposit, but it was taking them 60 to 90 days to fulfill that order. And I'm looking at their AR and I'm going, man, this is out of control. What is going on with the AR uh, well, no, we, we bill it, you know, when we get the order, I said, well, that's not, I don't think that's appropriate accounting,
Susan Bryant:Right? That's not revenue.
Tom Bronson:I don't think it counts as revenue. And till you actually ship the product, I'm not a CPA, but I could be wrong.
Susan Bryant:Yeah. Well, and in a lot of cases, you'd be surprised at the number of times that people are actually billing for things and collecting the money, even, even if it is a deposit is refundable. And so they end up paying taxes on something that they really shouldn't even have to pay taxes on because on a cash basis, if it's refundable as a deposit, you don't have to pay taxes on it yet. So I mean, even some other side of things. So it's really just a matter of sort of doing a deep dive. And a lot of times when I started working with a client, one of the things we do is we just say, let's go through every process. Let's start there. Let's start with the revenue cycle. You get a customer, what's it look like all the way through, okay, you get a new vendor, you're buying something new. What's that look like all the way through you're hiring an employee. What's it look like all the way through the process so that you are going literally from the beginning to the end, understanding all the different components of that. And a lot of times those things get revealed like, well, wait a minute. That's not quite right. And sometimes the business owner doesn't even know that those things are happening. They're not even aware. They're like, wow, I'd had no idea that was happening in my business.
Tom Bronson:Right? Yeah. Unless they, unless they're active, you can't, I mean, the bigger a company gets, the harder it is to be involved in everything. Right. You've just got to bring in other people and then things wind up not being the way you intended sometimes. So I got to have those processes. So now, speaking of things that you should take a hard look at how frequently should a business owner examine their tax filing status?
Susan Bryant:Hmm. Yeah. That's um, well, definitely any time the law changes to see what is more favorable. I mean, so we have frequent, you know, changes in the IRS, um, internal revenue code. And so it's always a good time to look at it when those laws change, um, like a 2018 tax reform, the tax cuts and jobs act. We have the, you know, the creation of the section one 99, a qualified business income deduction, the flat tax, you know, on the C Corp's at 21%. I mean, it's times like that, where you say, wait a minute, let me take a look at what I'm doing right now. Um, so definitely then, um, I think that there are a few times, so if you are starting a business, you should definitely look, if you start making, let's say between 150 and$200,000 in net income, that's the time to start looking at it beyond that?
Susan Bryant.:Um, I would definitely say, um, probably in the$5 million range is when you, at that point, you're saying, okay, I need to be planning for the future. What does that look like for me? Um, am I potentially going to be taking one subject to, for private equity? Do you want me to be considering some type of C corporation transition? You know, what is the trajectory of this company? Is it a I'm going to buy it and sell it, you know, and Tom, you're going to help them do that. And they're just going to take the cash and they're retired, or is this a, Hey, I think I can take this thing public, you know, what, what does that look like? And so, I mean, those are different forms, um, organization, uh, structures that really sort of just accommodate each type of business.
Tom Bronson:Yeah. I, you know, one of the, uh, I love those triggers. You know, I had a, I had a great example. I was selling a company, uh, in early 2018. We were negotiating it of course in 17 when they, what, what was the law in December of 17, the tax and the job.
Susan Bryant:Yeah. The tax cuts and jobs act. Yeah.
Tom Bronson:The Tax cuts and jobs act. Right. So, but when we were actually selling our business as an asset sale, the good news is we did have, uh, NOLs, we were a C Corp. Um, and we had NOL, however, with that tax law change, it delayed the acquisition because the buying company then re-evaluated, they were going to get a tax advantage, uh, with the new law to buy it, to buy stock as opposed to an asset purchase. And it worked out great for everyone involved, but, you know, uh, I, I typically tell business owners that they, you know, certainly during any of those events, they should, they should have that conversation with their attorney and their CPA to make sure that they have the most efficient, uh, tax status, but certainly five years, at least five years before they're going to transition their business. They should have a hard look at that because there is something known as a look back, if you choose that as to get a tax advantage too quickly, and then you have a transaction, the IRS can reverse the advantage. Is that right?
Susan Bryant:That's true. Yeah.
Tom Bronson:,So, so I say, you should look at that at least five years, uh, before you go cause then five years, you know, there's, uh, there's no question, but, uh, now, and is, is it, I hadn't really thought about this cause, you know, you might be surprised I don't spend my life thinking about accounting and tax issues, but, uh, but, but it's a big, important part of what we do, but is it possible that you, that you may have, uh, a more tax efficient method and you need to change to potentially a less tax efficient method before a transaction because of the big benefit you'll get at the transaction. Does that make sense?
Susan Bryant:Um, possibly. So it, it really sort of depends on the structure of a deal and a lot of cases. So I mean, like we were just meeting with a client this morning talking about, okay, well, what, what kind of assets do I have? You know, if, if I've got a significant amount of, let's just say accounts receivable and inventory, but not a lot of Goodwill. Well, that's going to create ordinary income and less capital gains. So I mean, maybe being in an entity where the ordinary rates are less, maybe more impactful to me. So, um, and it really just depends on what am I doing with that money in the future as well. So if there's going to be continuing line of business, if this is, there's just so many different components here,
Tom Bronson:All right. Yeah. I knew there wasn't going to be any, uh, super easy answer.
Susan Bryant:Maybe the thing is, is maybe, and I will say that probably the thing that fascinates me the most and something I say all the time is there are so many ways to slice and dice things. We, of course, all within the realm, especially on a tax perspective of the law is what is allowable, what is required, but we must first begin. We had sort of, well, what could we do, right? What do we want to happen? And then we talk about the parameters within, we have to switch, we have to operate. So that's sort of where I like to start is, well, what could happen? And is that possible?
Tom Bronson:Awesome. Yeah. I started with our, with our clients about halfway through our process of the work that we do, you know, we try to define what is the ideal outcome. And I would imagine that if they could articulate that to you, you could then get more specific about, um, their, their tax status and how efficient they can be one way or the other, if they can articulate that.
Susan Bryant:I mean, and there's business owners all the time. I mean, we just talk about, I mean, whether it's, we're talking about transitioning to sell, even just trying to save money now while we're running the business. I mean, that's an important thing to think about as well. So, I mean, which allows the cash to be freed up to spend on other things like improving the value of the business resources, other things that could really, um, can accelerate growth and performance. So, um, it's always important to save tax dollars. So, so the important thing is go talk to your tax professional because lots of different ways don't be shy. If your tax professional is somebody that you talk to once a year, then, then maybe you should engage in more frequent conversations or perhaps you need to go find a new tax professional, someone like Susan. So that's right. So one of the biggies that I say for maximizing business value as identifying and tracking two or three key financial metrics, now it's not limited to finance. I think you should have two or three key metrics in every department, sales, marketing, operations, finance, you know, uh, corporate governance, uh, whatever. Uh, do you advise your clients to track KPIs or key performance indicators? And if so, can you give us a couple of good examples that might be a place to start for our listeners that don't have KPIs? Yeah. So KPI's are like chicken soup. It couldn't hurt right there. Um, but I think it, you know, for a lot of business owners, that's really sort of narrowing in on those things that, Hey, this is really, um, this is what I need to know in order if I was just, you know, the, the good old 50,000 foot level, what is it that I need to know to make sure that we're on track? Right. So I definitely think one of the areas that business owners don't spend enough time is just looking at gross margin. Um, whether that breaks down by line of business, by product overall gross margin is something that alludes a lot of people. Um, and you know, it sort of goes back to the whole, what do I want to work if I'm not making any money? So top line revenue is only is only good if you're actually getting profits out of it. So I would definitely encourage business owners to find a way to measure and manage gross profit. That's definitely a big one for me. Um, and then I think it's also important to look at revenue growth rate. Um, I think that's an area where business owners really want to their businesses to Excel. They are really focused on that. I mean, I can't think of a business owner right now who, you know, you've asked them, do you want to grow? And they say, yeah, I want to grow for sure. So I think that, that I have a way to manage that, um, and make sure that they're tracking that and investing the appropriate resources to that end. Now, those are just two, there's probably, there's a million more, uh, you know, ratios and other metrics that can be used. I mean, and really it boils down to what it may be, what the areas that you're struggling the most and where are you selling the most? And if you're struggling, identifying those ones where you can sort of see progress moving from point a to point B and improvement, and then keeping your eye on the ball and the ones, you know, that are, you know, you're doing well at making sure they're staying high and not sacrificing to achieve success in the other areas.
Tom Bronson:Yeah. That brings up an excellent point that, um, that there's really not necessarily, it's sort of related to KPIs, but I think you should be able to run a financial statement, especially by major product categories and or customers and or sales reps. Um, because you know, one of the practices that that is, um, uh, just mandatory, I think for building longterm value is to figure out what your unprofitables, what, what are The things in your business that are not profitable and eliminate them, or figure out how to make them profitable? You know, I had this conversation with a client, um, last week where, um, where they were, were really struggling with, they've got two major lines we already know intrinsically, uh, or that, that one line is just driving everything for that business. And the other line, um, is, is it's not, we don't think it's profitable. We don't think it's, um, uh, doing well. And I just tossed out the idea of what if, what if we just get out of that business? You know, what, what if we're not robbing the profits from here to put over there and light bulb started going off? Oh my gosh, maybe we should really look at that. And, and, but the, but the point is is that if you don't have a way to measure that, then you can't fix it. Right. And so, so I say, look at those things, and that to me is what KPIs are. They are kind of the, it's kind of taken the, you know, when you go to the doctor and they're taking your vital signs, right. KPI's are your vital signs. They don't tell you how to fix problems typically, but they can at least point you in the right direction of problems. And so, uh, so I think that's huge importance. What do you think about doing P and L's by, by product category or by, by customer, things like that?
Susan Bryant:Yeah, absolutely. And I think a lot of the times, um, again, it's dedication of resources and creation of accounting policies and procedures that allows you to get that information. So it's garbage in garbage out. So if you are not taking the time to create a methodology that allows you to produce those types of reports, you'll never see the data and you'll never be at a manage it. So that level of granularity. So you really have to think about what it is you need, what information you need to have on a financial basis in order to guide the company. So that can take various forms, you know? So yeah, by departments, by divisions, by customers, you know, whatever that is, all those inputs into the accounting system have to be mirrored in that manner. So you get the information you need and you want,
Tom Bronson:There you go, and you can only manage it if you have the info. Right.
Susan Bryant:That's right. Yes, exactly.
Tom Bronson:So let's change gears for a second, because I hear from a lot of small business owners that they just hate having debt, uh, that it makes them nervous when they have debt that they don't like to have that even though, even though their businesses is profitable and well run. Um, and, uh, while I agree that it's important to minimize that debt, don't get over leveraged, right? How do you advise your clients regarding debt and financing?
Susan Bryant:So I like debts when it's associated with growth. When it enables you to seize an opportunity when the expected rate of return on the debt is going to exceed the interest rate. So I mean, taking that money and using it in my business is going to do more than it's going to cost me. I mean, now that's a sophisticated calculation and the sophisticated approach. Um, I think one of the other things that you know is often not considered, but should be, is, is that when debt is taken on what is being purchased, what are we dealing with this? Is there a tax benefit? What are the internal benefits? How does it benefit us financially? How does it enable my people to work faster and not as, as hard? So, I mean, like, I think all of those different qualities really need to be evaluated. We're talking about what is the debt going to achieve? So it's not just, I'm going to take out debt. I will always advise clients do not take out debt and then distribute it to yourself. That's a bad idea,
Tom Bronson:But that's almost like an easy segue into my next question.
Susan Bryant:I have seen it, but I would advise against it.
Tom Bronson:Yeah. Yeah. You know, when you, when you do take that debt and you wind up with more cash on your balance sheet that you've ever had, don't be a drunken sailor. Right.
Susan Bryant:Right, exactly. That's right.
Tom Bronson:So, so you, you touched on something that, uh, that is kind of related to, uh, another question I'd like to ask you about before we wrap up here. Cause we're, we're running along with, this has been a hugely entertaining and valuable information. I want to talk for a few minutes about discretionary spending. So most small businesses have some kind of discretionary spending. We advise our clients to relentlessly track that discretionary spending and document it. And at least two to three years before a transition event to minimize that discretionary spending. So what's your advice regarding discretionary spending?
Susan Bryant:Yeah. So it's like the, just stop it, just stop it. So, well, a couple things. So first off, I mean, a lot of times I will get engaged by a client and I will take a look at their books and their, their business bank account is basically their personal piggy bank. And in my mind it raises a couple of things. So first off we just got real blurry here on what's business and what's personal and now we've got to account for it. We've got to take all this time to track your personal spending. I mean, it takes person at person time to enter all these things of the accounting software. So you're eating up, you're spending more money to keep track of your personal stuff that you can't even deduct. So just stop it right. Just quit doing it. The other thing is, is that, you know, if you were involved in some type of lawsuit and, um, you know, there, there could be a perception that it is essentially you as an extension of your business. And so you lose the benefits of whatever corporate protection you think you might have. So, and I'm not an attorney, but that's what all the attorneys telling me. So again, just stop it. Um, then, then we get into the conversation about, okay, well, I don't want to pay a lot in taxes and you know, I do have to incur all these expenses, you know, to run my business. You know, if I wanna, you know, I travel and I gotta to go check out new deals and I need my card. Okay. I get it. You definitely want to reduce your taxes as much as possible. No doubt. I totally understand that. But if it is muddied and blurry by all the other noise of this personal spending, then what happens is, is that we were essentially just creating a big mess during a due diligence process to get back and unwind. And it is devaluing the business because now we've got this double edged sword, we're trying to drive down the taxable income, but we're also actually driving down the act, the actual net income of the company. So I would say at some point, you're just going to have to suck it up and pay the taxes when you're headed into a transaction like this, because it's worth the fact that you're going to streamline a due diligence and get more for your company rather than have to go through and fight over every tiny little transaction, because you didn't want to pay 37% taxes on it. So it's just, it's just easier.
Tom Bronson:Yeah. There's a, there's a misperception out there among business owners that, Oh, we'll just add all that stuff back, you know, at the end and that's, that's discretionary and they'll pay me for that. Well, probably not, you know, most sophisticated buyers are, uh, they, they get a, what I call, um, adjustment, fatigue, uh, and you know, okay, your car, your cell phone. Yes. But then when you're tacking on, you know, your, your lawn service and, you know, at home and your maid service and your blah, blah, blah, blah, blah, they just, they don't believe in at that point. And so you wind up thinking a huge haircut on those. Okay, you saved, you saved a 37% of whatever that was in taxes now, but you just gave up a million dollars in value on your business. That's an extreme example, but that's, that's kinda the, the thing that I think business owners should wrestle with when they're making them
Susan Bryant:Right. And the, and they're taking more risks than they should. I mean, do they really want to risk it? Is it worth it?
Tom Bronson:Yeah. So that, and that's right. That is a giant risk. And so, uh, so there are lots of CPA firms out there as we know. Uh, but I love the MBA group. Uh, what should business owners be looking at in a CPA firm and what sets apart? The MB group.
Susan Bryant:Well, I think if I was going to be going in search of a CPA, um, I would want someone who I feel like as an extension of my company, uh, who was truly a partner with me. So someone that I, I can sit down and I can talk to you about pretty much anything that's happening in my business, and that they're going to be a resource for whatever problem I need to solve. So that can be anything from HR to insurance to, I don't want to sell my company, where should I go? And you know, who did I talk to? So really find a CPA who you feel like is going to advise you and be your advisor, not a tax preparer, not a bookkeeper, an advisor to you and your company. So, and that's really what sets us apart. And that's really what I try to do for my clients is, you know, I want them to call me anytime about anything. I want to help them solve those problems in their business, whatever it is. So anything from creating a budget to, I need the creepy eyes. Um, my staff just quit. I need somebody to do the accounting. Okay, great. Um, I said those, those are the things that I think that set us apart and the things that we endeavor to be for our clients.
Tom Bronson:Awesome. Uh, and, and I couldn't agree more, I've talked with many of the MV groups, uh, clients, and, and it is a resounding thumbs up that, uh, that as I started this podcast, you know, I said that you really want a CPA who acts as a surrogate CFO, even if you have a CFO. Um, my CFO in my last company, um, but was, was very dependent on our CPA and, and turn to our CPA frequently for advice. Right. And so, so you just really want that somebody who's looking out for your best interests. So, so one last question, this podcast is about maximizing business value. And we've talked about a lot of things. What's the one most important thing you recommend business owners do to build longterm value in their business,
Susan Bryant:Get off of autopilot. So look at everything in your business, look at where your money is coming from, look at where your money is going. Look at your customers, look at what you're doing. Look at systems. I mean, be relentless in constant improvement. You know, self-introspection about where it is you're going, what is you're doing and get off of autopilot.
Tom Bronson:I love that. I love that I've, I've, uh, recently been in discussions with, uh, with a perspective client that's doing lean manufacturing and, and, you know, boil it down on lean is about con continuous improvement, right. Continuous improvement. And I love that. I think that is great advice, but you also know if you listen to our podcast and our listeners know this out there, that I always ask about this question right after I tell you, I've asked the last question, and that is what personality trait has gotten you into the most trouble over the years.
Susan Bryant:Oh boy. Um, well, I am far too outspoken, so, um, and I always tell people, you know, if you ask me for my opinion, I'm sure to give it so, but it can result in problems.
Tom Bronson:Awesome. Awesome. Well, I love that. I love that about you. So, uh, so how can our viewers and listeners get in with you?
Susan Bryant:Yeah. So I would love to hear from your listeners and viewers, you can call me at my office 469-865-1040 or you can email me at S Bryant that's SB, R Y a N t@mbgcpa.com.
Tom Bronson:Awesome. And you guys have a website M B G CPA, correct. Um, and so, so thank you, Susan. This has been a lot of fun today. Uh, thank you for being our guest. You can find Susan Bryant at mbgcpa.com, or you can also find her on LinkedIn. And of course you can always reach out to us at mastery partners, and we will be happy to put you in touch with her. This is the maximize business value podcast, where we give practical advice to business owners on how to build longterm sustainable value in your business. Even during challenging times like these, be sure to tune in each week and follow us wherever you found this podcast and be sure to comment. We love comments, and I promise we respond to all of them. So until next time, I'm Tom Bronson, reminding you to look at your accounting systems, think about your relationship with your CPA while you maximize business value.
Announcer :Thank you for tuning in to the maximize business value podcast with Tom Bronson, this podcast is brought to you by mastery apartments, where our mission is to equip business owners can maximize business value so they can transition on their own terms. Our mission was born from the lessons we've learned from over a hundred business transactions which fuels our desire to share our experiences and wisdom. So you can succeed. Learn more on how to build longterm sustainable business value and get free value building tools by visiting our website, www.masterypartners.com that's mastery with a Y mastery partners.com. Check it out.[inaudible]
Tom Bronson:I wouldn't make any changes on that.