Came back with a bank window down yelling now money anything hey oh got the foot on the gas pedal to the metal when I'm get to the back hey got the foot on the gas pedal to the metal when the lane moving fast hey Let them all cross if they hate then let them make a bigger balls.
Hey what is up ladies and gentlemen? We are back. We are live. It's the Frick Coach podcast, the top podcast in transportation coming to you guys every single weekday, 8:30am Pacific, 10:30 Central to break down some industry headlines. But most importantly, you guys provide some actual insight into what you can do with all of this information. I'm going to save the rest of the intro. You guys know exactly what to do with this one. This is my favorite segment of the month, you guys. It is financial Fridays because understanding financial literacy in your business is the literal most important thing. We're coming up on tax season. I already met with my cpa. We're getting a bunch of stuff all put together here for the 2024 tax season. With that being said, I got my man Sean Smith with denim back on the show.
Sean, thank you so much for joining me.
What is happening for you already? Senior CPA for tax season above and beyond.
I have to get ahead of that stuff, man, because you know, like contrary to what the Internet says, sometimes you pay a pretty decent amount in taxes as a business owner and couldn't it all aside and then you know, running through everything to make sure all my deductions were done properly and you know, I like seeing that number go down every single time I talk to him except for his invoice amount goes up. But that's, you know, that's irrelevant.
I was going to say if you follow everything on the Internet, you've got to open three LLCs and then move money all between them, open a credit card and then all of a sudden you're making money, dude.
Seven streams of income the average millionaire has. If you go out there and you. Gurus on the Internet. No, no, gurus on the Internet will tell you that. Ironically, the people that I know with actual net worths will tell you the exact opposite. They're like, I made my money doing one thing and I did that for a very.
The money is made in concentration, not diversification. Everybody knows that.
Diversification, I think came for most of those individuals after like a lot of money was made. But then ironically, all the diversification was vertical integr into their primary income source. So again, I'm not A multi millionaire yet. So I can't. Don't take financial advice for me at all when it comes to like diversifying your income. And I'm sure somebody's going to watch this and be like, Chris, you are.
On the Internet though. So I think we've all just got to recognize that you are on the Internet.
That is very true. Speaking of on the Internet, what were doing before we started the show is if anybody wants a good laugh, Google your birthday and Florida man after that and then that will give you the best headlines out there of the people in Florida. Florida is my literal favorite state on in the United States. It might be my favorite place on earth due to the absolute humor you get out of that state.
Nobody, nobody opened a credit card for me. But my birthday is September 16th. And so last year, 32 year old man from Lando Lakes stole a yellow school bus from Hillsborough county school district and took a Saturday night joyride in Tampa. That's my Florida man birthday headline and I amped about it.
I am extremely amped about mine. Same thing. Do not open up any credit cards in my name. My birthday is April 27 and it is around the corner. Dude. Yeah. Florida man was arrested after witnesses told police they saw him kicking swans while practicing karate. I. I get it, I get it. It's one of those times, man. Everybody needs to get their karate jam on.
Throw. Throw. Corey's comment up there. Corey's got a good one too. Arrested after pelting girlfriend with McDonald's sweet and sour packets. Unbelievable. And those hurt. I mean, that's the plastic container. Like that hurts. Like that's.
Oh my God, I love it.
And then got a mini pony. Mini pony action. No pun intended. That's.
Clark, that is extremely troubling. And not put your Florida man head, but put it in the chat.
We want to see it. We see your Florida man headline throughout the show.
Oh, my God. Dude.
Emily, where are you? No, you're watching. Put your Florida man headline in there, please, Emily.
B. B, are you watching? Please put your Florida Man. I know you got a sense of humor.
No, B, you don't. Yours. It's gonna be problematic for sure.
Yeah, I can't. Yeah, never mind. Sorry. Sean and I are just trying to have fun today on this Friday.
Listen, Spring has sprung in Massachusetts. I am feeling great. My favorite holiday two weeks away, St. Patrick's Day. Shout out to all my Irish people out there. We're. We're in it.
Wait, are you Irish?
If you wouldn't believe.
Yeah, How I. On a scale of 1 to O'Callaghan, how Irish are you?
I'm. I'm pretty close. My middle name is Patrick and I've got two grandmothers both from different corners of the great republic. So yeah, we're, we do corned beef and cabbage at my house and oh yeah, we have Irish cultural center right around the corner we go to that has a big celebration. Oh, it's a whole thing over here.
I am not Irish, but we have Irish twins in my family, so just putting that nice by association. Yeah, so by association I'm Irish from that part, so I'll just throw that out. You guys can google what Irish twins are if you want list.
Yeah. Listen to some Irish music. I know, I won't. I, I'm usually on towards the end of the month, so I won't be on for next St. Patrick's Day. So I figured I'd wish you a St. Patrick's Day while. Oh, there we go. Stephen. Nice.
Florida. Sam was driving recklessly as tells cops he needed to get home in a hurry because he was cheating on his wife. Oh my God, I love it. Florida. Blythe Blythe Brumley, Florida. It's Florida's finest right there.
Yeah, she's. Oh, she is. Jacksonville too.
Yeah, that's true, dude. Jacksonville is. I will say this and we'll get to the topic here eventually you guys, but Jacksonville and Myrtle beach are like eerily similar in like the clientele walking around there. And I love it. I am there for it. Myrtle Beach, South Carolina is my favorite spot to go visit. It is redneck paradise out there, man. It reminds me of like if my hometown had an ocean, that's what it would be.
Grade A people watching, Grade A prime people watching situation.
I mean let's get into the show here. But you know, today you guys, we're going to be talking about cash flow management. And you know, I, I see a lot of these posts out there often. Right. You know, people are, you know, rightfully so. People are frustrated when it comes down to it, but I think it's a very eye opening moment when it comes down to running your business, managing your cash flow. You know, fortunately for a lot of us in the transportation space, we don't have inventory on our balance sheet and everything else. But you know, there's things out there that kind of creep up. And I was listening to an audiobook yesterday about this and that was like one of the Bigger emphasis so far in the book is like understanding your cash flow and managing that properly.
Yeah. And those regular Financial Friday listeners there recall topics like how to manage your DSO and how to manage your gross profit. These are all contributions to like where the rubber meets the road, which is in your cash flow, what is in your bank account on that given day. So like there are a lot of accounting metrics and supporting metrics and that sort of thing that is, are important, everything's important, worry about everything, panic about nothing. But what is in your bank account, what hits today and is cleared and available. That is your cash flow on a month over month basis. Your net income is an accounting term that is like how much money are you taking home in a given month? But it isn't real till it turns into cash flow. Right.
And in the same way your EBITDA or your gross profits, these are all ways to contribute to cash flow. But like cash is king for a reason and cash flow is how you manage your balance as a business owner and where your spend comes and goes from. Right. So like most common way for people to get over their skis is in cash flow.
So you brought up ebitda. I know what EBITDA is, but people out there listening, that's kind of a relative term. Right. So how does that, what is EBITDA and how does that play into cash flow?
Yeah, so here's how to think about it. Like we're kind of going down the funnel here, right? Of specificity. So like at the top you have your revenue, top line money that you get in the door. Then you go one layer deeper. That's gross profit. So gross profit takes your revenue minus your cost of goods sold. So like if you're a freight broker, your carrier spend, right. Would be your cost of goods sold. That's gross profit. And then you go one level down and that's EBITDA. EBITDA's earnings before interest, taxes, depreciation and amortization. Fact check me on this in the chat. I'm pretty sure I got that right. And so that basically takes away your overhead expenses.
If you have a lease, if you have SaaS, tools that you buy, if you have travel and entertainment expenses, all that sort of stuff that comes into ebitda. And then the next level down is your. Chris, am I going in and out on the video? Man, this is like a tough scene here. I am. And so your next level down is your net income. And so your net income takes away if you've got loans on the business, if you're depreciating a hard asset like a truck, right. That sort of stuff boils down into your net income. So these are all sort of the way that we think about kind of the funnel of money now. That is, these are all accounting terms. What goes alongside it's not the same, but what goes alongside it is your cash flow statement.
It's basically a different angle at the same money, which takes into account when your money hits your bank account and when your expenses need to go out. So like as a freight broker, you are in a bit of a more difficult position than let's say like an H Vac technician who goes to your house and fixes your plumbing and charges your credit card or pays on that same day. Right. Because you have to deal with terms in B2B. Right. 30, 60, 90 day terms. But maybe you're in a better spot than, call it a fleet owner who has to make a truck payment, who has to pay for fuel. Like, those expenses are realized like immediately. And so everybody has kind of different puts and takes right on how to think about cash flow and like what sort of position that they're in.
But like, you can't just not think about it. Like, you've got to have your eye on the ball.
Yeah. Knowing your numbers is, I, I think is the fastest way to failure. Right. And not knowing your numbers. Excuse me. And I, I think like it's, it is in today's day and age, you guys like it. It is so simple, right? You can use, there's free accounting software that's out there if you don't have it. QuickBooks is whom I personally use for all of my transactions and everything. I have a bookkeeper who manages everything that, you know, sends me my monthly financials and everything else. And I track a lot of that. But you know, one thing that I think gets people in trouble, Sean, when you're like they're looking at their cash flow and I am guilty of this as a business owner, all right? I am 100 guilty of this.
Where your revenue comes through and it's elevated and you think it's always going to remain that way and then you increase your monthly overhead. And, you know, sometimes, yes, there are risks out there, right. Like I talk about this where it's like, hey, I went and got a larger office space because I took a risk and a gamble that I thought that things were going to grow in a certain time frame. And I kind of had that mentality of, hey, I'd Rather have it and not need it than need it and not have it. And I was also young in business and thought commercial real estate was going to be, you know, kind of few and far between. That couldn't be further from the opposite. I, you know, and then.
But again, giving that stuff away now.
Yeah, Learning lesson at that point. Right? Learning lesson. So again, it's like it's controlling that and, you know, it's really building up your cash reserves at the end of the day. And you know, I look at it's like for simple math, maybe your business is, you know, making $10,000 a month in top line revenue. Your expenses are at $3,000 a month. How are you dealing with that profit in between there, right? What are you taking that money and doing? Are you stashing it aside or are using it as a personal bank account? And now you're spending $7,000 a month. And then you put yourself in a situation where, you know, tax season's coming up here and they're gonna be like, hey guys, you owe us $50,000. Hypothetical example, right?
So it's like understanding this, you guys, and then really balancing out, managing your cash flow. Excuse me, to protect yourself and to pad yourself for situations because there's going to be months where say, you know what, you were making $10,000 a month consistently, but you are spending all of that. What are you going to do if like your revenue drops to $8,000 a month, for example? How are you going to handle that offset, you know, or maybe you're cut. You're, you're right, you're operating off of razor thin margins, like trucking companies, right. A lot of those guys have operating of 95 and stuff like that. So it's like, it's razor thin profit margins. So it's like you can't necessarily deal with a bump in the road. How are you managing your money in that time to protect yourself?
And. But here's the thing too, is that good for you on building up your cash reserves? The worst thing though is if you think you have cash reserves because you don't have a good eye on cash flow management. And so you spend that money because it's in your bank account, you have it and you've got payables that are supposed to go out in 15 days or expenses that you have coming in. And you're just not sinking right between your expected income, your expected cash flow and then your kind of planned and unplanned expenses. And someone might have like, oh, well, you know, I've got 5,000 bucks. I can, I've got to change these tires, you know, whatever, right. On your, on your truck. And then you realize, you know, I didn't have $5,000.
I had a truck payment that was coming in a week and a half and I blew that money. And so now I'm in a spot where I need to have a conversation with somebody about extending a payment term because. And then what happens? Domino effect. Right. The next person has money that they need to be able to pay for stuff and it's sort of, you know, files all the way down.
Yeah. And this is what I, you know, I try and put that out there. Like I try and do a quarterly P and L cleanse. I go through and I see where is all of my expenses going out. Are we actively using this stuff? Because in today's day and age, with some technology that's out there, it's a subscription based. And it might only be $80 a month, but I'm a small business owner, right. $80 is 80 fucking dollars and that. And it's more about, again, you guys, it's more about the long term habits of me running my organization like this because you don't just like all of a sudden have good financial habits when you have the money. Because if you have a higher propensity to spend, it's only going to increase the more that your revenue and your income increases at that time.
So it's like, you know, again, these are lessons learned, you guys. Nobody out there is really talking about this at a, a level that I've seen anyways out there. And again, I'm just a dude who's trying to figure out his business as I go. I've made that mistake of thinking that my revenue was always going to be up and I adjusted my spending to reflect it. And then you reach those situations where like revenue dropped, my expenses are still elevated. I got to do more with less or I got to shed some of my monthly overhead. And you know, again, you got to watch your P and L like a hawk with this stuff.
Yeah. And the thing is like especially those early on know this for sure. I, I think it's the number one reason businesses fail is cash flow mismanagement. It might be in the 80% kind of basis. Like it's a huge, huge problem, especially in B2B where you're dealing with the dynamic pay terms and being able to kind of manage around that. So as a business Owner, you need to know when money comes in, right. It's not at the time of when you deliver the service. And so you need to be able to say, I delivered this load on February 28th. I shouldn't expect that money to hit my bank account until March 15. Right. Like whatever your pay terms look like for your specific customer and then have an eye on your expenses.
And so I know in the Smith house, our mortgage is paid on the 5th, and so my wife and I both get our paychecks on the 31st or 30th of the month, the 8th, right now. And so how do we make sure that we have enough money to pay? It's the same thing as you run a business. It's just like, have an eye on what that cash flow looks like for you, how to manage that timing. Because it's not straightforward, unfortunately. It's rather complicated. And if you want to do like, we do it internally because money business, and it is a huge amount of complexity and work to be able to forecast cash for denim and for our 150 clients who also need their money. Right. There's a lot of work that goes into that.
And our data people and our financial planning folks are our gods and goddesses to be able to figure this stuff out because it's. It's tricky.
How, how are you guys working with your clients on that? Is, are you guys talking to them about, you know, lines of credit and stuff like that? Because again, I'd like. One thing that I think you guys do really well about is you guys are constantly publishing findings and, you know, white papers on. Hey, guys, this is what we're seeing out here from a bunch of different topics in regards to financing and, you know, just business credit and all of that stuff, right? And it's imperative that you read up on a lot of this information. So it's like, you know, factoring is one piece of it, right? And, you know, but it's like from there, how are you guys working with your clients? Like, if I came to you and said, hey, Sean, my cash flow is pretty messed up right now, man.
How can we work together through that?
Yeah. For how to fix your cash flow issues, right, you have basically two kind of ways. Two kind of ways to do it is that you can manage and change your terms, right? Like, I know really well when I'm going to get paid. I know really well when my expenses are going to go out. I am watching that like a hawk. If a invoice hits 31 days I'm on the phone, right? Like that's one way to do it is just like bootstrap, brute force, right. The other way to do it is to find a backstop, basically. And so a line of credit, like a working capital line from the SBA factoring company, commercial line of credit from a bank. These are backstops for your cash flow, your working capital.
And so if you think about where you want to spend your time and where you want to manage, basically you can decide, right? So like money costs money, no surprise there. And you can basically pay for the backstop for your working capital expense and that's effectively what a factoring company provides you. And so your 35 day pay terms, a slip and a 40, you're just basically insulated from that effectively, right? And so your, your cash flow comes almost immediately. Some percentage of that income comes almost immediately, right. One, two, three days, depending on when you need it. Maybe you push it out 14, you know, 21. But that, your ability to control that has, I think it helps people sleep at night maybe more than they give themselves credit for. Right?
Because like when you wake up in the morning, you see how we go today. You check your bank account. Whether or not that money's there is a really big deal. And whether or not you're confident that money is going to be there is a really big deal.
Yeah, rigging raise brings up a really good point here as well. You know, they have a system that automatically sends them an email at 31 days when, you know, payments are starting to age and everything. And that's another thing too. You guys look into the software and stuff that you are using out there to send those reminders because, you know, at least I'm very fortunate I don't have a ton of like bad experiences when it comes from, you know, payments from my customers and everything like that. But you know, sometimes it is like, oh, dude, I'm sorry, I forgot. Yes, resend me the invoice right now, I'll get it paid right away, stuff like that. So those little reminders are key. And there are a lot of tools built in to your accounting software and stuff that you might already be using.
And again, you got to take it upon yourself to really check out on this because like, dude, the cash flow management, I mean in. Stephen Tittle brings up a good point here as well. You know, about revenue drops if pricing goes up. But who can't raise prices when lease space increases, insurance premiums increase. Sometimes it's not bad spending it's the market. And that's another thing too, right? When it comes down to it. And maybe you're in a spot where, hey, everything's increasing this month and you're. You're in a bind, right? Like, and most people find themselves in that situation at some point. I can't say most people, but I feel like anybody out there who's trying to really build and scale a company, cash flow tightening is going to be a thing at some point. Right.
And I think having that up, like, are you guys working with people, Sean, about like, you know, having those cash reserves, you know, like, hey, stash an emergency fund. Yeah, maybe it's, you know, every dollar hypothetical making this up right now. Are you guys working with a plan with your clients to kind of build that up?
Yeah. So there's a. There's a Kevin Hart bit for those who, like, stand up where he's. He was just starting to make money, but he wasn't rich and he was hanging out with a bunch of rich people and they would do stuff like go on private jets or do this or do that, and he would make it. So he'd be like, yeah, I. I would love to, but I can't do it. Cause I got a checking in a savings and it takes me a couple of days to move from the savings to the checking. So, like, we do that for you. So you have your Denim cash account, which is effectively a reserve account for you at Denim that we basically keep on your behalf. And so we provide for you a target.
Like your Denim cash account should be X, which is basically your. Some percentage of your income or your payments or your margin or whatever, so that you can sort of hang on to that money in a rainy day. Some of our couple of our clients, we know, Chris, he calls it the banana stand. It's like always got money in the banana stand, right? And so if you have a place that you can hang on to money, that is. So when an expense comes up, you can do the Kevin Hart. Like, I don't know, I got money in the checking and a savings, and it takes a couple days to move for the checking savings. That is good friction, right? Like, sometimes having money at your fingertips at all times is like, not a good thing.
And this is one of those scenarios where we can help you with kind of hygiene like you like. I think Stephen brings up a good point. You talk about this. Everybody has like a monthly hurdle rate that they need to clear in order to have, like a life, basically, right? To have a business. They need to be able to clear their fixed expenses, they need to be able to clear whatever their owner kind of distribution is going to be that month. And so you got to keep an eye on what that hurdle rate is for you, especially when it comes to things like gross profit. Because we've talked about this on previous episodes, you become front page news on Freightways.com because you're dipping into carrier payables as a broker, and you're in this spiral situation. And so those are all cash flow problems, right?
It's like people unable to manage their hurdle rate, unable to be able to keep an eye on what their cash flow looks like on a given period. And so they start to kind of borrow. Peter to pay. Paul.
Yeah. And I know that there's a ton of different theories that are out there about, you know, is it just be cash heavy and then you're out there and you're utilizing that, or is it, you know, financing debt to take on acquisitions and stuff like that? Like, there's a bunch of different strategies that are out there. But I think ultimately, though, you'll never be in that position unless you learn to manage your finances early, right? And this is not me sitting here saying that I only operate in a perfect world, right? I have been in those situations where cash was tight. I didn't know how I was going to pay for certain things, but I found a way out.
But again, I also, you know, like I said earlier, you guys, I look at my P L monthly and I see, where's my money going? How can I reduce it? In what capacity? That is the real side of business, you guys. You need to be looking at it from that perspective. And if you're not, you're going to max out your credit cards and everything else. And because you're just not going to know, as the famous rap lyric goes, I'm trying to make a dollar out of 15 cents. All right, Put it that way, you guys. That's what I'm trying to do with all of that. And I'm trying to build it up to where, you know, those situations.
Sean, you were talking about how, you know, you got $30,000 due on the 1st, and you know you're owed $45,000 on the 31st, and you don't know how you're going to cover that. I'm trying to build that up to where I won't have to deal with that, right? Having that, you know, those reserves to where you can float it in the event that you find yourself in that situation. Because, again, the Guys, you guys, your creditors do. They don't. Their debitors, they don't care. Right. Like they need to get paid and then they're going to hound you for that money.
100 and so we could all go on the Dave Ramsey podcast and talk about three months of savings and emergency fund and those sorts of same like personal finance. Personal finance fundamentals still apply in business. So being able to have cash reserves, being able to wake up in the morning and know that like if money doesn't come in the door today, I'm going to be. Right, right. Because I'm going to be able to float it now, that becomes expensive. Right? And so just like there's a cost to that. And so while you look at your P and L and you know, I've got, you know, more coming in than going out and I think all of that is well and good, keep an eye at the same time on when that money comes in and out so that you are in a position to.
Where if you know, the check, somebody's check doesn't clear on a particular day, you're. It doesn't become a cascading effect for you. I think there was something that lost a. Was it. They had a truckload of slot machines that were stolen. And he, the owner basically said in the article, he's like it basically just created this domino effect for the business. Right? It's like that sort of stuff can happen all the time.
Dude. And that's another thing too, man. Like what? You know, maybe we should talk about that next time. You know, about having cash reserve for those situations because that's been in the news here a couple of times here lately about a commodity that was on an exclusion list and they shouldn't even have been hauling it. They didn't know. And now they're on the hook for a couple hundred thousand dollars. And do you have the capital to absorb that or are you gonna have to fire sale your business and go under because you just didn't take a couple of minutes on the front in there, man. It's wild. But I think though that at the end of the day it's on you, right?
And you know, our friend Chris Brewer, he put out a post this morning talking about not about cash flow, but about you as a business owner. It's on you to know your numbers. It's on you to educate yourself in those situations because ultimately the buck stops with you, like whether you want to.
Nothing more relevant here. Yeah, exactly.
And that's exactly it. Right. Like because no matter how you want to try and spin it as a business owner, it's your fucking fault, all right? Like, that's literally what you signed up for when you created your 18 streams of income. Like, all the gurus out there want to say I'm being facetious there, but, you know, it is, you guys, it's on you to understand this stuff. It's on you to be educated on a lot of these situations, because otherwise, you guys, you're. You're like so many small businesses. Like, I. I think it's like over 90% of small businesses out there are within 30 days of going bankrupt every single month, you guys, it is so hard to get a business off the ground and then financially solvent in the short term. It takes a very long time.
But you got to learn from a lot of these situations. And that's why I love having Sean come once a month to talk about this stuff, you guys, because the business financials is crucial, and you need to pay attention to stuff. You need to be educated. But, Sean, as always, man, I appreciate you joining me.
Not optional, friends. Not optional.
Exactly. Sean is. Sean's appearance on the show every month is not optional either. Just throwing that out. That's a mandate. I don't believe in mandates, but that's a mandate right there.
Great to see everybody.
All right, you guys. Well, hey, that's going to be it for today. We got guests coming on next week. As always, you guys, if you guys got value in what you heard, subscribe to the show. If you're feeling really ambitious and financially literate after this episode, rank the show as well on itunes and Spotify, you guys, because that's how we get out there to reach more people is because if you saw value, your network's going to see value as well. I appreciate you guys. I love you guys, and we'll be talking to you soon.
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